Erie Indemnity Company
Q1 2016 Earnings Call Transcript

Published: 29 Apr 2016

[Operator:]

Good morning and welcome to the Erie Indemnity Company First Quarter 2016 Earnings Conference Call. I would like to introduce your host for today's call, Mr. Scott Beilharz, Vice President of Investor Relations. Sir, you may begin.

[Scott Beilharz:]

Thank you, [Sahid], and welcome everyone. We appreciate you joining us for today's discussion about the 2016 first quarter results. Joining me today are Terry Cavanaugh, President and Chief Executive Officer; Greg Gutting, Interim Executive Vice President and Chief Financial Officer; and Sean McLaughlin, Executive Vice President and General Counsel. 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. We will start the call today with opening remarks from Terry and Greg and then we will open the call for your questions. 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. 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-K filing with the SEC dated April 28, 2016 and in the related press release. Also during this call, we may discuss non-GAAP measures. A reconciliation to the GAAP-based results can be found in our Form 10-Q that was filed with the SEC yesterday. This call is being recorded and recording 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. A replay will be available on our website today after 12

[Terry Cavanaugh:]

Thank you, Scott, and good morning everyone. Last week, we held our annual meeting of shareholders and wrapped up our 90th anniversary year. As I noted in the meeting, it was truly a complete year for Erie. The collaborative work and strong execution of our Erie employees and agents in 2015 resulted in financial and operational success across the organization. As we entered 2016, we continued to build on that success, producing strong profitable growth. Net income was $46 million or $0.87 per share in the first quarter of 2016 compared to $39 million or $0.74 per share in the first quarter of 2015. This growth was driven by increased net revenue from operations. Greg will discuss our first quarter results in more detail. Throughout our 2016 we will remain focused on execution around our product portfolio and service platforms. In each of our product lines we know there's opportunity for new and existing customers. We're providing agents with the resources to take advantage of cross-selling potential. We're helping our agents identify customers with standalone Erie products, recognizing their need for additional or different insurance protection. The goal is to ensure our customers have total coverage with Erie while maximizing the agency relationship. To provide that kind of inclusive coverage, we're looking to our current customers and evolving -- for their evolving needs. As you know, last year we introduced a number of new or enhanced products across all lines

[Greg Gutting:]

Thank you, Terry. As Terry mentioned, our first quarter results continued to build on the success we had in 2015. Net income was $0.87 per diluted share compared to $0.74 in the first quarter of last year. This growth was driven by increased revenue from operations and lower expense growth. Revenue from operations grew by $24 million. This meaningful top line growth represents a 6.8% increase over the prior year period and it's consistent with the 7.1% increase in the direct and assumed premiums written by the exchange. For the quarter, cost of operations grew $8.7 million or 2.9% to $307 million. Commission expense grew $15 million or 7.7%, primarily driven by the direct and assumed written premiums of the exchange and higher agent incentive costs related to profitable growth. Non-commission expenses decreased $6.3 million in the first quarter of 2016 compared to the first quarter of 2015. For the quarter information technology costs decreased $4.7 million due to decreased professional fees. Administrate and other costs decreased $2.6 million due to a decrease in personnel costs. For the quarter, net revenue from operations before taxes totaled $68 million, up $15 million over the prior year quarter. Revenue growth outpaced expense growth, increasing our gross margin to 18.1% compared to 14.9% in the first quarter of 2015. Indemnity’s investment income for the quarter was down $4 million compared to the same period in 2015. Of that $4 million decrease, $3 million represents a decrease in our limited partnership investment return. As a reminder, this portion of our portfolio is in run-off and continues to produce variable return. Finally, in the first three months of 2016 we are pleased to have paid $34 million in dividends to our shareholders. I'll now turn the call back over to Terry.

[Terry Cavanaugh:]

Thank you, Greg. I think we’d like to now open up the call to any questions anybody might have.

[Operator:]

[Operator Instructions]

[Terry Cavanaugh:]

End of Q&A

[Terry Cavanaugh:]

All right. Not hearing any questions we will come up with my closing comments then. I want to thank you for your participation on the call this morning. We produced strong financial results this quarter. They were created by our long term execution and unwavering commitment to our customer service proposition and agency partnership philosophy. I look forward to working with my Erie colleagues and our great agents for the remainder the year as we build upon the strong strategy and effective execution. Thank you all for your time.

[Scott Beilharz:]

Thanks again for joining us. A recording of this call will be posted on our website erieinsurance.com after 12

[Operator:]

Ladies and gentlemen thank you for participating in today conference. This concludes our program for today. You may all disconnect. Have a wonderful day.