Erie Indemnity Reports Third Quarter 2015 Results

Earnings Up 5.7 percent, Net Income per Diluted Share Up 5.2 percent

Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter ending September 30, 2015. Net income attributable to Indemnity was $50 million, or $0.94 per diluted share, in the third quarter of 2015, compared to $47 million, or $0.90 per diluted share, in the third quarter of 2014. Net income attributable to Indemnity was $145 million, or $2.75 per diluted share, in the first nine months of 2015, compared to $142 million, or $2.71 per diluted share, in the first nine months of 2014. For the third quarter of 2015, the growth was driven by increased revenue from management operations.

“We are very pleased with our third quarter results and the progress we are making with our strategic objectives. We remain committed to driving value for our agents, customers, employees and shareholders,” said Terry Cavanaugh, President and CEO.

3Q and Nine Months 2015 - Results of Indemnity Shareholder Interest
(dollars in millions)	3Q'14	3Q'15	2014	2015
Management operations	$62	$68	$188	$191
Investment operations	8	7	26	29
Income before income taxes	70	75	214	220
Provision for income taxes	23	25	72	75
Net income	$47	$50	$142	$145
Gross margin from management operations	16.5%	17.2%	17.5%	16.6%

3Q 2015 Highlights

Management Operations

Income from management operations before taxes increased $6 million, or 11.8 percent, in the third quarter of 2015 compared to the third quarter of 2014.

• Revenue from management operations increased $26 million, or 7.3 percent, in the third quarter of 2015 compared to the third quarter of 2014.
• Commissions increased $15 million in the third quarter of 2015, compared to the same period in 2014. The majority of the increase was driven by the 7.5 percent increase in direct written premiums of the Property and Casualty Group.
• Non-commission expense increased $5 million in the third quarter of 2015 compared to the third quarter of 2014.  Underwriting and policy processing costs increased $3 million due to increased personnel costs. Information technology costs decreased $4 million, which included $5 million in decreased professional fees offset by $1 million in increased hardware and software costs. Administrative and other expenses increased $5 million, which included $4 million in personnel costs and $1 million in professional fees. Personnel costs in all expense categories include increases of $1 million in pension costs, $2 million in medical costs and $4 million in the estimate for incentive plan compensation related to the underwriting performance in the third quarter of 2015 compared to the same period in 2014.
• The gross margin in the third quarter of 2015 was 17.2 percent, compared to 16.5 percent in the third quarter of 2014. 

Investment Operations

Income from investment operations before taxes totaled $7 million in the third quarter of 2015, compared to $8 million in the third quarter of 2014.

Nine Months 2015 Highlights

Management Operations

Income from management operations before taxes increased $3 million, or 1.7 percent, in the first nine months of 2015 compared to the first nine months of 2014.

• Revenue from management operations increased $79 million, or 7.4 percent, in the first nine months of 2015 compared to the first nine months of 2014.
• Commissions increased $54 million in the first nine months of 2015, compared to the same period in 2014. The majority of the increase was driven by the 7.6 percent increase in direct written premiums of the Property and Casualty Group, while about one-third of the increase was due to an increase in agent incentive costs related to profitable growth. The estimated agent incentive payout, at the end of each quarter, is based on actual underwriting results for the two prior years and the current year-to-date period. Therefore, fluctuations in the current quarter underwriting results can impact the estimated incentive payout on a quarter-to-quarter basis.
• Non-commission expense increased $22 million in the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014.  Sales and advertising costs increased $2 million due to increased personnel costs. Underwriting and policy processing costs increased $6 million due to increased personnel costs. Information technology costs increased $3 million, which included $2 million in hardware and software costs and $1 million in personnel costs. Administrative and other expenses increased $9 million, which included $6 million in personnel costs and $3 million in professional fees. Personnel costs in all expense categories include increases of $4 million in pension costs, $3 million in medical costs and $5 million in the estimate for incentive plan compensation related to the underwriting performance in the first nine months of 2015 compared to the same period in 2014.
• The gross margin for the first nine months of 2015 was 16.6 percent, compared to 17.5 percent for the first nine months of 2014. The 0.9 point decrease in gross margin for the first nine months of 2015 was driven primarily by the increased estimated agent incentive payout discussed above.

Investment Operations

Income from investment operations before taxes totaled $29 million in the first nine months of 2015, compared to $26 million in the first nine months of 2014. Earnings from limited partnerships were $17 million in the first nine months of 2015 compared to earnings of $13 million in the first nine months of 2014.

Webcast Information

Indemnity has scheduled a conference call and live audio broadcast on the Web for 10:00 AM ET on October 30, 2015. 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 Group’s website by 12:30 PM ET.