Q2 2020 Erie Indemnity Co Earnings Call

This call is call it was pretty quickly and there will be no question and answer session. Following the recording.

Now I'd like to introduce your host brick the call.

Vice President of Investor Relations, Scott Beilharz you May proceed.

Thank you and welcome everyone.

We appreciate you joining us for the recorded discussion about our 2022nd quarter results.

This recording will include remarks from Timna Castro, President and Chief Executive Officer, and Greg 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 web site your insurance Dot com.

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

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

These risks and uncertainties may cause results to differ materially from those described in his 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 FCC dated July Thirtyth 2020 and into related press release.

This prerecorded call is the property of your indemnity company. It may not be reproduced or rebroadcast by any other party without the prior written consent of your indemnity company.

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

Thanks, Scott and thank you everyone for your time today and your interest in your second quarter results.

Before we talk about our quarterly financials on the contract on a couple of topics that are certainly top of mind for us.

More importantly as people.

First the pandemic.

As we krona viruses spread and states opens up quickly all of the city or even grateful to the health care professionals in the central workers, who deliver everyday recurring Gary.

Some of your actions we've taken regarding remote work haven't taken to protect their employees helps them the spread of the disease and its impact on the healthcare system or community.

Well the majority of EUR 6000 employees continue to work remotely we have a few hundred isn't for workers, who are mean onsite throughout our 12 state footprint.

These the employees maintaining or network in data systems facilities in construction teams and handling cast processing. Another critical functions I can only be performed on site.

Together with more than 13000 Erie licensee our employees wherever they are working are consistently delivering leverage promise of service throughout these trying times.

As we shared with you May proceed work for customers and $400 million in for meaningful relief for our personal and commercial automobile customers.

This included $200 million also were dividends and an overall, 5% reduction for those policies.

Well 2.5 million dividends next root for more than 1400 customers, who responded with regards to letters and emails banking Erie our agents.

Most notably the sex with averaged about $75 meaningful difference from helping with the weekly grocery bill to affirming there's asleep movement business with.

I wanted to share one comment from the customer Wisconsin.

Not only group of dividends that could bring a smile them includes almost like a risk than from.

Let me see Flowery road, but recall, it's going on their country Lumigan greater.

The customer also told US this will deliver dividend to local who's going to retail per neighbors hit, especially hard by that.

Greenco crisis.

He is actually one of many customers, who said they would pay us toward donates or dividend the liquidity coverage.

Our agents and stepped up and begins to.

With more than $2 billion and can you really funding from Erie bolstering their efforts already helping you frontline workers first responders support local businesses viewed money nuclear doesn't need.

This important workers reflected in early 2000 stories here on social media.

Our employees routines elsewhere, we believe service we're planning on doing the right thing bolt on our meeting on the work every day as we grow our business and serve our customers.

Before we wouldn't rules I want to progress.

Log rose occur across our country and within our means that winds racism.

It's a conversation this opportunity as well with employees across the organization as we've gotten perspectives recruit positive crude or workloads when are we use.

Lets Conversely, food, we're committed to consumer.

But we would not tolerate racism or other corners and discrimination of any phone within our employees.

Yes.

But even on promoting evine live into its not.

Put simply we believe in the Golden rule.

Spread between all people with degree when does that.

Deserves.

Thank you it's important to you know where we storm.

Let's move on to the second quarter with one for results.

As you saw in our press release Cloud July Thirtyth read on the reported net income of $82 million dollar 57 per diluted share for the second quarter.

Let's address the property club industry, a second quarter results reflected the combined impact with the colder going keep on going up on a related political crisis.

I'm confident in our response.

Supportive in from some customers, one or ability to continue to grow, albeit at a slower pace.

As we moved up the current normal.

Our production is continuing to rebound as our engines with the health care system.

Adjusted for this new way of working well once again focused on growth.

Losses remain below normal levels stemming from a relatively mild screening across our territory.

Just the wide reduction of miles driven.

Overall, our principles of remains extremely solid slight tumultuous year, our country when our world has experienced.

Well talk more about our progress on key initiatives in the seamless retrograde provides a deeper review of our fundamentals.

Greg.

Thanks, Tim.

Good morning, everyone. Thank you for taking time today to be apart and the Erie Indemnity second quarter earnings call.

Sure Rowdier 95 years of operation, we face many challenges, including things outside of our control like the pandemic.

Through all these challenges our focus is on consistent delivery a superior service in products to our customers an agent.

At superior work environment for our employees.

And most relevant to today's discussion delivery of superior financial performance to our shareholders.

Starting with the exchange the insurance operations, we manage.

Direct written premium growth for the second quarter was 0.5%.

Driven by strong growth in renewal premium, which climbed almost 3% over the prior year.

With a combined ratio for the quarter of 95.7%.

And the improved financial markets experienced during the second quarter.

Exchanges policyholder surplus grew to $9.4 billion up substantially from $8.8 billion in the previous quarter.

Now shifting to indemnity in the second quarter Indemnitys net income was $82 million or $1.57 cents per diluted share.

Compared to $88 million or $1.68 cents per diluted share in the second quarter of 2019.

For the first half 2020, net income was $141 million or $2.70 per diluted share compared to $163 million or $3 in 12 cents per diluted share in the first half of 2019.

Operating income decreased 5.6% or $5 million in the second quarter 2020, compared to the second quarter of 2019.

And then they also saw a decrease in operating income of 3.2% or $6 million.

The first six months of this year compared to the first six months of last year.

And then these management fee revenue from policy issuance in renewals services increased $3 million or 1% in the second quarter 2020, compared to the second quarter of 2019.

For the first six months in 2020, indemnity saw an increase of $16 million or 2% compared to the first half of 2019.

Management fee revenue allocated to administrative services increased $600000 in the second quarter and $1.4 million in the first half of 2020 compared to the same periods in 2019.

Turning to indemnities cost of operations per policy issuance and renewal services.

Emissions increased $5 million into second quarter and $14 million for the first six months of 2020 compared to the same periods in 2019.

The increases in agent compensation in both periods were primarily driven by the increased incentive awards due to improved profitability, resulting from lower claims activity in 2020.

Also contributing to the increased commission costs for the first six months of 2020.

The 2% growth into direct and affiliate assumed premiums written by the exchange.

Non commission expense increased $4 million in the second quarter of 2020 compared to the second quarter of 2019.

Information technology costs increased by $2 million driven by increases in professional fees and hardware and software cost primarily to support remote or capabilities for our employees.

Sales in advertising costs increased by $2 million, primarily driven by new program to support agent charitable giving in response to the coded 19 pandemic.

For the first six months of 2020 indemnity saw an increase in the non commission expense of nearly $9 million driven by increases in technology costs of $5 million.

Underwriting and policy processing expenses of nearly $3 million.

And sales in advertising costs of $2 million.

All expense categories in our non commission expenses recorded increased personnel costs stemming from increased vacation expense accruals related to employees canceling are postponing vacation due to the cobot 19 pandemic.

Administrative and other expenses decreased a little over $2 million in the first six months.

Primarily driven by a decrease in long term incentive plan costs due to a smaller increase in the company stock price during the first six months of 2020 compared to the same period in 2018.

Income from investments before taxes totaled $12 million at the second quarter and $2 million in the first six months 2020.

Both the second quarter and the first six months of 2020 were impacted by market volatility brought on by the Cobot 19 pandemic.

In closing I want to reiterate that we continue to take a measured approach to capital management and diligently maintained a strong balance sheet.

For the first six months in 2020 are solid performance has enabled us to pay our shareholders nearly $90 million in dividends.

Thank you again for your time today now I'll turn the call back over to Tim.

Thanks, Greg.

With a strong financial position Erie remains well equipped for continued investment in our operations per service capabilities and in our competitive position, which is critical as economic contraction continues.

Our teams continues execution initiatives that will make a positive difference for our agency customers this year and beyond.

What are the most significant deliveries plan for this year will come in August with the launch of the streamline commercial multi peril products called restrict your business.

In addition to new coverages to Chronicle come with a new platform that will create efficiencies in our agents.

Customers will have the benefits of is easy to understand package of protection.

Valuable risk management services and clean support.

Starting next month Erie family life, when you reduce a new issue the issue life insurance product that provides our agents with easy to sell competitive terms whole life product boxes to complement a personal auto policies.

Point of sale for the product will occur within agents workflow recording a personal auto policy or endorsement, which we believe will empower mortgages, so life insurance to more customers.

We continue to roll out refresh your E rate lock products to customers and more seats as rubthirty agents enforced seats are offering this more competitive products, which provides customers the ability to lock in their auto rate until we've made a qualifying change.

This refresh along with plans to reduce auto insurance rates overall created even stronger long term competitive position for our agents to support both new and renewal business.

Early results are positive.

Allocations are up 10% in states, where the new Jersey Rewalkers offered.

We also continue to evolve our service offerings to ensure that we meet our customers where they are and the waste they want to receive service.

We recognize that for many customers that can change by the need other day, even by the hour.

One of enhancement, we've seen pick on greater importance in recent months pace. The service delivers prepayments directly to customers bank accounts in as little as 30 minutes.

In Erie was one of the first insurers to offer this option.

And just recently, we had a milestone with more than $100 billion, including statements made to repay.

That's some reflects more than 35000 transactions, which we expect will continue to grow.

Currently more than one for eligible claims is now paid through you pay.

Before we close I want to share a few accolades earned by area since our first quarter call.

First.

Are you moved up five spots in the 2020 Fortune 500 list of the largest American corporations from 381 to 376 based on total revenue from the 2019 fiscal year.

Our ranking among this prestigious group for the past 17 years speaks to very strong financial position and our commitment to service.

Additionally, the credit rating agency am best affirmed the financial strength rating plus superior.

The property casualty members of Erie Insurance group.

He has retained at least an a plus rating for more than 80 years in a row.

Our ratings from impasse, reflecting very strong balance sheet and operational performance. In addition to favorable risk business profile in appropriate enterprise risk management.

The agency also affirmed the excellent rating of Erie family Life Insurance company.

Lastly, im very pleased to share that Erie Center of excellence team earned certification from benchmark portal.

This is one of the most respected awards customer service and support industry.

The certification reflects the team's hard work commitment to collaboration with our customer here in first and most of last call center teams to bring stronger David driven decision, making.

Both of these areas customer care and first elusive loss also certifications from benchmark portal, creating a trifecta of superior service.

In closing these are unusual times before.

I couldn't be more proud of our team at YRI in our agents for their commitment and hard work and adaptability during these times.

It makes a difference for all of us associated with Uri.

Thank you for your continued interest in hearing.

Please take care and stay safe.

Ladies.

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

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