Q4 2024 Erie Indemnity Co Earnings Call - Pre Recorded
Operator: Our earnings release and financial supplement were issued yesterday afternoon after the market closed and are available within the Invest Relations section of our website, erieinsurance.com.
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.
Operator: 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 risks and uncertainties may cause results to differ materially from those described in these remarks.
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 risks and uncertainties that 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-K filing with the SEC filed yesterday and in the related press release.
Operator: For information on important factors that may cause such differences, please see the Safe Harbor Statements in our Form 10-K filing with the SEC filed yesterday and in the related press release.
Operator: For a recorded call, it's a property of Erie Indemnity. It may not be reproduced or rebroadcast by any other party without the prior written consent of your indemnity company.
It's the prerecorded call is the property to your indemnity.
It may not be reproduced or rebroadcast by any other party without the prior written consent of Erie Indemnity company.
Scott Beilharz: With that, we move on to Tim's remarks. Thanks, Scott.
Tim: With that we move on to Tim's remarks, Tim.
Timothy NeCastro: And thanks to all of you for your interest in Erie's fourth quarter and year-end results for 2020.
Tim: Thanks Scott.
Tim: Thanks to all of you for your interest in your fourth quarter and year end results for 'twenty 'twenty four.
Timothy NeCastro: 2025 is an exciting year at Erie Insurance as we celebrate our centennial.
Tim: 'twenty 'twenty fives, and explaining your radio reinsurance as we celebrate our centennial.
Timothy NeCastro: H.O. Hertz and O.G.
Timothy NeCastro: Crawford opened the doors of Erie Insurance Exchange on April 20th, 1925 after selling $31,000 of stock in Erie Indemnity Company as the managing attorney-in-fact. Within the first year, HO and OG brought in just under $50,000 in premiums from nearly 1,400 policyholders and established a surplus of almost $37,000. It's amazing to think that today, Erie Insurance Exchange has amassed close to $12 billion in premium, more than 7 million policies enforced, and just over $9 billion in policyholder surplus.
Speaker Change: H O Hirt Fuji Crawford opened the doors of Erie insurance exchange on April 20th 1925, after selling $31000 of stock in Erie Indemnity company as the managing attorney in fact.
Speaker Change: Within the first year H O and O G brought in just under $50000 in premiums from nearly 40 of our policyholders and established a surplus of almost $37000.
Speaker Change: It's amazing to think that today.
Speaker Change: Reinsurance exchange as a mask close to $12 billion in premium whether it's 7 million policies in force at just over $9 billion and policyholder surplus.
Timothy NeCastro: And Erie Indemnity just experienced a net income of $600 million in 2024. This growth and success are, no doubt, testaments to the value proposition we offer, delivered by our dedicated employees and our agents. Today, we face challenges and changes that are quite different from those of our founders. but we are adapting and responding in a way that aligns with our founding principles which guide us to put people in service above all else.
Speaker Change: Our indemnity just experienced net income of $600 million in 2024.
Speaker Change: This growth and success are no doubt testaments to the value proposition, we offer delivered by our dedicated employees and our agents.
Speaker Change: Today, we face challenges and changes that are quite different from those of our founders but.
Speaker Change: But we are adapting and responding in a way that aligns with our founding principles, which guide us to put people in service above all else.
Timothy NeCastro: I'll share some examples of recent strides we've made to adapt to some of those changes in a few minutes.
I'll share. Some examples of recent strides we've made to adapt to some of those changes if you will.
Julie Pelkowski: First, I'd like to introduce Chief Financial Officer Julie Pelkowski, who will provide an overview of our financial results. Thank you, Tim, and good morning, everyone. In 2024, Erie Indemnity Company continued to experience strong operating performance driven by growth for Erie Insurance Exchange. Direct written premiums of the exchange grew 16% in the fourth quarter of 2024 and over 18% for the full year 2024 compared to the respective periods in the prior year. These results were primarily driven by the more significant rate increases that had been taken to combat higher loss costs caused by increased severity in weather events.
Speaker Change: That's.
Speaker Change: But first I'd like to introduce <unk>, Chief Financial Officer, Julie Co Koski, who will provide an overview of our financial results.
Speaker Change: Julie.
Speaker Change: Okay.
Speaker Change: Thank you, Tim and good morning, everyone.
Speaker Change: In 2020 for Erie Indemnity company continued to experience strong operating performance driven by growth for Erie insurance exchange.
Speaker Change: Direct written premiums of the exchange grew 16% in the fourth quarter of 2024 and over 18% for the full year 2024 compared to the respective periods in the prior year.
Speaker Change: These results were primarily driven by the more significant rate increases that had been taken to combat higher loss costs caused by increased severity and weather events.
Julie Pelkowski: The exchange's total average premium per policy grew over 13% in 2024 compared to 2023. Policies in force grew a solid 4.8% to over 7 million in 2024, although slowing from the significant growth of 6.9% in 2023. Policyholder retention also remained strong at 90.4%. As stated in previous calls, because we write 12-month policies, it takes 24 months for the related premium to be fully earned into our financial results. As expected, the exchange's profitability experienced improvements driven by the higher earned premiums as the more significant portion of rate increases were realized in 2024. In the fourth quarter of 2024, the combined ratio was 105.7, an improvement from 111.4 in the fourth quarter of 2023.
Speaker Change: The exchange is total average premium per policy grew over 13% in 2024 compared to 2023.
Speaker Change: Policies in force grew a solid four 8% to over $7 million in 2024, although slowing from the significant growth of six 9% in 2023.
Speaker Change: LLC holder retention also remained strong at 94%.
Speaker Change: As stated in previous calls because we raised 12 month policies. It takes 24 months weather related premium to be fully earned into our financial results.
Speaker Change: As expected the exchanges profitability experienced improvement driven by the higher earned premiums as the more significant portion of rate increases were realized in 2024.
Speaker Change: In the fourth quarter of 2020 for the combined ratio was $105 seven an improvement from 111 point or in the fourth quarter of 2023.
Julie Pelkowski: From a total year perspective, the combined ratio for the exchange ended at 110.4, nearly nine points better than the 2023 combined ratio of 119.1. Coupled with the impact from rate increases, the exchange has seen stable frequency, and while there are still pockets of higher severity, overall severity trends have been moderating. Catastrophe losses from weather events were also lower in 2024, despite the impacts of Hurricane Helene that added 1.6 points to the 2024 combined ratio. Overall, catastrophe losses contributed 9.6 points to the 2024 combined ratio, compared to 12.6 points in 2023. In 2022 and 2023, the exchange experience declines in policyholder surplus driven by the severity and weather events we've been discussing.
Speaker Change: From a total year perspective, the combined ratio for the exchange ended at 110 point for nearly nine points better than the 2023 combined ratio of 119.1.
Speaker Change: Coupled with the impact from rate increases the exchanges being stable frequency and while there are still pockets of higher severity overall severity trends have been moderating.
Catastrophe losses from weather events were also lower in 2024, despite the impacts of Hurricane Helene that added one six points to the 2024 combined ratio.
Overall catastrophe losses contributed nine six points to the 2024 combined ratio compared to $12 six points in 2023.
Speaker Change: In 2022, and 2023, the exchange experienced declines in policyholder surplus driven by the severity and weather events, we've been discussing.
Julie Pelkowski: With the more significant rate actions taking hold in 2024, policyholder surplus stabilized this year, remaining at $9.3 billion at year-end, similar to the beginning of the year.
Speaker Change: With the more significant rate actions, taking hold in 2024 policyholder surplus stabilize this year remaining at $9 3 billion at year end similar to the beginning of the year.
Julie Pelkowski: Now let's turn to the Indemnity Company and the positive results for both the fourth quarter and year-end. Net income was $152 million or $2.91 per diluted share in the fourth quarter of 2024 compared to nearly $111 million or $2.12 per diluted share in the fourth quarter of 2023. Net income was just over $600 million, or $11.48 per diluted share in 2024, compared to just over $446 million, or $8.53 per diluted share in 2023. Operating income in the fourth quarter increased a little over $40 million, or 31.7%, compared to the fourth quarter of 2023. For the total year, Indemnity experienced an increase in operating income of just over $156 million, or 30% compared to 2023.
Speaker Change: Now, let's turn to the indemnity company and the positive results for both the fourth quarter and year end.
Speaker Change: Net income was $152 million or $2 91 per diluted share in the fourth quarter of 2024 compared to nearly $111 million or $2 12 per diluted share in the fourth quarter of 2023.
Speaker Change: Net income was just over 600 million or $11 48 per diluted share in 2024 compared to just over $446 million or $8 53 per diluted share in 2023.
Speaker Change: Operating income in the fourth quarter increased a little over $40 million or <unk> 31, 7% compared to the fourth quarter of 2023 for.
Speaker Change: For the total year indemnity experienced an increase in operating income of just over 156 million or 30% compared to 2023.
Julie Pelkowski: When looking at our revenue growth, management fee revenue from policy issuance and renewal services increased over $97 million, or 16.1%, in the fourth quarter of 2024 compared to the fourth quarter of 2023, and $452 million, or 18.5%, for the total year compared to 2023. These increases in both the fourth quarter and total year were in line with the respective increases in the direct and affiliated assumed written premiums of the exchange.
Speaker Change: When looking at our revenue growth management fee revenue from policy issuance and renewal services increased over 97 million or 16, 1% in the fourth quarter of 2024 compared to the fourth quarter of 2023.
Speaker Change: And $452 million or 18, 5% for the total year compared to 2023.
Speaker Change: Increases in both the fourth quarter and total year were in line with the respective increases in the direct and affiliated assumed written premiums of the exchange.
Julie Pelkowski: From an expense standpoint, the total cost of operations from policy issuance and renewal services increased $57 million or 11.4% for the fourth quarter and $301 million or 15% for the total year 2024 compared to the same period in 2023. Our most significant cost of operations, our commission expenses, grew $51 million in the fourth quarter while the total year commission expenses increased $253 million. The higher commissions in both periods were driven by the increase in direct and affiliated assumed written premiums of the exchange. Non-commissioned expenses for the fourth quarter grew just over $6 million, while the total year non-commissioned expenses grew $48 million.
Speaker Change: From an expense standpoint, the total cost of operations from policy issuance and renewal services increased $57 million or 11, 4% for the fourth quarter and $301 million or 15% for the total year 2024 compete compared to the same periods in 2023.
Speaker Change: Our most significant cost of operations. Our commission expenses grew $51 million in the fourth quarter, Although total year Commission expenses increased $253 million.
Speaker Change: The higher commissions in both periods were driven by the increase in direct and affiliated assumed written premiums of the exchange.
Speaker Change: Non commission expenses for the fourth quarter grew just over 6 million, while the total year non commission expenses grew $48 million.
Julie Pelkowski: The $6 million fourth quarter increase was driven by increased underwriting and policy processing costs of nearly $5 million, $3 million in additional information technology investments, and $2 million in higher customer service costs. These increases were offset by lower sales and advertising expenses of $2 million and lower administrative and other costs of $1 million. The increase in total year non-commission expenses of $48 million included increased underwriting and policy processing expenses of $18.5 million. Sales and advertising expenses increased by almost $8 million, driven by higher agent-related and community development costs. Administrative and other costs increased $14.5 million due to increased personnel costs, charitable contributions, and professional fees.
Speaker Change: The $6 million fourth quarter increase was driven by increased underwriting and policy processing costs of nearly $5 million.
Speaker Change: 3 million in additional information technology investments and $2 million and higher customer service costs.
Speaker Change: These increases were offset by lower sales and advertising expenses of $2 million and lower administrative and other costs of $1 million.
Speaker Change: The increase in total year non commission expenses of $48 million included increased underwriting and policy processing expenses of $18 5 million.
Speaker Change: Sales and advertising expenses increased by almost $8 million driven by higher agent related and community development costs.
Speaker Change: Administrative and other costs increased $14 5 million due to increased personnel costs charitable contributions and professional fees.
Julie Pelkowski: Customer service costs also increased $9 million due to increases in both personnel costs and credit card processing fees.
Speaker Change: Customer service costs also increased $9 million due to increases in both personnel costs and credit card processing fees.
Julie Pelkowski: These increases were offset by lower overall information technology costs for the year of over a million dollars due to decreases in professional fees and personnel costs. Income from investments for the fourth quarter totaled almost $21 million compared to $10 million in the same period last year. The fourth quarter of 2024 saw an increase of $7 million in net investment income as well as a decrease in net impairment losses of $7 million compared to the fourth quarter of 2023. Income from investments totaled over $69 million for 2024 compared to just $29 million for total year 2023, primarily driven by a $25 million increase in net investment income.
Speaker Change: These increases were offset by lower overall information technology costs for the year of over $1 million due to decreases in professional fees and personnel costs.
Speaker Change: Income from investments for the fourth quarter totaled almost $21 million compared to $10 million in the same period last year.
Speaker Change: Fourth quarter of 2024, an increase of $7 million and net investment income as well as a decrease in net impairment losses of $7 million compared to the fourth quarter of 2023.
Speaker Change: Income from investments totaled over $69 million for 2024 compared to just $29 million for total year 2023, primarily driven by a $25 million increase in net investment income.
Julie Pelkowski: Contributing to this increase was a $13 million improvement in our limited partnership results and higher net realized and unrealized gains of $9 million compared to 2023.
Speaker Change: Contributing to this increase was a $13 million improvement in our limited partnership results and higher net realized and unrealized gains of $9 million compared to 2023.
Julie Pelkowski: Finally, in 2024, we paid our shareholders over $237 million in dividends, and in December of last year, our board approved a 7.1% increase in the 2025 regular quarterly cash dividend for both our Class A and Class B shares.
Speaker Change: Finally in 2024, we paid our shareholders over $237 million in dividends.
Speaker Change: And in December of last year, our board approved a seven 1% increase in the 2025 regular quarterly cash dividend for both our class a and class B shares.
Timothy NeCastro: Now, I'll turn the call back over to Tim. Thank you, Julie. Earlier in the call, I mentioned the challenges in changing. And we're certainly not alone. The volatility of the economy, the climate, and the legal landscape are impacting our entire... And of course, the pace of technology continues to demand more of our resources.
Tim: Now I'll turn the call back over to Tim.
Tim: Thank you Julien.
Earlier in the call I mentioned, the challenges and changes we have been facing and we're certainly not alone.
Tim: Volatility of the economy, the climate and the legal landscape or impacting our entire industry.
And of course, the Pacer technology continues to demand more of our resources and attention.
Timothy NeCastro: Modernization of our technology platforms and processes has been a key initiative for the past two years. It's foundational to our future growth and geographic expansion, and it's directly tied to one of our highest current priorities, expense management. I'm pleased to share that at the end of 2024, we'd successfully migrated multiple legacy systems to modern platforms. We still have a lot of work ahead to continue this migration into Sunset Legacy Systems, but we're pleased with our progress to date. Several legacy platforms have been migrated to the cloud, a technology infrastructure that is more stable, secure, and dependable.
Tim: Modernization of our technology platforms and processes has been a key initiative for the past two years.
Tim: Is foundational to our future growth and geographic expansion and its directly tied to one of our highest current priorities experience management.
Tim: I'm pleased to share that at the end of 2024, we successfully migrated multiple legacy systems to modern platforms.
Tim: We still have a lot of work ahead to continue this migration and defense legacy systems, but we're pleased with our progress to date.
Tim: Several legacy platforms have been migrated to the cloud and technology infrastructure that is more stable secure and efficient.
Timothy NeCastro: And the modernization efforts have also led to enhancements to our products, services, and related digital and data. This includes a new billing platform that has been implemented with two recent rollouts, the expansion of workers' compensation, and the launch of Business Auto 2.0. You may recall that in 2023, we launched a refreshed workers' compensation plan. has paved the way for the recent expansion of workers' comp coverage to adjacent states. Commercial customers domiciled estates within Erie's footprint can now include employees who work primarily in Delaware and Vermont on their Erie Workers' Comp Policy. Additional states are expected to be added soon.
Tim: And the modernization efforts have also led to enhancements to our products services and related digital and data capabilities.
Tim: This concludes the new billing platform that has been implemented with two recent rollouts the expansion of workers' compensation and the one for business model to point out.
Tim: You may recall that in 2023, we've launched a refreshed workers' compensation platform.
This paves the way for the recent expansion of workers' comp coverage to adjacent states.
Customers domiciled states within <unk> footprint could now include employees, who work primarily in Delaware and Vermont.
Tim: And are your workers comp policy.
Tim: Additional states are expected to be added soon.
Timothy NeCastro: Business Auto 2.0 supports a refreshed and enhanced commercial auto product with an improved quoting and processing experience and the ability to have vehicles from multiple states on one policy. after being successfully piloted in Vienna.
Tim: This is 102.1 supports.
Tim: Our refreshed enhanced commercial auto product with an improved quoting and processing experience and the ability to have vehicles for multiple states on one policy.
After being successfully piloted Indiana.
Timothy NeCastro: and Incorporating Recommended Improvements from Stakeholders, Business Auto 2.0 will move ahead for a full rollout in the first half of 2025.
Tim: And incorporating recommended improvements from stakeholders business allowed her to Plano will move ahead for full rollout in the first half of 2025.
Timothy NeCastro: Before we close, I'd like to mention a couple of third-party recognitions Erie received in the last quarter.
Tim: Before we close I'd like to actually have a couple of third party recognitions, we received in the last quarter.
Timothy NeCastro: In November, Erie was recognized as a Top 100 Employer for Workplace Culture for the second consecutive year by the American Opportunity Index. The Annual Employer Study measures how effective America's largest companies are at developing talent to drive business performance and advance individual careers.
Tim: In November <unk> was recognized as a top 100 employer for workplace culture for the second consecutive year by the American opportunity index.
Tim: The annual employer study measures how effect of America's largest companies are developing talent to drive business performance and advancing individual careers.
Timothy NeCastro: In December, Erie's Future Focus internship program was named to the Rising Insurance Star Executive List of the industry's 50 Best Leadership Programs for the fourth consecutive year. More than 100 interns from 40 different colleges and universities participated in the program last year.
Tim: In December <unk> future focused internship program was named to the rising insurance Star Executive list of the industry's 50 best viewership programs for the fourth consecutive year.
Tim: More than 100 in terms from 40 different colleges and universities participated in the program last year.
Timothy NeCastro: Finally, I'm excited to share that two of our senior leaders have been promoted to executive vice Sarah Shine, a 25-year employee of Erie, has been appointed Executive Vice President of Customer Service and Experience. and Cody Cook, a 22-year employee of Erie, has been appointed Executive Vice President of CLAIM. As tenured employees who have served in both business and support functions, they each bring great institutional knowledge and valuable perspective to our executive team. I'm excited to have Cody and Sarah serving in these important executive roles as we begin our 100th year and set our strategy for the future.
Tim: Finally, I'm excited this year the two of our senior leaders have been promoted to executive Vice presidents.
Speaker Change: Sure Sean a 25 year employee Berry has been appointed executive Vice President of customer service and experience.
Cook: Cook, a 22 year employee of Uri.
Speaker Change: Has been appointed executive Vice President of claims.
Speaker Change: As Henrik employees, who have served in both business and support functions. They each bring great institutional knowledge and valuable perspective to our executive team.
Speaker Change: Im excited to have podium zera, Serbia and these important executive roles as we begin our 100th year and set our strategy for the future.
Timothy NeCastro: Thank you all again for listening in today and for your continued interest. Thank you for watching!
Speaker Change: Thank you all again for listening in today and for your continued interest in Erie.
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