Q1 2020 Earnings Call - Pre-recorded
Good morning, and welcome to the Erie Indemnity Company first quarter 2020 earnings conference call. This.
This call with 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.
Good morning, and welcome to the urea Indemnities company.
First quarters 2020 earnings Conference call. Please call was pre recorded and there'll be no question answer session. Following the recording now I'd like to introduce your host for the call Vice President of Investor Relations.
Our hearts.
Thank you and welcome everyone.
I appreciate you joining us for this record discussion about a 2021st quarter results.
This recording liquidity marks from Tim Nicastro, President and Chief Executive Officer, and Greg Gutting, Executive Vice President and Chief Financial Officer.
Our earnings release in financial supplement where issued yesterday afternoon. After the market close and our available within the Investor Relations section of our website your insurance dotcom.
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.
Known and unexpected risks and uncertainties.
These risks and uncertainties that may cause results to differ materially from those describing these remarks.
For information on important factors may cause such differences.
Please see the safe Harbor statements and our form 10-K filing with the FCC dated may 7th 2020 and in the related press release.
This prerecorded call is the property of your indemnity company. It may not be reproduced or rebroadcast by neither party without the prior written consent of your indemnity company with that we will move on to Tim's remarks.
Thanks Scott.
Thanks to all of you for taking time to learn more about performance in the first quarter of 2020.
I hope you and your loved ones are healthy and staying safe.
These last few months have demanded a lot from all of us deeply impacting how we live how we work and how we connect with one another.
Our thoughts and prayers are with everyone that likely by the pandemic.
I wanted to extend our sincere appreciation for those serving on the front lines. The first responders in healthcare providers.
And to the workers on the job everyday making sure we have deliveries food and other universities.
I also want to express my gratitude to our nearly 6000 employees and the 13000 licensed agents, who make up Erie family.
As members on the central industry, all of US have adapted and adapted quickly to new ways of working and serving our customers.
Everyday our agents and customer care team have challenging conversations with our customers.
So I don't have lost loved ones.
Others are no longer working or facing the potential loss for the business. They built.
These complex situations not only require high level of care and empathy with our agents and employees are showing.
It also actions that will give our customers some relief and peace of mind in these uncertain times.
Let's talk more about how we're doing that before we get into the Irrs performance for the first quarter.
Next week, we'll start million policyholder dividends to our personal auto and commercial auto customers, providing roughly $200 million in immediate financial relief.
The dividend reflects the significant decline in both miles driven and auto insurance claims that we've seen across our territory due to stay at home directors.
This immediate relief represents about 30% of customers auto insurance for use over a two month period or a 5% of their annual premium.
The average annual premium for personal auto policy.
$1400, so that provides eligible customers and average dividend of $70.
The dividend is in addition to the rate reductions in personal and commercial auto insurance, which we announced last month.
The overall rate reduction is 5%.
So the impact will vary by state and individual customer.
These reductions are being implemented state by state.
Most will be effective in the third quarter with a few states falling in Q4.
Through the dividends in rate reductions will providing our customers are combined total of $400 million in both immediate relief and sustain support.
These actions build on the longstanding efforts of our agents and customer care team or working with customers one on one operating flexibility and billing and payments.
As well as the production that meets their individual needs.
We believe this multi pronged approach makes a more meaningful difference for our customers.
We've received a lot of customer feedback or Permian us.
The longtime customer from Pennsylvania wrote.
My customer Rep was very understanding of my concerns you help me changed my payment plan, the monthly, which I felt would be easier to budget.
I've been in Erie customer for almost 30 years and appreciate your share values and efforts during this time of uncertainty.
Our comprehensive package of really Doesnt and with our customers.
We're also providing additional financial support for the communities we serve.
We recently increased the amount of funding available to our field offices, and all regions to support charitable giving across our footprint.
And our in our hometown of Erie, Pennsylvania.
We're a leading partner in a fund established to support nonprofit organizations, helping local residents impacted by the pandemic.
All in areas provided almost $2.6 million to trouble works throughout our territories since March.
Our agents and employees have stepped up in big ways to.
Leading first responders and healthcare workers in partnership with local restaurants.
I'm going to purchase gift cards give to those on the front lines, while also supporting businesses and their community.
Many of donated cash and much unit supplies like face masks.
While the majority of our workforce is now remote our claims teams continue to serve customers in the field and the limited number of essential employees are reporting to our offices across our footprint.
These employees are performing work critical to our operations and we believe that extra level of commitment should be rewarded.
We are providing up to an extra $500 in biweekly compensation for these employees.
Lastly, we have extended assistance to our agents to help maintain agency revenue through our Commission protection program.
Program provides an interest free loan to fill the gap between Erie commissions earned in March and those are in April may and June.
These immediate and long term actions to support our customers agents employees in communities are guided by our 95 year commitment to being above all in service.
We're very fortunate to have strong financial foundation that allows us to offer that support when its needed most.
I will talk more about our response to the pandemic and progress on key initiatives in a few minutes following Gregs review of the financials.
Great.
Thanks, Tim.
Good morning, everyone and thank you for your time today.
I am happy to be sharing with you today, the first quarter financial results for Erie Indemnity company.
Before I begin I'd like to comment on the obvious.
These are unprecedented times and it isn't times such as these that are above all in service mantra is earned.
Tim shared with you earlier, the many ways in which we are responding to the coven 19 pandemic.
I want to assure you that because of the financial strength of both the Erie insurance exchange and Erie Indemnity company, we're well positioned to continue our mission in support of our customers agent employees and shareholders in this difficult time.
In fact on April Twentyth, the board of directors again approves the quarterly dividend of 96, and a half cent per class a share to be paid in July.
Also in April 20th Erie Indemnity company held its 90 Fiveth annual shareholders meeting.
Because of the current stay at home order in place in Pennsylvania, We held Ishares meeting virtually.
Although the meeting had a very different feel than years past. The message has continued outstanding financial results and superior financial strength, where the same.
Now, let's turn our focus to the first quarter results for 2020.
Starting with the exchange the insurance operations, we manage direct written premium growth for the first quarter was 3.5%.
While the combined ratio for the quarter was 95%.
Exchanges policyholder surplus remains strong at $8.8 billion down from $9.5 billion at the end of 2019 due to unrealized losses in the investment portfolio.
Now shifting to indemnity first quarter 2020, net income was $59 million or $1.13 cents per diluted share compared to $75 million or $1.44 cents per diluted share in the first quarter of 2019.
Operating income decreased $400000 or 0.5% in the first quarter 2020 compared to the first first quarter 2019 as the growth in total operating revenue fell just short of the growth in total operating expenses.
Indemnities management fee revenue for policy issuance and renewable services increased $13 million or 3% to $444 million in the first quarter of 2020 compared to the first quarter of 2019.
Management fee revenue allocated to administrative services increased $1 million or 5.9% to nearly $15 million in the first quarter 2020 compared to the same period last year.
Turning to indemnities cost of operations related to policy issuance and renewable services commissions increased $9 million in the first quarter of 2020 compared to the first quarter of 2019.
This was the result of the 3.5% increase in the direct and assumed premiums written by the exchange.
Non commission expense increased $5 million in the first quarter of 2020 compare to the first quarter 2019.
Underwriting policy processing expense increased $3 million, primarily due to increased personnel costs and underwriting report cost.
Information technology costs increased $3 million, primarily due to increased professional fees and personnel costs.
And administrative and other expenses decreased $2 million, primarily driven by a decrease in long term incentive plan cost due to a decrease in the company stock price in the first quarter of 2020 compared to an increase in the first quarter of 2019.
Losses from investments before taxes totaled $9 million in the first quarter of 2020 compared to income of nearly $10 million in the first quarter of 2019.
Net realized losses were $11 million in the first quarter of 2020 compared to net realized gains of $2.5 million in the first quarter of 2019.
The losses were driven by decreases in the fair value of equity securities due to significant financial market volatility, resulting from the cobot 19 pandemic.
Net impairment losses of $3 million in the first quarter of 2020 were also driven by the cobot 19, pandemics impact on the financial markets.
Okay losses from limited partnerships were almost $4 million in the first quarter of 2020 compared to losses of $1 million into first quarter of last year.
In closing I want to reiterate what I mentioned earlier, we are positioned well to handle these trying times.
Through our nearly 6000 employees and over 13000 agents across our footprint Erie Indemnity will remain.
Above all in service.
Now I'll turn the call back over to Tim Tim.
Thanks, Greg.
Corporate 19 has presented challenges unlike anything many of us experienced or expected.
With our strong financial position as Greg just reported we have a lot working in our favor ediary.
We now have the benefit of being passed the initial surprised that came in March we must be United States was directed to stay at home.
We since become accustomed to the rhythm of change of uncertainty.
Over the past several weeks, we show how well we can respond and adapt within just one week in March we grew our remote workforce from 34% or the 95%.
Our adjusted and central industry, and well, we and our agents have continued operations in service to our customers.
We are seeing impacts on our business as a result of the pandemic.
Starting with the topline we like the rest of the property casualty industry expect pressure on premium growth in 2022 to the economic challenges.
We are delivering on plans to assure our competitive position and the auto insurance market.
We also continue to invest in key initiatives to support our agents growth with Uri.
I'll talk more about some of those efforts and early results in a moment.
As always we continue to be disciplined in our spending and we'll make decisions that protect our strong financial foundation.
The other piece of our financial picture impacted by Cobot 19 is our losses.
Some states evade moves to expand the scope of business interruption.
And workers compensation to provide coverage for coated 19 related losses.
We continue to monitor those efforts and are working closely with our industry partners like the American property Casualty Insurance Association.
To make sure that our lawmakers and regulators have a complete understanding of the insurance model and the impacts of their decisions.
Our commercial customers and our agents are all small business owners.
We understand the challenges they face daily and the pain, they're feeling now.
We are doing what we can to help and continue to consider additional support through is difficult and unprecedented time.
It is critical Erie and our industry retreating retain a strong financial foundation.
So that we can be there for our customers with a protection and service we promise in every policy.
I'm really proud of our team our employees and agents are coming together and adapting quickly to this new environment.
In addition to the financial support I talked about earlier.
Enhancing some of our existing products and processes to create new opportunities for serving customers.
Core limited time Erie family life, our life insurance operation is offering many applications the past life insurance coverage without the requirement of an in person per medical exam.
To date 1400, 50 customers have exercised the offer.
For customers with our Erie secure home insurance coverage, we're now providing reimbursement for gift card balances that can no longer be used of of business closes.
This enhancement is being added at no additional cost.
We recently expanded digital capabilities for our customers so that requests for less complex changes can be made online.
This expansion builds on Aries online account platform, which continues to gain more and more active customers.
Providing additional self service capabilities also helped increase the caper capacity of our customer care team to focus on more complex customer needs.
We'll be taking this capability to agents next.
In late January we introduced a refresh of our every rig log product in Pennsylvania.
In February and March alone, Pennsylvania Auto applications were up 14% over last year, giving us a strong start in our largest state for premium volume.
Relook offers customers the ability to lock in their auto insurance rate until they've made a qualifying change.
The refresh provides a more competitive rates to help our agents pursue new business, while we adhere to our steady pricing philosophy and underwriting discipline.
Agents in Ohio, Tennessee in West, Virginia, recently started quoting refresh rate lock pricing with a positive initial response.
Additional states will give the same benefit throughout the year.
We are confident that the refresh coupled with the auto insurance rate reductions I mentioned earlier will create an even stronger long term competitive position for our agents to support both new and renewal business.
Additionally, we remain on track to deliver new products and enhance experienced for agents and customers in both commercial lines in life insurance.
In commercial lines, we're working towards delivery of the streamlined commercial multi peril product starting in September.
The products will include new coverages and employ a new platform, creating efficiencies for Erie and our agents.
For our commercial customers the product will provide an easy to understand package of protection backed by support for risk management.
And peace of mind, because the rate protections in service are there when needed.
Family Life is making strong progress on a transactional term life products written in a process similar to personal lines.
For customers that have an opportunity to protect loved ones financial well being at a fast easy process and at a price point that fits most budgets.
Last month, we marked a significant milestone urease history, our 90 Fiveth anniversary.
But these are normal times and along with other gatherings events and life in general our plans for celebration or on whole.
It was pandemic has changed so many aspects of how we live and work.
But it hasn't done though has dampened the Erie family Spirit.
I've seen amazing things happen in Uri over these past several weeks, we've more than doubled our remote workforce our customer care team has shown an extremely high level of compassion for our customers facing our ships.
Our cleans employees continue the necessary work to serve our customers.
And across here, we continue to challenge ourselves to do the right thing for our employees our agents for customers our communities and our shareholders.
I say this often and they see it because I truly believe it will.
We are all elements together.
And we'll get through this together.
Thank you for your continued interest in Erie.
Take care and Stacy.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
[music].
[music].
[music].