Q1 2022 Erie Indemnity Co Earnings Call (Pre-Recorded)

April 29, 2022

Good morning, and welcome to the Erie Indemnity Company first quarter 2022 earnings Conference call. This call was prerecorded and there will be no question and answer session. Following there Rick.

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 recorded discussion about our first quarter results.

This recording will include remarks from Tinder, Gastro, 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 close 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 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.

These risks and uncertainties may cause results to differ materially from those described in these remarks.

For information on important factors that may cause such differences. Please see the safe Harbor statements in our Form 10-Q filing with the SEC dated April 28, 2022 and in 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.

Earlier this week, we held our annual meeting of shareholders. We broadcast the meeting from the new Thomas be Hagen building, which as I've mentioned on previous calls who's dedicated last September .

This beautiful building.

Mostly since that time, the majority of our employees continue to work remotely.

Just in the past couple of weeks that started to change.

We celebrated <unk> 97th anniversary on April 20th by welcoming nearly 200 employees back to our home office campus.

He joined the essential employees within coming into the office to maintain operations since the beginning of the pandemic.

This is the beginning of a broader fees and return to our offices that will be taking place over the next several months.

We're returning with greater flexibility than ever before but we're taking a slow and steady approach to ensure the spirit of the organization and levels of service are upheld as the pandemic continues its transition to new variance world anxious to return to living fully.

At Erie, our focus now is less about getting back to what we previously knew and more about exploring what's next.

We'll be listening learning and adapting as we go and we'll be doing that together with our Erie employees.

At the annual shareholders meeting I also shared some of the external challenges we are facing the inflation rate supply chain issues and labor shortages are being felt across all industries and they are further echoed in our industry through increased claims costs.

Our combined ratio for the first quarter, which stands at 104, 6% reflects some of those challenges.

But I am confident nearest financial strength, evidenced by $11 $5 billion in policyholder surplus and continued growth, which can be seen in the 7% direct written premium increase for the quarter.

And of course, Heres 97 year track record of stability and success.

A testament to the adaptability and resilience through whatever the times may throw our way.

With that I'd like to turn it over to Greg for a deeper view of our first quarter financials Greg.

Thanks, Tim Good morning, everyone and thank you for joining our first quarter 2022 earnings call.

As Tim mentioned earlier this week, we held our 97th annual shareholders' meeting, where we shared many of our distinguished accomplishments in 2021.

We shared how several new products have positively impacted our insurance operations.

We shared how changes in the way, we interact and communicate with our customers has bolstered our customers overall experience.

And lastly, we shared with our audience, how even in the midst of a more difficult year. The exchange still added $1 billion to policyholder surplus.

Other selling that strong financial performance can be achieved even during challenging times.

Now I would like to share with you the first quarter results for 2022.

Beginning with the exchange the insurance operations, we manage.

Direct and assumed written premium growth for the first quarter was 7%.

This growth for the quarter was driven by a 4% increase in the new policy premiums as well as a 3% increase in total policies in force.

The exchanges combined ratio for the quarter was 104, 6% up significantly from the first quarter of 2021.

The increase in the combined ratio can be attributed to the increase in auto claims frequency and severity drill.

Driven by higher claims settlement costs and driving activity at near pre pandemic levels.

Despite the increase in the combined ratio the exchange still recorded policyholder surplus of $11 5 billion.

At March 31 2022.

Shifting our attention to indemnity first quarter 2022, net income was $69 million or $1 31 per diluted share compared to $74 million or $1 41 per diluted share in the first quarter of 2021.

Operating income before taxes increased $8 million or 10, 8% in the first quarter of 2022 compared to the first quarter of 2021.

Indemnities management fee revenue from policy issuance and renewal services increased $32 million or seven 1% in the first quarter of 2022 compared to the first quarter of 2021.

Management fee revenue allocated to administrative services was $14 million in the first quarter of 2022 compared to $15 million in the first quarter of last year.

Turning to indemnities cost of operations related to policy issuance and renewal services commissions increased nearly $20 million in the first quarter of 2022 compared to the same period in 2021.

This was the result of the 7% increase in the direct and assumed premiums written by the exchange primarily in lines of business that pay a higher commission rate.

Non commission expenses increased $4 million in the first quarter of 2022 compared to the first quarter of 2021.

Sales and advertising increased nearly $2 million.

Due to agent related expenses.

Administrative and other costs increased $3 million.

Primarily due to an increase in professional fees.

Lastly income from investments before taxes totaled $3 million for the quarter compared to $18 million during the first quarter of 2021.

Included in our investment income was nearly $3 million of income from limited partnerships in the first quarter of 2022 compared to $9 million and limited partnership income in the first quarter of 2021.

However, keep in mind that our limited partnership portfolio is still in run off.

Indemnity also recorded realized and unrealized losses of over $7 million in the first quarter of 2022, which negatively impacted total investment income.

Thank you again for your time and attention. This morning, I look forward to continuing to provide you with financial updates throughout 2022.

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

Thank you Greg.

Headed into 2022 poised to implement a strategy, we spent over a year developing and refining.

That strategy involves embracing technology in ways that are distinctly erie by strengthening our most unique asset the relationship with our independent Agency force.

It also aims to strengthen our competitive position by making sure. Our independent agents are well equipped to meet the changing needs and preferences of our customers.

A perfect example of a product that addresses those changing needs as our commercial cyber suite coverage.

This provides comprehensive protection against the risk, we couldnt imagine a few decades back cyber attacks businesses.

It is now available to commercial customers through use of your business and automatically quoted on all new policies.

Growing market addressing the emerging threats businesses faced in this digital age.

We see a lot of potential for this particular product.

Also through your secured business, a new wage and hour option within employment practices liability covers defense costs for claims for the insured and their employee disagree about time Pete.

These defense costs can present, a real exposure to small business clients and we're pleased to now offer this optional coverage.

On the personal line side, we are addressing a previously unmet need by offering extended water flood coverage. This coverage, which includes both <unk> and flood coverage under a single limit is now offered in four states with plans to roll it out to most of our seats by the end of this year.

Another way were meaningful customer agent needs is through the service capabilities we provide.

Online account platform now has more than 900000 active customers and live chat capabilities are now available to all customers that use it giving them the option to have a real time conversation with a customer care representative online.

More than 12000 chats have been handled since the functionality was introduced.

We're also pleased to now offer live interpretation services for our agents through a partnership with a service called language line solutions.

Agents can have cleared professional conversations with any customer prospect, regardless of the language they speak agent.

<unk> agents simply call a member choose from more than 200 languages and connected alive interpreter at no charge.

Along with service to our customers. We're also committed as always to services in our communities, where we live and work.

Here recently selected 23 educational nonprofits to receive more than $824000 in funding for 2022 through penalties educational improvement tax credit program.

Curious donated nearly $10 million to the program since it was established in 2000.

I'm also pleased to announce two recent third party recognitions.

Erie was named best of the best buy both the Hispanic Network magazine and by the Black driven.

Both publications promote diversity in all aspects of education business and employment to ensure equal opportunity and we're excited to be recognized for our commitment to integrating diversity equity and inclusion into our principles and practices.

Finally, I'm very excited to share that after an extensive search we've appointed a new executive Vice President and Chief Information Officer to replace Bob Ingram, who retired at the end of last year.

Purpose Srinivasan, who most recently served as senior Vice President and Chief data Officer embarrassed analytics joined <unk> on April 4th.

<unk> is one of the world's largest data analytics firms and parser was responsible for the company's insurance segment data and technology as well as enterprise wide data and analytics.

Prior to various multiple technology leadership roles as a global CIO and CTO at companies, including Zurich Financial services, Tokio Marine farmers insurance and <unk>.

Partly as a highly respected executive and his experience as a perfect match for where we need to go as an organization.

And the critical role technology and data played in getting us here.

He is also a positive open person, who embraces and our bodies <unk> unique values and culture.

I'm so pleased to have <unk> at the executive table and know he will do great things here theory.

As always I'd like to express my gratitude to our employees and agents their commitment to being above all in service and to our shareholders for their continued support and trust.

Thank you for listening in today and for your continued interest in theory.

Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.

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Q1 2022 Erie Indemnity Co Earnings Call (Pre-Recorded)

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