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Erie Indemnity Reports Third Quarter 2018 Results

Net Income per Diluted Share up 37.4 percent for the Quarter and 37.0 percent Year to Date



ERIE, Pa., Oct. 25, 2018 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter ending September 30, 2018.  Net income was $80.4 million, or $1.54 per diluted share, in the third quarter of 2018, compared to $58.5 million, or $1.12 per diluted share, in the third quarter of 2017.  Net income was $225.9 million, or $4.32 per diluted share, in the first nine months of 2018, compared to $164.9 million, or $3.15 per diluted share, in the first nine months of 2017.

3Q and Nine Months 2018

(dollars in thousands)

3Q'18

3Q'17


2018

2017


Operating income

$

96,695


$

81,239



$

269,585


$

231,627



Investment income

8,431


8,418



20,801


21,458



Interest expense and other, net

655


792



1,708


2,031



Income before income taxes

104,471


88,865



288,678


251,054



Income tax expense

24,025


30,322



62,768


86,108



Net income

$

80,446


$

58,543



$

225,910


$

164,946










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

 

3Q 2018 Highlights

Operating income before taxes increased $15.5 million, or 19.0 percent, in the third quarter of 2018 compared to the third quarter of 2017, as the growth in total operating revenue outpaced the growth in total operating expenses.

  • Management fee revenue - policy issuance and renewal services increased $16.1 million, or 3.7 percent, in the third quarter of 2018 compared to the third quarter of 2017.
  • Management fee revenue allocated to administrative services was $13.5 million in the third quarter of 2018.  No management fee revenue was allocated to administrative services in the third 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 $140.2 million in the third quarter of 2018, but had no net impact on operating income.

Income from investments before taxes totaled $8.4 million in both the third quarters of 2018 and 2017.  Net investment income was $7.7 million in the third quarter of 2018 compared to $6.0 million in the third quarter of 2017, while earnings on limited partnerships were $0.8 million in the third quarter of 2018 compared to $1.5 million in the third quarter of 2017.

Income before income taxes increased $15.6 million in the third quarter of 2018, while income tax expense decreased $6.3 million in the third quarter of 2018, due to the lower income tax rate of 21% which became effective January 1, 2018.

Nine Months 2018 Highlights

Operating income before taxes increased $38.0 million, or 16.4 percent, in the first nine months of 2018 compared to the first nine months of 2017, as the growth in total operating revenue outpaced the growth in total operating expenses.

  • Management fee revenue - policy issuance and renewal services increased $43.3 million, or 3.4 percent, in the first nine months of 2018 compared to the first nine months of 2017.
  • Management fee revenue allocated to administrative services was $39.9 million in the first nine months of 2018.  No management fee revenue was allocated to administrative services in the first nine months 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 $432.6 million in the first nine months of 2018, but had no net impact on operating income.

Income from investments before taxes totaled $20.8 million in the first nine months of 2018 compared to $21.5 million in the first nine months of 2017.  Net realized losses on investments were $0.5 million in the first nine months of 2018 compared to net realized gains of $1.5 million in the first nine months of 2017 and earnings on limited partnerships were $0.4 million in the first nine months of 2018 compared to $1.9 million in the first nine months of 2017, while net investment income was $21.6 million in the first nine months of 2018 compared to $18.2 million in the first nine months of 2017.

Income before income taxes increased $37.6 million in the first nine months of 2018, while income tax expense decreased $23.3 million in the first nine months of 2018, due to the lower income tax rate of 21% which became effective January 1, 2018.

Webcast Information

Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on October 26, 2018.  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

September 30,


Nine months ended

September 30,



2018


2017


2018


2017



(Unaudited)


(Unaudited)

Operating revenue









Management fee revenue - policy issuance and renewal services, net


$

451,361



$

435,214



$

1,311,911



$

1,268,591


Management fee revenue - administrative services, net


13,521





39,894




Administrative services reimbursement revenue


140,172





432,642




Service agreement revenue


7,072



7,278



21,297



21,781


Total operating revenue


612,126



442,492



1,805,744



1,290,372











Operating expenses









Cost of operations - policy issuance and renewal services


375,259



361,253



1,103,517



1,058,745


Cost of operations - administrative services


140,172





432,642




Total operating expenses


515,431



361,253



1,536,159



1,058,745


Operating income


96,695



81,239



269,585



231,627











Investment income









Net investment income


7,659



5,982



21,583



18,202


Net realized investment gains (losses)


0



899



(497)



1,539


Net impairment losses recognized in earnings


0



0



(646)



(182)


Equity in earnings of limited partnerships


772



1,537



361



1,899


Total investment income


8,431



8,418



20,801



21,458











Interest expense, net


709



377



1,864



800


Other income (expense)


54



(415)



156



(1,231)


Income before income taxes


104,471



88,865



288,678



251,054


Income tax expense


24,025



30,322



62,768



86,108


Net income


$

80,446



$

58,543



$

225,910



$

164,946




















Net income per share









Class A common stock – basic


$

1.73



$

1.26



$

4.85



$

3.54


Class A common stock – diluted


$

1.54



$

1.12



$

4.32



$

3.15


Class B common stock – basic


$

259



$

189



$

728



$

531


Class B common stock – diluted


$

259



$

189



$

727



$

531











Weighted average shares outstanding – Basic









Class A common stock


46,188,941



46,188,949



46,188,522



46,186,109


Class B common stock


2,542



2,542



2,542



2,542











Weighted average shares outstanding – Diluted









Class A common stock


52,317,438



52,316,876



52,313,642



52,342,450


Class B common stock


2,542



2,542



2,542



2,542











Dividends declared per share









Class A common stock


$

0.8400



$

0.7825



$

2.5200



$

2.3475


Class B common stock


$

126.000



$

117.375



$

378.000



$

352.125



 

 

Erie Indemnity Company
Statements of Financial Position
(in thousands)




September 30,

2018


December 31,

2017



(Unaudited)



Assets





Current assets:





Cash and cash equivalents


$

244,688



$

215,721


Available-for-sale securities


105,031



71,190


Receivables from Erie Insurance Exchange and affiliates


463,620



418,328


Prepaid expenses and other current assets


44,014



34,890


Federal income taxes recoverable


0



29,900


Note receivable from Erie Family Life Insurance Company


25,000



25,000


Accrued investment income


6,504



6,853


Total current assets


888,857



801,882







Available-for-sale securities


599,164



687,523


Equity securities


12,511




Limited partnership investments


37,088



45,122


Fixed assets, net


121,684



83,149


Deferred income taxes, net


37,660



19,390


Other assets


62,539



28,793


Total assets


$

1,759,503



$

1,665,859







Liabilities and shareholders' equity





Current liabilities:





Commissions payable


$

257,015



$

228,124


Agent bonuses


79,308



122,528


Accounts payable and accrued liabilities


113,204



104,533


Dividends payable


39,119



39,116


Contract liability


34,086




Deferred executive compensation


11,071



15,605


Federal income taxes payable


9,310



0


Current portion of long-term borrowings


1,395



0


Total current liabilities


544,508



509,906







Defined benefit pension plans


154,736



207,530


Employee benefit obligations


69



423


Contract liability


17,903




Deferred executive compensation


13,104



14,452


Long-term borrowings


98,332



74,728


Other long-term liabilities


9,828



1,476


Total liabilities


838,480



808,515







Shareholders' equity


921,023



857,344


Total liabilities and shareholders' equity


$

1,759,503



$

1,665,859


 

 

 

Cision

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