Q3 2020 Erie Indemnity Co Earnings Call (pre-recorded)
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Good morning, and welcome to the Erie Indemnity Company third quarter 2020 earnings Conference call.
This call is being recorded and there will be no question answer session. Following the recordings.
Now I'd like to introduce your host for this call Vice President of Investor Relations Scott Beilharz.
Thank you and.
And welcome everyone.
We appreciate you joining us for this recorded discussion about our 2023rd quarter results.
This recording will include remarks from Tinder Castro.
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 Erie insurance dotcom.
Before we begin I would like to remind everyone that Dave 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 these differences.
Please see the safe Harbor statements in our form 10-Q filing with the SEC dated October 29 two.
2020.
And in the related press release.
This pre recorded call is the property of Erie Indemnity company it.
You may not be reproduced or rebroadcast by any other party without the prior written consent of your indemnity company.
With that we will move on to Tim's remarks.
Thanks, Scott and thanks to all of you for taking the time to learn more about Irrs performance in the third quarter of 2020.
It's hard to believe it's been more than seven months since COVID-19 change the way, we live and work all of US at YRI remain grateful for those keeping our health care system and economy in good standing by providing essential services and more recently to the teachers, who are navigating this new and challenging territory over virtually in the classroom there.
They are all very deserving of our appreciation and our respect.
Here's an area, where the 95% of our workforce continues to work from home both for their protection and that of the employees, who continue to report our offices to perform a central duties across our call state footprint.
I'm proud to Echo something I mentioned last quarter even.
Even with this new way of working our productivity has not wavered I'm continually impressed with how well our nearly 6000 employees and 13000 licensed Erie agents have been able to adapt to new challenges and demands presented by the pandemic, while continuing to focus on production innovation.
And of course, delivering our trademarks service.
And while some of our competitors have announced significant workforce reductions over the past few months.
We've been able to maintain or 95 year track record of security and stability for our employees through proactive cross training in areas like underwriting and customer care.
Along with our employees our agents have also been been able to maintain profitable growth and production, while adapting to a new way of working.
That is evident in our premium growth, which continues to outpace the overall industry as you learn more about in a few minutes.
We're facing a very competitive environment.
If the demand for digital capabilities was high before the pandemic now it's reached a fever pitch.
Given those weren't necessarily comfortable with digital tools are now using them out of necessity.
All carriers are working to hone their virtual capabilities.
Well the pandemic has brought digital to the forefront. It also placed a renewed importance on something that can't be found behind the screen.
And thats the human touch in the absence of it.
Human touches become even more powerful.
And along with our employees, who embrace our service promise everyday but people who are delivering the human touch to our customers are the independent agents, who represent Erie in their local communities.
They offer something that many carriers lack but customers crave.
Our agents and the dedication that had the Erie is the number one thing that sets us apart from our competition.
Let's move on to our third quarter financial results.
As you saw in our press release filed after the market closed yesterday Erie Indemnity reported net income of $89 million or $1.71 per diluted share for the quarter.
As I noted earlier, despite the competitive and challenging environment. We faced this year, we are outpacing the industry and premium growth.
While cleaning has forecasted industry premium growth of 0.3% for 2020.
We currently stand at 2% for the year.
Once again this was a testament to the hard work and agility of our sales team and agency force, who remain focused on profitable growth and retention over the past several months.
On the claim side losses remained below normal levels. This stems from a relatively uneventful summer in terms of weather events across our territory as.
As well as an industry wide reduction in miles driven.
Overall, our financial position remains solid despite the unprecedented year change, we're experiencing nationally and globally.
I'll talk more about progress on some key products and initiatives in a few minutes after Gregs review of the financials.
Greg.
Thanks, Tim.
Good morning, everyone.
Thank you for taking time today to be a part of the Erie Indemnity Companys third quarter earnings call.
Last quarter I spoke to you about Gary continually delivering superior performance, even when facing a global pandemic.
I spoke to you regarding our duty to provide best in class products for our agents Thats.
Safe work environment for our employees.
And strong financial performance for our shareholders.
I can proudly say that through the Amazing example, Tim has provided.
In the financials that I will address we have yet again delivered in each area for our key stakeholders.
Even in a time of immense uncertainty.
This month eerie reached a major milestone.
Celebrating 25 years on the NASDAQ stock exchange.
We are proud of the success and the growth that we have achieved not.
Not only for our company, but for our shareholders as well.
Thank you for your continued investment in area.
Now I'd like to share with you our third quarter results.
Starting with the exchange the insurance operations, we manage direct written premium growth for the third quarter was 2% driven by strong growth in new business premium, which climbed 10% over the prior year.
With a combined ratio for the quarter of 89.6% the exchanges policyholder surplus grew to almost $10 billion up substantially from 9.4 billion in the previous quarter.
Now shifting to the indemnity company.
In the third quarter Indemnitys, net income was $89 million or $1.71 cents per diluted share.
Compared to $94 million or one dollar an 80 cents per diluted share in the third quarter of 2019.
For the first nine months of 2020, net income was $231 million or $4.41 per diluted share compared to $257 million or $4 to 92 cents per diluted share in the first nine months of 2019.
Operating income before taxes decreased 9.1% or $10 million in the third quarter of 2020 compared to the third quarter 2019.
And then they also saw a decrease in operating income before taxes of 5.4% or $16 million in the first nine months of this year compared to the same period in 2019.
Indemnitys management fee revenue per policy issuance at renewal services increased $10 million or 2.1% in the third quarter of 2020 compared to the third quarter of 2019, while for the first nine months of 2020 indemnity saw an increase of $26 million or 1.9% compared to the first.
Nine months of 2019.
Management fee revenue allocated to administrative services increased $500000 in the third quarter and $1.9 million in the first nine months of 2020 compared to the same period in 2019.
Turning to indemnities cost of operation commissions increased $6 million in the third quarter and $20 million for the first nine months of 2020 compared to the same periods in 2019.
The increases in agent compensation in both the third quarter and year to date were driven by the growth in the direct and assumed premiums written by the exchange as well as increased incentive awards due to improved profitability, resulting from lower automobile claims in 2020 due to the COVID-19 pandemic.
Non commission expense increased $13 million in third quarter of 2020 compared to the third quarter of 2019.
Underwriting and policy processing expense increased $3 million, primarily due to increases in personnel costs in the underwriting report costs.
Information technology costs increased by $1 million also driven by increased personnel costs.
Administrative and other costs increased $9 million, primarily driven by increases.
In our incentive plan award accruals due to the exchanges lower combined ratio.
And an increase in the company's stock price in the third quarter of this year compared to a decrease in the company's stock price in the third quarter of 2019.
Year to date for 2020 indemnity saw an increase in non commission expenses of nearly $22 million increase.
Increases in technology costs of $6 million were driven by personnel costs professional fees as well as hardware and software costs.
Underwriting and policy processing expenses increased $6 million due to increases in personnel costs and underwriting report costs.
And finally administrative and other expenses increased a little over $6 million in the first nine months, primarily driven by increases in personnel costs and professional fees.
Increased personnel costs in all categories included higher incentive plan awards.
Due to the exchanges lower combined ratio and higher vacation accruals as employees took less vacation in the first nine months of 2020 as a result of the COVID-19 pandemic.
Income from investments before taxes totaled $16 million in the third quarter and $19 million in the first nine months of 2020.
The investment results for both the third quarter and first nine months of 2020 were driven by the COVID-19 pandemic impact on the financial markets.
In closing despite the uncertainty and volatility created by the pandemic your.
Your company continues to deliver strong financial results, which has enabled us to pay our shareholders nearly a $135 million in dividends this year.
Thank you again for your time today now I'll turn the call back over to Tim.
Okay.
Thank you Greg.
As I touched on earlier, our teams have been doing an amazing job of executing on several key initiatives you've been in this adapted environment.
Just in the last quarter, we've seen significant progress on some new products and services that will improve the way we work with our agents and provide service to our customers.
One of the most notable was the release of a new mobile App in September using.
Using the mobile App Eureka.
Eerie customers can access or policy information and insurance I'd cards, you the status of the claim.
Check or building activity make a payment or get in touch with our agent.
A team of employees and Asian pass horse members collaborated on bringing this tool to the market.
Throughout every step of the apps design and construction they tested it with both agents and customers gathered feedback and implemented changes accordingly. This.
This resulted in a highly user friendly tool is quickly gaining traction with customers.
In the first month, the App has more than 10000 downloads.
Turning to product updates in late August we started the rollout of juries new single product solution for commercial multi peril.
Erie secure business.
Seven Standalone legacy policies have been reimagine into one single powerful product delivered on the streamlined interface of Aries commercial quote application and service for Qs system.
Agents can quote bind and issue a new policy in less than nine minutes exceeding our goal for turnaround time.
Agents and kind of see where the first have access and in just the first month more than 80% of agencies across the state quoted this new product.
Earlier this month the product was introduced in four more states are Carolina.
Hello, Pennsylvania, and West Virginia.
Agents in remaining states will recording Erie secure business in November.
We also rolled out a new life product in August.
Uri Expressway is an instant issue life insurance product that can be quoted bounding issued during the auto insurance quote an application process.
This can be done in just five to 10 minutes without the need for a medical exam were positioning statements.
This product opens up a whole new Avenue for agents to start those critical conversations about life insurance and makes it simple and straightforward for customers to get protection for themselves and for their loved ones.
Our refreshed and a more competitive Erie rate lock product continues to rollout and is now being offered by agents in eight states.
Erie rate lock provides customers the ability to lock in their auto rate until they've made a qualifying change.
This refresh along with reduction so auto insurance rates overall creates an even stronger long term competitive position for our agents to support both new and renewal business.
As reported in our second quarter early results are positive.
Applications are up more than 10% in states, where the new rate lock is offered.
We're also pleased to report that the conversion of more than 850000 legacy home protector policies to the new Erie secure home product is more than 90% complete.
Converting these policies creates greater efficiencies for agents and employees will also giving existing customers access to Erie secure owns industry, leading bundled coverages, including underground service line and equipment breakdown coverage.
Pandemic has prompted us to reflect on what matters most scenario.
And the racial and equity and social justice issues that have taken on greater urgency in the public consciousness have prompted us to reflect on how we're promoting and pursuing diversity equity and inclusion both on our teams in in in in our customer base.
One way we are taking action on this is through diversity production incentive offer introduced to our agency force in August.
Although although the program has been more than a year in the making the current climate across the country serves as a reminder of how important and relevant it is.
To participate in the program agencies develop and share business plan focused on growing diversity in their team were customer base through marketing efforts community activities networking initiatives are hiring additional staff.
If approved they receive funding to support these efforts with a potential for loan forgiveness. If they are successful.
It's important to mention that this program is focused on all aspects of diversity, Greece ethnicity, gender sexual orientation socioeconomic status age physical abilities and more.
It didn't take long for our agents to get on board Weve.
We began approving agencies for the program within just two weeks of the announcement, starting in Ohio, where one agency who is using this financial support different marketing focus on the strong local LGBTQ community.
I'm proud that our agents are eager to step up and do the work to ensure that we have a rich and diverse workforce and there were meeting the unique needs of every customer.
Im looking forward to seeing the briefings Our agency force does with this program.
Before we close I want to share a few recognitions and third party accolades.
First I'd like to congratulate Ron Hubbard, who was appointed senior Vice President of investments and Chief investment Officer.
Brian has been with Erie 21 years, and most recently served as vice President and senior portfolio manager of fixed income portfolios.
Run was instrumental in building our theories alternative investment portfolio and brings to his new role and extensive background in both fixed income and equity investments.
I'm pleased to announce that Erie has been recognized by Forbes inaugural list of America's Best in State insurance companies and is one of only a few carriers earn awards in all five product categories.
Auto.
Homeowners renters term life and permanent life insurance.
Also money magazine named periods topic for comprehensive renters insurance, noting that we offer several policy bundles that combine our base runners policy with a variety of endorsements.
We were also honor this month to be named among America's Best customer service companies for 2021 in Newsweek magazine.
These recognitions are a nod to our enduring commitment to our founding purpose to provide our policyholders was near perfect protection and is near perfect service as humanly possible and to do so at the lowest possible cost.
As we move into the final quarter of this our 90 Fiveth anniversary I'd like to see how grateful I am for the dedication and resiliency of our employees and agents and for the continued support and trust of our shareholders.
While we continue to face uncertain times, the strength and stability. This company continues to demonstrate is a point of distinction and pride for me and I hope for all of you.
Thank you all for your continued interest in Erie.
I hope you and your loved ones stay well.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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