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Erie Indemnity Reports Second Quarter 2016 Results

ERIE, Pa., July 28, 2016 -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter ending June 30, 2016.  Net income was $61.3 million, or $1.17 per diluted share, in the second quarter of 2016, compared to $56.2 million, or $1.07 per diluted share, in the second quarter of 2015.  Net income was $107.2 million, or $2.04 per diluted share, in the first six months of 2016, compared to $95.0 million, or $1.81 per diluted share, in the first six months of 2015.  Revenue growth in both the second quarter and first six months of 2016 outpaced the growth in expenses.

Erie Insurance.

"Prudent expense management helped Indemnity's revenue outpace expense growth once again this quarter, resulting in an uptick in operating margin and increased earnings per share," said Terry Cavanaugh , President and CEO.

2Q and First Half 2016

(dollars in thousands)

2Q'15

2Q'16

1H'15

1H'16

Net revenue from operations

$69,983

$85,759

$122,413

$153,424

Investment income

15,705

7,404

22,244

9,963

Income before income taxes

85,688

93,163

144,657

163,387

Income tax expense

29,538

31,854

49,674

56,183

Net income

$56,150

$61,309

$94,983

$107,204

Gross margin from operations

17.4 %

20.2 %

16.3 %

19.2 %

(dollars in thousands)

Net revenue from operations

2Q'15

$69,983

2Q'16

$85,759

1H'15

$122,413

1H'16

$153,424

(dollars in thousands)

Investment income

2Q'15

15,705

2Q'16

7,404

1H'15

22,244

1H'16

9,963

(dollars in thousands)

Income before income taxes

2Q'15

85,688

2Q'16

93,163

1H'15

144,657

1H'16

163,387

(dollars in thousands)

Income tax expense

2Q'15

29,538

2Q'16

31,854

1H'15

49,674

1H'16

56,183

(dollars in thousands)

Net income

2Q'15

$56,150

2Q'16

$61,309

1H'15

$94,983

1H'16

$107,204

(dollars in thousands)

Gross margin from operations

2Q'15

17.4 %

2Q'16

20.2 %

1H'15

16.3 %

1H'16

19.2 %

2Q 2016 Highlights

Net revenue from operations before taxes increased $15.8 million, or 22.5 percent, in the second quarter of 2016 compared to the second quarter of 2015.

  • Management fee revenue increased $22.4 million, or 5.7 percent, in the second quarter of 2016 compared to the second quarter of 2015.
  • Commissions increased $12.1 million in the second quarter of 2016 compared to the second quarter of 2015, primarily as a result of the 5.8 percent increase in direct and assumed premiums written by the Exchange.
  • Non-commission expense decreased $5.6 million in the second quarter of 2016 compared to the second quarter of 2015. Information technology costs decreased $4.9 million driven by decreased professional fees and personnel costs. Customer service costs decreased $1.0 million primarily due to decreased credit card processing 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 second quarter of 2016 was 20.2 percent compared to 17.4 percent in the second quarter of 2015.

Income from investments before taxes totaled $7.4 million in the second quarter of 2016 compared to $15.7 million in the second quarter of 2015.  Earnings from limited partnerships were $2.1 million in the second quarter of 2016 compared to $10.7 million in the second quarter of 2015.

First Half 2016 Highlights

Net revenue from operations before taxes increased $31.0 million, or 25.3 percent, in the first six months of 2016 compared to the first six months 2015.

  • Management fee revenue increased $46.7 million, or 6.3 percent, in the first six months of 2016 compared to the first six months 2015.
  • Commissions increased $27.1 million in the first six months of 2016 compared to the first six months 2015, primarily as a result of the 6.4 percent increase in direct and assumed premiums written by the Exchange, while approximately one-quarter of the increase was due to higher agent incentive costs primarily related to profitable growth.
  • Non-commission expense decreased $12.0 million in the first six months of 2016 compared to the first six months 2015. Information technology costs decreased $9.6 million driven by decreased professional fees and personnel costs. Customer service costs decreased $1.0 million primarily due to decreased credit card processing fees. Administrative and other expenses decreased $2.3 million primarily due to decreased personnel costs. 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 first six months of 2016 was 19.2 percent compared to 16.3 percent in the first six months 2015.

Income from investments before taxes totaled $10.0 million in the first six months of 2016 compared to $22.2 million in the first six months 2015.  Earnings from limited partnerships were $1.4 million in the first six months of 2016 compared to $13.1 million in the first six months 2015.

Webcast Information

Indemnity has scheduled a conference call and live audio broadcast on the Web for 10:00 AM ET on July 29, 2016.  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.

Erie Insurance Group

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 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, a Barron's 500 company and has been recognized by Forbes as one of America's 50 Most Trustworthy Financial Companies.

News releases and more information about Erie Insurance Group are available at www.erieinsurance.com.