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Erie Indemnity Reports Full Year and Fourth Quarter 2020 Results

Net Income per Diluted Share was $1.20 for the Quarter and $5.61 for the Year

Erie, Pa. - February 25, 2021 - Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the full year and quarter ending December 31, 2020. Net income was $293.3 million, or $5.61 per diluted share, in 2020, compared to $316.8 million, or $6.06 per diluted share, in 2019. Net income was $62.8 million, or $1.20 per diluted share, in the fourth quarter of 2020, compared to $59.6 million, or $1.14 per diluted share, in the fourth quarter of 2019.

The significant disruption to the economy and financial markets resulting from the COVID-19 pandemic that began in the first quarter of 2020 continues to evolve and the pandemic's ultimate impact and duration remain highly uncertain at this time. Although the Exchange experienced declines in new business premiums in the first half of 2020 due to business disruptions and recessionary conditions, new business premiums grew 10.8% in the second half of 2020 compared to the same period in 2019. The financial markets substantially recovered during the remainder of 2020 from the volatility impacting our portfolio in the first quarter of 2020, resulting in overall realized and unrealized gains.

4q 2020

(in thousands)

4Q'20

4Q'19

Operating income

$ 65,052

$ 68,700

Investment income

14,071

6,914

Interest expense and other income, net

913

(36)

Income before income taxes

78,210

75,650

Income tax expense

15,425

16,063

Net income

$ 62,785

$ 59,587

(in thousands)

Operating income

4Q'20

$ 65,052

4Q'19

$ 68,700

(in thousands)

Investment income

4Q'20

14,071

4Q'19

6,914

(in thousands)

Interest expense and other income, net

4Q'20

913

4Q'19

(36)

(in thousands)

Income before income taxes

4Q'20

78,210

4Q'19

75,650

(in thousands)

Income tax expense

4Q'20

15,425

4Q'19

16,063

Full Year 2020

(in thousands)

2020

2019

Operating income

$ 338,157

$ 357,339

Investment income

32,867

396,705

Interest expense and other income, net

2,509

  601  

Income before income taxes

368,515

106,038

Income tax expense

75,211

79,884

Net income

$ 293,304

$ 316,821

(in thousands)

Operating income

2020

$ 338,157

2019

$ 357,339

(in thousands)

Investment income

2020

32,867

2019

396,705

(in thousands)

Interest expense and other income, net

2020

2,509

2019

  601  

(in thousands)

Income before income taxes

2020

368,515

2019

106,038

(in thousands)

Income tax expense

2020

75,211

2019

79,884


2020 Full Year Highlights

Operating income before taxes decreased $19.2 million, or 5.4 percent, in 2020 compared to 2019.
  • Management fee revenue - policy issuance and renewal services increased $31.3 million, or 1.7 percent, in 2020 compared to 2019.
  • Management fee revenue allocated to administrative services increased $2.3 million, or 4.0 percent, in 2020 compared to 2019.
  • Cost of operations - policy issuance and renewal services
    • Commissions increased $26.6 million in 2020 compared to 2019 resulting from higher direct and affiliated assumed premiums written by the Exchange and higher agent incentive compensation.The Exchange experienced a significant decrease in automobile claims frequency and related loss expense beginning in March 2020 that continued through May 2020 driven by the COVID-19 pandemic, which contributed to an increase in the profitability component of the agent incentive bonuses.
    • Non-commission expense increased $24.3 million in 2020 compared to 2019.Underwriting and policy processing costs increased $5.7 million primarily due to increased personnel costs and underwriting report costs.Information technology costs increased $6.2 million primarily due to increased personnel costs and hardware and software costs.Administrative and other expenses increased $9.3 million primarily driven by increased personnel costs. Increased personnel costs in all categories included higher incentive plan award accruals related to underwriting performance in 2020 compared to targets and higher vacation accruals as employees took less vacation in 2020 as a result of the COVID-19 pandemic.
  • The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $609.4 million in 2020 and $582.0 million in 2019, but had no net impact on operating income.

Income from investments before taxes totaled $32.9 million in 2020 compared to $40.0 million in 2019. Net realized gains on investments were $6.4 million in 2020 compared to $6.1 million in 2019. Net investment income was $29.8 million in 2020 compared to $34.1 million in 2019.

4Q 2020 Highlights

  • Management fee revenue - policy issuance and renewal services increased $5.2 million, or 1.2 percent, in the fourth quarter of 2020 compared to the fourth quarter of 2019.Operating income before taxes decreased $3.6 million, or 5.3 percent, in the fourth quarter of 2020 compared to the fourth quarter of 2019.
  • Management fee revenue allocated to administrative services increased $0.3 million, or 2.3 percent in the fourth quarter of 2020 compared to the fourth quarter of 2019.
  • Cost of operations - policy issuance and renewal services
    • Commissions increased $6.2 million in the fourth quarter of 2020 compared to the fourth quarter of 2019 primarily driven by direct and affiliated assumed written premium growth.
    • Non-commission expense increased $2.5 million in the fourth quarter of 2020 compared to the fourth quarter of 2019.Administrative and other expenses increased $2.9 million primarily driven by an increase in long-term incentive plan costs due to an increase in the company stock price in the fourth quarter of 2020 compared to a decrease in the company stock price in the fourth quarter of 2019 and increased personnel costs.
  • The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $158.2 million and $150.7 million in the fourth quarter of 2020 and 2019, respectively, but had no net impact on operating income.

Income from investments before taxes totaled $14.1 million in the fourth quarter of 2020 compared to $6.9 million in the fourth quarter of 2019. Net realized gains on investments were $4.8 million in the fourth quarter of 2020 compared to $0.6 million in the fourth quarter of 2019. Net investment income was $9.4 million in the fourth quarter of 2020 compared to $6.3 million in the fourth quarter of 2019. Included in net investment income is $1.8 million of limited partnership earnings in the fourth quarter of 2020 and $1.9 million in limited partnership losses in the fourth quarter of 2019.

Webcast Information

Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on February 26, 2021. Investors may access the pre-recorded audio broadcast by logging on to www.erieinsurance.com.