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Erie Indemnity Reports Second Quarter 2018 Results

Net Income per Diluted Share up 36.2 percent for the Quarter and 36.8 percent for the First Half of 2018

View Investor Supplement | Statement of Operations

Erie, Pa. - July 26, 2018 - Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter ending June 30, 2018.  Net income was $79.7 million, or $1.52 per diluted share, in the second quarter of 2018, compared to $58.5 million, or $1.12 per diluted share, in the second quarter of 2017.  Net income was $145.5 million, or $2.78 per diluted share, in the first six months of 2018, compared to $106.4 million, or $2.03 per diluted share, in the first six months of 2017.

2Q and First Half 2018

(dollars in thousands)

2Q'18

2Q'17

1H'18

1H'17

Operating income

$95,323

$83,448

$172,890

$150,388

Investment income

6,207

6,451

12,370

13,040

Interest expense and other income, net

544

664

1,053

1,239

Income before income taxes

100,986

89,235

184,207

162,189

Income tax expense

21,280

30,708

38,743

55,786

Net income

$79,706

$58,527

145,464

106,403

(dollars in thousands)

Operating income

2Q'18

$95,323

2Q'17

$83,448

1H'18

$172,890

1H'17

$150,388

(dollars in thousands)

Investment income

2Q'18

6,207

2Q'17

6,451

1H'18

12,370

1H'17

13,040

(dollars in thousands)

Interest expense and other income, net

2Q'18

544

2Q'17

664

1H'18

1,053

1H'17

1,239

(dollars in thousands)

Income before income taxes

2Q'18

100,986

2Q'17

89,235

1H'18

184,207

1H'17

162,189

(dollars in thousands)

Income tax expense

2Q'18

21,280

2Q'17

30,708

1H'18

38,743

1H'17

55,786

2Q 2018 Highlights

Operating income before taxes increased $11.9 million, or 14.2 percent, in the second quarter of 2018 compared to the second 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 $13.3 million, or 3.0 percent, in the second quarter of 2018 compared to the second quarter of 2017.
  • Management fee revenue allocated to administrative services was $13.3 million in the second quarter of 2018.No management fee revenue was allocated to administrative services in the second quarter of 2017.
  • Cost of operations - policy issuance and renewal services
    • Commissions increased $10.2 million in the second quarter of 2018 compared to the second quarter of 2017, as a result of the 6.5 percent increase in direct and assumed premiums written by the Exchange, slightly offset by lower agent incentive costs related to less profitable growth, compared to the second quarter of 2017.
    • Non-commission expense increased $4.3 million in the second quarter of 2018 compared to the second quarter of 2017.  Underwriting and policy processing costs increased $2.1 million primarily due to increased underwriting report costs.Customer service costs increased $1.3 million primarily due to increased personnel costs and credit card processing fees. Administrative and other expenses increased $2.0 million primarily due to a sales and use tax refund recorded in the second quarter of 2017.
  • The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $146.5 million in the second quarter of 2018, but had no net impact on operating income.

Income from investments before taxes totaled $6.2 million in the second quarter of 2018 compared to $6.5 million in the second quarter of 2017.  Net investment income was $7.1 million in the second quarter of 2018 compared to $6.2 million in the second quarter of 2017, while impairments on investments were $0.6 million in the second quarter of 2018 compared to $0.1 million in the second quarter of 2017 and losses on limited partnerships were $0.2 million in the second quarter of 2018 compared to earnings of $0.1 million in the second quarter of 2017.

Income before income taxes increased $11.8 million in the second quarter of 2018, while income tax expense decreased $9.4 million in the second quarter of 2018, due to the lower income tax rate of 21% which became effective January 1, 2018.

First Half 2018 Highlights

Operating income before taxes increased $22.5 million, or 15.0 percent, in the first six months of 2018 compared to the first six 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 $27.2 million, or 3.3 percent, in the first six months of 2018 compared to the first six months of 2017.
  • Management fee revenue allocated to administrative services was $26.4 million in the first six months of 2018.No management fee revenue was allocated to administrative services in the first six months of 2017.
  • Cost of operations - policy issuance and renewal services
    • Commissions increased $23.8 million in the first six months of 2018 compared to the first six months of 2017, as a result of the 6.7 percent increase in direct and assumed premiums written by the Exchange, slightly offset by lower agent incentive costs related to less profitable growth, compared to the first six months of 2017.
    • Non-commission expense increased $7.0 million in the first six months of 2018 compared to the first six months of 2017.Underwriting and policy processing costs increased $5.3 million primarily due to increased personnel costs and underwriting report costs.Information technology costs decreased $1.3 million primarily due to lower professional fees and hardware and software costs, somewhat offset by higher personnel costs.Customer service costs increased $2.9 million primarily due to increased personnel costs and credit card processing fees.Personnel costs in all expense categories were impacted by additional bonuses of approximately $4.8 million awarded to all employees as a result of tax savings realized from the lower corporate income tax rate that became effective January 1, 2018.These increased personnel costs were somewhat offset by lower estimated costs for incentive plan awards related to underwriting performance.
  • The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $292.5 million in the first six months of 2018, but had no net impact on operating income.

Income from investments before taxes totaled $12.4 million in the first six months of 2018 compared to $13.0 million in the first six months of 2017.  Net investment income was $13.9 million in the first six months of 2018 compared to $12.2 million in the first six months of 2017, while net realized losses on investments were $0.5 million in the first six months of 2018 compared to net realized gains of $0.6 million in the first six months of 2017 and losses on limited partnerships were $0.4 million in the first six months of 2018 compared to earnings of $0.4 million in the first six months of 2017.

Income before income taxes increased $22.0 million in the first six months of 2018, while income tax expense decreased $17.0 million in the first six months of 2018, due to the lower income tax rate of 21% which became effective January 1, 2018.

Webcast Information

Indemnity has scheduled a conference call and live audio broadcast on the Web for 10:00 AM ET on July 27, 2018.  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 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.