Q2 2021 Erie Indemnity Co Earnings Call (Pre-Recorded)
[music].
Good morning, and welcome to the Erie Indemnity company second quarter.
For 2021 earnings Conference call. This call was prerecorded 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 <unk>.
Thank you and welcome everyone.
We appreciate you joining us for this recording discussion about.
21 second 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.
<unk> section of our website Erie insurance Dot com.
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 and subject to known and unexpected risks and uncertainties.
These risks and.
The uncertainties may cause results to differ materially from those described and these remarks.
For information on important factors that may cause such differences. Please see the safe Harbor statements and our form 10-Q filing with the SEC.
And in July 29, 2021, and and the related press release.
This prerecorded call is the property.
And here in Denver company, and May not be reproduced or rebroadcast by any other party without the prior written consent of Erie Indemnity company with that we will move on to Tim's remarks, Tim.
Thanks, Scott and good morning, everyone. Thank you for taking time to learn more about <unk> performance and the second quarter of 2021.
Over the past several weeks.
Investors have started to return to a more normal way of living and.
And with that we're also starting to return to a normal way of working.
And in early July we began returning more employees to our offices for the first phase of our workplace reset initiative.
Phase II is set to begin in September and to significantly greater number of returning employees.
Many of those employees will be among the first to work and our new 7 storey office building, which we're planning to dedicate and September after 17 months delay the.
And the building is spectacular and I can't wait to see it build with activity.
As we move through this phased return to our workplace and pilot new ways of working it's important to note.
That will be learning and adapting as we go.
1 of the biggest lessons learned over the past year and a half is that the human touch transcends physical location.
Just as we've been doing since the early days and the pandemic, we're committed to taking a thoughtful and deliberate approach to our decisions.
As we pioneer what's next for our work force ciliary.
Our special culture and unique service model remains at the forefront of everything we do.
Turning to our second quarter I am excited to announce and exciting milestones from the shore symbol of our continued stability and growth.
6 million policies and force.
We certainly could not have reached this milestone without our hardworking agency.
And for us and dedicated sales and underwriting teams.
Our steady as you go approach to pricing and commitment to long term profitability positions us well for continued growth as we look to 7 million policies and force and a century of service.
We had a remarkable first quarter of the year and I'm pleased to report that the strong financial results.
<unk> are holding steady as we reach the halfway point for 2021.
As you saw on our press release filed after the market closed yesterday Erie Indemnity reported net income of $79 million.
For $1.51 per diluted share for the second quarter.
This is compared to a net income of $82 million for $1.50.
<unk> 7 per diluted share from the second quarter of 2020.
And the second quarter of 2021, we grew premiums by 3.4%.
This increase was largely driven by strong retention and an increase and new written premium of almost 40%.
Losses remain at lower than normal levels due.
To lead and mild spring and continued reduction and driving through the pandemic contributing to a combined ratio of 92, 6% year to date.
Now I will turn the call over to Greg to expand on our second quarter results Greg.
Thanks, Tim.
Good morning, everyone. Thank you for taking time.
Relative to be a part of the Erie Indemnity second quarter earnings call.
As the country continues to move to a more normal way of living areas continuing to see this reflected in our financial results.
We are seeing new business growth, but along with that we are also seeing an increase in claims frequency.
Time to that being said claims activity is still below pre pandemic levels.
You will see as I share with you the financial results that Erie remains well positioned for success going forward.
Starting with the exchange the insurance operations, we manage direct written premium growth for the second.
Quarter was 3.4% driven by substantial growth and new business premium, which climbed almost 40% over the prior year.
With a combined ratio for the quarter of 97, 7% the exchange's policyholder surplus grew to $11.7 billion.
Up $400 million.
<unk> was 31.
Now shifting to indemnity.
And the second quarter indemnity generated net income of $79 million or $1.51 per diluted share compared to $82 million or $1.57 per diluted share and the second quarter of 2020.
For the first half of 2021, net income was $153 million or $2.92 per diluted share compared to a $141 million or $2.70.
Per diluted share and the first half of 2020.
Operating income decreased 6.7% or 60.
For March and the second quarter of 2021.
Compared to the second quarter of 2020 and.
And definitely also saw a decrease in operating income of 8.9% or $16 million for the first 6 months of this year compared to the first 6 months of last year.
Indemnities management.
$6 million and for policy issuance and renewal services increased $18 million or 3.8% and the second quarter of 2021 compared to the second quarter of 2020.
And while for the first 6 months of 2021 indemnity saw an increase of $30 million or 3.3% compared to the first half of 2000.
And in 'twenty.
Management and fee revenue allocated to administrative services decreased $146000 and the second quarter and was flat and the first half of 2021 compared to the same periods last year.
Turning to indemnity is cost of operations for policy issuance and renewal services.
Fee recognitions increased $15 million and the second quarter and $24 million for the first 6 months of 2021 compared to the same periods in 2020.
The increases and agent compensation and both periods were driven by increases in the direct and assumed written premiums of the exchange and to a lesser extent by the increase and agents.
Incentive compensation related to more profitable growth.
Non commission expenses increased $9 million and the second quarter of 2021 compared to the second quarter of 2020.
Information technology costs increased by $3 million.
Driven by increases in hardware and software costs as well as increased.
<unk> agent and our costs.
Underwriting and policy processing expenses also increased $3 million.
Primarily due to increased personnel costs and underwriting report costs.
Lastly, administrative and other expenses increased $4 million and the second quarter of 2021 compared to the same period and 2020 drew.
<unk> increased building and equipment depreciation and professional fees.
For the first 6 months of 2021, and definitely saw an increase and non commission expenses of nearly $21 million driven by increases and technology costs of $7 million.
Underwriting and policy processing and expenses of nearly $3 million.
Driven by as well as administrative and other costs of $12 million, primarily driven by increased personnel costs and professional fees compared to the same period and 2020.
Income from investments before taxes totaled $16 million and the second quarter and $34 million and the first 6 months of 2021.
The results were primarily driven by equity and earnings of limited partnerships of $6 million and $15 million for the second quarter and first 6 months of 2021, respectively.
And I will remind you that the limited partnership asset classes and runoff and we continue to expect more limited and inconsistent earnings.
And this asset class and the future.
As always we take a very measured approach to our capital management and we maintain a strong balance sheet.
And for the first 6 months of 2021, our financial performance has enabled us to pay our shareholders over $96 million and dividends.
Thank you again for your.
From the day now I'll turn the call back over to Tim Tim.
Thanks, Greg.
Despite the many challenges and expand our agents and employees over the past 18 months, we haven't missed a beat and when it comes to productivity and growth.
Our teams continue to execute on initiatives that will make a positive difference for our agents and customers this year and beyond.
Time for over a year, we've been developing and refining the strategy that will bolster our competitive position.
Focused on expanding our digital capabilities, while leveraging Erie <unk> distinctive human touch.
That means for strengthening the distinct relationship we have with our agents and broadening our share digital presence to engage with customers wherever they are.
Using the methods they prefer.
Because our agents are critical to the success of this strategy continuing to grow and your share. Our agency force is a top priority moving forward.
The newly formed agent recruiting and performance team is focused on just that recruiting onboarding and developing new agents.
And providing ongoing training and support for established agents.
Most importantly, the team will be doing so and a way that is right for Erie and making sure that new agents are aligned with our values and share our commitment to service.
And recent product developments, we have refreshed, our erie personal umbrella product and pricing and.
And it's creating tremendous results so far.
Umbrella coverage provides protection beyond where auto and home insurance policies cover and the refreshed product has been rolled out in 10 states.
Companywide, new business direct written premiums for personal umbrella is up more than 50% year to date.
Our goal is to have the product and all of our states.
States by the end of 2021.
We recognized and a key part of supporting our customers and regions include supporting the communities, where we do business and several recent outreach efforts speak to that ongoing commitment.
And April we introduced new grant opportunities ranging from 25000 to.
And $50000 for nonprofits and our hometown of Erie, Pennsylvania is for.
On school readiness and after school activities for children.
And May we announced the 100000 dollar investment and the minority community investment coalition to support outreach initiatives focused on improving health equity and Erie.
Additionally, we awarded $100000 to 10, nonprofits and Erie, and Allentown, Pennsylvania and May through our 2020 charity challenge.
For the golf events were canceled last year due to the pandemic team captains, who participated in 2019 voted on and nonprofits to share those funds.
And we're delighted that.
This year's tournament will be held as scheduled later this summer.
Before we close I want to share a few accolades earned by Erie since our last call.
First Erie moved up an impressive 29 spots and the 2020 Fortune 500 list for the largest American corporations from $3.76 to $3.40.
7 based on total revenue from the 2020 and fiscal year.
Our ranking among this prestigious group for the past 18 years speaks to Erie strong financial position and commitment to service.
J D power also recognized us and 2 recent studies.
Erie was ranked first for customer satisfaction.
And the North Central region, and the 2021 auto insurance study.
In addition, Erie was ranked third for overall customer satisfaction and the midsized automobile insurance segment of the J D power 2021 insurance shopping study.
Finally, I'm very pleased to share that Ares first notice of loss.
<unk>.
Earned recertification from benchmark portal.
This is 1 of the most respected awards and the customer service and support industry and reflects the team's hard work commitment and collaboration.
As always I'd like to express my gratitude to our employees and agents for their commitment to being above all and service.
Losses to our shareholders for their continued support and trust.
Thank you all for listening in today and for your interest and Erie.
And.
[music].
[music].
[music].
Hum.
[music].
Good morning, and welcome to the Erie Indemnity company second quarter, 2020.1 earnings conference call. This call was prerecorded and there will be no question and answer session. Following day recording now I'd like to introduce.
And as you host for the call Vice President Investor Relations Scott <unk>.
Thank you and welcome everyone. We appreciate you joining us for this recorded discussion about our 2021 second quarter results.
And this recording will include remarks from Tinder Castro, President and Chief Executive Officer and Greg.
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 Dot com.
Before we begin I would like to remind everyone that today's discussion may contain forward looking remarks.
Marks 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 and these remarks.
For information on important factors that may cause such differences. Please see the safe Harbor.
<unk> and our form 10-Q filing with the SEC dated July 29, 2021, and and the related press release.
This prerecorded call 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 with that we will move on to Tim's remarks.
Tim.
Thanks, Scott and good morning, everyone. Thank you for taking time to learn more about <unk> performance and the second quarter of 2021.
Over the past several weeks many of US have started to return to a more normal way of living and.
And with that we're also starting to return to a normal way of working.
And early July we began.
For me more employees to our offices for the first phase of our workplace recent initiatives.
These 2 is set to begin in September with a significantly greater number of returning employees.
Many of those employees will be among the first to work and our new 7 storey office building, which we're planning to dedicate and September after 17 months delay.
And rich for building, a spectacular and I can't wait to see it build with activity.
As we move through this phased return to our workplace and pilot new ways of working it's important to note that we will be learning and adapting as we go.
1 of the biggest lessons learned over the past year and a half is that the human touch transcends physical location.
So just as we've been doing since the early days of the pandemic, we're committed to taking a thoughtful and deliberate approach to our decisions.
As we pioneer what's next for our workforce at Erie, Our special culture and unique service model remains at the forefront of everything we do.
Turning to our second quarter I am excited to announce and.
And exciting milestones from the shore symbol of our continued stability and growth.
6 million policies and force.
We certainly could not have reached this milestone without our hardworking agency force and dedicated sales and underwriting teams.
Our steady as you go approach to pricing and commitment to long term profitability positions us well for <unk>.
As we looked at 7 million policies in force and a century of service.
We had a remarkable first quarter of the year and I'm pleased to report that the strong financial results are holding steady as we reach the halfway point for 2021.
As you saw in our press release filed after the market closed yesterday and <unk>.
Indemnity reported net income of $79 million.
And $1.51 per diluted share for the second quarter.
This is compared to a net income of $82 million for $1.57 per diluted share from the second quarter of 2020.
And the second quarter of 2021, we grew premiums by 3.4%.
This increase was largely driven by strong retention and an increase and new written premium of almost 40%.
Losses remain at lower than normal levels due to a relatively mild spring and continued reduction and driving to the pandemic contributing to a combined ratio of 92, 6% year to date.
Now I will turn the call over to Greg to expand on our second quarter results Greg.
Thanks, Tim.
Good morning, everyone. Thank you for taking time today to be a part of the Erie Indemnity second quarter earnings call.
As the country continues to move to a more normal way of living areas continuing to see.
See this reflected and our financial results.
We are seeing new business growth, but along with that we're also seeing an increase in claims frequency.
That being said claims activity is still below pre pandemic levels.
You will see as I share with you the financial results that Erie.
<unk> remains well positioned for success going forward.
Starting with the exchange the insurance operations, we manage direct written premium growth for the second quarter was 3.4% driven by substantial growth and new business premium, which climbed almost 40% over the prior year.
With the combined ratio for the quarter of 97, 7% the exchange's policyholder surplus grew to $11.7 billion.
Up $400 million from March 31.
Now shifting to indemnity.
In the second quarter indemnity generated net income of $79 million.
Our $1.51 per diluted share compared to $82 million or $1.57 per diluted share and the second quarter of 2020.
For the first half of 2021, net income was $153 million or $2.92 per diluted share compared to a 100.
And $1 million or $2.70 per.
Per diluted share and the first half of 2020.
Operating income decreased 6.7% for $6 million and the second quarter of 2021.
Compared to the second quarter of 2020.
And definitely also saw a decrease in operating income.
<unk> of 8.9% or $16 million for the first 6 months of this year compared to the first 6 months of last year.
Indemnities management fee revenue for policy issuance and renewal services increased $18 million or 3.8% and the second quarter of 2021 compared to the.
Second quarter of 2020.
While for the first 6 months of 2021 indemnity saw an increase of $30 million or 3.3% compared to the first half of 2020.
Management and fee revenue allocated to administrative services decreased $146000 and the.
And quarter and.
And was flat and the first half of 2021 compared to the same periods last year.
Turning to indemnity and cost of operations for policy issuance and renewal services.
Commissions increased $15 million and the second quarter and $24 million for the first 6 months of 2021 compared to the same periods in 2000.
Yeah.
The increases and agent compensation and both periods were driven by increases and the direct and assumed written premiums of the exchange and to a lesser extent by the increase and agent incentive compensation related to more profitable growth.
Non commission expenses increased $9 million and the second quarter.
2021, compared to the second quarter of 2020.
Information technology costs increased by $3 million driven by increases in hardware and software costs as well as increased personnel costs.
Underwriting and policy processing expenses also increased $3 million.
Primarily due to increased personnel.
All cost and underwriting report costs.
Lastly, administrative and other expenses increased $4 million and the second quarter of 2021 compared to the same period and 2020, driven by increased building and equipment depreciation and professional fees.
For the first 6 months of 2021 indemnity saw an increase.
And non commission expenses of nearly $21 million driven by increases and technology costs of $7 million underwriting and policy processing expenses of nearly $3 million as well as administrative and other costs of $12 million, primarily driven by increased personnel costs and professional fees.
Compared to the same period and 2020.
Income from investments before taxes totaled $16 million and the second quarter and $34 million and the first 6 months of 2021.
The results were primarily driven by equity and earnings of limited partnerships of $6 million and $15 million for.
The second quarter and first 6 months of 2021, respectively.
I will remind you that the limited partnership asset classes and runoff and we continue to expect more limited and inconsistent earnings from this asset class and the future.
As always we take a very measured approach to our capital management and we maintained.
<unk> and a strong balance sheet.
And for the first 6 months of 2021, our financial performance has enabled us to pay our shareholders over $96 million and dividends.
Thank you again for your time today now I'll turn the call back over to Tim Tim.
Thanks, Greg.
And maybe challenges faced by our agents.
Please over the past 18 months, we haven't missed a beat when it comes to productivity and growth.
Our teams continue to execute on initiatives that will make a positive difference for our agents and customers this year and beyond.
For over a year, we've been developing and refining our strategy that will bolster our competitive position.
Focused on expanding.
And and digital capabilities, while leveraging Erie distinctive human touch.
That means for strengthening the distinct relationship we have with our agents and broadening our share digital presence to engage with customers wherever they are.
Zoom and methods they prefer.
Because all regions for critical to the success of this strategy.
And are continuing to grow and nurture our agency force is a top priority moving forward.
The newly formed agent recruiting and performance team is for.
Focused on just that recruiting onboarding and developing new agents and providing ongoing training and support to established agents.
Most importantly, the team will be doing.
Doing so and a way to break for Erie, and making sure that new agents are aligned with our values and share our commitment to service.
And recent product developments, we have refreshed, our Erie personal umbrella product and pricing and it's creating tremendous results so far.
Umbrella coverage provides protection beyond our auto and home insurance policies.
And the refresh product has been rolled out in 10 states.
Companywide, new business direct written premiums for personal umbrella is up more than 50% year to date.
Our goal is to have the product and all of our states by the end of 2020.1.
We recognize that a key part of supporting.
And our customers and regions include supporting the communities, where we do business and several recent outreach efforts speak to that ongoing commitment.
In April we introduced new grant opportunities ranging from 25000 to $150000 for nonprofits and our hometown of Erie, Pennsylvania and focus on school readiness.
And after school activities for children.
And me, we announced a $100000 investment and the minority community investment coalition to support outreach initiatives focused on improving health equity theory.
Additionally, we awarded $100000 to 10, nonprofits and Erie and Allentown, Pennsylvania in.
Through our 2020 charity challenge.
For the golf events were canceled last year due to the pandemic team captains, who participated in 2019 voted on and nonprofits to share those funds.
We're delighted that this year's tournament will be held as scheduled later this summer.
Before we close and I want.
And to share a few accolades earned by Erie since our last call.
First Erie moved up an impressive 29 spots and the 2020 Fortune 500 list for the largest American corporations from $3.76 to $3.47 based on total revenue from the 2020 fiscal year.
Our ranking among those.
Prestigious group for the past 18 years speaks to Erie strong financial position and commitment to service.
J D power also recognized us and 2 recent studies.
Erie was ranked first for customer satisfaction, and the north Central region, and the 2021 auto insurance study.
In addition.
<unk> Erie was ranked third for overall customer satisfaction and the midsized automobile insurance segment of the J D power 2021 insurance shopping study.
Finally, I'm very pleased to share that era's first notice of loss team earned recertification from benchmark portal.
This is 1 of the most respected awards.
<unk> and the customer service and support industry and reflects the team's hard work commitment and collaboration.
As always I'd like to express my gratitude to our employees and agents for their commitment to being above all and service.
And to our shareholders for their continued support and.
Interest.
Thank you all for list.
Listening and debate and for your interest and Erie.