Erie Indemnity Reports Third Quarter 2018 Results
3Q and Nine Months 2018 |
||||||||||||||
(dollars in thousands) |
3Q'18 |
3Q'17 |
2018 |
2017 |
||||||||||
Operating income |
$ |
96,695 |
$ |
81,239 |
$ |
269,585 |
$ |
231,627 |
||||||
Investment income |
8,431 |
8,418 |
20,801 |
21,458 |
||||||||||
Interest expense and other, net |
655 |
792 |
1,708 |
2,031 |
||||||||||
Income before income taxes |
104,471 |
88,865 |
288,678 |
251,054 |
||||||||||
Income tax expense |
24,025 |
30,322 |
62,768 |
86,108 |
||||||||||
Net income |
$ |
80,446 |
$ |
58,543 |
$ |
225,910 |
$ |
164,946 |
||||||
3Q 2018 Highlights |
Operating income before taxes increased
- Management fee revenue - policy issuance and renewal services increased
$16.1 million , or 3.7 percent, in the third quarter of 2018 compared to the third quarter of 2017. - Management fee revenue allocated to administrative services was
$13.5 million in the third quarter of 2018. No management fee revenue was allocated to administrative services in the third quarter of 2017. - Cost of operations - policy issuance and renewal services
- Commissions increased
$8.1 million in the third quarter of 2018 compared to the third quarter of 2017, as a result of the 7.1 percent increase in direct and assumed premiums written by the Exchange, slightly offset by lower agent incentive costs related to less profitable growth, compared to the third quarter of 2017. - Non-commission expense increased
$5.9 million in the third quarter of 2018 compared to the same period in 2017. Information technology costs increased$4.0 million primarily due to higher professional fees. Administrative and other expenses increased$2.4 million primarily due to higher professional fees and personnel costs. Personnel costs in all expense categories were impacted by lower estimated costs for incentive plan awards related to underwriting performance. - The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by
$140.2 million in the third quarter of 2018, but had no net impact on operating income.
Income from investments before taxes totaled
Income before income taxes increased
Nine Months 2018 Highlights |
Operating income before taxes increased
- Management fee revenue - policy issuance and renewal services increased
$43.3 million , or 3.4 percent, in the first nine months of 2018 compared to the first nine months of 2017. - Management fee revenue allocated to administrative services was
$39.9 million in the first nine months of 2018. No management fee revenue was allocated to administrative services in the first nine months of 2017. - Cost of operations - policy issuance and renewal services
- Commissions increased
$31.9 million in the first nine months of 2018 compared to the first nine months of 2017, as a result of the 6.9 percent increase in direct and assumed premiums written by the Exchange, slightly offset by lower agent incentive costs related to less profitable growth, compared to the first nine months of 2017. - Non-commission expense increased
$12.9 million for the nine months endedSeptember 30, 2018 compared to the same period in 2017. Underwriting and policy processing costs increased$5.3 million primarily due to increased personnel costs and underwriting report costs. Information technology costs increased$2.7 million primarily due to increased personnel costs. Customer service costs increased$3.4 million primarily due to increased personnel costs and credit card processing fees. Personnel costs in all expense categories were higher due to additional bonuses of approximately$4.8 million awarded to all employees as a result of tax savings realized from the lower corporate income tax rate that became effectiveJanuary 1, 2018 as well as increased pension and medical costs. The total increase in personnel costs was somewhat offset by lower estimated costs for incentive plan awards related to underwriting performance. - The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by
$432.6 million in the first nine months of 2018, but had no net impact on operating income.
Income from investments before taxes totaled
Income before income taxes increased
Webcast Information
Indemnity has scheduled a pre-recorded audio broadcast on the Web for 10:00 AM ET on
According to A.M. Best Company, Erie Insurance Group, based in Erie,
News releases and more information about Erie Insurance Group are available at www.erieinsurance.com.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995:
Statements contained herein that are not historical fact are forward-looking statements and, as such, are subject to risks and uncertainties that could cause actual events and results to differ, perhaps materially, from those discussed herein. Forward-looking statements relate to future trends, events or results and include, without limitation, statements and assumptions on which such statements are based that are related to our plans, strategies, objectives, expectations, intentions, and adequacy of resources. Examples of forward-looking statements are discussions relating to premium and investment income, expenses, operating results, and compliance with contractual and regulatory requirements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Among the risks and uncertainties, in addition to those set forth in our filings with the
- dependence upon our relationship with the Exchange and the management fee under the agreement with the subscribers at the Exchange;
- dependence upon our relationship with the Exchange and the growth of the Exchange, including:
- general business and economic conditions;
- factors affecting insurance industry competition;
- dependence upon the independent agency system; and
- ability to maintain our reputation for customer service;
- dependence upon our relationship with the Exchange and the financial condition of the Exchange, including:
- the Exchange's ability to maintain acceptable financial strength ratings;
- factors affecting the quality and liquidity of the Exchange's investment portfolio;
- changes in government regulation of the insurance industry;
- emerging claims and coverage issues in the industry; and
- severe weather conditions or other catastrophic losses, including terrorism;
- costs of providing policy issuance and renewal services to the Exchange under the subscriber's agreement;
- credit risk from the Exchange;
- ability to attract and retain talented management and employees;
- ability to ensure system availability and effectively manage technology initiatives;
- difficulties with technology or data security breaches, including cyber attacks;
- ability to maintain uninterrupted business operations;
- factors affecting the quality and liquidity of our investment portfolio;
- our ability to meet liquidity needs and access capital; and
- outcome of pending and potential litigation.
A forward-looking statement speaks only as of the date on which it is made and reflects our analysis only as of that date. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in assumptions, or otherwise.
|
||||||||||||||||
Three months ended |
Nine months ended |
|||||||||||||||
2018 |
2017 |
2018 |
2017 |
|||||||||||||
(Unaudited) |
(Unaudited) |
|||||||||||||||
Operating revenue |
||||||||||||||||
Management fee revenue - policy issuance and renewal services, net |
$ |
451,361 |
$ |
435,214 |
$ |
1,311,911 |
$ |
1,268,591 |
||||||||
Management fee revenue - administrative services, net |
13,521 |
— |
39,894 |
— |
||||||||||||
Administrative services reimbursement revenue |
140,172 |
— |
432,642 |
— |
||||||||||||
Service agreement revenue |
7,072 |
7,278 |
21,297 |
21,781 |
||||||||||||
Total operating revenue |
612,126 |
442,492 |
1,805,744 |
1,290,372 |
||||||||||||
Operating expenses |
||||||||||||||||
Cost of operations - policy issuance and renewal services |
375,259 |
361,253 |
1,103,517 |
1,058,745 |
||||||||||||
Cost of operations - administrative services |
140,172 |
— |
432,642 |
— |
||||||||||||
Total operating expenses |
515,431 |
361,253 |
1,536,159 |
1,058,745 |
||||||||||||
Operating income |
96,695 |
81,239 |
269,585 |
231,627 |
||||||||||||
Investment income |
||||||||||||||||
Net investment income |
7,659 |
5,982 |
21,583 |
18,202 |
||||||||||||
Net realized investment gains (losses) |
0 |
899 |
(497) |
1,539 |
||||||||||||
Net impairment losses recognized in earnings |
0 |
0 |
(646) |
(182) |
||||||||||||
Equity in earnings of limited partnerships |
772 |
1,537 |
361 |
1,899 |
||||||||||||
Total investment income |
8,431 |
8,418 |
20,801 |
21,458 |
||||||||||||
Interest expense, net |
709 |
377 |
1,864 |
800 |
||||||||||||
Other income (expense) |
54 |
(415) |
156 |
(1,231) |
||||||||||||
Income before income taxes |
104,471 |
88,865 |
288,678 |
251,054 |
||||||||||||
Income tax expense |
24,025 |
30,322 |
62,768 |
86,108 |
||||||||||||
Net income |
$ |
80,446 |
$ |
58,543 |
$ |
225,910 |
$ |
164,946 |
||||||||
Net income per share |
||||||||||||||||
Class A common stock – basic |
$ |
1.73 |
$ |
1.26 |
$ |
4.85 |
$ |
3.54 |
||||||||
Class A common stock – diluted |
$ |
1.54 |
$ |
1.12 |
$ |
4.32 |
$ |
3.15 |
||||||||
Class B common stock – basic |
$ |
259 |
$ |
189 |
$ |
728 |
$ |
531 |
||||||||
Class B common stock – diluted |
$ |
259 |
$ |
189 |
$ |
727 |
$ |
531 |
||||||||
Weighted average shares outstanding – Basic |
||||||||||||||||
Class A common stock |
46,188,941 |
46,188,949 |
46,188,522 |
46,186,109 |
||||||||||||
Class B common stock |
2,542 |
2,542 |
2,542 |
2,542 |
||||||||||||
Weighted average shares outstanding – Diluted |
||||||||||||||||
Class A common stock |
52,317,438 |
52,316,876 |
52,313,642 |
52,342,450 |
||||||||||||
Class B common stock |
2,542 |
2,542 |
2,542 |
2,542 |
||||||||||||
Dividends declared per share |
||||||||||||||||
Class A common stock |
$ |
0.8400 |
$ |
0.7825 |
$ |
2.5200 |
$ |
2.3475 |
||||||||
Class B common stock |
$ |
126.000 |
$ |
117.375 |
$ |
378.000 |
$ |
352.125 |
|
||||||||
2018 |
2017 |
|||||||
(Unaudited) |
||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ |
244,688 |
$ |
215,721 |
||||
Available-for-sale securities |
105,031 |
71,190 |
||||||
Receivables from |
463,620 |
418,328 |
||||||
Prepaid expenses and other current assets |
44,014 |
34,890 |
||||||
Federal income taxes recoverable |
0 |
29,900 |
||||||
Note receivable from |
25,000 |
25,000 |
||||||
Accrued investment income |
6,504 |
6,853 |
||||||
Total current assets |
888,857 |
801,882 |
||||||
Available-for-sale securities |
599,164 |
687,523 |
||||||
Equity securities |
12,511 |
— |
||||||
Limited partnership investments |
37,088 |
45,122 |
||||||
Fixed assets, net |
121,684 |
83,149 |
||||||
Deferred income taxes, net |
37,660 |
19,390 |
||||||
Other assets |
62,539 |
28,793 |
||||||
Total assets |
$ |
1,759,503 |
$ |
1,665,859 |
||||
Liabilities and shareholders' equity |
||||||||
Current liabilities: |
||||||||
Commissions payable |
$ |
257,015 |
$ |
228,124 |
||||
Agent bonuses |
79,308 |
122,528 |
||||||
Accounts payable and accrued liabilities |
113,204 |
104,533 |
||||||
Dividends payable |
39,119 |
39,116 |
||||||
Contract liability |
34,086 |
— |
||||||
Deferred executive compensation |
11,071 |
15,605 |
||||||
Federal income taxes payable |
9,310 |
0 |
||||||
Current portion of long-term borrowings |
1,395 |
0 |
||||||
Total current liabilities |
544,508 |
509,906 |
||||||
Defined benefit pension plans |
154,736 |
207,530 |
||||||
Employee benefit obligations |
69 |
423 |
||||||
Contract liability |
17,903 |
— |
||||||
Deferred executive compensation |
13,104 |
14,452 |
||||||
Long-term borrowings |
98,332 |
74,728 |
||||||
Other long-term liabilities |
9,828 |
1,476 |
||||||
Total liabilities |
838,480 |
808,515 |
||||||
Shareholders' equity |
921,023 |
857,344 |
||||||
Total liabilities and shareholders' equity |
$ |
1,759,503 |
$ |
1,665,859 |
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SOURCE
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