Erie Indemnity Reports Strong First Quarter 2014 Results - MSNewsNow.com - Jackson, MS

Erie Indemnity Reports Strong First Quarter 2014 Results

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SOURCE Erie Indemnity Company

Net Income per Diluted Share Up 26.6 percent, Earnings Up 25.7 percent

ERIE, Pa., May 1, 2014 /PRNewswire-FirstCall/ -- Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the quarter ending March 31, 2014.

Erie Insurance.

"We are off to a good start in 2014," said Terry Cavanaugh, president and chief executive officer. "Thanks to the efforts of our dedicated employees and loyal agents, we continued to build upon the significant positive momentum we created throughout 2013."

Net income attributable to Indemnity was $46 million, or $0.88 per diluted share, in the first quarter of 2014, compared to $37 million, or $0.69 per diluted share, in the first quarter of 2013.  This growth was driven by increased revenue from management operations, lower expense growth, and increased equity in earnings of limited partnerships.

 


1Q 2014 Highlights - Results of the Erie Insurance Group's Operations(1)







Indemnity
shareholder
interest

Noncontrolling
interest
(Exchange)

Elimination of
related party
transactions

Erie
Insurance Group

(dollars in millions)

1Q'14

1Q'13

1Q'14

1Q'13

1Q'14

1Q'13

1Q'14

1Q'13

Management operations

$

58


$

49


$

-


$

-


$

(51)


$

(42)


$

7


$

7

Property and casualty insurance operations(2)

-


-


(104)


11


54


45


(50)


56

Life insurance operations(2)

-


-


13


11


0


0


13


11

Investment operations

11


7


178


358


(3)


(3)


186


362

Income from operations before income
     taxes and noncontrolling interest

69


56


87


380


-


-


156


436

Provision for income taxes

23


19


24


127


-


-


47


146

Net income

$

46


$

37


$

63


$

253


$

-


$

-


$

109


$

290

















(1)

The consolidated financial statements of Erie Indemnity Company ("Indemnity") reflect the consolidated results of Indemnity and the Erie Insurance Exchange ("Exchange"), which we refer to collectively as the "Erie Insurance Group." Indemnity, or Indemnity shareholder interest, refers to the interest in Erie Indemnity Company owned by the Class A and Class B shareholders. The Exchange refers to the noncontrolling interest held for the interest of the subscribers (policyholders), and includes its interest in its property and casualty subsidiaries and Erie Family Life Insurance Company ("EFL").

(2)

All property and casualty and life insurance results accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest.

 

Management Operations

Revenue from management operations increased $23 million, or 7.5 percent, in the first quarter of 2014, compared to the first quarter of 2013.  Direct written premium of the property and casualty insurance operations, upon which the management fee is calculated, increased 7.8 percent in the first quarter of 2014, due to a 4.7 percent increase in policies in force and a 4.2 percent increase in the year-over-year average premium per policy at March 31, 2014.  The management fee rate was 25 percent for both the first quarters of 2014 and 2013.

Commissions increased $10 million, or 6.0 percent, in the first quarter of 2014, compared to the first quarter of 2013, primarily due to the 7.8 percent increase in direct written premium of the property and casualty insurance operations.  This increase was partially offset by a slight decrease in other projected agent compensation.

Non-commission expense increased $4 million, or 3.6 percent, in the first quarter of 2014, compared to the first quarter of 2013.  Personnel costs increased $2 million, driven by a $3 million increase in salaries and wages, offset by a $1 million decrease in pension expenses.  All other operating costs increased $2 million.

 

Management Operations




Indemnity
shareholder
interest

(dollars in millions)

1Q'14

1Q'13

Management fee revenue, net

$

319


$

296


Service agreement revenue

7


7


Total revenue from management operations

$

326


$

303


Commissions

$

174


$

164


Non-commission expense

94


90


Total cost of management operations

$

268


$

254


Income from management operations before taxes

$

58


$

49


Gross margin

17.9

%

16.1

%






Investment Operations

Income from investment operations before taxes totaled $11 million in the first quarter of 2014, compared to $7 million in the first quarter of 2013.  Equity in earnings of limited partnerships increased $3 million and net realized gains on investments increased $1 million.

 

Investment Operations




Indemnity
shareholder
interest

(dollars in millions)

1Q'14

1Q'13

Net investment income

$

4


$

4


Net realized gains on investments

1


0


Net impairment losses recognized in earnings

0


0


Equity in earnings of limited partnerships

6


3


Income from investment operations before taxes

$

11


$

7







 

Corporate Activity

On April 15, 2014, Indemnity's Board of Directors approved a quarterly cash dividend of $0.635 per Class A common stock, payable on July 18, 2014, to shareholders of record at the close of business on July 3, 2014.  This dividend rate represents a 7.2 percent increase over the quarterly dividend rate paid in 2013.

In the first quarter of 2014, Indemnity repurchased 157,899 shares of its outstanding Class A nonvoting common stock at a total cost of $11.0 million, based upon trade date, in conjunction with its current stock repurchase program.  For the year through April 18, 2014, 208,619 shares were repurchased under this program at a total cost of $14.6 million.  As of April 18, 2014, Indemnity had approximately $22 million in repurchase authority remaining under the existing stock repurchase program.

Webcast Information

Indemnity has scheduled a conference call and live audio broadcast on the Web for 10:00 AM ET on May 2, 2014.  Investors may access the live audio broadcast by logging on to www.erieinsurance.com.  Indemnity recommends visiting the website at least 15 minutes prior to the webcast to download and install any necessary software.  A webcast audio replay will be available on the Investor Relations page of the Erie Insurance Group's website by 12:30 PM ET.

About the Erie Insurance Group

According to A.M. Best Company, Erie Insurance Group, based in Erie, Pennsylvania, is the 14th largest homeowners insurer and 12th largest automobile insurer in the United States based on direct premiums written and the 18th 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 over 4.8 million policies in force and operates in 11 states and the District of Columbia.  Erie Insurance Group is a FORTUNE 500 and Barron's 500 company and is proud to be recognized on the list of Ward's 50 Group of top performing insurance companies, which analyzes the financial performance of 3,000 property and casualty companies and recognizes the top performers for achieving outstanding results in safety, consistency and financial performance over a five-year period (2008-2012).

News releases and more information about Erie Insurance Group are available 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, agency relationships, 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:

Risk factors related to the Indemnity shareholder interest:

  • dependence on Indemnity's relationship with the Exchange and the management fee under the agreement with the subscribers at the Exchange;
  • costs of providing services to the Exchange under the subscriber's agreement;
  • ability to attract and retain talented management and employees;
  • ability to maintain uninterrupted business operations;
  • factors affecting the quality and liquidity of Indemnity's investment portfolio;
  • credit risk from the Exchange;
  • Indemnity's ability to meet liquidity needs and access capital; and
  • outcome of pending and potential litigation against Indemnity.

Risk factors related to the non-controlling interest owned by the Exchange, which includes the Property and Casualty Group and EFL:

  • general business and economic conditions;
  • dependence upon the independent agency system;
  • ability to maintain our reputation for customer service;
  • factors affecting insurance industry competition;
  • changes in government regulation of the insurance industry;
  • premium rates and reserves must be established from forecasts of ultimate costs;
  • emerging claims, coverage issues in the industry, and changes in reserve estimates related to the property and casualty business;
  • changes in reserve estimates related to the life business;
  • severe weather conditions or other catastrophic losses, including terrorism;
  • the Exchange's ability to acquire reinsurance coverage and collectability from reinsurers;
  • factors affecting the quality and liquidity of the Exchange's investment portfolio;
  • the Exchange's ability to meet liquidity needs and access capital;
  • the Exchange's ability to maintain acceptable financial strength rating;
  • outcome of pending and potential litigation against the Exchange; and
  • dependence upon the service provided by Indemnity.

A forward-looking statement speaks only as of the date on which it is made and reflects Indemnity's analysis only as of that date. Indemnity undertakes 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

Consolidated Statements of Operations

(dollars in millions, except per share data)



Three months ended
March 31,



2014


2013

Revenues


(Unaudited)

Premiums earned


$

1,288



$

1,175


Net investment income


109



103


Net realized investment gains


56



249


Net impairment losses recognized in earnings


0



0


Equity in earnings of limited partnerships


50



36


Other income


8



8


  Total revenues


1,511



1,571


Benefits and expenses







Insurance losses and loss expenses


1,034



842


Policy acquisition and underwriting expenses


321



293


  Total benefits and expenses


1,355



1,135









Income from operations before income taxes and noncontrolling interest


156



436


Provision for income taxes


47



146


Net income


$

109



$

290









Less: Net income attributable to noncontrolling interest in consolidated entity – Exchange


63



253









Net income attributable to Indemnity


$

46



$

37
















Earnings Per Share







Net income attributable to Indemnity per share







Class A common stock – basic


$

0.99



$

0.78


Class A common stock – diluted


$

0.88



$

0.69


Class B common stock – basic and diluted


$

149



$

117









Weighted average shares outstanding attributable to Indemnity – Basic







Class A common stock


46,402,270



46,774,968


Class B common stock


2,542



2,542









Weighted average shares outstanding attributable to Indemnity – Diluted







Class A common stock


52,598,211



52,960,165


Class B common stock


2,542



2,542









Dividends declared per share







Class A common stock


$

0.6350



$

0.5925


Class B common stock


$

95.2500



$

88.8750


 


 


Erie Indemnity Company

Results of the Erie Insurance Group's
Operations by Interest (Unaudited)

(in millions)

 



Indemnity

shareholder interest


Noncontrolling interest

(Exchange)


Eliminations of related
party transactions

Erie Insurance Group



Three months ended
March 31,


Three months ended
March 31,


Three months ended
March 31,


Three months ended
March 31,



2014

2013


2014

2013


2014

2013


2014

2013

Management operations:





















Management fee revenue, net


$

319


$

296



$

-


$

-



$

(319)


$

(296)



$

-


$

-


Service agreement revenue


7


7



-


-



-


-



7


7


Total revenue from management operations


326


303



-


-



(319)


(296)



7


7


Cost of management operations


268


254



-


-



(268)


(254)



-


-


Income from management operations before taxes


58


49



-


-



(51)


(42)



7


7


Property and casualty insurance operations:





















Net premiums earned


-


-



1,268


1,156



-


-



1,268


1,156


Losses and loss expenses


-


-



1,007


817



(1)


(1)



1,006


816


Policy acquisition and underwriting expenses


-


-



365


328



(53)


(44)



312


284


(Loss) income from property and casualty insurance operations before taxes


-


-



(104)


11



54


45



(50)


56


Life insurance operations: (1)





















Total revenue


-


-



50


46



0


0



50


46


Total benefits and expenses


-


-



37


35



0


0



37


35


Income from life insurance operations before taxes


-


-



13


11



0


0



13


11


Investment operations: (1)





















Net investment income


4


4



84


79



(3)


(3)



85


80


Net realized gains on investments


1


0



50


246



-


-



51


246


Net impairment losses recognized in earnings


0


0



0


0



-


-



0


0


Equity in earnings of limited partnerships


6


3



44


33



-


-



50


36


Income from investment operations before taxes


11


7



178


358



(3)


(3)



186


362


Income from operations before income taxes and noncontrolling interest


69


56



87


380



-


-



156


436


Provision for income taxes


23


19



24


127



-


-



47


146


Net income


$

46


$

37



$

63


$

253



$

-


$

-



$

109


$

290




(1)

 Earnings on life insurance related invested assets are integral to the evaluation of the life insurance operations because of the long duration of life products. On that basis, for presentation purposes, the life insurance operations in the table above include life insurance related investment results.

 

Erie Indemnity Company
Reconciliation of Operating Income to Net Income

Reconciliation of operating income to net income

We disclose operating income, a non-GAAP financial measure, to enhance our investors' understanding of our performance related to the Indemnity shareholder interest.  Our method of calculating this measure may differ from those used by other companies, and therefore comparability may be limited.

Indemnity defines operating income as net income excluding realized capital gains and losses, impairment losses and related federal income taxes.

Indemnity uses operating income to evaluate the results of its operations.  It reveals trends that may be obscured by the net effects of realized capital gains and losses including impairment losses.  Realized capital gains and losses, including impairment losses, may vary significantly between periods and are generally driven by business decisions and economic developments such as capital market conditions which are not related to our ongoing operations.  We are aware that the price to earnings multiple commonly used by investors as a forward-looking valuation technique uses operating income as the denominator.  Operating income should not be considered as a substitute for net income prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and does not reflect Indemnity's overall profitability.

The following table reconciles operating income and net income for the Indemnity shareholder interest:

 



Indemnity Shareholder
Interest



Three months ended
March 31,

(in millions, except per share data)


2014


2013



(Unaudited)

Operating income attributable to Indemnity


$

45



$

37


   Net realized gains and impairments on investments


1



0


   Income tax expense


0



0


      Realized gains and impairments, net of income taxes


1



0


Net income attributable to Indemnity


$

46



$

37









Per Indemnity Class A common share-diluted:







Operating income attributable to Indemnity


$

0.87



$

0.69


   Net realized gains and impairments on investments


0.02



0.00


   Income tax expense


(0.01)



0.00


      Realized gains and impairments, net of income taxes


0.01



0.00


Net income attributable to Indemnity


$

0.88



$

0.69


 


 

Erie Indemnity Company

Consolidated Statements of Financial Position

(in millions)

 



March 31, 2014


December 31, 2013



(Unaudited)




Assets







Investments – Indemnity







Available-for-sale securities, at fair value:







Fixed maturities


$

502



$

526


Equity securities


35



50


Limited partnerships


145



146


Other invested assets


1



1


Investments – Exchange





Available-for-sale securities, at fair value:





Fixed maturities


8,379



8,162


Equity securities


852



819


Trading securities, at fair value


3,253



3,202


Limited partnerships


953



940


Other invested assets


20



20


Total investments


14,140



13,866









Cash and cash equivalents (Exchange portion of $335 and $403, respectively)


379



452


Premiums receivable from policyholders – Exchange


1,194



1,167


Reinsurance recoverable – Exchange


175



172


Deferred income taxes – Indemnity


0



2


Deferred acquisition costs – Exchange


558



566


Other assets (Exchange portion of $372 and $337, respectively)


485



451


Total assets


$

16,931



$

16,676









Liabilities and shareholders' equity







Liabilities







Indemnity liabilities







Other liabilities


$

422



$

476


Exchange liabilities





Losses and loss expense reserves


3,838



3,747


Life policy and deposit contract reserves


1,775



1,758


Unearned premiums


2,625



2,598


Deferred income taxes


492



450


Other liabilities


89



97


Total liabilities


9,241



9,126









Indemnity's shareholders' equity


742



734









Noncontrolling interest in consolidated entity – Exchange


6,948



6,816


Total equity


7,690



7,550


Total liabilities, shareholders' equity and noncontrolling interest


$

16,931



$

16,676


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