Erie Indemnity Co (ERIE) 2023 Q2 法說會逐字稿

Good morning, and welcome to the Erie Indemnity Company Second Quarter 2023 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.

早安，歡迎參加 Erie Indemnity Company 2023 年第二季財報電話會議。這次通話是預先錄音的，錄音之後不會有問答環節。現在我想介紹本次電話會議的主持人、投資者關係副總裁 Scott Beilharz。

Thank you, and welcome, everyone. We appreciate you joining us for a recorded discussion about our second 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 within the Investor Relations section of our website, erieinsurance.com.

謝謝大家，歡迎大家。感謝您加入我們關於第二季業績的錄音討論。錄音將包括總裁兼執行長 Tim NeCastro 的演講；以及執行副總裁兼財務長 Julie Pelkowski。我們的收益報告和財務補充報告於昨天下午市場收盤後發布，可在我們網站 erieinsurance.com 的投資者關係部分查閱。

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 risks 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 Form 10-Q filing with the SEC dated July 27, 2023, and in the related press release.

在開始之前，我想提醒大家，今天的討論可能包含前瞻性言論，反映公司目前對未來事件的看法。這些評論是基於受已知和意外風險和不確定性影響的假設。這些風險和不確定性可能會導致結果與這些備註中所述的結果有重大差異。有關可能導致這些差異的重要因素的信息，請參閱我們於 2023 年 7 月 27 日向美國證券交易委員會提交的 10-Q 表中的安全港聲明以及相關新聞稿。

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?

此預先錄製的通話歸 Erie Indemnity Company 所有。未經 Erie Indemnity Company 事先書面同意，任何其他方不得複製或轉播。接下來，我們來聽聽提姆的發言。提姆？

Thanks, Scott, and thanks to all of you for your interest in Erie's performance for the second quarter of 2023. The executive team and I have spent a lot of time over the past few months connecting with our various stakeholders, with agents at our annual branch meetings across our footprint and at our combined agency task force meeting here in Erie, with employees at our open door, leader forum and claims recognition meetings and with investors at our annual meeting with shareholders held in April.

謝謝，斯科特，也感謝大家對伊利 2023 年第二季業績的關注。過去幾個月，我和執行團隊花了很多時間與我們的各個利益相關者、在我們遍布各地的分支機構年度會議和在伊利舉行的聯合機構工作組會議上與代理商、在我們的開放日、領導者論壇和索賠認可會議上與員工以及在我們 4 月舉行的年度股東大會上與投資者進行聯繫。

A frequent topic of discussion at these recent gatherings has been the challenges the industry continues to face. Inflation, supply chain issues and an increase in severe weather are among the most pressing, and we're certainly feeling the effects of them so far in 2023. That's reflected in our combined ratio, which now stands at 120.8% compared to 113.7% for the first half of 2022. Both personal and commercial lines continue to experience an increase in severity for property, auto and uninsured and underinsured motorist claims, although costs are growing at a more moderate pace than the prior year. Year-to-date, personal auto claims severity is up 6% compared to last year and 21% since 2021.

在最近的這些會議上經常討論的一個主題是該行業持續面臨的挑戰。通貨膨脹、供應鏈問題和惡劣天氣的增加是最緊迫的問題，到目前為止，我們在 2023 年肯定感受到了它們的影響。這反映在我們的綜合比率上，目前為 120.8%，而 2022 年上半年為 113.7%。個人和商業險在財產、汽車、無保險和保險不足的駕駛人索賠方面繼續經歷嚴重程度的增加，儘管成本的增長速度比上一年要溫和。今年迄今，個人汽車索賠嚴重程度比去年上升了 6%，自 2021 年以來上升了 21%。

Weather and catastrophe losses are also on the rise. Hail, wind and tornadoes have been battering areas across our footprint in the first half of the year. Through June of 2023, catastrophe event claim counts were up nearly 70% compared to 2022, and catastrophe claims contributed 16% of the combined ratio at the end of the second quarter compared to 10% in 2022. While many of the external factors impacting the combined ratio are out of our control, we're taking actions within our control to bring it down to more favorable levels. Chief Financial Officer, Julie Pelkowski will be talking more about some of those strategies in just a few minutes.

天氣和災難造成的損失也在增加。今年上半年，冰雹、大風和龍捲風襲擊了我們所在地區。截至 2023 年 6 月，災難事件索賠數量與 2022 年相比增長了近 70%，災難索賠在第二季度末佔綜合比率的 16%，而 2022 年為 10%。雖然影響綜合比率的許多外部因素是我們無法控制的，但我們正在採取力所能及的措施，將其降至更有利的水平。財務長 Julie Pelkowski 將在幾分鐘內進一步討論其中一些策略。

And despite the factors impacting our combined ratio, our overall performance picture is strong, especially in our growth and retention numbers. Overall, policies in force are up 5.2%, with personal lines reaching its highest growth in 20 years at 5.5%. Retention is also strong at 90.8% for personal and commercial lines combined, with retention for personal auto, which stands at 92.3%, approaching an all-time high. This impressive growth and the loyalty demonstrated by our policyholders is a testament to the strong value proposition we offer.

儘管有因素影響我們的綜合比率，但我們的整體業績表現強勁，尤其是在成長和保留數字方面。總體而言，有效保單上漲了 5.2%，其中個人險保單增幅達到 5.5%，為 20 年來的最高水準。個人和商業保險的綜合保留率也很高，達到 90.8%，其中個人汽車險的保留率達到 92.3%，接近歷史最高水準。這一令人印象深刻的成長和我們的保單持有人所表現出的忠誠度證明了我們提供的強大價值主張。

Our recent ranking on the Fortune 500 list for the 20th consecutive year, this year at #414 is yet another. All said, we are confident in our overall financial stability as we continue to navigate the challenges of today's world. With that, I'd like to turn it over to Julie Pelkowski to offer a closer look at our financials. This is Julie's first earnings call since taking the reins as Erie's Chief Financial Officer in May. Welcome, Julie.

我們最近連續第 20 年在《財星》500 強榜單上排名，今年排名第 414 位。總而言之，當我們繼續應對當今世界的挑戰時，我們對我們的整體財務穩定充滿信心。接下來，我想讓朱莉·佩爾科夫斯基 (Julie Pelkowski) 來更詳細地介紹我們的財務狀況。這是朱莉自五月擔任伊利財務長以來的首次財報電話會議。歡迎光臨，朱莉。

Thank you, Tim, and good morning, everyone. Over the course of my 25-year career with Erie, I have had the pleasure of working across several different disciplines that have prepared me for the role of CFO, and I'm delighted to be with you this morning to share our second quarter results.

謝謝你，提姆，大家早安。在伊利的 25 年職業生涯中，我很高興能夠從事多個不同領域的工作，這些工作為我擔任財務長做好了準備，我很高興今天早上能和大家分享我們的第二季業績。

As Tim mentioned, our business experienced an unusually early and severe start to the storm season, and we continue to feel the pressure of the inflationary conditions that are contributing to higher loss severities. These 2 factors are the primary drivers of the increase in our combined ratio in the Exchange. While we are prioritizing efforts to improve the Exchange's profitability, the Exchange generated substantial growth in the second quarter of 2023. This quarter marks the first time in our history that we've written over $1 billion of direct written premium in a single quarter. This strong production growth drove the increase in the amount of management fee revenue for the indemnity company, which you'll see as we review our second quarter 2023 results.

正如蒂姆所提到的，我們的業務在風暴季節的開始異常早且嚴重，我們繼續感受到通貨膨脹的壓力，這導致了更大的損失。這兩個因素是導致我們在交易所的綜合比率上升的主要驅動因素。在我們優先努力提高交易所的獲利能力的同時，交易所在 2023 年第二季實現了大幅成長。本季是我們歷史上首次在一個季度內實現超過 10 億美元的直接承保保費。強勁的產量成長推動了賠償公司的管理費收入增加，當我們回顧 2023 年第二季的業績時，您就會看到這一點。

Starting with the Exchange, the insurance operations we manage, direct written premium growth for the second quarter was 16.3%, driven by substantial growth in new business premium, which climbed almost 32.6% over the prior year. With a combined ratio for the quarter of 118.9%, the Exchange's policyholder surplus decreased to $9.7 billion, down $400 million from December 31.

從交易所開始，我們管理的保險業務，第二季度直接承保保費增長率為 16.3%，這得益於新業務保費的大幅增長，比上年增長了近 32.6%。該交易所本季的綜合比率為 118.9%，保單持有人盈餘減少至 97 億美元，較 12 月 31 日減少 4 億美元。

The primary focus of our strategy to address the elevated combined ratio is taking rate increases to more appropriately match the level of losses we're experiencing in the current environment. This has resulted in us taking double-digit rate increases and also evaluating our rating needs more frequently. Of course, we monitor our competitive position and the rate increases we are taking are in line with the industry. We also stay focused on our underwriting and agency management discipline and have identified certain initiatives targeted toward improving profitability. These strategies, along with several others, will allow us to continue driving down our overall combined ratio.

我們解決綜合比率上升的策略的重點是提高費率，使其更適當地匹配當前環境下我們所遭受的損失水平。這導致我們的利率出現兩位數的成長，並且也更頻繁地評估我們的評級需求。當然，我們會監控我們的競爭地位，而我們採取的漲價幅度與產業一致。我們也專注於核保和代理管理紀律，並確定了一些旨在提高獲利能力的措施。這些策略以及其他一些策略將使我們能夠繼續降低整體綜合成本率。

Now shifting to Indemnity. In the second quarter, Indemnity generated net income of $118 million or $2.25 per diluted share compared to $80 million or $1.53 per diluted share in the second quarter of 2022. For the first half of 2023, net income was $204 million or $3.90 per diluted share, an increase compared to the first half of 2022 net income of $149 million or $2.84 per diluted share. Operating income increased 29% or $30 million in the second quarter of 2023 compared to the second quarter of 2022.

現在轉向賠償。第二季度，Indemnity 的淨收入為 1.18 億美元，即每股攤薄收益 2.25 美元，而 2022 年第二季度的淨收入為 8,000 萬美元，即每股攤薄收益 1.53 美元。 2023 年上半年，淨收入為 2.04 億美元，即每股攤薄收益 3.90 美元，較 2022 年上半年的淨收入 1.49 億美元，即每股攤薄收益 2.84 美元有所增加。 2023 年第二季的營業收入與 2022 年第二季相比成長了 29%，即 3,000 萬美元。

Indemnity also saw an increase in operating income of 29.9% or $56 million for the first half of this year compared to the first half of last year. Indemnity's management fee revenue for policy issuance and renewal services increased $89 million or 16.3% in the second quarter of 2023 compared to the second quarter of 2022. For the first 6 months of 2023, Indemnity saw an increase of $159 million or 15.4% compared to the first half of 2022. Management fee revenue allocated to administrative services increased just over $1 million in the second quarter and $2 million in the first 6 months of 2023 compared to the same period in 2022.

與去年上半年相比，今年上半年賠償險的營業收入也增加了 29.9%，即 5,600 萬美元。 2023 年第二季度，Indemnity 的保單簽發和續保服務管理費收入與 2022 年第二季度相比增加了 8,900 萬美元，增幅為 16.3%。 2023 年前 6 個月，Indemnity 與 2022 年上半年相比增加了 1.59 億美元，增幅為 15.4%。與 2022 年同期相比，分配給行政服務的管理費收入在第二季增加了 100 多萬美元，在 2023 年前 6 個月增加了 200 萬美元。

Turning to Indemnity's cost of operations for policy issuance and renewal services. Commissions increased $44 million in the second quarter and $71 million in the first half of 2023 compared to the same periods in 2022. The increases in agent compensation in both periods were driven by growth in direct and affiliated assumed written premium, partially offset by a decrease in agent incentive compensation.

轉向賠償保單簽發和續保服務的營運成本。與 2022 年同期相比，2023 年第二季佣金增加了 4,400 萬美元，上半年佣金增加了 7,100 萬美元。這兩個時期代理人薪酬的增加是由直接和關聯假定承保保費的增長推動的，但代理人激勵薪酬的減少部分抵消了這一增長。

Noncommission expenses increased $16.1 million in the second quarter of 2023 compared to 2022. Underwriting and policy processing expense increased $3.7 million, primarily related to the increased production growth. Information technology costs increased by $3.3 million, driven by increased personnel costs and professional fees. Also, administrative and other expenses increased $7.7 million in the second quarter of 2023 compared to the same period in 2022, driven by increases in personnel costs, partially offset by a decrease in professional fees.

2023 年第二季的非佣金費用與 2022 年相比增加了 1,610 萬美元。承保和保單處理費用增加了 370 萬美元，主要與產量成長有關。由於人員成本和專業費用的增加，資訊科技成本增加了 330 萬美元。此外，2023 年第二季的行政和其他費用與 2022 年同期相比增加了 770 萬美元，這主要是由於人員成本增加，但專業費用的減少部分抵消了這一增長。

For the first 6 months of 2023, Indemnity saw an increase in noncommission expenses of $33 million, primarily driven by increases in technology costs of $14.8 million and administrative and other costs of $10.6 million. The increased technology costs were driven by higher professional fees, personnel costs and hardware and software costs. Administrative and other costs increased $10.6 million, primarily due to an increase in personnel costs, partially offset by a decrease in professional fees. Overall personnel costs were impacted by increased compensation, including higher estimated costs for incentive plan awards, partially offset by lower pension costs compared to 2022.

2023 年前 6 個月，賠償責任的非佣金支出增加了 3,300 萬美元，主要原因是技術成本增加了 1,480 萬美元，行政及其他成本增加了 1,060 萬美元。技術成本的增加是由於專業費用、人員成本以及硬體和軟體成本的提高。行政和其他費用增加了 1,060 萬美元，主要是由於人員成本增加，但專業費用減少部分抵消了增加。整體人事成本受到薪資增加的影響，包括激勵計畫獎勵的預期成本增加，但與 2022 年相比，退休金成本降低部分抵銷了這一影響。

Investment income before taxes totaled $12 million in the second quarter compared to a loss from investments before taxes of $2 million in the same period of 2022. For the first 6 months of 2023, we recorded investment income before taxes of $7 million compared to $1 million in the first 6 months of 2022. While we recognized limited partnership losses in the first 6 months of 2023, these losses were offset by both higher bond net investment income and lower realized and unrealized losses on equity securities which drove the improvement over the same period of 2022.

第二季的稅前投資收益總計 1,200 萬美元，而 2022 年同期的稅前投資損失為 200 萬美元。 2023 年前 6 個月，我們的稅前投資收益為 700 萬美元，而 2022 年前 6 個月為 100 萬美元。雖然我們在 2023 年前 6 個月確認了有限合夥損失，但這些損失被更高的債券淨投資收益和更低的股權證券已實現和未實現損失所抵消，從而推動了 2022 年同期的改善。

I will remind you that the limited partnership asset class is in runoff, and we continue to expect more limited and inconsistent earnings from this asset class in the future. As always, we take a very measured approach to our capital management and we maintain a strong balance sheet. For the first 6 months of 2023, our financial performance enabled us to pay our shareholders over $110.8 million in dividends.

我要提醒你的是，有限合夥資產類別正在流失，我們預期未來該資產類別的收益將更加有限且不穩定。像往常一樣，我們對資本管理採取非常謹慎的態度，並保持強勁的資產負債表。 2023 年前 6 個月，我們的財務表現使我們能夠向股東支付超過 1.108 億美元的股息。

Thank you again for your time today. Now I'll turn the call back over to Tim. Tim?

再次感謝您今天抽出時間。現在我將把電話轉回給提姆。提姆？

Thanks, Julie. Another major topic of discussion recently has been our focus on modernization. As I've mentioned in previous calls, transitioning out of legacy platforms and investing in greater digital capabilities are among our highest priorities in 2023. Recent updates to our claim status platform provide more robust claims information to agents, employees and customers on a more intuitive platform.

謝謝，朱莉。最近討論的另一個主要主題是我們對現代化的關注。正如我在之前的電話會議中提到的那樣，轉型出傳統平台並投資於更強大的數位化能力是我們 2023 年的首要任務之一。我們對索賠狀態平台的最新更新使代理商、員工和客戶能夠在更直觀的平台上獲得更可靠的索賠資訊。

And another claims platform, Erie Claim Center was recently migrated to the cloud. This was our largest migration to date with several more planned as part of Erie's overall cloud transformation initiative. We expect these innovative efforts to increase speed and productivity across the enterprise.

另一個索賠平台 Erie Claim Center 最近也遷移到了雲端。這是我們迄今為止規模最大的遷移，作為 Erie 整體雲端轉型計畫的一部分，我們也計劃進行更多遷移。我們希望這些創新努力能提高整個企業的速度和生產力。

Another key modernization effort is tied to our upcoming refresh of workers' compensation, which will introduce full policy servicing capabilities on our quote application and service platform, a new billing platform that allows for enhanced pay-as-you-go functionality, and the introduction of online accounts for our commercial customers. We also continue to make enhancements to our mobile app and online account platform. Most recently, we introduced self-service functionality for roadside assistance with a mobile app through Agero.

另一項關鍵的現代化工作與我們即將進行的工人賠償更新有關，這將在我們的報價應用和服務平台上引入完整的保單服務功能、一個允許增強現收現付功能的新計費平台，以及為我們的商業客戶引入線上帳戶。我們也將繼續改進我們的行動應用程式和線上帳戶平台。最近，我們透過 Agero 的行動應用程式推出了路邊救援自助服務功能。

Several other modernization efforts are also underway, all aimed at helping us to increase efficiency, reduce expenses and to better serve our customers and agents. You can expect to hear more updates on this work in future earnings calls.

其他幾項現代化工作也在進行中，旨在幫助我們提高效率、降低開支並更好地服務我們的客戶和代理商。您可以期待在未來的財報電話會議上聽到有關這項工作的更多更新。

Yet another challenge almost all industries have been facing recently has been the tight labor market and the war for talent. We are pleased to share that the challenges in attracting and retaining talent we experienced in 2021 and 2022 have leveled out. In our claims division, where we experienced some of the biggest talent challenges, all open positions have been filled. And we've developed an advanced staffing capacity tool that enables us to identify and respond to staffing needs in real time.

幾乎所有行業最近面臨的另一個挑戰是勞動力市場緊張和人才爭奪戰。我們很高興地告訴大家，我們在 2021 年和 2022 年所面臨的吸引和留住人才的挑戰已經趨於平穩。在我們的索賠部門，我們遇到了一些最大的人才挑戰，所有空缺職位都已得到填補。我們開發了先進的人員配備能力工具，使我們能夠即時識別和回應人員配備需求。

In this tough labor market, workplace accolades are particularly important. So we're excited to have recently earned a Great Place To Work certification from the Great Place To Work Institute. This recognition is based on the results of an engagement survey sent to all Erie employees in June. Four out of 5 Erie employees completed the survey and 86% of those employees said Erie is a great place to work. This compares to just over half or 57% of employees at typical U.S.-based companies and 91% for the benchmark set by Fortune 100's Best Places to Work (sic) [Best Companies to Work For].

在這個艱難的勞動力市場中，工作場所的榮譽尤其重要。因此，我們很高興最近獲得了卓越職場研究所頒發的最佳職場認證。這項認可是基於 6 月向所有伊利員工發送的敬業度調查的結果。五分之四的伊利員工完成了調查，其中 86% 的員工表示伊利是工作環境極佳的地方。相較之下，美國典型公司中這一比例僅為一半多一點，即 57%，而《財星》100 強最佳工作場所 [最佳工作公司] 設定的基準則為 91%。

We're proud of our long-standing reputation as an employer who places a great deal of importance on our workforce, culture and treats employees like family. This recognition as a certified Great Place To Work affirms that commitment. We're also proud to have recently earned a global distinction as one of only 4 U.S.-based insurers named to all 3 of Forbes' World's Best Insurance Companies list for 2023. Forbes ranked the best insurance companies in 3 areas: homeowners, auto and life insurance. Erie Insurance ranked #5 in the U.S. for auto, #7 in the U.S. for homeowners and #11 in the U.S. for life.

作為一個重視員工隊伍和文化、對待員工如同家人的雇主，我們為自己長期以來的聲譽感到自豪。獲得「最佳職場」認證證實了這項承諾。我們也很榮幸最近獲得一項全球殊榮，成為僅有的 4 家入圍《福布斯》2023 年全球最佳保險公司榜單的美國保險公司之一。 《富比士》在三個領域對最佳保險公司進行了排名：房屋保險、汽車保險和人壽保險。伊利保險 (Erie Insurance) 在美國汽車保險領域排名第 5 位，在美國房屋保險領域排名第 7 位，在美國人壽險領域排名第 11 位。

With that, I'd like to thank you all again for listening in today and for your continued interest in Erie.

最後，我想再次感謝大家今天的收聽以及對伊利的持續關注。

This concludes today's conference call. Thank you for participating. You may now disconnect.

今天的電話會議到此結束。感謝您的參與。您現在可以斷開連線。