Erie Indemnity Reports Third Quarter 2021 Results


ERIE, Pa., Oct. 28, 2021 /PRNewswire/ — Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter and nine months ending September 30, 2021.  Net income was $90.2 million, or $1.72 per diluted share, in the third quarter of 2021, compared to $89.2 million, or $1.71 per diluted share, in the third quarter of 2020.  Net income was $242.8 million, or $4.64 per diluted share, in the first nine months of 2021, compared to $230.5 million, or $4.41 per diluted share, in the first nine months of 2020.



The uncertainty resulting from the COVID-19 pandemic continues to evolve and the pandemic’s ultimate impact and duration remain uncertain at this time. 

3Q and Nine Months 2021

(in thousands)

3Q’21

3Q’20


2021

2020


Operating income

$

95,103


$

96,225



$

256,263


$

273,105



Investment income

20,598


16,438



55,004


18,796



Interest and other expense, net

1,575


967



4,690


1,596



Income before income taxes

114,126


111,696



306,577


290,305



Income tax expense

23,903


22,480



63,759


59,786



Net income

$

90,223


$

89,216



$

242,818


$

230,519










 

                                   3Q 2021 Highlights                                  

Operating income before taxes decreased $1.1 million, or 1.2 percent, in the third quarter of 2021 compared to the third quarter of 2020.

  • Management fee revenue – policy issuance and renewal services increased $20.3 million, or 4.2 percent, in the third quarter of 2021 compared to the third quarter of 2020.
  • Management fee revenue – administrative services decreased $0.4 million, or 2.9 percent, in the third quarter of 2021 compared to the third quarter of 2020.
  • Cost of operations – policy issuance and renewal services
    • Commissions increased $14.9 million in the third quarter of 2021 compared to the third quarter of 2020, driven by the growth in direct and affiliated assumed written premium, primarily in lines of business that pay a higher commission rate. To a lesser extent, there was also an increase in agent incentive compensation for the third quarter of 2021 compared to the third quarter of 2020.
    • Non-commission expense increased $5.9 million in the third quarter of 2021 compared to the third quarter of 2020. Information technology costs increased $3.8 million primarily due to increased hardware and software costs as well as increased personnel costs. Sales and advertising increased $1.3 million primarily due to personnel costs. Administrative and other costs increased $0.5 million primarily driven by increased building and equipment depreciation compared to the same period in 2020. Personnel costs in all expense categories for the third quarter of 2021 were impacted by higher medical costs compared to the prior year as the COVID-19 pandemic reduced elective procedures in 2020 and higher incentive plan award accruals due to increase direct written premium growth.

Income from investments before taxes totaled $20.6 million in the third quarter of 2021 compared to $16.4 million in the third quarter of 2020.  Net investment income was $18.9 million in the third quarter of 2021 compared to $10.6 million in the third quarter of 2020.  Included in net investment income is $11.5 million of limited partnership earnings in the third quarter of 2021 compared to $3.6 million in the third quarter of 2020.  Net realized gains on investments were $1.6 million in the third quarter of 2021 compared to $5.9 million in the third quarter of 2020.

                                   Nine Months 2021 Highlights                                  

Operating income before taxes decreased $16.8 million, or 6.2 percent, in the first nine months of 2021 compared to the first nine months of 2020.

  • Management fee revenue – policy issuance and renewal services increased $50.8 million, or 3.6 percent, in the first nine months of 2021 compared to the first nine months of 2020.
  • Management fee revenue – administrative services decreased $0.5 million, or 1.1 percent, in the first nine months of 2021 compared to the first nine months of 2020.
  • Cost of operations – policy issuance and renewal services
    • Commissions increased $39.0 million in the first nine months of 2021 compared to the first nine months of 2020, driven by the growth in direct and affiliated assumed written premium, primarily in lines of business that pay a higher commission rate. To a lesser extent, there was also an increase in agent incentive compensation for the first nine months 2021 compared to the first nine months of 2020. For the nine months ended September 30, 2020, lower claims frequency and related loss expense due to the COVID-19 pandemic impacted agent compensation related to the profitability component.
    • Non-commission expense increased $26.8 million for the nine months ended September 30, 2021 compared to the same period in 2020. Underwriting and policy processing expense increased $2.6 million primarily due to increased personnel costs and underwriting report costs. Information technology costs increased $10.9 million primarily due to increased hardware and software costs and personnel costs. Administrative and other costs increased $12.6 million primarily driven by increased building and equipment depreciation, professional fees and personnel costs compared to the same period in 2020. Personnel costs in all expense categories were impacted by higher medical costs compared to the prior year as the COVID-19 pandemic reduced elective procedures in 2020 and higher incentive plan award accruals due to increase direct written premium growth.

Income from investments before taxes totaled $55.0 million in the first nine months of 2021 compared to $18.8 million in the first nine months of 2020.  Net investment income was $49.6 million in the first nine months of 2021 compared to $20.4 million in the first nine months of 2020.  Included in net investment income is $26.7 million of limited partnership earnings in the first nine months of 2021 and $2.4 million of limited partnership losses in the first nine months of 2020.  Net realized gains on investments were $5.2 million in the first nine months of 2021 compared to $1.6 million in the first nine months of 2020.

Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on October 29, 2021.  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 12th largest homeowners insurer, 13th largest automobile insurer and 13th largest commercial lines insurer in the United States based on direct premiums written.  Founded in 1925, Erie Insurance is a Fortune 500 company and the 16th largest property/casualty insurer in the United States based on total lines net premium written.  Rated A+ (Superior) by A.M. Best, ERIE has more than 6 million policies in force and operates in 12 states and the District of Columbia. 

News releases and more information are available on ERIE’s website at www.erieinsurance.com.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:
Statements contained herein that are not historical fact are forward-looking statements and, as such, are subject to risks and uncertainties that could cause actual events and results to differ, perhaps materially, from those discussed herein.  Forward-looking statements relate to future trends, events or results and include, without limitation, statements and assumptions on which such statements are based that are related to our plans, strategies, objectives, expectations, intentions, and adequacy of resources.  Examples of forward-looking statements are discussions relating to premium and investment income, expenses, operating results, and compliance with contractual and regulatory requirements.  Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict.  Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.  Among the risks and uncertainties, in addition to those set forth in our filings with the Securities and Exchange Commission, that could cause actual results and future events to differ from those set forth or contemplated in the forward-looking statements include the following:

  • dependence upon our relationship with the Erie Insurance Exchange (“Exchange”) and the management fee under the agreement with the subscribers at the Exchange;
  • dependence upon our relationship with the Exchange and the growth of the Exchange, including:
    • general business and economic conditions;
    • factors affecting insurance industry competition;
    • dependence upon the independent agency system; and
    • ability to maintain our reputation for customer service;
  • dependence upon our relationship with the Exchange and the financial condition of the Exchange, including:
    • the Exchange’s ability to maintain acceptable financial strength ratings;
    • factors affecting the quality and liquidity of the Exchange’s investment portfolio;
    • changes in government regulation of the insurance industry;
    • litigation and regulatory actions;
    • emerging claims and coverage issues in the industry; and
    • severe weather conditions or other catastrophic losses, including terrorism;
  • potential impacts of the COVID-19 pandemic on the growth and financial condition of the Exchange;
  • costs of providing policy issuance and renewal services to the Exchange under the subscriber’s agreement;
  • ability to attract and retain talented management and employees;
  • ability to ensure system availability and effectively manage technology initiatives;
  • difficulties with technology or data security breaches, including cyber attacks;
  • ability to maintain uninterrupted business operations;
  • outcome of pending and potential litigation;
  • potential impacts of the COVID-19 pandemic on our operations, the business operations of our customers and/or independent agents, or our third-party vendor operations;
  • factors affecting the quality and liquidity of our investment portfolio; and
  • our ability to meet liquidity needs and access capital.

A forward-looking statement speaks only as of the date on which it is made and reflects our analysis only as of that date.  We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in assumptions, or otherwise.

 

Erie Indemnity Company

Statements of Operations

(dollars in thousands, except per share data)




Three months ended September 30,


Nine months ended September 30,



2021


2020


2021


2020



(Unaudited)


(Unaudited)

Operating revenue










Management fee revenue – policy issuance and renewal services


$

504,891



$

484,551



$

1,462,880



$

1,412,096


Management fee revenue – administrative services


14,471



14,910



43,985



44,494


Administrative services reimbursement revenue


162,410



147,710



473,133



451,229


Service agreement revenue


6,067



6,310



18,048



19,418


  Total operating revenue


687,839



653,481



1,998,046



1,927,237












Operating expenses










Cost of operations – policy issuance and renewal services


430,326



409,546



1,268,650



1,202,903


Cost of operations – administrative services


162,410



147,710



473,133



451,229


  Total operating expenses


592,736



557,256



1,741,783



1,654,132


Operating income


95,103



96,225



256,263



273,105












Investment income










Net investment income


18,858



10,645



49,605



20,353


Net realized investment gains


1,610



5,915



5,183



1,635


Net impairment recoveries (losses) recognized in earnings


130



(122)



216



(3,192)


Total investment income


20,598



16,438



55,004



18,796












Interest expense, net


1,034



3



3,082



8


Other expense


541



964



1,608



1,588


Income before income taxes


114,126



111,696



306,577



290,305


Income tax expense


23,903



22,480



63,759



59,786


Net income


$

90,223



$

89,216



$

242,818



$

230,519












Net income per share










Class A common stock – basic


$

1.94



$

1.92



$

5.21



$

4.95


Class A common stock – diluted


$

1.72



$

1.71



$

4.64



$

4.41


Class B common stock – basic and diluted


$

291



$

287



$

782



$

742












Weighted average shares outstanding – Basic










Class A common stock


46,189,035



46,189,030



46,188,729



46,188,544


Class B common stock


2,542



2,542



2,542



2,542












Weighted average shares outstanding – Diluted










Class A common stock


52,305,245



52,310,429



52,307,859



52,312,588


Class B common stock


2,542



2,542



2,542



2,542












Dividends declared per share










Class A common stock


$

1.035



$

0.965



$

3.105



$

2.895


Class B common stock


$

155.25



$

144.75



$

465.75



$

434.25





















 

Erie Indemnity Company

Statements of Financial Position

(in thousands)




September 30, 2021


December 31, 2020



(Unaudited)



Assets





Current assets:





Cash and cash equivalents


$

235,996



$

161,240


Available-for-sale securities


30,627



17,697


Equity securities


10



19


Receivables from Erie Insurance Exchange and affiliates, net


503,413



494,637


Prepaid expenses and other current assets


55,003



52,561


Accrued investment income


6,104



6,146


Total current assets


831,153



732,300







Available-for-sale securities, net


906,877



910,539


Equity securities


86,270



94,071


Fixed assets, net


277,939



265,341


Agent loans, net


59,462



62,449


Deferred income taxes, net


17,153



12,341


Other assets


57,704



40,081


Total assets


$

2,236,558



$

2,117,122







Liabilities and shareholders’ equity





Current liabilities:





Commissions payable


$

280,540



$

262,338


Agent bonuses


88,556



110,158


Accounts payable and accrued liabilities


148,282



150,706


Dividends payable


48,200



48,200


Contract liability


35,853



36,917


Deferred executive compensation


10,757



17,319


Current portion of long-term borrowings


2,075



2,031


Total current liabilities


614,263



627,669







Defined benefit pension plans


192,808



164,346


Long-term borrowings


92,273



93,833


Contract liability


18,098



18,878


Deferred executive compensation


14,477



14,904


Other long-term liabilities


17,783



9,444


Total liabilities


949,702



929,074







Shareholders’ equity


1,286,856



1,188,048


Total liabilities and shareholders’ equity


$

2,236,558



$

2,117,122


 

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SOURCE Erie Indemnity Company



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