Net Income per Diluted Share up 46.4 percent in 2018
Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the full year and quarter ending December 31, 2018. Net income was $288.2 million, or $5.51 per diluted share, in 2018, compared to $197.0 million, or $3.76 per diluted share, in 2017. Net income was $62.3 million, or $1.19 per diluted share, in the fourth quarter of 2018, compared to $32.1 million, or $0.61 per diluted share, in the fourth quarter of 2017. The increase in earnings per share in 2018 was primarily driven by the lower corporate tax rate of 21% as a result of the Tax Cuts and Jobs Act ("TCJA"), compared to 35% in 2017, and increased operating income. Net income was reduced by $10.1 million, or $0.19 per diluted share in the fourth quarter and year ended December 31, 2017, due to the enactment of the TCJA on December 22, 2017.
4Q and Full Year 2018
|
(dollars in thousands) |
4Q'18 |
4Q'17 |
2018 |
2017 |
|---|---|---|---|---|
|
Operating income |
$74,758 |
$58,625 |
$344,343 |
$290,252 |
|
Investment income |
4,995 |
7,134 |
25,796 |
28,592 |
|
Interest expense and other (income), net |
(2,889) |
1,118 |
(1,181) |
3,149 |
|
Income before income taxes |
82,642 |
64,641 |
371,320 |
315,695 |
|
Income tax expense |
20,328 |
32,588 |
83,096 |
118,696 |
|
Net income |
$62,314 |
$32,053 |
$288,22 |
$196,999 |
2018 Full Year Highlights
Operating income before taxes increased $54.1 million, or 18.6 percent, in 2018 compared to 2017.
- Management fee revenue - policy issuance and renewal services increased $56.9 million, or 3.4 percent, in 2018 compared to 2017.
- Management fee revenue allocated to administrative services was $53.6 million in 2018.No management fee revenue was allocated to administrative services in 2017.
- Cost of operations - policy issuance and renewal services
- Commissions increased $36.3 million in 2018 compared to 2017 as a result of the 6.9 percent increase in direct and assumed premiums written by the Exchange, somewhat offset by lower agent incentive costs related to less profitable growth.
- Non-commission expense increased $19.7 million in 2018 compared to 2017.Underwriting and policy processing costs increased $8.1 million primarily due to increased personnel costs and underwriting report costs.Information technology costs increased $5.1 million primarily due to increased personnel costs and professional fees.Customer service costs increased $4.4 million primarily due to increased personnel costs and credit card processing fees.Personnel costs in all expense categories were impacted by additional bonuses 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 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 $580.3 million in 2018, but had no net impact on operating income.
Income from investments before taxes totaled $25.8 million in 2018 compared to $28.6 million in 2017. Losses from limited partnerships were $0.8 million in 2018 compared to earnings of $2.8 million in 2017. Net realized losses on investments were $2.0 million in 2018 compared to net realized gains of $1.3 million in 2017. Net investment income was $30.2 million in 2018 compared to $24.6 million in 2017.
Income tax expense was impacted by the enactment of the TCJA, which reduced the corporate income tax rate from 35% to 21% effective January 1, 2018. Income before income taxes increased $55.6 million in 2018, compared to 2017, while income tax expense decreased $35.6 million due to the lower income tax rate. Income tax expense increased $10.1 million in 2017 due to the re-measurement of our deferred tax assets and liabilities at the new corporate income tax rate.
4Q 2018 Highlights
Operating income before taxes increased $16.1 million, or 27.5 percent, in the fourth quarter of 2018 compared to the fourth quarter of 2017.
- Management fee revenue - policy issuance and renewal services increased $13.6 million, or 3.5 percent, in the fourth quarter of 2018 compared to the fourth quarter of 2017.
- Management fee revenue allocated to administrative services was $13.7 million in the fourth quarter of 2018.No management fee revenue was allocated to administrative services in the fourth quarter of 2017.
- Cost of operations - policy issuance and renewal services
- Commissions increased $4.4 million in the fourth quarter of 2018 compared to the fourth quarter of 2017 as a result of the 6.8 percent increase in direct and assumed premiums written by the Exchange, somewhat offset by lower agent incentive costs related to less profitable growth.
- Non-commission expense increased $6.9 million in the fourth quarter of 2018 compared to the fourth quarter of 2017.Underwriting and policy processing costs increased $2.8 million primarily due to increased underwriting report costs and personnel costs. Information technology costs increased $2.4 million primarily due to increased professional fees and personnel costs. Customer service costs increased $1.0 million primarily due to increased personnel 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 $147.7 million in the fourth quarter of 2018, but had no net impact on operating income.
Income from investments before taxes totaled $5.0 million in the fourth quarter of 2018 compared to $7.1 million in the fourth quarter of 2017. Losses from limited partnerships were $1.2 million in the fourth quarter of 2018 compared to earnings of $0.9 million in the fourth quarter of 2017. Net realized losses on investments were $1.5 million in the fourth quarter of 2018 compared to $0.2 million in the fourth quarter of 2017. Net investment income was $8.6 million in the fourth quarter of 2018 compared to $6.4 million in the fourth quarter of 2017.
Income tax expense was impacted by the enactment of the TCJA. Income before income taxes increased $18.0 million in the fourth quarter of 2018, compared to the fourth quarter of 2017, while income tax expense decreased $12.3 million due to the lower income tax rate. Income tax expense increased $10.1 million in the fourth quarter of 2017 due to the re-measurement of our deferred tax assets and liabilities at the new corporate income tax rate.
Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on February 22, 2019. Investors may access the pre-recorded audio broadcast by logging on to www.erieinsurance.com.