Erie Indemnity Reports Full Year and Fourth Quarter 2021 Results

Net Income per Diluted Share was $1.05 for the Quarter and $5.69 for the Year

News provided by

Feb 24, 2022, 16:15 ET

ERIE, Pa., Feb. 24, 2022 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the full year and quarter ending December 31, 2021. Net income was $297.9 million, or $5.69 per diluted share, in 2021, compared to $293.3 million, or $5.61 per diluted share, in 2020. Net income was $55.0 million, or $1.05 per diluted share, in the fourth quarter of 2021, compared to $62.8 million, or $1.20 per diluted share, in the fourth quarter of 2020.

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

4Q and Full Year 2021
(dollars in thousands)	4Q'21	4Q'20	2021	2020
Operating income	$ 61,834	$ 65,052	$ 318,097	$ 338,157
Investment income	12,328	14,071	67,332	32,867
Interest and other expense, net	4,335	913	9,025	2,509
Income before income taxes	69,827	78,210	376,404	368,515
Income tax expense	14,785	15,425	78,544	75,211
Net income	$ 55,042	$ 62,785	$ 297,860	$ 293,304

2021 Full Year Highlights

Operating income before taxes decreased $20.1 million, or 5.9 percent, in 2021 compared to 2020.

Management fee revenue - policy issuance and renewal services increased $71.4 million, or 3.9 percent, in 2021 compared to 2020.
Management fee revenue allocated to administrative services decreased $1.2 million, or 2.0 percent, in 2021 compared to 2020.
Cost of operations - policy issuance and renewal services

Commissions increased $57.2 million in 2021 compared to 2020 resulting from higher direct and affiliated assumed premiums written by the Exchange and higher agent incentive compensation.
Non-commission expense increased $31.3 million in 2021 compared to 2020. Underwriting and policy processing costs increased $4.5 million primarily due to increased personnel costs and underwriting report costs. Information technology costs increased $11.3 million primarily due to increased hardware and software costs and personnel costs. Administrative and other expenses increased $14.2 million primarily driven by increased professional fees and building and equipment depreciation. Personnel costs in all categories were impacted by higher medical costs compared to the prior year as the COVID-19 pandemic reduced elective procedures in 2020.

The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $638.5 million in 2021 and $609.4 million in 2020, but had no net impact on operating income.

Income from investments before taxes totaled $67.3 million in 2021 compared to $32.9 million in 2020. Net investment income was $62.2 million in 2021 compared to $29.8 million in 2020. Included in net investment income is $31.7 million of limited partnership earnings in 2021 compared to limited partnership losses of $0.6 million in 2020. Net realized and unrealized gains on investments were $4.9 million in 2021 compared to $6.4 million in 2020.

4Q 2021 Highlights

Operating income before taxes decreased $3.2 million, or 4.9 percent, in the fourth quarter of 2021 compared to the fourth quarter of 2020.

Management fee revenue - policy issuance and renewal services increased $20.6 million, or 4.8 percent, in the fourth quarter of 2021 compared to the fourth quarter of 2020.
Management fee revenue allocated to administrative services decreased $0.7 million, or 4.5 percent in the fourth quarter of 2021 compared to the fourth quarter of 2020.
Cost of operations - policy issuance and renewal services

Commissions increased $18.2 million in the fourth quarter of 2021 compared to the fourth quarter of 2020 primarily driven by direct and affiliated assumed written premium growth.
Non-commission expense increased $4.6 million in the fourth quarter of 2021 compared to the fourth quarter of 2020 driven by increases in underwriting and policy processing costs, administrative and other expenses, and customer service costs.

The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $165.4 million and $158.2 million in the fourth quarter of 2021 and 2020, respectively, but had no net impact on operating income.

Income from investments before taxes totaled $12.3 million in the fourth quarter of 2021 compared to $14.1 million in the fourth quarter of 2020. Net investment income was $12.6 million in the fourth quarter of 2021 compared to $9.4 million in the fourth quarter of 2020. Included in net investment income is $5.0 million of limited partnership earnings in the fourth quarter of 2021 compared to $1.8 million in the fourth quarter of 2020. Net realized and unrealized losses on investments were $0.2 million in the fourth quarter of 2021 compared to net realized and unrealized gains of $4.8 million in the fourth quarter of 2020.

Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on February 25, 2022. 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;
emergence of significant unexpected events, including pandemics;
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;
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;
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 December 31,		Twelve months ended December 31,
	2021	2020	2021	2020
	(Unaudited)
Operating revenue
Management fee revenue - policy issuance and renewal services	$ 450,286	$ 429,698	$ 1,913,166	$ 1,841,794
Management fee revenue - administrative services	14,301	14,969	58,286	59,463
Administrative services reimbursement revenue	165,350	158,206	638,483	609,435
Service agreement revenue	5,994	6,379	24,042	25,797
Total operating revenue	635,931	609,252	2,633,977	2,536,489

Operating expenses
Cost of operations - policy issuance and renewal services	408,747	385,994	1,677,397	1,588,897
Cost of operations - administrative services	165,350	158,206	638,483	609,435
Total operating expenses	574,097	544,200	2,315,880	2,198,332
Operating income	61,834	65,052	318,097	338,157

Investment income
Net investment income	12,572	9,400	62,177	29,753
Net realized and unrealized investment (losses) gains	(237)	4,757	4,946	6,392
Net impairment (losses) recoveries recognized in earnings	(7)	(86)	209	(3,278)
Total investment income	12,328	14,071	67,332	32,867

Interest expense, net	1,050	723	4,132	731
Other expense	3,285	190	4,893	1,778
Income before income taxes	69,827	78,210	376,404	368,515
Income tax expense	14,785	15,425	78,544	75,211
Net income	$ 55,042	$ 62,785	$ 297,860	$ 293,304


Earnings Per Share
Net income per share
Class A common stock – basic	$ 1.18	$ 1.35	$ 6.40	$ 6.30
Class A common stock – diluted	$ 1.05	$ 1.20	$ 5.69	$ 5.61
Class B common stock – basic and diluted	$ 177	$ 202	$ 959	$ 945

Weighted average shares outstanding – Basic
Class A common stock	46,189,068	49,189,001	46,188,806	46,188,659
Class B common stock	2,542	2,542	2,542	2,542

Weighted average shares outstanding – Diluted
Class A common stock	52,305,628	52,315,670	52,307,302	52,313,360
Class B common stock	2,542	2,542	2,542	2,542

Dividends declared per share
Class A common stock	$ 1.110	$ 3.035	$ 4.215	$ 5.930
Class B common stock	$ 166.50	$ 455.25	$ 632.25	$ 889.50

Erie Indemnity Company Statements of Financial Position (in thousands)

	December 31, 2021	December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$ 183,702	$ 161,240
Available-for-sale securities	38,396	17,697
Equity securities	0	19
Receivables from Erie Insurance Exchange and affiliates, net	479,123	494,637
Prepaid expenses and other current assets	56,206	52,561
Accrued investment income	6,303	6,146
Total current assets	763,730	732,300

Available-for-sale securities, net	907,689	910,539
Equity securities	87,743	94,071
Fixed assets, net	374,802	265,341
Agent loans, net	58,683	62,449
Deferred income taxes, net	145	12,341
Other assets	49,265	40,081
Total assets	$ 2,242,057	$ 2,117,122

Liabilities and shareholders' equity
Current liabilities:
Commissions payable	$ 270,746	$ 262,338
Agent bonuses	120,437	110,158
Accounts payable and accrued liabilities	138,317	150,706
Dividends payable	51,693	48,200
Contract liability	34,935	36,917
Deferred executive compensation	12,637	17,319
Current portion of long-term borrowings	2,098	2,031
Total current liabilities	630,863	627,669

Defined benefit pension plan	130,383	164,346
Long-term borrowings	91,734	93,833
Contract liability	17,686	18,878
Deferred executive compensation	14,571	14,904
Other long-term liabilities	14,342	9,444
Total liabilities	899,579	929,074

Shareholders' equity	1,342,478	1,188,048
Total liabilities and shareholders' equity	$ 2,242,057	$ 2,117,122