Erie Indemnity Reports Third Quarter 2019 Results

Nine Months 2019

(in thousands)	'19	'18
Operating income	288,639	$269,585
Investment income	33,053	20,801
Interest expense and other income, net	637	1,708
Income before income taxes	321,055	184,207
Income tax expense	63,821	62,768
Net income	$257,234	$225,910

3Q 2019 Highlights

Operating income before taxes increased $9.2 million, or 9.5 percent, in the third quarter of 2019 compared to the third quarter of 2018.

• Management fee revenue - policy issuance and renewal services increased $23.1 million, or 5.1 percent, in the third quarter of 2019 compared to the third quarter of 2018.
• Management fee revenue - administrative services increased $0.9 million, or 6.7 percent, in the third quarter of 2019 compared to the third quarter of 2018.
• Cost of operations - policy issuance and renewal services

• Commissions increased $10.2 million in the third quarter of 2019 compared to the third quarter of 2018, as a result of the 5.2 percent increase in direct and affiliated assumed premiums written by the Exchange, partially offset by lower agent incentive costs related to less profitable growth, compared to the third quarter of 2018.
• – Non-commission expense increased $4.6 million in the third quarter of 2019 compared to the third quarter of 2018.Information technology costs increased $5.4 million primarily due to increased professional fees.Underwriting and policy processing expense increased $1.9 million primarily due to underwriting report costs and other policy acquisition costs.Customer service costs increased $1.0 million primarily due to increased personnel costs.Administrative and other expenses decreased $2.9 million primarily driven by a decrease in long-term incentive plan cost due to a decrease in the company stock price in the third quarter of 2019.Personnel costs in all expense categories were impacted by lower estimated costs for incentive plans related to underwriting performance.

• The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $142.7 million in the third quarter of 2019, but had no net impact on operating income.

Income from investments before taxes totaled $13.6 million in the third quarter of 2019 compared to $8.4 million in the third quarter of 2018. Earnings from limited partnerships were $3.3 million in the third quarter of 2019 compared to $0.8 million in the third quarter of 2018. Net realized gains increased $1.7 million in the third quarter of 2019 compared to the third quarter of 2018. Net investment income was $8.7 million in the third quarter of 2019 compared to $7.7 million in the third quarter of 2018.

Nine Months 2019 Highlights

Operating income before taxes increased $19.1 million, or 7.1 percent, in the first nine months of 2019 compared to the first nine months of 2018.

• Management fee revenue - policy issuance and renewal services increased $74.0 million, or 5.6 percent, in the first nine months of 2019 compared to the first nine months of 2018.
• Management fee revenue allocated to administrative services increased $2.7 million, or 6.7 percent, in the first nine months of 2019 compared to the first nine months of 2018.
• Cost of operations - policy issuance and renewal services

• Commissions increased $30.8 million in the first nine months of 2019 compared to the first nine months of 2018, as a result of the 5.6 percent increase in direct and affiliated assumed premiums written by the Exchange, partially offset by lower agent incentive costs related to less profitable growth, compared to the first nine months of 2018.
• Non-commission expense increased $26.3 million for the nine months ended September 30, 2019 compared to the same period in 2018.Information technology costs increased $17.1 million primarily due to increased professional fees.Administrative and other expenses increased $6.1 million primarily driven by an increase in long-term incentive plan cost due to a higher company stock price during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.Personnel costs in all expense categories were impacted by additional bonuses awarded to all employees of approximately $1.1 million for the nine months ended September 30, 2019 and $4.8 million for the nine months ended September 30, 2018.

• The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $431.3 million in the first nine months of 2019, but had no net impact on operating income.

Income from investments before taxes totaled $33.1 million in the first nine months of 2019 compared to $20.8 million in the first nine months of 2018. Net realized gains on investments were $5.5 million in the first nine months of 2019 compared to net realized losses of $0.5 million in the first nine months of 2018. Net investment income was $25.2 million in the first nine months of 2019 compared to $21.6 million in the first nine months of 2018, and earnings from limited partnerships were $2.5 million in the first nine months of 2019 compared to $0.4 million in the first nine months of 2018.

Webcast Information

Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on October 25, 2019. Investors may access the pre-recorded audio broadcast by logging on to www.erieinsurance.com.