Erie Indemnity Q1 2024 Earnings Call Transcript

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April 26, 2024

There are 4 speakers on the call.

Operator

Good morning,

Speaker 1

and welcome to the Erie Indemnity Company First Quarter 2024 Earnings Conference Call. This call was pre recorded 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 Beilharz.

Speaker 2

Thank you, and welcome, everyone. We appreciate you joining us for this recorded discussion about our Q1 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, Erieinsurance.com. Before we begin,

Operator

I would

Speaker 2

like to remind everyone that today's discussion may contain forward looking remarks that reflect the company's current views about future events. 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 the related press release. This pre recorded call is the property of Your Indemnity Company.

Speaker 2

It may not be reproduced or rebroadcast by any other party without the prior written consent of your indemnity company. With that, we'll move on to Tim's remarks. Tim?

Operator

Thanks, Scott, and thanks to all of you for your interest in Erie's performance for the Q1 of 2024. Last week on April 20, we marked the 99th anniversary of our company's founding. And on April 23, we held our annual meeting of shareholders in person in the Thomas B. Hagen Building. At that meeting, I reflected on the remarkable journey Erie Insurance has been on for nearly a century.

Operator

2 young men, H. O. Hertz and O. G. Crawford opened the doors of Erie Insurance in 1925 and brought in less than $30,000 in net premiums at the 1st year.

Operator

Today, Erie's business has grown to more than $10,000,000,000 in premium and almost 7,000,000 policies in force, covering 12 states plus the District of Columbia with more than 6,500 employees and more than 14,000 independent agents. I'm humbled and proud to be leading the company and I'm confident in our position in the industry and our financial stability as we enter our 100th year of business. I'll share some first quarter updates on our business and workplace in a few minutes, but first, let's look at our financials. In our last call, we reported that weather related claims were up significantly in 2023, which had a negative impact on our combined ratio. So far this year, we're starting to see a turnaround and our ratio is headed in the right direction.

Operator

I'll now turn it over to Julie to discuss our financial results in greater detail. Julie?

Speaker 3

Thank you, Tim, and good morning, everyone. In 2023, we talked about our proactive approach to addressing the profitability challenge experienced by the Exchange and that the most significant impact would come as a result of the higher rate increases that were taken. We anticipated a larger impact from these rate increases in 2020 4 given the fact that we have 12 month policies. Continued incremental improvements from rate increases coupled with weather events that were lower in severity compared to the Q1 of last year, drove an improvement in profitability in the Q1 of 2024. Our combined ratio in the Q1 was 106 compared to 122.7 in the Q1 of 2023.

Speaker 3

Other events contributed 9 points to the combined ratio in the Q1 of 2024 versus 12.6 points in the same period last year. The rate increases continue to contribute to significant growth for the exchange as well. During the Q1, direct and assumed written premium of the exchange increased 19%. Strong new growth continues with new business premium growing 32.4% compared to the same period last year. Total policies in force grew 7.1%.

Speaker 3

We also maintained a solid policy retention ratio of 91.2%. The continued strong premium growth along with high retention and a more favorable combined ratio resulted in the policyholder surplus of the exchange growing $180,000,000 in the quarter to $9,500,000,000 as of March 31, 2024. Shifting to the results for Indemnity, net income was $125,000,000 or 2 point $3.8 per diluted share in the Q1 of 2024 compared to $86,000,000 or $1.65 per diluted share in the Q1 of 2023. Operating income in the Q1 increased over 25% to almost $139,000,000 compared to the Q1 of 2023. Management fee revenue from policy issuance and renewal services increased 19.3 percent to just over $665,000,000 in the Q1 of 2024 compared to the Q1 of 2023, in line with the increase in the direct and assumed written premiums of the exchange.

Speaker 3

The total cost of operations from policy issuance and renewal services increased $81,000,000 or 17.3 percent for the Q1 of 2024 compared to the same period in 2023. The most significant portion of our expenses, our commissions, grew $67,000,000 for the Q1, driven by the increase in direct and affiliated assumed written premiums of the exchange. Non commission expenses for the Q1 grew just over $14,000,000 driven primarily by increased personnel costs and agent related costs. The significant growth in the Exchange's premium drove increases in our production support costs as well, such as underwriting and policy processing. Technology investments continue, although overall technology costs were lower as more development costs were capitalized in the Q1 of 2024 compared to the same period in 2023.

Speaker 3

Income from investments totaled $15,000,000 compared to a loss of nearly $5,000,000 in the Q1 of 2023. Net investment income was nearly $16,000,000 in the Q1 compared to just $2,000,000 in the same period of last year due to increased limited partnership earnings and higher bond income. As always, we take a measured approach to capital management and we maintain a strong balance sheet. And for the 1st 3 months of 2024, our financial performance has enabled us to pay our shareholders over $59,000,000 in dividends. With that, I'll turn the call back over to Tim.

Speaker 3

Tim?

Operator

Thanks, Julie. As I've mentioned in previous calls, migrating our legacy technology platforms has been a top priority for us and continues to be in 2024. I'm pleased to share that we successfully modernized more than 1 third of the legacy applications we've had in place and we're also working to sunset those older systems as appropriate. This work is tied directly to another key priority, expense management. Upgrades and newer platforms can eliminate many of the inefficiencies and delays created by the older systems.

Operator

One example of a process that's recently been tightened, thanks to modernization, is with the desk review method of inspection for claims. Desk review process often resulted in long cycle times for customers, agents and employees due to a lack of data integration, causing delays or obtaining estimates. Now agents and customers can use the photo appraisals rule and list of established direct repair program or DRP shops within their online account to determine the appropriate method of inspection during their auto claims. This results in faster claims times often cutting days out of the process. The face of change is a topic that both challenges and energizes us, whether we're talking about platforms, processes, products or our people.

Operator

If you regularly tune into our earnings calls, you may recall that last year we announced a new approach we'd be taking to our hybrid workforce starting in 2024. Hybrid employees who make up roughly 60% of our workforce now have a bank of 52 remote workdays to use each year when they choose. Since beginning this new approach in January, we're pleased with how it's helping to create greater vibrancy in our offices and collaboration across teams. We continue to learn and make changes to further improve the in office experience for employees, including new conference room technology and facility improvements. And to support our sustainability efforts, we're installing energy kiosks across our home office campus to track and share the performance of each building, including electricity, natural gas and water consumption.

Operator

Employees will be able to see how Erie compares to other commercial buildings with similar usage and size, helping us to stay accountable for our energy use and keeping on top of mind for our workforce. Sustainability is one aspect of our commitment to being a good corporate citizen. We also continue to invest in the communities where we do business, helping us to build trust and relationships and reinforce our commitment to service. Recently, we announced 24 grants totaling close to $1,000,000 for education focused nonprofits as part of Pennsylvania's Education Improvement Tax Credit Program. The grants will help nonprofits offer and expand educational programs to pre kindergarten through 12th grade students, in particular, low income underserved and minority students in Northwest Pennsylvania.

Operator

Erie has donated more than $11,000,000 through the EITC program since it began in 2,001. In the support of the revitalization work underway in our hometown on Pembury, Pennsylvania, Berry Insurance recently provided a $1,000,000 loan with plans to provide additional support in the future for a project that will transform Erie's tallest building, Renaissance Center at Tempton State. Funds will help with plans to renovate this downtown landmark into an upscale hotel with space for restaurants, offices and public gatherings. This is an exciting project for Erie and complements the other work and investments underway downtown that we've also supported. It's all aimed at creating a vibrant community to work and live, so we can continue to attract and retain diverse and high quality talent that will position us for success in our next century.

Operator

I feel a great sense of pride for where we are today. We're poised to move into our next century with a strong employee and agency force, an impressive book of business and robust and contemporary technology platforms. We're prepared to weather continued challenges through thoughtful and proactive planning and we're devoted to keeping our long standing principles alive in ways that will continue to set us apart in the future. As always, I'd like to thank you for listening in today and for your continued interest in Erie.

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Key Takeaways

  • Erie’s quarterly combined ratio improved to 106 in Q1 2024 from 122.7 a year ago, driven by higher rate increases and lower weather-related claim severity.
  • Direct and assumed written premium grew 19% year-over-year, with new business premium up 32.4%, policies in force rising 7.1% and a retention ratio of 91.2%.
  • Net income increased to $125 million (or $2.38 per diluted share) versus $86 million (or $1.65 per share) in Q1 2023, while operating income rose more than 25% to $139 million.
  • Technology modernization remains a priority, with over one-third of legacy applications migrated, enabling faster auto claims processing and improved expense management.
  • Erie continued community and sustainability efforts, including $1 million in education grants through the EITC program, a $1 million loan for downtown hotel redevelopment, and installation of energy kiosks across its home office campus.
AI Generated. May Contain Errors.
Earnings Conference Call
Erie Indemnity Q1 2024
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