Erie Indemnity Co (ERIE) 2014 Q1 法說會逐字稿

Good morning, and welcome to the Erie Indemnity Company first quarter 2014 earnings conference call. I would like to introduce your host for today's call, Scott Beilharz, Vice President of Investor Relations, please go ahead.

Thank you, Charlotte, and welcome everyone. We appreciate you joining us for today's discussion about our first quarter 2014 results.

Joining me today are Terry Cavanaugh, President and CEO; Marcia Dall, Executive Vice President and Chief Financial Officer; and Sean McLaughlin, Executive Vice President, Secretary and General Counsel. 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 erieinsurance.com. As we've done in the past, the call will begin with some opening remarks from Terry and Marcia and then we will open the call for your questions.

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. These remarks are based on assumptions subject to known and unexpected risks and uncertainties. These risk and uncertainties may cause results to differ materially from those described in these remarks. For information on important factors that may cause these differences, please see the Safe Harbor statements in our latest 10-Q filing with the SEC dated May 1, 2014 and in the related press release.

Also in this call, we may discuss non-GAAP measures. A reconciliation to the GAAP based results can be found in the10-Q. This call is being recorded and the recording is the property of Erie Indemnity Company. It may not be reproduced or rebroadcast by any other party without the prior written consent of the Erie Indemnity Company. A replay will be available on our website today after 12.30 PM Eastern time. Your participation on this call constitutes your consent to recording its publication, webcast in broadcast, and the use of your name, voice and comments by Erie Indemnity. If you don't agree with these terms, please disconnect at this time.

With that, I will now turn the call over to Terry.

Thank you, Scott, and good morning everyone. For the Erie Insurance Group 2013 was a year of significant milestones. We reached $5 billion in premium last year while recording our fifth consecutive year market share growth in every state in our footprint. We delivered solid underwriting profitability and received additional third-party recognition for our commitment to serving our customers.

We also announced our plans to expand the business into Kentucky which will become the 12 state in our footprint. I'm pleased to report that we continue to build on that positive momentum in the first quarter of 2014 highlights of our strong financial performance the quarter include net income per share for indemnity of $0.88 compared to $0.69 in the first quarter last year reflecting strong top line growth and positive year-over-year investment results. Direct written premium of $1.3 billion in the first quarter, an increase of 7.8% over last year. Our results were driven by both increases in policies in force and average premium per policy. Along with our strong retention rate of 90.6%. We're on track to outpace Conning' s 2014 industry growth projections of 4.2%.

During the first quarter, we continue to build on our operational effectiveness. Our DS Pro web system is now being used in three out of four private pastor auto and home applications. This technology platform for our personalized products is a key growth enabler and provides our agents a seamless convenient way to meet their customer's needs. DS Pro web is an example of the investment we make to maintain strong relationships with our agents. By providing our agents with a well rounded product offering backed by superb customer service, we continue to strengthen our relationship with our agents and their relationship with their customers. A necessity and in our highly competitive industry. Regarding customer service, JD Power has once again recognized Erie Insurance.

Last month, we learned that Erie earned second place in the JD Power property claims study which measures customer satisfaction across the property claims experience. Erie continues to be a high satisfaction carrier due to our prompt initial service contact, high-caliber talent, timely payment of claims and meeting our customers needs related to financial recovery and restoration. This is a testament to the skills and effort of our agents and our claims employees. Who are truly committed to being above all in service.

Additionally, just last week, Erie earned first place in JD Power's 2014 insurance shopping study for highest in customer satisfaction with the auto insurance purchase experience. This marks the fifth time Erie has earned the award since the annual study began in 2007. This award recognizes the success of our agents and Erie employees in meeting high customer expectation when it comes to the auto shopping experience and overall customer satisfaction.

I'd like to take this time to thank our employees and agents for their tireless efforts. They make Erie the special company it is, we're off to a good start in 2014 and we are excited about the opportunities for strengthening our brand and delivering the service for which Erie is known.

Marcia will now provide you with more details into our first quarter financial performance.

Thank you, Terry, and good morning everyone. As Terry mentioned, our first-quarter results continue to build upon 2013 success. Net income was $0.88 per share in the current quarter compared to $0.69 per share in the prior-year quarter. This growth was driven by our increased revenue from management operations, lower expense growth and increased equity in earnings of limited partnership.

In our management operation, income before taxes was $58 million up $9 million over the prior-year quarter. Our revenue growth outpace our growth in expenses increasing our gross margin from 16.1% to 17.9%. Revenue from our management operations grew by $23 million to $326 million. This represents a 7.5% increase over the prior-year period and is consistent with the 7.8% increase in direct written premium of the property and casualty group. With the help of our independent agents and strong policyholder retention we were able to build upon our policy and premium per policy growth from a year ago.

In the first quarter of 2014, we delivered policy growth of 4.7% and a 4.2% increase in premium per policy. This performance reflects meaningful growth in both our personal and commercial product line. Cost of management operation grew $14 million or 5.2% to $268 million. Commission expense grew $10 million a 6% primarily from the increase in direct written premium. This increase was partially offset by a slight decrease in other agent compensation primarily due to a decrease in the projected possibility bonus component.

This was a result of factoring in the underwriting results of the property and casualty group for the current quarter. Non-commission expenses increased $4 million or 3.6% over the prior-year quarter. This is primarily due to higher personal cost and policy processing expenses related to business volume growth. Partially offset by a decrease in the pension expense. Indemnities income from investment operations was up $4 million in the first quarter of 2014 primarily from an increase in indemnities equity and earnings of limited partnership.

As you know, we have a disciplined capital allocation process. We balance our needs to invest in the company's long-term growth and our ability to return cash to investors to attractive dividends and accretive stock repurchases. Dividends paid to shareholders total $30 million for the first three months of 2014. In addition, Indemnity repurchased approximately 145,000 shares of our outstanding Class A common stock at a total cost of $10.2 million during the first quarter. As of April 18, 2014, we had approximately $22 million remaining in our repurchase program.

Now, I will turn the call back over to Terry.

Thank you, Marcia. We recently held our annual shareholder meeting here at our corporate headquarters in Erie. At the meeting, all 12 members of our Board of Directors were reelected to serve another year.

I'd like to express my sincere gratitude to our directors for their guidance and steadfast commitment to our success. I'd also like to thank our investors for their continued trust and support. Trust is critically important to everything we do at Erie. Which is why we were pleased to be included in the Forbes 2014 list of America's 50 most trustworthy financial companies. And even more impressively, finishing first among mid cap organizations.

I'll now turn the call back over to the operator to open the line for your questions.

(Operator Instructions)

If there are no questions, I just like to thank everyone for their time and interest in participating in this call this morning. As I said at the beginning of this call, were off to a good start in 2014 and fully aware of strong financial and operational position to build upon the momentum we created in 2013 despite what I might call some uncertain economic times.

We remain focused on creating value for our shareholders through our continued execution of our long-term strategy of delivering a compelling product line and with the best service in the industry. Again, thank you all for participating this morning.

Thanks, Terry. Thanks again for joining us. A recording of this call will be posted on our website erieinsurance.com after 12:30 PM Eastern time today. If you have any questions, please call me at 814-870-7312. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.