Erie Indemnity Reports First Quarter 2019 Results

Net Income per Diluted Share up 14.5 percent for the Quarter

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May 02, 2019, 16:15 ET

ERIE, Pa., May 2, 2019 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter ending March 31, 2019. Net income was $75.3 million, or $1.44 per diluted share, in the first quarter of 2019, compared to $65.8 million, or $1.26 per diluted share, in the first quarter of 2018.

1Q 2019
(dollars in thousands)	1Q'19		1Q'18
Operating income	$	86,122	$	77,567
Investment income	9,795		6,163
Interest expense and other income, net	402		509
Income before income taxes	95,515		83,221
Income tax expense	20,204		17,463
Net income	$	75,311	$	65,758

1Q 2019 Highlights

Operating income before taxes increased $8.6 million, or 11.0 percent, in the first quarter of 2019 compared to the first quarter of 2018, as the growth in total operating revenue outpaced the growth in total operating expenses.

Management fee revenue - policy issuance and renewal services increased $25.0 million, or 6.2 percent, to $431.0 million in the first quarter of 2019 compared to the first quarter of 2018.
Management fee revenue - administrative services increased $0.9 million, or 6.7 percent, to $14.0 million in the first quarter of 2019 compared to the first quarter of 2018.
Cost of operations - policy issuance and renewal services

Commissions increased $8.9 million in the first quarter of 2019 compared to the first quarter of 2018, as a result of the 6.0 percent increase in direct and affiliated assumed premiums written by the Exchange, slightly offset by lower agent incentive costs related to less profitable growth, compared to the first quarter of 2018.
Non-commission expense increased $8.0 million in the first quarter of 2019 compared to the first quarter of 2018. Information technology costs increased $5.5 million primarily due to increased professional fees. Sales and advertising costs decreased $2.0 million primarily due to decreased personnel costs and agent-related costs. Administrative and other expenses increased $4.3 million primarily driven by an increase in long-term incentive plan cost due to an increase in the company stock price during the first quarter of 2019 compared to a decrease in the company stock price during the first quarter of 2018. Personnel costs in all expense categories in the first quarter of 2018 were impacted by additional bonuses awarded to all employees as a result of tax savings realized from the lower corporate income tax rate.

The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $142.5 million in the first quarter of 2019, but had no net impact on operating income.

Income from investments before taxes totaled $9.8 million in the first quarter of 2019 compared to $6.2 million in the first quarter of 2018. Net realized gains were $2.5 million in the first quarter of 2019 compared to net realized losses of $0.5 million in the first quarter of 2018. Net investment income was $8.5 million in the first quarter of 2019 compared to $6.8 million in the first quarter of 2018.

Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on May 3, 2019. 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 9^th largest homeowners insurer and 11^th largest automobile insurer in the United States based on direct premiums written and the 16^th largest property/casualty insurer in the United States based on total lines net premium written. The Group, rated A+ (Superior) by A.M. Best Company, has more than 5 million policies in force and operates in 12 states and the District of Columbia. Erie Insurance Group is a FORTUNE 500 company.

News releases and more information about Erie Insurance Group are available at www.erieinsurance.com.

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"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 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;
emerging claims and coverage issues in the industry; and
severe weather conditions or other catastrophic losses, including terrorism;

costs of providing policy issuance and renewal services to the Exchange under the subscriber's agreement;
credit risk from the Exchange;
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;
factors affecting the quality and liquidity of our investment portfolio;
our ability to meet liquidity needs and access capital; and
outcome of pending and potential litigation.

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 March 31,
	2019		2018
	(Unaudited)
Operating revenue
Management fee revenue - policy issuance and renewal services, net	$	430,983	$	405,978
Management fee revenue - administrative services, net	13,951		13,074
Administrative services reimbursement revenue	142,480		145,963
Service agreement revenue	6,692		7,145
Total operating revenue	594,106		572,160

Operating expenses
Cost of operations - policy issuance and renewal services	365,504		348,630
Cost of operations - administrative services	142,480		145,963
Total operating expenses	507,984		494,593
Operating income	86,122		77,567

Investment income
Net investment income	8,517		6,820
Net realized investment gains (losses)	2,503		(465)
Net impairment losses recognized in earnings	(78)		0
Equity in losses of limited partnerships	(1,147)		(192)
Total investment income	9,795		6,163

Interest expense, net	449		553
Other income	47		44
Income before income taxes	95,515		83,221
Income tax expense	20,204		17,463
Net income	$	75,311	$	65,758

Net income per share
Class A common stock – basic	$	1.62	$	1.41
Class A common stock – diluted	$	1.44	$	1.26
Class B common stock – basic and diluted	$	243	$	212

Weighted average shares outstanding – Basic
Class A common stock	46,188,337		46,187,908
Class B common stock	2,542		2,542

Weighted average shares outstanding – Diluted
Class A common stock	52,312,036		52,310,628
Class B common stock	2,542		2,542

Dividends declared per share
Class A common stock	$	0.90	$	0.84
Class B common stock	$	135.00	$	126.00

Erie Indemnity Company
Statements of Financial Position
(in thousands)

	March 31, 2019		December 31, 2018
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	312,045	$	266,417
Available-for-sale securities	139,994		402,339
Receivables from Erie Insurance Exchange and affiliates	456,135		449,873
Prepaid expenses and other current assets	49,997		36,892
Federal income taxes recoverable	0		8,162
Accrued investment income	4,220		5,263
Total current assets	962,391		1,168,946

Available-for-sale securities	534,925		346,184
Equity securities	12,410		11,853
Limited partnership investments	30,038		34,821
Fixed assets, net	144,652		130,832
Deferred income taxes, net	22,180		24,101
Other assets	92,860		61,590
Total assets	$	1,799,456	$	1,778,327

Liabilities and shareholders' equity
Current liabilities:
Commissions payable	$	253,002	$	241,573
Agent bonuses	26,129		103,462
Accounts payable and accrued liabilities	123,179		111,291
Dividends payable	41,913		41,910
Contract liability	34,116		33,854
Deferred executive compensation	10,346		13,107
Federal income taxes payable	11,946		0
Current portion of long-term borrowings	1,891		1,870
Total current liabilities	502,522		547,067

Defined benefit pension plans	123,270		116,866
Long-term borrowings	97,382		97,860
Contract liability	17,907		17,873
Deferred executive compensation	16,817		13,075
Other long-term liabilities	27,754		11,914
Total liabilities	785,652		804,655

Shareholders' equity	1,013,804		973,672
Total liabilities and shareholders' equity	$	1,799,456	$	1,778,327