ERIE, Pa., Feb. 23, 2017 /PRNewswire/ — Erie Indemnity Company (NASDAQ: ERIE) today announced financial results for the full year and quarter ending December 31, 2016.  Net income was $210.4 million, or $4.01 per diluted share, for the full year 2016, compared to $174.7 million, or $3.33 per diluted share, in 2015.  Net income was $45.8 million, or $0.87 per diluted share, in the fourth quarter of 2016, compared to $30.1 million, or $0.57 per diluted share, in the fourth quarter of 2015.  The growth in 2016 for the fourth quarter and full year was driven by increased net revenue from operations as revenue growth outpaced the growth in expenses.

«We continue to grow profitably,» said Tim NeCastro, President and CEO.  «The dedicated work of our Agents and Employees has once again enabled us to beat the industry forecast for 2016 and as we embark upon 2017, we are well positioned for continued long-term growth and value creation.»

 

4Q and Total Year 2016

(dollars in thousands)

4Q’15

4Q’16

2015

2016

Net revenue from operations

$

41,839

$

56,685

$

232,541

$

292,364

Investment income, net of interest expense

4,244

13,438

33,708

27,727

Income before income taxes

46,083

70,123

266,249

320,091

Income tax expense

15,950

24,337

91,571

109,725

Net income

$

30,133

$

45,786

$

174,678

$

210,366

Gross margin from operations

11.7

%

14.9

%

15.4

%

18.3

%

 

2016 Total Year Highlights

Net revenue from operations before taxes increased $59.8 million, or 25.7 percent, in 2016 compared to 2015.

  • Management fee revenue increased $91.9 million, or 6.2 percent, in 2016 compared to 2015.
  • Commissions increased $45.9 million in 2016 compared to 2015 as a result of the 6.2 percent increase in direct and assumed premiums written by the Exchange.
  • Non-commission expense decreased $14.6 million in 2016 compared to 2015. Information technology costs decreased $2.1 million primarily due to decreased personnel costs somewhat offset by an increase in professional fees. Customer service costs decreased $4.7 million primarily due to decreased credit card processing fees and personnel costs. Administrative and other costs decreased $7.8 million due to decreased personnel costs, including incentive compensation forfeited by senior executives who separated from service during 2016, somewhat offset by an increase in professional fees. Personnel costs in all expense categories were impacted by decreased pension costs primarily due to an increase in the pension discount rate as well as decreased medical costs.
  • The gross margin for 2016 was 18.3 percent, compared to 15.4 percent for 2015.

Income from investments before taxes totaled $27.8 million in 2016, compared to $33.7 million in 2015.  Earnings from limited partnerships were $7.0 million in 2016 compared to earnings of $17.0 million in 2015.

 

4Q 2016 Highlights

Net revenue from operations before taxes increased $14.8 million, or 35.5 percent, in the fourth quarter of 2016 compared to the fourth quarter of 2015.

  • Management fee revenue increased $23.3 million, or 6.7 percent, in the fourth quarter of 2016 compared to the fourth quarter of 2015.
  • Commissions increased $10.1 million in the fourth quarter of 2016 compared to the fourth quarter of 2015 as a result of the 6.4 percent increase in direct and assumed premiums written by the Exchange.
  • Non-commission expense decreased $1.8 million in the fourth quarter of 2016 compared to the fourth quarter of 2015. Information technology costs increased $4.3 million primarily due to an increase in professional fees. Customer service costs decreased $1.8 million primarily due to decreased credit card processing fees and personnel costs. Administrative and other costs decreased $4.0 million due to decreased personnel costs, including incentive compensation forfeited by senior executives who separated from service during 2016, somewhat offset by an increase in professional fees. Personnel costs in all expense categories were impacted by decreased pension costs primarily due to an increase in the pension discount rate.
  • The gross margin in the fourth quarter of 2016 was 14.9 percent, compared to 11.7 percent in the fourth quarter of 2015.

Income from investments before taxes totaled $13.5 million in the fourth quarter of 2016, compared to $4.2 million in the fourth quarter of 2015.  Earnings from limited partnerships were $7.3 million in the fourth quarter of 2016 compared to earnings of $0.1 million in the fourth quarter of 2015.

Webcast Information
Indemnity has scheduled a conference call and live audio broadcast on the Web for 10:00 AM ET on February 24, 2017.  Investors may access the live audio broadcast by logging on to www.erieinsurance.com.  Indemnity recommends visiting the website at least 15 minutes prior to the Webcast to download and install any necessary software.  A Webcast audio replay will be available on the Investor Relations page of the Erie Insurance website by 12:30 PM ET.

About Erie Insurance
According to A.M. Best Company, Erie Insurance Group, based in Erie, Pennsylvania, is the 10th largest homeowners insurer and 12th largest automobile insurer in the United States based on direct premiums written and the 15th largest property/casualty insurer in the United States based on total lines net premium written. The Group, rated A+ (Superior) by A.M. Best Company, has more than 5 million policies in force and operates in 12 states and the District of Columbia. Erie Insurance Group is a FORTUNE 500 company.

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 Securities and Exchange Commission, that could cause actual results and future events to differ from those set forth or contemplated in the forward-looking statements include the following:

  • dependence upon our relationship with the Exchange and the management fee under the agreement with the subscribers at the Exchange;
  • costs of providing services to the Exchange under the subscriber’s agreement and investments in new technology and systems;
  • credit risk from 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;
  • ability to attract and retain talented management and employees;
  • ability to maintain uninterrupted business operations and difficulties with technology or data security breaches, including cyber attacks;
  • 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.

(ERIE-F)

 

Erie Indemnity Company

Statements of Operations

(dollars in thousands, except per share data)

Three months ended
December 31,

Twelve months ended
December 31,

2016

2015

2016

2015

(Unaudited)

Operating revenue

Management fee revenue, net

$

372,169

$

348,885

$

1,567,431

$

1,475,511

Service agreement revenue

7,444

7,495

29,200

29,997

Total operating revenue

379,613

356,380

1,596,631

1,505,508

Operating expenses

Commissions

216,837

206,691

893,800

847,880

Salaries and employee benefits

51,777

55,998

213,356

226,713

All other operating expenses

54,314

51,852

197,111

198,374

Total operating expenses

322,928

314,541

1,304,267

1,272,967

Net revenue from operations

56,685

41,839

292,364

232,541

Investment income

Net investment income

5,663

4,469

20,547

17,791

Net realized gains on investments

643

617

672

492

Net impairment losses recognized in earnings

(71)

(923)

(416)

(1,558)

Equity in earnings of limited partnerships

7,304

81

7,025

16,983

Total investment income

13,539

4,244

27,828

33,708

Interest expense, net

101

101

Income before income taxes

70,123

46,083

320,091

266,249

Income tax expense

24,337

15,950

109,725

91,571

Net income

$

45,786

$

30,133

$

210,366

$

174,678

Earnings Per Share

Net income per share

Class A common stock – basic

$

0.98

$

0.65

$

4.52

$

3.75

Class A common stock – diluted

$

0.87

$

0.57

$

4.01

$

3.33

Class B common stock – basic

$

147

$

97

$

678

$

563

Class B common stock – diluted

$

147

$

97

$

677

$

562

Weighted average shares outstanding – Basic

Class A common stock

46,188,895

46,179,559

46,188,952

46,186,671

Class B common stock

2,542

2,542

2,542

2,542

Weighted average shares outstanding – Diluted

Class A common stock

52,413,119

52,506,600

52,435,303

52,498,811

Class B common stock

2,542

2,542

2,542

2,542

Dividends declared per share

Class A common stock

$

0.7825

$

0.7300

$

2.9725

$

2.7730

Class B common stock

$

117.375

$

109.500

$

445.875

$

415.950

 

Erie Indemnity Company
Reconciliation of Net Income to Operating Income

Reconciliation of net income to operating income

We disclose operating income, a non-GAAP financial measure, to enhance our investors’ understanding of our performance.  Our method of calculating this measure may differ from those used by other companies, and therefore comparability may be limited.

We define operating income as net income excluding realized capital gains and losses, impairment losses, and related federal income taxes.

We use operating income to evaluate the results of our operations.  It reveals trends that may be obscured by the net effects of realized capital gains and losses including impairment losses.  Realized capital gains and losses, including impairment losses, may vary significantly between periods and are generally driven by business decisions and economic developments such as capital market conditions which are not related to our ongoing operations.  We are aware that the price to earnings multiple commonly used by investors as a forward-looking valuation technique uses operating income as the denominator.  Operating income should not be considered as a substitute for net income prepared in accordance with U.S. generally accepted accounting principles («GAAP») and does not reflect our overall profitability.

The following table reconciles net income and operating income:

Three months ended
December 31,

Twelve months ended
December 31,

(in thousands, except per share data)

2016

2015

2016

2015

(Unaudited)

Net income

$

45,786

$

30,133

$

210,366

$

174,678

Net realized (gains) losses and impairments on investments

(572)

306

(256)

1,066

Income tax expense (benefit)

199

(107)

89

(373)

Realized (gains) losses and impairments, net of income taxes

(373)

199

(167)

693

Operating income

$

45,413

$

30,332

$

210,199

$

175,371

Per Class A common share-diluted:

Net income

$

0.87

$

0.57

$

4.01

$

3.33

Net realized (gains) losses and impairments on investments

0.00

0.01

0.00

0.02

Income tax expense (benefit)

0.00

0.00

0.00

(0.01)

Realized (gains) losses and impairments, net of income taxes

0.00

0.01

0.00

0.01

Operating income

$

0.87

$

0.58

$

4.01

$

3.34

 

 

 

Erie Indemnity Company

Statements of Financial Position

(in thousands)

December 31, 2016

December 31, 2015

Assets

Current assets:

Cash and cash equivalents

$

189,072

$

182,889

Available-for-sale securities

56,138

62,067

Receivables from Erie Insurance Exchange and affiliates

378,540

348,055

Prepaid expenses and other current assets

30,169

24,697

Federal income taxes recoverable

5,260

11,947

Accrued investment income

6,337

5,491

Total current assets

665,516

635,146

Available-for-sale securities

657,153

537,874

Limited partnership investments

58,159

88,535

Fixed assets, net

69,142

59,087

Deferred income taxes, net

53,889

40,686

Note receivable from Erie Family Life Insurance Company

25,000

25,000

Other assets

20,096

20,968

Total assets

$

1,548,955

$

1,407,296

Liabilities and shareholders’ equity

Current liabilities:

Commissions payable

$

210,559

$

195,542

Agent bonuses

114,772

106,752

Accounts payable and accrued liabilities

88,153

88,532

Dividends payable

36,441

33,996

Deferred executive compensation

19,675

20,877

Total current liabilities

469,600

445,699

Defined benefit pension plan

221,827

172,700

Employee benefit obligations

756

1,234

Deferred executive compensation

13,233

16,580

Long-term borrowings

24,766

Other long-term liabilities

1,863

1,580

Total liabilities

732,045

637,793

Shareholders’ equity

816,910

769,503

Total liabilities and shareholders’ equity

$

1,548,955

$

1,407,296

 

 

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SOURCE Erie Indemnity Company