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Erie Indemnity Reports Full Year and Fourth Quarter 2019 Results

Net Income per Diluted Share up 9.9 percent in 2019

Erie, Pa. - February 27, 2020 - Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the full year and quarter ending December 31, 2019.Net income was $316.8 million, or $6.06 per diluted share, in 2019, compared to $288.2 million, or $5.51 per diluted share, in 2018.Net income was $59.6 million, or $1.14 per diluted share, in the fourth quarter of 2019, compared to $62.3 million, or $1.19 per diluted share, in the fourth quarter of 2018.

4q 2019

(in thousands)

4Q'19

4Q'18

Operating income

$68,700

$74,758

Investment income

6,914

4,995

Interest expense and other income, net

(36)

(2,889)

Income before income taxes

75.650

82,642

Income tax expense

16,063

20,328

Net income

$59,587

$62,314

(in thousands)

Operating income

4Q'19

$68,700

4Q'18

$74,758

(in thousands)

Investment income

4Q'19

6,914

4Q'18

4,995

(in thousands)

Interest expense and other income, net

4Q'19

(36)

4Q'18

(2,889)

(in thousands)

Income before income taxes

4Q'19

75.650

4Q'18

82,642

(in thousands)

Income tax expense

4Q'19

16,063

4Q'18

20,328

Final Year 2019

(in thousands)

'19

'18

Operating income

$357,339

$344,343

Investment income

39,967

25,796

Interest expense and other income, net

601

(1,181)

Income before income taxes

396,705

371,320

Income tax expense

79,884

83,096

Net income

$316,821

$288,224

(in thousands)

Operating income

'19

$357,339

'18

$344,343

(in thousands)

Investment income

'19

39,967

'18

25,796

(in thousands)

Interest expense and other income, net

'19

601

'18

(1,181)

(in thousands)

Income before income taxes

'19

396,705

'18

371,320

(in thousands)

Income tax expense

'19

79,884

'18

83,096

2019 Full Year Highlights

Operating income before taxes increased $13.0 million, or 3.8 percent, in 2019 compared to 2018.

  • Management fee revenue - policy issuance and renewal services increased $90.9 million, or 5.3 percent, in 2019 compared to 2018.
  • Management fee revenue allocated to administrative services increased $3.6 million, or 6.7 percent, in 2019 compared to 2018.
  • Cost of operations - policy issuance and renewal services
    • – Commissions increased $40.9 million in 2019 compared to 2018 as a result of the 5.2 percent increase in direct and affiliated assumed premiums written by the Exchange, somewhat offset by lower agent incentive costs related to less profitable growth.
    • – Non-commission expense increased $39.5 million in 2019 compared to 2018.Underwriting and policy processing costs increased $5.7 million primarily due to increased underwriting report costs and other policy acquisition costs.Information technology costs increased $23.1 million primarily due to increased professional fees and hardware and software costs.Sales and advertising costs decreased $3.2 million due to decreased personnel costs.Customer service costs increased $2.9 million primarily due to increased credit card processing fees and personnel costs.Administrative and other expenses increased $11.1 million primarily driven by an increase in long-term incentive plan costs due to a higher company stock price in 2019 compared to 2018 and several multi-year commitments made to support community development initiatives.Personnel costs in all expense categories were impacted by increased medical expenses, somewhat offset by lower estimated costs for incentive plans related to sales and underwriting performance in 2019 compared to targets.
  • The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $582.0 million in 2019 and $580.3 million in 2018, but had no net impact on operating income.

Income from investments before taxes totaled $40.0 million in 2019 compared to $25.8 million in 2018.Net realized gains on investments were $6.1 million in 2019 compared to net realized losses of $2.0 million in 2018.Net investment income was $33.4 million in 2019 compared to $30.2 million in 2018.

4Q 2019 Highlights

Operating income before taxes decreased $6.1 million, or 8.1 percent, in the fourth quarter of 2019 compared to the fourth quarter of 2018.

  • Management fee revenue - policy issuance and renewal services increased $16.9 million, or 4.1 percent, in the fourth quarter of 2019 compared to the fourth quarter of 2018.
  • Management fee revenue allocated to administrative services increased $0.9 million, or 6.5 percent in the fourth quarter of 2019 compared to the fourth quarter of 2018.
  • Cost of operations - policy issuance and renewal services
    • – Commissions increased $10.1 million in the fourth quarter of 2019 compared to the fourth quarter of 2018 as a result of the 4.1 percent increase in direct and affiliated assumed premiums written by the Exchange.
    • – Non-commission expense increased $13.2 million in the fourth quarter of 2019 compared to the fourth quarter of 2018.Underwriting and policy processing costs increased $1.8 million primarily due to increased underwriting report costs and other policy acquisition costs.Information technology costs increased $6.0 million primarily due to increased professional fees and hardware and software costs. Administrative and other expenses increased $5.0 million primarily due to increased personnel costs and several multi-year commitments made to support community development initiatives.
  • The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $150.7 million and $147.7 million in the fourth quarter of 2019 and 2018, respectively, but had no net impact on operating income.

Income from investments before taxes totaled $6.9 million in the fourth quarter of 2019 compared to $5.0 million in the fourth quarter of 2018.Net realized gains on investments were $0.6 million in the fourth quarter of 2019 compared net realized losses of $1.5 million in the fourth quarter of 2018.Net investment income was $8.2 million in the fourth quarter of 2019 compared to $8.6 million in the fourth quarter of 2018.

Webcast Information

Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on February 28, 2020.  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 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 nearly 6 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.