Erie Indemnity Reports Third Quarter 2018 Results

Investor Supplement | Statement of Operations 

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

Erie, Pa. - October 25, 2018 - 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

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
  • Commissions increased $8.1 million in the third quarter of 2018 compared to the third quarter of 2017, as a result of the 7.1 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 third quarter of 2017.
  • Non-commission expense increased $5.9 million in the third quarter of 2018 compared to the same period in 2017.Information technology costs increased $4.0 million primarily due to higher professional fees.Administrative and other expenses increased $2.4 million primarily due to higher professional fees and personnel costs.Personnel costs in all expense categories were impacted 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 $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
  • Commissions increased $31.9 million in the first nine months of 2018 compared to the first nine months of 2017, as a result of the 6.9 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 nine months of 2017.
  • Non-commission expense increased $12.9 million for the nine months ended September 30, 2018 compared to the same period in 2017.Underwriting and policy processing costs increased $5.3 million primarily due to increased personnel costs and underwriting report costs.Information technology costs increased $2.7 million primarily due to increased personnel costs.Customer service costs increased $3.4 million primarily due to increased personnel costs and credit card processing fees.Personnel costs in all expense categories were higher due to 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 as well as increased pension and medical costs.The total increase in personnel costs was 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 $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 9^th largest homeowners insurer and 11^th largest automobile insurer in the United States based on direct premiums written and the 16^th 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.