Q4 2019 Earnings Call - Pre-recorded

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.

Thank you and welcome everyone.

We appreciate you joining us for this recorded discussion about our 2019 fourth quarter result.

This recording one could remarks from Timna Castro, President and Chief Executive Officer, and Great Gutting, Executive Vice President and Chief Financial Officer.

Our earnings release, and financial supplement where she'd yesterday afternoon.

After the market close and our available within the Investor Relations section of our website your insurance Dot com.

Before we begin I would like to remind everyone that today's discussion may contain forward looking remarks, there's like the company's current views about future events.

These remarks are based on assumptions subject to known as expected risks and uncertainties.

These risks and uncertainties may cause results to differ materially from those described 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 February 27th 2020 and into related press release.

This prerecorded call at the property of hearing Denby company. It may not be reproduced or rebroadcast by neither party without the prior written consent of Erie Indemnity company.

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

Thanks, Scott you. Thanks, everyone for your interest in years performance in the fourth quarter of 2019 in our year end results.

The company has ended the year with sold financials well equipped to take on the new year, our 95th year of operations.

In our press release filed yesterday, we reported net income of $60 million or $1.14 per diluted share for the fourth quarter.

Comparing the fourth quarter of 2019 to 2018, we saw a decrease in net income of nearly $3 million. However for the total year 2019, we increased net income by nearly $29 million compared to 2018, driven by strong operating and investment income.

Greg will talk in more detail about the financial performance of Erie Indemnity company.

But first I'd like to share some highlights for the year for the Erie insurance exchange the insurance operations, we manage recognizing that a healthy exchange is an integral part of indemnity success.

In 2019, the exchange grew property casualty premium by 5.2% over 2000 $19 billion to $7.5 billion.

This result exceeds corning's industry growth forecast of 4.6%, making 12 straight years Irrs premium growth has outpaced the industry.

Driving Aries premium growth was a combination strong retention and higher average premium per policy, particularly in our commercial lines business.

Your next growth this past year came against the backdrop of highly competitive market.

As I shared on past calls.

Racing indices for the industry show that 2019, so one of the softest markets for auto insurance in the past two decades.

Have uri, we maintain a consistent sustainable approach that reinforces our reputation for reliability and stability.

And we make pricing decisions with care and a focus on long term profitability.

Both our customers and agents appreciate that stability as reflected in our strong retention rates consistently at or above 90%.

Finally.

We saw continued improvement in weather related losses throughout the second half of the year.

While catastrophe related claims were more in line with what we experienced in 2018 last year's active Springs storm season, and a higher severity of those claims grew up increased losses in 2019.

The exchange ended the year with a combined ratio of 105 compared to one or three in 2018.

Yes, we continue to grow policyholder surplus to 9.5 billion up nearly 900 million for the year that growth reflects strong investment returns.

Urease growth in a tough market reflects the driving the termination of our agents and our teams in sales marketing underwriting and products and of course, the strength of Irrs value proposition and protection in service demonstrated by our claims and customer service personnel.

I want to recognize and thank our agents and employees for their hard work. This past year, they've delivered meaningful ways for our customers our company and our communities.

These results of operations and balance sheet are healthy and position us well for successful 2020.

I will talk more about our 2019 progress in a few moments following Gregs review of the financials Greg.

Thanks, Dan.

As Tim mentioned, we saw solid performance during 2019, and we are positioned to have a successful 95th year in 2020, Despite a continued challenging market.

Im pleased to share with you both the quarterly and year end results.

Starting with the fourth quarter of 2019, net income was $60 million or $1.14 cents per diluted share compared to $62 million or $1.19 cents per diluted share in the fourth quarter of 2018.

Although the fourth quarter saw operating revenue increased $20 million operating income in the quarter decreased $6 million down 8.1% compared to the fourth quarter of 2018.

Management fee revenue from policy issuance and renewal services increased $17 million or 4.1% in the fourth quarter of 2019, driven by a 4.1% increase in the direct and assumed premiums rating of the exchange.

While total cost of operations from policy issuance and renewal services increased $23 million for the quarter.

Commission expenses increased $10 million as a result of the 4.1% increase in the direction assumed premiums written by the exchange.

Non commission expenses increased $13 million in the quarter compared to the fourth quarter of last year.

Information technology costs increased $6 million due to increased professional fees and hardware and software costs.

Administrative and other expenses increased $5 million, primarily due to increased personnel costs as well as several multiyear commitments, we made during the quarter to support community development initiatives.

And lastly, underwriting and policy processing costs increased $2 million due to elevated underwriting report costs and other policy acquisition costs.

Total pretax investment income in the quarter was nearly $7 million up $2 million compared to the same period in 2018, driven by an increase in net realized gains on investments.

Turning to the full year 2019 results net income was $317 million or $6.06 per diluted share compared to $288 million or $5.51 per diluted share in 2018.

Operating income before taxes increased $13 million or 3.8% in 2019 compared to 2018.

Management fee revenue earned on the direct and assumed premiums written of the exchange increased $94 million or 5.3% for the year.

Commissions paid to our independent agents increased $41 million in 2019 compared to 2018, resulting from a 5.2% increase in a direct and assumed premiums written by the exchange.

Somewhat offset by lower age incentive awards.

Related to less profitable business.

Non commission expenses in 2019 increased nearly $40 million compared to 2018.

Underwriting and policy processing costs increased $6 million and information technology costs increased $23 million due to an increase in professional fees and hardware and software costs.

Customer service costs increased $3 million due to an increase.

And credit card processing fees as well as personnel costs.

Finally administrative and other expenses increased $11 million driven by an increase in long term incentive plan costs due to a higher company stock price in 2019 compared to 2018.

As well as several multiyear commitments, we made to support community development initiatives.

The increase in non commission expenses was slightly offset by a decrease in sales in advertising expenses of $33 million.

Income from investments on a pre tax basis totaled $40 million for the year compared to $26 million in 2018.

The positive results were driven primarily by an increase in net realized gains of $8 million compared to 2018 as well as a $3 million increase in net investment income.

Lastly in 2019, we paid our shareholders dividends in the amount of $168 million ended in December of last year, Our board approved a 7.2% increase in the regular quarterly cash dividend for both class a in class B shares for 2020.

Now I'll turn the call back over to Tim.

Thanks, Greg.

We coupled our strong 2019 financials with steady progress on key initiatives during 2019.

We continue to invest in our areas of focus as I've shared on each of our calls this past year.

These four areas are critical to our future success, while we build on our longstanding business model and our deep commitment service.

Those four areas are first strengthening our business platforms and use of data.

Second continuing to enhance the Erie experience, we grew our customers agents and employees third identifying and developing new sources of revenue import preparing the workforce for the future.

We've invested heavily in platforms and data can be Erie experience two areas of focus that are closely linked.

Stronger platforms and use of data enables us to enhance the experience of our customers agents and employees.

Our recent accomplishments include moving nearly half of our legacy homeowners policies online to our contemporary Erie secure home product.

This is an ongoing transition is creating new efficiencies for Erie and our regions. While also expanding coverage options for customers. The transition has been largely seamless.

We also accelerated delivery of a refresh rate lock product in personal auto.

Rate lock offers customers the ability to lock in their auto insurance rate until they've made a qualifying change.

With this refresh rate lock will allow us to provide a more competitive rate to support our agents in pursuing new business more aggressively while we adhere to study as you go pricing philosophy and sound underwriting principles.

Agents in Pennsylvania, our largest premium volume state begin quoting the refresh product in January and early indications are positive.

The new version of rate lock will be rolled out two additional states throughout the year.

Well 2019 was a busy year for claims handling. It was also a year of reshaping the claims experience to better meet the needs of our agents and customers as we integrated digital capabilities with a human touch for this distinctly Erie.

On last quarter's call I spoke about our efforts to engage with our customers agents and employees to develop a deeper understanding of their needs and expectations.

That understanding as includes our strategy in planning around the experience and is reflected in recent deliveries through enhanced the services we provide.

For example in 2019, we introduced real time claim status online for our agents and in the fourth quarter, maybe that same functionality available to customers.

We are among only a handful of carriers or upper real time claim status symbol agents and customers.

And we do it while continuing to provide the personal carrying response of our customer service, including teams.

Additionally, our agents play an integral role in claim service.

They take more than 50% with the initial loss reports and our customers continue to express high satisfaction on our agents on bolt.

Having the ability to see more claims information online and a real time helps our agents better serve our customers.

Customer satisfaction with claims overall remains high based on ongoing customer surveys.

Responsiveness quality and caring or just a few of the common themes, we see and customer feedback whether it's in our surveys or an unsolicited e. mills in letters.

A customer and Tennessee shared this complement during a recent clean.

I was amazed with a quick turnaround from the time a reported by accident to the response of the adjuster and the receipt of the payment for repairs. There was no hassle and I'm glad I switch gear reinsurance.

Before we close I want to share with you. Some recent third party recognition that we're especially proud of.

First he reinsurance was named one of Forbes best employers for diversity for 2020.

This list recognizes 500 companies for their representation of diversity based on an independent anonymous survey of employees.

Ediary, we're committed to a diverse and inclusive workplace, we work hard to make sure. Our nearly 6000 employees feel supported and appreciated for they are for their unique attributes and for their contributions to our mission of protection and service.

The second recognition, we received comes from benchmark portal and industry leader in customer contact center best practices.

All in a lengthy process benchmark portal has certified use first notice of loss team as a center of excellence.

This honor reflects the commitment and effort of this team to serve our customers with real concern and compassion everyday.

Our first notice of loss team is often the initial contact our customers have with Erie reporting a clean.

The certification recognizes the Epo lpms performance beyond industry benchmarks for efficiencies and service.

Have been oil is very second call center to earn benchmark certification in 2017, our customer care operations was also recognized as the center of excellence.

Congratulations to our team and first notice of loss looks at a high bar for service and routinely exceed those expectations for the benefit of our customers agents and the company.

Thank you again for your time and interest in Erie.

Have a great day everyone.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating we now disconnect.

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