Q3 2022 Erie Indemnity Co Earnings Call (Pre-Recorded)
Okay.
Good morning, and welcome to the Erie Indemnity Company third quarter 2022 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 of the call today, Vice President of Investor Relations Scott Hartz. Your line is open.
Thank you and welcome everyone. We've.
We appreciate you joining us for this recorded discussion about our third quarter results.
This recording will include remarks from kidney Castro, President and Chief Executive Officer, and Greg Gutting, Executive Vice President and Chief Financial Officer.
Our earnings release and financial supplement was yesterday afternoon. After the market closed and are available within the Investor Relations section of our website your insurance sector.
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.
Sure.
These remarks are based on assumptions.
The unexpected 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 such differences. Please.
See the safe Harbor statements in our Form 10-Q filings with the SEC.
October 27, 2022 and in the related press release.
This prerecorded call is the property of <unk>.
It may not be reproduced or rebroadcast by any other party without the prior written consent of Erie Indemnity company.
With that move Nevada, Tim's remarks, yes.
Thanks, Scott and thanks to all of you couldn't particular more about <unk> performance in the third quarter of 2022.
As we move into the last few months of the year I'm excited to be doing so where employees working collaborating your emphasis with many of our longstanding in person events I can please.
Nearly 70% of employees and physicians that work onsite facilities now return to our offices.
Returns will continue into next year.
Like many other companies were taking a hybrid approach that will see your flexibility our employees have come to value over the past couple of years.
With the needs of our business and relationship based culture.
With two months of solid returns with many of the celebrations and gatherings are so important to us.
Events like our annual British reduce recognize or independent agents servicing anniversary celebrations through our long tenured employees to summer picnics connected colleagues, where all resumed after more than two years of cancellations and.
Shifts to virtual formats.
We're also excited to introduce our inaugural diversity summit held in September .
A week long event featured guest speakers interactive sessions my panel discussions all designed to further engage employees agents and our journey to integrate diversity.
And to how we operate.
The diversity summit was a milestone and a year of significant progress which included naming the companies first vice president of diversity equity and inclusion.
<unk> brings more than 16 years of experience in diversity and inclusion practices, including supplier diversity and sustainability initiatives.
Most recently <unk>.
Served as director of global inclusion and diversity of Koppers in Pittsburgh.
Under the leadership of Williams, and our Chief diversity and community Development Officer, Kris merge we've moved into a phase of action accountability and deepening of our commitment to making diversity equity and inclusion operational theory.
Now, let's turn to our third quarter financial results.
We are with the rest of our industry and many others basically continued challenges created by the inflationary environment.
The combined ratio of 113, 1% for the year reflects off high claims severity to declining repair and replacement costs for auto and property claims.
The increase in weather related losses.
Other event related claims for the end of September up 42% over last year and contributed 2% combined ratio.
On the positive side, we continue to also see an upward trend in premium which grew nine 4% for the quarter was up eight 4% for the year.
Overall policies in force are up three 3% and our retention rate remains strong at over 90% for personal and commercial lines combined.
Along with that our policyholder surplus stands at almost $10 2 billion, allowing us to maintain our steady as we go approach to pricing.
Operability.
With that I'll turn it over to Greg for a deeper review of our financials Greg.
Thanks, Tim.
Good morning, everyone. Thank you for taking time today to be a part of the Erie Indemnity company third quarter earnings call.
2022 has been difficult.
Growing inflation, coupled with unfavorable market conditions.
As challenged not only our business, but the insurance sector as a whole areas.
There is not immune to these factors, but our tried and true business model continues to provide successful results as we face these challenges head on.
I will begin my review with our results for the exchange the insurance operations, we manage.
Direct written premium growth for the third quarter with nine 4% driven by substantial growth in new business premium with.
Which climbed almost 21% over the prior year.
With a combined ratio for the quarter of 111, 9% and continued market volatility the exchange's policyholder surplus decreased to $10 2 billion down.
Down $400 million Juliet.
Julien.
Now shifting to indemnity in the third quarter indemnity generated net income of $84 million or $1 61 per diluted share.
Paired to $90 million or $1 72 per diluted share in the third quarter of 2021.
For the nine months ended September 32022, net income was $233 million or $4 46.
Sure the lunar compared to $243 million.
Our $4 64 per diluted share in the same period in 2021.
Operating income increased 12% or $11 million in the third quarter of 2022 compared to the third quarter of 2021.
And then we also saw an increase in operating income of 15% or $39 million for the first nine months of 2022 compared to the same period last year.
Indemnities management fee revenue for policy issuance and renewal services increased $47 million or nine 3% in the third quarter of 2022 compared to the third quarter of 2021.
For the first three quarters of 2022, and definitely saw an increase of $121 million or eight 3%.
There to the same period in 2021.
Management fee revenue allocated to administrative services increased $200000 in the third quarter, but decreased $500000 in the three quarters of 2022 compared to the same periods last year.
Turning to <unk> cost of operations for policy issuance and renewal services commissions increased $22 million in the third quarter and $56 million in the first three quarters of 2022 compared to the same periods in 2021.
The increases in agent compensation in both periods was driven by increases in the direct and assumed written premiums of the exchange, partially offset by a decrease in agent incentive compensation.
Non commission expense increased $14 million in the third quarter of 2022 compared to the third quarter of 2021.
Underwriting and policy processing expense increased $3 million.
Primarily due to increased postage and underwriting report costs.
Information technology costs increased $4 million, driven by increased professional fees and hardware and software costs, partially offset by decreased personnel costs.
Also administrative and other expenses increased $6 million in the third quarter of 2022 compared to the same period in 2021, driven by increased personnel costs related to compensation and increased professional fees.
For the first nine months of 2022 indemnity saw an increase in non commission expenses of $28 million driven by increases in underwriting and policy processing costs of $3 million <unk>.
Information technology costs of $8 million.
Sales and advertising costs of $3 million.
And administrative and other costs of $15 million compared to the same period in 2021.
Investment losses before taxes totaled $1 million in the third quarter and income from investments before taxes totaled $300000 year to date 2022.
The results were primarily driven by equity and losses of limited partnerships of $5 million and $2 million in the third quarter and first nine months of 2022 compared to limited partnership earnings of $12 million in the third quarter and $27 million for the first nine months of 2021.
I will remind you that limited partnership asset class is in run off and we continue to expect more limited and inconsistent earnings from this asset class in the future.
Investment income was also negatively impacted by realized and unrealized losses of $24 million for the first nine months of 2022 compared to gains of $5 million for the same period last year.
As always we take a very measured approach to our capital management and we maintain a strong balance sheet and for the first nine months of 2022, our financial performance has enabled us to pay our shareholders over $155 million in dividends.
Thank you again for your time today now I'll turn the call back over to Tim Tim.
Thanks, Greg.
We've always had a strong culture of innovation when that goes back nearly 100 years.
The reinsurance began from a prospectus written by Tencent tablet and our founders H O Hirt emerging Crawford.
<unk> three is more than $30000 for three months from 90 different investors.
Our forward looking spirit endures today, it's represented by its fleet of efforts aimed at generating new revenue opportunities and the dynamic marketplace.
Recent years, we've invested in promising businesses through both opportunities on permitting in Erie, Pittsburgh and Baltimore and then early stage <unk> companies through our next level of innovation efforts.
And in August we announced the launch of an exciting new investment funds <unk> strategic ventures, as our new corporate venture capital investment.
The focus of the funds within our businesses tied to the personal and commercial insurance value chain as well as natural adjacencies.
This could include companies that are innovating in areas like risk avoidance claims where digital sales.
The goal is to make the best will enhance <unk> existing value proposition support our independent agents and allow you to explore new growth opportunities that complement our business model.
We will partner with touchdown ventures experienced corporate venture capital firm to strategize and manage these investments.
Looking forward to building on our innovation efforts with the launch of this venture funds and to do so in a way that aligns with our values and our debt.
<unk> the service.
Before we close I'd like to make note of a few third party recognitions.
Do those recognitions came from Forbes.
Erie was named to its list of America's Best in state employers for 2022 and.
And America's Best insurance companies for 2023.
The best in the state employers list is based on recommendations from employees, who are asked to read their willingness to recommend their employers to friends and family.
Erie is ranked among the top 25 employers in Pennsylvania on that list.
The best insurance companies list recognized here as an industry leader in five product categories.
Auto homeowners renters firmly and permanently.
And for the second consecutive year Heres future focused internship program was deemed to have rising insurance Star Executive list.
Insurance industry's 50 best internship programs in 2022.
Brokers programs, one of our largest pipelines for early career talent and growing diversity within our talent pool.
Erie hosted more than 100 in terms in 2022 largest glass rooms 20 year history.
As we continue to face a competitive labor market programs like this one are critical to our talent strategy to maintain and build a robust and diverse workforce at Erie.
As always I'd like to express my gratitude to our employees and agents for their commitment to being above all in service.
Our shareholders for their continued support and trust.
Thank you all for listening in today and for your interest and investments.
Yeah.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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