Q1 2024 Erie Indemnity Co Earnings Call - Pre-Recorded

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Operator: Good morning, and welcome to the Erie Indemnity Company first quarter 2024 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 Beilharz.

Speaker Change: Good morning, and welcome to the Erie Indemnity Company first quarter 2024 earnings Conference call.

Speaker Change: This call was prerecorded and there will be no question and answer session. Following the recording.

Speaker Change: Now I'd like to introduce your host for the call Vice President of Investor Relations Scott powers.

Scott W. Beilharz: 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 Tim NeCastro, President and Chief Executive Officer, and Julie Pelkowski, Executive Vice President and Chief Financial Officer. Our earnings release and financial supplement were issued yesterday afternoon after the market closed and are available in the investor relations section of our website, erieinsurance.com.

Scott W. Beilharz: Thank you and welcome everyone.

Scott W. Beilharz: We appreciate you joining us for this recorded discussion about our first quarter results.

Scott W. Beilharz: This recording will include remarks from Tinder Castro, President and Chief Executive Officer, and Julia Tokofsky Executive Vice President and Chief Financial Officer.

Scott W. Beilharz: 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.

Scott W. Beilharz: 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, and 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 such differences, please see the Safe Harbor Statements in our Form 10 key filing with the SEC filed yesterday and in the related press release.

Speaker Change: Before we begin.

Speaker Change: I would like to remind everyone that today's discussion may contain forward looking remarks that.

They reflect the companys current views about future events.

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

Risks and uncertainties may cause results to differ materially from those described in his remarks.

Speaker Change: For information on important factors that may cause such differences.

Speaker Change: Please see the safe Harbor statements in our Form 10-Q filing with the SEC yesterday and in the related press release.

Scott W. Beilharz: 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 move on to Tim's remarks. Tim?

Speaker Change: This prerecorded call is the property being indemnity company it may not be reproduced or rebroadcast.

Speaker Change: Any other party without the prior written consent of Erie Indemnity company.

Speaker Change: With that we'll move on to Tim's remarks, Tim.

Timothy Gerard NeCastro: Thanks, Scott, and thanks to all of you for your interest in Erie's performance for the first quarter of 2024. Last week, on April 20th, we marked the 99th anniversary of our company's founding. On April 23rd, we held our annual meeting of shareholders in person in the Thomas B. Hagen Building. At that meeting, I reflected on the remarkable journey Erie Insurance has been on for nearly a century. Two young men, H.O. Hurd and O.G.

Tim: Thanks, Scott and thanks to all of you for your interest in <unk> performance for the first quarter of 2024.

Tim: Last week on April 20th Merck, the 99th anniversary of our company's founding on April 20, <unk>, we held our annual meeting of shareholders in person and the Thomas be Hagen building.

Tim: At that meeting I reflected on a remarkable journey Erie insurance has been around for nearly a century too.

Tim: So young men H O Hirt and Archie Crawford.

Timothy Gerard NeCastro: Crawford opened the doors of Erie Insurance in 1925 and brought in less than $30,000 in net premiums that first year. Today, Erie's business has grown to more than $10 billion in annual premium and almost 7 million policies in force, covering 12 states plus the District of Columbia, with more than 6,500 employees and more than 14,000 independent agents. I'm humbled and proud to be leading the company, and I'm confident in our position in the industry and our financial stability as we enter our 100th year of business.

Tim: When the doors of Erie insurance, a $19 25 and brought in less than $30000 net premiums that first year.

Tim: Hey, Heres business has grown to more than $10 billion in premium and almost 7 million policies in force covering 12 states plus the district of Columbia.

Tim: With more than 6500 employees and more than 14000 independent agents.

Speaker Change: I'm humbled and proud to be leading the company and I'm confident in our position in the industry and our financial stability as we enter our 100 year business.

Timothy Gerard NeCastro: I'll share some first quarter updates on our business and workplace in a few minutes, but first, let's look at our financials. On our last call, we reported that weather-related claims grew significantly in 2023, which had a negative impact on our combined ratio. So far this year, we're starting to see a turnaround, and our ratio's headed in the right direction. I'll now turn it over to Julie to discuss our financial results in greater detail. Julie?

Speaker Change: I'll share some first quarter updates on our business workplace in a few minutes, but first let's look at our financials.

Speaker Change: Our last call we reported that weather related claims were up significantly in 2023, which had a negative impact on our combined ratio.

Speaker Change: So far this year, we're starting to see a turnaround in our ratios headed in the right direction.

Speaker Change: I'll now turn it over to Julie to discuss our financial results in greater detail Joey.

Julie Marie Pelkowski: Thank you, Tim, and good morning, everyone. In 2023, we talked about our proactive approach to addressing the profitability challenge experienced by the exchange and that the most significant impact would come as a result of the higher rate increases that were taken. We anticipated a larger impact from these rate increases in 2024, given the fact that we have 12-month policies. Continued incremental improvements from rate increases, coupled with weather events that were lower in severity compared to the first quarter of last year, drove an improvement in profitability in the first quarter of 2024.

Julie: Thank you, Tim and good morning, everyone.

Julie: In 2023, we talked about our proactive approach to addressing the profitability challenge experienced by the exchange and not the most significant impact would come as a result of the higher rate increases that were taken.

Julie: We anticipated a larger impact from these rate increases in 2024, given the fact that we have 12 month policies.

Julie: Continued incremental improvements from rate increases.

Julie: Bold with weather events that were lower in severity compared to the first quarter of last year drove an improvement in profitability in the first quarter of 2024.

Julie Marie Pelkowski: Our combined ratio in the first quarter was 106, compared to 122.7 in the first quarter of 2023. Weather events contributed 9 points to the combined ratio in the first quarter of 2024, versus 12.6 points in the same period last year.

Julie: Our combined ratio in the first quarter was 106 compared to $122 seven in the first quarter of 2023.

Julie: Weather events contributed nine points to the combined ratio in the first quarter of 2024 versus 12 six points in the same period last year.

Julie Marie Pelkowski: The rate increases continue to contribute to significant growth for the exchange as well. During the first quarter, direct and assumed written premium of the exchange increased 19%. Strong new growth continues with new business premium growing 32.4% compared to the same period last year. Total policies enforced grew 7.1%. We also maintained a solid policy retention ratio of 91.2%.

Julie: The rate increases continue to contribute to significant growth for the exchange as well.

Julie: During the first quarter direct and assumed written premium a big change increased 19%.

Julie: New growth continues with new business premium growing 32, 4% compared to the same period last year.

Julie: Total policies in force grew seven 1%.

Julie: We also maintained a solid policy retention ratio of 91, 2%.

Julie Marie Pelkowski: The continued strong premium growth, along with high retention and a more favorable combined ratio, resulted in the policyholder surplus of the exchange growing $180 million in the quarter to $9.5 billion as of March 31, 2024. Shifting to the results for indemnity, net income was $125 million or $2.38 per diluted share in the first quarter of 2024 compared to $86 million or $1.65 per diluted share in the first quarter of 2023 Operating income in the first quarter increased over 25 percent to almost $139 million compared to the first quarter of 2023.

Julie: The continued strong premium growth along with high retention and a more favorable combined ratio resulted in the policyholder surplus of the exchange growing $180 million in the quarter to $9 5 billion as of March 31 2024.

Julie: Shifting to the results for indemnity net income was $125 million or $2.38 per diluted share in the first quarter of 2024 compared to $86 million or $1.65 per diluted share in the first quarter of 2023.

Julie: Operating income in the first quarter increased over 25% to almost $139 million compared to the first quarter of 2023.

Julie Marie Pelkowski: Management fee revenue from policy issuance and renewal services increased 19.3 percent to just over $665 million in the first quarter of 2024 compared to the first quarter of 2023, in line with the increase in the direct and assumed written premiums of the exchange. The total cost of operations from policy issuance and renewal services increased $81 million, or 17.3%, for the first quarter of 2024 compared to the same period in 2023. The most significant portion of our expenses, our commissions, grew $67 million for the first quarter, driven by an increase in direct and affiliated assumed written premiums of the exchange.

Julie: Management.

Julie: Fee revenue from policy issuance and renewal services increased 19, 3% to just over $665 million in the first quarter of 2024 compared to the first quarter of 2023 in line with the increase in the direct and assumed written premiums of the exchange.

Julie: The total cost of operations from policy issuance and renewal services increased 81 million or 17, 3% for the first quarter 'twenty 'twenty four compared to the same period in 2023.

Julie: The most significant portion of our expenses our commissions grew $67 million for the first quarter driven by the increased indirect and affiliated assumed written premiums of the exchange.

Julie Marie Pelkowski: Non-commissioned expenses for the first quarter grew just over $14 million, driven primarily by increased personnel costs and agent-related costs. The significant growth in the exchange's premium drove increases in our production support costs as well, such as underwriting and policy processing.

Julie: Non commission expenses for the first quarter grew just over $14 million, driven primarily by increased personnel costs and agent related costs.

Julie: Significant growth in the exchanges premium drove increases in our production support cost as well such as underwriting and policy processing.

Julie Marie Pelkowski: Technology investments continue, although overall technology costs were lower as more development costs were capitalized in the first quarter of 2024 compared to the same period in 2023. Income from investments totaled $15 million compared to a loss of nearly $5 million in the first quarter of 2023. Net investment income was nearly $16 million in the first quarter compared to just $2 million in the same period last year due to increased limited partnership earnings and higher bond income.

Julie: Technology investments continue although overall technology costs were lower as more development costs were capitalized in the first quarter of 2024 compared to the same period in 2023.

Julie: Income from investments totaled $15 million compared to a loss of nearly $5 million in the first quarter of 2023.

Julie: Net investment income was nearly $16 million in the first quarter compared to just $2 million in the same period of last year due to increased limited partnership earnings and higher bond income.

Julie Marie Pelkowski: As always, we take a measured approach to capital management, and we maintain a strong balance sheet. And for the first three months of 2024, our financial performance has enabled us to pay our shareholders over $59 million in dividends. With that, I'll turn the call back over to Tim.

Julie: As always we take a measured approach to capital management, and we maintain a strong balance sheet and for the first three months of 2024, our financial performance has enabled us to pay our shareholders over $59 million in dividends.

Julie: With that I'll turn the call back over to Tim Tim.

Timothy Gerard NeCastro: Thanks, Julie. As I've mentioned in previous calls, migrating our legacy technology platforms has been a top priority for us and will continue to be in 2024. I'm pleased to share that we've successfully modernized more than one-third of the legacy applications we have in place, and we're also working to sunset those older systems as appropriate. This work is tied directly to another key priority, expense management. Upgrades and newer platforms can eliminate many of the inefficiencies and delays created by older systems.

Tim: Thanks Julie.

Tim: Mentioned in previous calls migrating our legacy technology platforms has been a top priority for us continues to be in 2024.

Tim: I'm pleased to share that we successfully modernized more than one third of the legacy applications. We've had in place and we're also working the sunset those older systems as appropriate.

Tim: This work is tied directly to another key priority expense management.

Tim: Upgrades and newer platforms can eliminate many of the inefficiencies and believes created by the older systems.

Timothy Gerard NeCastro: One example of a process that's recently been tightened, thanks to modernization, is the desk review method of inspection for claims. This review process often resulted in long cycle times for customers, agents, and employees due to a lack of data integration, causing delays, or a paying estimate. Now agents and customers can use the photo appraisal tool and list of established direct repair program, or DRP, shops within their online account to determine the appropriate method of inspection during their auto cleaning.

Tim: One example of a process Thats recently been tightened. Thanks. So modernization is with the desk review method of inspection for claims.

Tim: Best degree process, often resulted in long cycle times for customers agents and employees due to a lack of data integration, causing delays or opinion estimates.

Tim: Now <unk> customers can use the photo appraisal tool and list of established direct repair program or DRP shops within their online account to determine the appropriate method of inspection during their auto claims.

Timothy Gerard NeCastro: This results in faster claims times, often cutting days out of the process. The pace of change is a topic that both challenges and energizes us, whether we're talking about platforms, processes, products, or our people. If you regularly tune in to our earnings calls, you may recall that last year we announced a new approach we'd be taking to our hybrid workforce starting in 2024. Hybrid employees, who make up roughly 60% of our workforce, now have a bank of 52 remote workdays to use each year when they choose.

Tim: This results in faster claims times, often cutting days out of the process.

Tim: The pace of change is a topic that both challenges and energize us whether we're talking about platforms processes products or our people.

Tim: If you regularly tuned into our earnings calls you may recall that last year, we announced a new approach we'd be taking so our hybrid workforce starting in 2024.

Tim: Hybrid employees, who make up roughly 60% of our workforce now have a bank of 50 to remote work days to use each year when they choose.

Timothy Gerard NeCastro: Since beginning this new approach in January, we're pleased with how it's helping to create greater vibrancy in our offices and collaboration across teams. We continue to learn and make changes to further improve the in-office experience for employees, including new conference room technology and facility improvements. And to support our sustainability efforts, we're installing energy kiosks across our home office campus to track and share the performance of each building, including electricity, natural gas, and water consumption.

Tim: Since the beginning of this new approach in January we're pleased with how it is helping to create greater vibrancy in our offices and collaboration across teams.

We continue to learn and make changes to further improve the enormous experience for employees, including New conference through technology and facility improvements.

Tim: And to support our sustainability efforts were installing energy kiosks across our home office campus to track and share the performance of each building, including electricity natural gas and water consumption.

Timothy Gerard NeCastro: Employees will be able to see how Erie compares to other commercial buildings with similar usage and size, helping us to stay accountable for our energy use and keeping it top of mind for our workforce. It is one aspect of our commitment to being a good corporate citizen.

Employees will be able to see how Erie compares to other commercial buildings with similar usage in size, helping us to stay accountable for our energy use and keeping us top of mind for our workforce.

Tim: Inability is one aspect of our commitment to being a good corporate citizen.

Timothy Gerard NeCastro: We also continue to invest in the communities where we do business, helping us to build trust and relationships and reinforce our commitment to service. Recently, we announced 24 grants totaling close to $1 million for education-focused nonprofits as part of Pennsylvania's Education Improvement Tax Credit Program. The grants will help nonprofits offer and expand educational programs to pre-kindergarten through 12th grade students, in particular low-income, underserved, and minority students in Northwest Pennsylvania.

Tim: We also continue to invest in the communities, where we do business, helping us to build trust and relationships and reinforce our commitment to service.

Tim: Recently, we announced 24 grants totaling close to $1 million for education focused nonprofits as part of Pennsylvania is education improvement tax credit program.

Tim: The branch will help nonprofits upper and expand educational programs to pre kindergarten through 12 grade students.

Tim: Particular, low income underserved and minority students in northwest, Pennsylvania.

Timothy Gerard NeCastro: Erie has donated more than $11 million through the EITC program since it began in 2001. And in support of the revitalization work underway in our hometown of Erie, Pennsylvania, Erie Insurance recently provided a $1 million loan with plans to provide additional support in the future for a project that will transform Erie's tallest building, the Renaissance Center at Tempton State. Funds will help with plans to renovate this downtown landmark into an upscale hotel with space for restaurants, offices, and public gatherings.

Tim: Curious donated more than $11 million through the ITC program since it began in 2001.

Tim: And it's reportedly revitalization work underway in our hometown of Erie, Pennsylvania.

Tim: The reinsurance recently provided a $1 million alone with plans to provide additional support in the future.

Tim: A project that will transport reached almost building Renaissance center attempting state.

Tim: Funds will help with plans to renovate this downtown landmark into an upscale hotels with space for restaurants offices and public gatherings.

Timothy Gerard NeCastro: This is an exciting project for Erie and complements the other work and investments underway downtown that we've also supported. It's all aimed at creating a vibrant community to work and live so we can continue to attract and retain diverse and high-quality talent that will position us for success in our next century. I feel a great sense of pride for where we are today. We're poised to move into our next century with a strong employee and agency force, an impressive book of business, and robust and contemporary technology platforms.

Tim: This is an exciting project for Erie and complements the other work and investments underway downtown that we've also supported.

Tim: It's all aimed at creating a vibrant community to work and live.

Tim: You can continue to attract and retain diverse and high quality talent and will position us for success in our next century.

Tim: I feel a great sense of pride for where we are today.

Tim: Poised to move into our next century with a strong employee and agency force and impressive book of business and robust suite of contemporary technology platforms.

Timothy Gerard NeCastro: We'll prepare to weather continued challenges through thoughtful and proactive planning. And we're devoted to keeping our longstanding principles alive in ways that will continue to set us apart in the future. As always, I'd like to thank you for listening in today and for your continued interest in Erie.

Tim: We're prepared to weather continued challenges through thoughtful and proactive planning.

Tim: And we are devoted to keeping our longstanding principles lives in ways that will continue to set us apart in the future.

Speaker Change: As always I'd like to thank you for listening in today.

Speaker Change: <unk> interest in Erie.

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