Erie Indemnity Company
Q4 2020 Earnings Call Transcript

Published: 26 Feb 2021

[Operator:]

Good morning, and welcome to the Erie Indemnity Company’s Fourth Quarter and Year-End 2020 Earnings Conference Call. This call was prerecorded, and there will be no question-and-answer session following the recording. Now I would like to introduce your host for the call, Vice President of Investor Relations, Scott Beilharz. Please go ahead.

[Scott Beilharz:]

Thank you, and welcome, everyone. We appreciate you joining us for this recorded discussion about our 2020 fourth quarter and year-end results. This recording includes remarks from Tim NeCastro, President and Chief Executive Officer; and Greg Gutting, 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.

[Timothy NeCastro:]

Thanks, Scott, and thanks to all of you for taking time to learn more about Erie's performance in the fourth quarter of 2020 and our year-end results. I hope you and your families are staying healthy and safe and are ready to move forward positively in 2021. Last year was unlike any other, it demanded a lot from us as individuals and as a company, and it deeply impacted how we live, how we work and how we connect with one another. The culture of Erie has been an incredible asset in helping us get through this together. And I would like to extend my sincere appreciation to the nearly 6,000 employees and 13,000 licensed agents who make up our Erie Family. They adapted seamlessly to the new ways of serving our customers and keeping our business thriving over the course of this uncertain and often challenging year. In March, as the threat of the pandemic became more clear, we equipped more than 95% of our employees to work from home in a matter of days. This was to keep them safe and to reduce the risk of exposure to the small number of dedicated employees whose roles require them to be in the office. I have received countless messages for members of the Erie Family expressing appreciation for the actions we have taken over the past year to keep their well-being a priority. In April, we provided $400 million in financial relief for our personal and commercial automobile customers, including $200 million in policyholder dividends and an overall 5% rate reduction for those policies. After the 2.5 million dividend checks were distributed, we heard from thousands of customers who responded with greeting cards, letters and emails, thanking Erie and our agents. To support communities across our geographic footprint, we provided an additional $2.5 million to agents and branch offices to support charitable work in local communities. Our agents and employees stepped up in good ways to help feed frontline workers and first responders, support local businesses and give money to charities in need. This important work was reflected in nearly 2,000 stories shared on social media.

[Gregory Gutting:]

Thank you, Tim. At this time a year ago, I began our year-end discussion by saying that our strong financial performance in 2019 would propel us forward in 2020. Then a month later, our world was turned completely upside down when the COVID-19 pandemic drastically altered our everyday lives and uncertainty of the future became the new normal. Despite the difficulty and challenge that 2020 presented, Erie delivered, and I’m proud to share with you our fourth quarter and full-year 2020 financial performance. Starting with the Exchange, the insurance operations we manage, direct written premium growth for the fourth quarter was 1%, driven by strong growth in new business premium, which climbed just over 11% compared to the fourth quarter of last year, while total year direct written premium grew almost 2%. I will remind you that the Exchange implemented $200 million in auto rate reductions that began in July of 2020 and will extend through June of 2021. These rate reductions impacted the rate charged on new and renewal policies. With a combined ratio for the quarter of 94.4% and the strong financial markets, the Exchange's policyholder surplus grew to $10.7 billion from $10 billion at the end of the third quarter. The Exchange's total year combined ratio ended significantly better compared to 2019 at 93.7% compared to 105% a year ago. Shifting our focus to Indemnity, net income was $63 million or $1.20 per diluted share compared to $60 million or $1.14 per diluted share in the fourth quarter of 2019. 2020 total year net income was $293 million or $5.61 per diluted share compared to $317 million or $6.06 per diluted share in 2019. Operating income in the fourth quarter decreased nearly $4 million or 5.3% compared to the fourth quarter of 2019. Comparing year-over-year results, Indemnity's operating income decreased a little over $19 million or 5.4%. Management fee revenue from policy issuance and renewal services increased $5 million or 1.2% in the fourth quarter of 2020 compared to the fourth quarter of 2019 and $31 million or 1.7% for the total year compared to 2019. The increase for the fourth quarter and for the year were driven by an increase in the direct and assumed premiums written by the Exchange. The total cost of operations from policy issuance and renewal services increased $9 million for the quarter and $51 million for the total year 2020. Commission expenses for the fourth quarter grew $6 million, while the total year commission expense increased nearly $27 million.

[Timothy NeCastro:]

Thanks, Greg. As we enter 2020, we are pleased to deliver on several key initiatives in support of our strategic focus areas

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

[End of Q&A:]