Erie Indemnity Q3 2024 Earnings Report

Erie Indemnity EPS Results

• Actual EPS: $3.06
• Consensus EPS: $2.99
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: $2.51

Erie Indemnity Revenue Results

• Actual Revenue: $999.89 million
• Expected Revenue: $985.10 million
• Beat/Miss: Beat by +$14.79 million
• YoY Revenue Growth: N/A

Erie Indemnity Announcement Details

• Quarter: Q3 2024
• Date: 10/31/2024
• Time: After Market Closes
• Conference Call Date: Friday, November 1, 2024
• Conference Call Time: 10:00AM ET

Erie Indemnity (NASDAQ:ERIE) Company operates as a managing attorney-in-fact for the subscribers at the Erie Insurance Exchange in the United States. It provides issuance and renewal services; sales related services, including agent compensation, and sales and advertising support services; underwriting services comprise underwriting and policy processing; and other services consist of customer services and administrative support services, as well as information technology services. The company was incorporated in 1925 and is based in Erie, Pennsylvania.

Erie Indemnity Q3 2024 Earnings Call Transcript

Key Takeaways

• The Exchange’s direct and affiliated written premiums grew 18% in Q3 and 19% year-to-date, with average written premium per policy up 12.8%, policies in force rising 6%, and retention at 90.8%.
• Erie reported Q3 net income of $160 million ($3.06 per diluted share), up from $131 million a year ago, driving year-to-date net income to $448 million and operating income growth of 21% in Q3 and 29.5% year-to-date.
• The Exchange’s combined ratio was 113.7 in Q3 (with 5.3 points attributed to Hurricane Helene) and improved year-to-date to 112 from 121.9 in 2023, reflecting the impact of rate increases and moderating weather events.
• Investment income before taxes rose to $19.5 million in Q3 (versus $12 million) and $48.5 million year-to-date (versus $19 million), supporting steady dividend growth and conservative capital management.
• Erie is piloting its refreshed Business Auto 2.0 product and rolling out automatic online account enrollment in 10 states, part of broader platform modernizations aimed at enhancing agent efficiency and customer experience.

Presentation

[Operator]

Good morning, and welcome to the Ariane M&T Company Third Quarter 2024 Earnings Conference Call. This call was prerecorded, and there will be no question and answer session following the recording. Now, I'd like to introduce your host for the call, Vice President of Investor Relations, Scott Beharz.

[Scott Beilharz, Vice President of Capital Management & Investor Relations at Erie Indemnity Company]

Thank you, and welcome, everyone. We appreciate you joining us for this recorded discussion about our Q3 results. This recording will include remarks from Tim DeCastro, President and Chief Executive Officer and Julie Pokowski, Executive Vice President and Chief Financial Officer. Our earnings release and financial supplement were issued yesterday afternoon after the market closed and are available within the Investor Relations section of our website, year reinsurance.com. Before we begin, I would like to remind everyone that today's discussion may contain forward looking remarks that reflect the company's current views about future events.

[Scott Beilharz, Vice President of Capital Management & Investor Relations at Erie Indemnity Company]

These remarks are based on assumptions subject to known and unexpected risks and uncertainties. These risks and uncertainties may cause results to differ materially from those described in these remarks. For information on important factors that may cause such differences, please see the Safe Harbor statements in our Form 10 Q filing with the SEC filed yesterday and in their related press release. This pre recorded call is the property of Erie Indemnity Company. It may not be reproduced or rebroadcast by any other party without the prior written consent of Erie Indemnity Company.

[Scott Beilharz, Vice President of Capital Management & Investor Relations at Erie Indemnity Company]

With that, we will move on to Tim's remarks. Tim?

[Timothy G. NeCastro, President and Chief Executive Office at Erie Indemnity Company]

Thanks, Scott. And thanks to all of you for listening in to learn more about Erie's performance in the Q3 of 2024. The storms have been ravaging parts of our country and all those impacted by these disasters have certainly been on our minds in recent weeks. The aftermath of Hurricane Helene, in particular, has been devastating in areas of our footprint. Our claims teams and agents in the impacted areas and additional employees deployed to assist have been facing incredibly difficult circumstances.

[Timothy G. NeCastro, President and Chief Executive Office at Erie Indemnity Company]

Many of them are experiencing losses themselves while providing much needed service to our policyholders. The lives lost, the homes and businesses destroyed and the devastation in those communities is hard to comprehend. Let's please keep them in our thoughts and prayers as they navigate this challenging and heartbreaking situation and please support the relief efforts in any way you can. Our generous Erie employees have been donating to hurricane relief causes bolstered by Erie's matching gifts program. Typical 100 percent match on charitable giving was doubled for donations to the lean relief funds for the American Red Cross, World Kitchen and Team Rubicon.

[Timothy G. NeCastro, President and Chief Executive Office at Erie Indemnity Company]

I'm pleased to share that so far more than $60,000 has been donated by Erie employees and matched by Erie. Early in September, Erie made a $250,000 charitable contribution to the American Red Cross Disaster Responder Program and we're working on additional donations to other local rescue causes and affected portions of our territory. We believe it's always important to do the right thing and get up how you can, but especially when our people and our communities need it the most. Turning to our financials now. Helene and other weather related activity over the past quarter have had a negative impact on the combined ratio for Erie Insurance Exchange.

[Timothy G. NeCastro, President and Chief Executive Office at Erie Indemnity Company]

Erie Indemnity Company continues its strong performance, thanks to continued growth in new business and solid retention. This growth was represented recently with Erie's addition to the S and P 500 Index for the first time in September. Here to provide some additional context around our Q3 results is Chief Financial Officer, Julie Palkowski.

[Timothy G. NeCastro, President and Chief Executive Office at Erie Indemnity Company]

Julie?

[Julie Pelkowski, Executive VP & CFO at Erie Indemnity Company]

Thank you, Tim, and good morning, everyone. As Tim mentioned, Erie Indemnity Company continues to experience strong operating performance, which likely contributed to the addition of our company to the S and P 500 index this quarter. As we've highlighted previously, the strong operating performance is driven by the recent significant increases in our primary source of revenue, our management fee revenue. As a reminder, we serve as the attorney in fact for the subscribers or policyholders of the Erie Insurance Exchange, which includes providing policy issuance and renewal services as well as administrative services.

[Julie Pelkowski, Executive VP & CFO at Erie Indemnity Company]

For the services provided, we retain a management fee calculated as a percentage not to exceed 25 percent of the direct and affiliated assumed premiums written by the Exchange. Thus, any changes to the Exchange's premiums will have a corresponding effect on the amount of the management fees we receive. The insurance industry has been experiencing increased loss cost pressures and weather related activity that have resulted in significant increases to premium rates. The Exchange has not been immune to these pressures and we've taken significant rate increases to combat the resulting profitability challenge. Because we write 12 month policies, there is a lag in timing to fully earn these rate increases intended to cover the increased loss costs.

[Julie Pelkowski, Executive VP & CFO at Erie Indemnity Company]

The realized premium from REIT increases can take up to 24 months to impact the combined ratio, the Exchange's measure of profitability. Now as it relates to the 3rd quarter, the Exchange's direct and affiliated assumed written premiums grew over 18% for the quarter and just over 19% year to date when compared with the prior periods of 2023. The tremendous premium growth in both periods in 2024 can largely be attributed to the continued realization of rate increases, which are reflected in a significant increase in the year over year average written premium per policy of 12.8%. Year over year policies in force grew 6% despite the rate increases and the Exchange maintained a strong policyholder retention at 90.8%. The Exchange's combined ratio was impacted by Hurricane Helene, as Tim referenced, and contributed 5.3 points to the Q3 2024 combined ratio of 113.7 and 1.9 points to the Exchange's year to date combined ratio of 112.

[Julie Pelkowski, Executive VP & CFO at Erie Indemnity Company]

While 2024 continues to pose certain challenges, the rating and other actions we've taken, in addition to lower weather events overall this year, resulted in this current year to date combined ratio of 112, showing incremental improvement from the 2023 combined ratio at this time of 121.9. The Exchange's financial strength, as measured by policyholder surplus, has remained relatively stable at $9,200,000,000 at the end of September 2024 compared to $9,300,000,000 at the end of 2023. Turning to the indemnity. In the Q3, the indemnity generated net income of $160,000,000 or $3.06 per diluted share compared to $131,000,000 or $2.51 per diluted share in the Q3 of 2023. For the 1st 9 months of 2024, net income was $448,000,000 or $8.57 per diluted share compared to $335,000,000 or $6.41 per diluted share for the same period in 2023.

[Julie Pelkowski, Executive VP & CFO at Erie Indemnity Company]

Operating income increased 21 percent or $32,000,000 in the Q3 of 2024 compared to the Q3 of 2023, while year to date operating income increased 29.5 percent or $116,000,000 compared to the 1st 9 months of 2023. The main driver of these increases continues to be higher management fee revenue resulting from the Exchange's significant direct written premium growth. The Indemnity's management fee revenue for policy issuance and renewal services increased $120,000,000 or 18.5 percent in the Q3 of 2024 compared to the Q3 of 2023. For the 1st 9 months of 2024, Indemnity saw an increase of $355,000,000 or 19.3 percent compared to the same period of 2023, which is in line with the direct written premium growth of the exchange in the similar periods. Looking at the indemnity's cost of operations for policy issuance and renewal services, commissions, our largest expense, increased $66,000,000 or 18.7 percent in the 3rd quarter and $202,000,000 or 19.9 percent in the 1st 9 months of 2024 compared to the same periods in 2023.

[Julie Pelkowski, Executive VP & CFO at Erie Indemnity Company]

The increases in both periods were driven by and in line with the growth in the exchange's direct and affiliated assumed written premium. To a lesser extent, agent incentive compensation contributed to the increase driven by the profitability component of the incentive. Non commission expenses increased $23,000,000 or 13.8 percent in the Q3 of 2024 compared to 2023. Primary drivers of the increase include higher personnel costs, higher costs tied to production, such as underwriting and policy processing expenses, and our additional investments in technology. We also continue to make community related investments, as Tim highlighted earlier.

[Julie Pelkowski, Executive VP & CFO at Erie Indemnity Company]

For the 1st 9 months of 2024, Indemnity saw an increase in non commission expenses of nearly $42,000,000 or 8.4%. Similar to the quarter, we saw higher personnel costs, higher costs tied to production, including underwriting and policy processing expenses and increased community related investments. On a year to date basis, we also had higher agent related costs and credit card processing fees, while we had lower information technology costs. The personnel cost increases in both the Q3 year to date through September were impacted by increased compensation, including higher estimated costs for our long term incentive plan awards, which was primarily due to the substantial increase in the stock price throughout 2024. Turning to our investment operations, Indemnity maintains a conservative portfolio to support our objectives of steady and consistent growth in earnings per share, current and future dividend growth, protecting the company from downside risks in its operations as well as reinvesting in the business if opportunities arise.

[Julie Pelkowski, Executive VP & CFO at Erie Indemnity Company]

In the Q3 of 2024, investment income before taxes totaled $19,500,000 compared to just over $12,000,000 in the Q3 of 2023. For the 1st 9 months of 2024, investment income before taxes was $48,500,000 compared to just over $19,000,000 in the 1st 9 months of 2023. As always, we take a very measured approach to our capital management and we maintain a strong balance sheet. For the 1st 9 months of 2024, our financial performance enabled us to pay our shareholders over $178,000,000 in dividends. Thank you again for your time today.

[Julie Pelkowski, Executive VP & CFO at Erie Indemnity Company]

Now, I'll turn the call back over to

[Julie Pelkowski, Executive VP & CFO at Erie Indemnity Company]

Tim. Tim?

[Timothy G. NeCastro, President and Chief Executive Office at Erie Indemnity Company]

Thanks, Julie. As our customer base continues to grow, it's increasingly important to make sure our products and services meet their needs and that we equip agents with the tools to provide personalized and efficient service. One recent example is Business Auto 2.0, Erie's newly refreshed and enhanced Business Auto product currently being piloted in Indiana. It includes several new options and features, all conceived and developed based on agent feedback. It's aimed at helping agents meet the unique needs of their business customers, including an enhanced quoting and processing experience and the ability to have vehicles from multiple states on one policy.

[Timothy G. NeCastro, President and Chief Executive Office at Erie Indemnity Company]

A refreshed rating plan with new pricing factors also helps ensure competitive pricing for the most favorable risks and that all business is priced appropriately and sustainably. Agents piloting the new offering have been sharing valuable feedback, which has already led to several design enhancements. Continued interaction with our pilot agents through year end will help us determine any additional adjustments needed before expanding the rollout into other states in early 2025. We also successfully launched a 10 state rollout of a new capability that can automatically enroll customers in our online account platform at the point of sale. Online account enhances customers' ability to access information, pay bills and track claims, increasing efficiencies and allowing our call center staff and agents to spend more time on more complex and meaningful interactions.

[Timothy G. NeCastro, President and Chief Executive Office at Erie Indemnity Company]

This new capability is helping to increase adoption of this important tool and will also help us to better leverage customer data. Enhancements like these are part of a broader strategy to modernize our platforms, programs and data capabilities. Additional migrations of legacy platforms to the cloud and other digital capability improvements have been made over the past quarter and are ongoing. At Erie, we've always believed that our commitment to service extends not just to our customers, but also to the communities within our footprint. In August, Erie Insurance donated $450,000 in grants to 9 nonprofits through the company's Investing in Our Future educational grant initiative.

[Timothy G. NeCastro, President and Chief Executive Office at Erie Indemnity Company]

The program is aimed at strengthening the connection between academic programming and out of school time activities with the goal of eliminating poverty through education. Since the grant program was launched in 2021, more than $1,700,000 in grants have been awarded by Erie Insurance for educational nonprofits in and around our home city, Cabrillo, Pennsylvania. This is in addition to more than $10,000,000 donated to educational causes over the years through Pennsylvania's Educational Improvement Tax Credit Program. I'm also pleased to share 2 recent workplace accolades. First, Erie Insurance was named at the Forbes list of America's best in state employers for 2024 for the 5th straight year.

[Timothy G. NeCastro, President and Chief Executive Office at Erie Indemnity Company]

Erie is ranked among the top 20 out of 100 employers in Pennsylvania that made the list. Erie Insurance was also honored with 4 2024 Diversity Impact Awards from the Global ERG, the world's largest network of employee resource groups, business resource groups and diversity councils. Our African American, Pride Alliance, Veterans and Women's Affinity Networks were recognized for being champions of diversity, equity and inclusion in our organization. As I close out our call for the Q3, I'd like to share my appreciation for our employees and independent agents who uphold our above all in service promise every day and under any circumstance. Thank you also to our shareholders for your trust and support.

[Timothy G. NeCastro, President and Chief Executive Office at Erie Indemnity Company]

Thanks to all of you for your interest in Erie.

Participants

Executives

• Scott Beilharz, Vice President of Capital Management & Investor Relations
• Timothy G. NeCastro, President and Chief Executive Office
• Julie Pelkowski, Executive VP & CFO