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Erie Indemnity Reports Full Year and Fourth Quarter 2018 Results

Net Income per Diluted Share up 46.4 percent in 2018

ERIE, Pa., Feb. 21, 2019 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the full year and quarter ending December 31, 2018.  Net income was $288.2 million, or $5.51 per diluted share, in 2018, compared to $197.0 million, or $3.76 per diluted share, in 2017.  Net income was $62.3 million, or $1.19 per diluted share, in the fourth quarter of 2018, compared to $32.1 million, or $0.61 per diluted share, in the fourth quarter of 2017.  The increase in earnings per share in 2018 was primarily driven by the lower corporate tax rate of 21% as a result of the Tax Cuts and Jobs Act ("TCJA"), compared to 35% in 2017, and increased operating income.  Net income was reduced by $10.1 million, or $0.19 per diluted share in the fourth quarter and year ended December 31, 2017, due to the enactment of the TCJA on December 22, 2017.

4Q and Full Year 2018

(dollars in thousands)

4Q'18

4Q'17


2018

2017


Operating income

$

74,758


$

58,625



$

344,343


$

290,252



Investment income

4,995


7,134



25,796


28,592



Interest expense and other (income), net

(2,889)


1,118



(1,181)


3,149



Income before income taxes

82,642


64,641



371,320


315,695



Income tax expense

20,328


32,588



83,096


118,696



Net income

$

62,314


$

32,053



$

288,224


$

196,999










Erie Insurance. (PRNewsFoto/Erie Insurance) (PRNewsfoto/Erie Insurance)

 

2018 Full Year Highlights

Operating income before taxes increased $54.1 million, or 18.6 percent, in 2018 compared to 2017.

  • Management fee revenue - policy issuance and renewal services increased $56.9 million, or 3.4 percent, in 2018 compared to 2017.
  • Management fee revenue allocated to administrative services was $53.6 million in 2018. No management fee revenue was allocated to administrative services in 2017.
  • Cost of operations - policy issuance and renewal services
  • The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $580.3 million in 2018, but had no net impact on operating income.

Income from investments before taxes totaled $25.8 million in 2018 compared to $28.6 million in 2017.  Losses from limited partnerships were $0.8 million in 2018 compared to earnings of $2.8 million in 2017.  Net realized losses on investments were $2.0 million in 2018 compared to net realized gains of $1.3 million in 2017.  Net investment income was $30.2 million in 2018 compared to $24.6 million in 2017.

Income tax expense was impacted by the enactment of the TCJA, which reduced the corporate income tax rate from 35% to 21% effective January 1, 2018.  Income before income taxes increased $55.6 million in 2018, compared to 2017, while income tax expense decreased $35.6 million due to the lower income tax rate.  Income tax expense increased $10.1 million in 2017 due to the re-measurement of our deferred tax assets and liabilities at the new corporate income tax rate.

4Q 2018 Highlights

Operating income before taxes increased $16.1 million, or 27.5 percent, in the fourth quarter of 2018 compared to the fourth quarter of 2017.

  • Management fee revenue - policy issuance and renewal services increased $13.6 million, or 3.5 percent, in the fourth quarter of 2018 compared to the fourth quarter of 2017.
  • Management fee revenue allocated to administrative services was $13.7 million in the fourth quarter of 2018. No management fee revenue was allocated to administrative services in the fourth quarter of 2017.
  • Cost of operations - policy issuance and renewal services
  • The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $147.7 million in the fourth quarter of 2018, but had no net impact on operating income.

Income from investments before taxes totaled $5.0 million in the fourth quarter of 2018 compared to $7.1 million in the fourth quarter of 2017.  Losses from limited partnerships were $1.2 million in the fourth quarter of 2018 compared to earnings of $0.9 million in the fourth quarter of 2017.  Net realized losses on investments were $1.5 million in the fourth quarter of 2018 compared to $0.2 million in the fourth quarter of 2017.  Net investment income was $8.6 million in the fourth quarter of 2018 compared to $6.4 million in the fourth quarter of 2017.

Income tax expense was impacted by the enactment of the TCJA.  Income before income taxes increased $18.0 million in the fourth quarter of 2018, compared to the fourth quarter of 2017, while income tax expense decreased $12.3 million due to the lower income tax rate.  Income tax expense increased $10.1 million in the fourth quarter of 2017 due to the re-measurement of our deferred tax assets and liabilities at the new corporate income tax rate.

Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on February 22, 2019.  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 9th largest homeowners insurer and 11th largest automobile insurer in the United States based on direct premiums written and the 16th 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;
  • dependence upon our relationship with the Exchange and the growth of the Exchange, including:
  • dependence upon our relationship with the Exchange and the financial condition of the Exchange, including:
  • costs of providing policy issuance and renewal services to the Exchange under the subscriber's agreement;
  • credit risk from the Exchange;
  • 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;
  • 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 Indemnity Company

Statements of Operations

(dollars in thousands, except per share data)





Three months ended
December 31,


Twelve months ended
December 31,



2018


2017


2018


2017



(Unaudited)





Operating revenue









Management fee revenue - policy issuance and renewal
services, net


$

407,656



$

394,034



$

1,719,567



$

1,662,625


Management fee revenue - administrative services, net


13,738





53,632




Administrative services reimbursement revenue


147,694





580,336




Service agreement revenue


7,380



7,368



28,677



29,149


Total operating revenue


576,468



401,402



2,382,212



1,691,774











Operating expenses









Cost of operations - policy issuance and renewal services


354,016



342,777



1,457,533



1,401,522


Cost of operations - administrative services


147,694





580,336




Total operating expenses


501,710



342,777



2,037,869



1,401,522


Operating income


74,758



58,625



344,343



290,252











Investment income









Net investment income


8,626



6,437



30,209



24,639


Net realized investment (losses) gains


(1,513)



(205)



(2,010)



1,334


Net impairment losses recognized in earnings


(935)



0



(1,581)



(182)


Equity in (losses) earnings of limited partnerships


(1,183)



902



(822)



2,801


Total investment income


4,995



7,134



25,796



28,592











Interest expense, net


596



438



2,460



1,238


Other income (expense)


3,485



(680)



3,641



(1,911)


Income before income taxes


82,642



64,641



371,320



315,695


Income tax expense


20,328



32,588



83,096



118,696


Net income


$

62,314



$

32,053



$

288,224



$

196,999




















Earnings Per Share









Net income per share









Class A common stock – basic


$

1.34



$

0.69



$

6.19



$

4.23


Class A common stock – diluted


$

1.19



$

0.61



$

5.51



$

3.76


Class B common stock – basic


$

201



$

103



$

928



$

635


Class B common stock – diluted


$

201



$

103



$

928



$

634











Weighted average shares outstanding – Basic









Class A common stock


46,188,978



46,188,972



46,188,637



46,186,831


Class B common stock


2,542



2,542



2,542



2,542











Weighted average shares outstanding – Diluted









Class A common stock


52,319,918



52,322,478



52,315,213



52,337,463


Class B common stock


2,542



2,542



2,542



2,542











Dividends declared per share









Class A common stock


$

0.9000



$

0.8400



$

3.4200



$

3.1875


Class B common stock


$

135.000



$

126.000



$

513.000



$

478.125



 

 

Erie Indemnity Company

Statements of Financial Position

(in thousands)





December 31, 2018


December 31, 2017

Assets





Current assets:





Cash and cash equivalents


$

266,417



$

215,721


Available-for-sale securities


402,339



71,190


Receivables from Erie Insurance Exchange and affiliates


449,873



418,328


Prepaid expenses and other current assets


36,892



34,890


Federal income taxes recoverable


8,162



29,900


Note receivable from Erie Family Life Insurance Company




25,000


Accrued investment income


5,263



6,853


Total current assets


1,168,946



801,882







Available-for-sale securities


346,184



687,523


Equity securities


11,853




Limited partnership investments


34,821



45,122


Fixed assets, net


130,832



83,149


Deferred income taxes, net


24,101



19,390


Other assets


61,590



28,793


Total assets


$

1,778,327



$

1,665,859







Liabilities and shareholders' equity





Current liabilities:





Commissions payable


$

241,573



$

228,124


Agent bonuses


103,462



122,528


Accounts payable and accrued liabilities


111,291



104,533


Dividends payable


41,910



39,116


Contract liability


33,854




Deferred executive compensation


13,107



15,605


Current portion of long-term borrowings


1,870




Total current liabilities


547,067



509,906







Defined benefit pension plan


116,866



207,530


Contract liability


17,873




Deferred executive compensation


13,075



14,452


Long-term borrowings


97,860



74,728


Other long-term liabilities


11,914



1,899


Total liabilities


804,655



808,515







Shareholders' equity


973,672



857,344


Total liabilities and shareholders' equity


$

1,778,327



$

1,665,859



 

 

Cision

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