Erie Indemnity Company ( ERIE)

Q3 2011 Earnings Call

November 4, 2011 10:00 am ET

Executives

Karen Kraus Phillips – Vice President and Director, Investor Relations

Terrence W. Cavanaugh – President and Chief Executive Officer

Marcia A. Dall – Executive Vice President and Chief Financial Officer

Analysts

Bill Broomall – Macquarie Research Equities

Ron Bobman – Capital Returns

Presentation

Operator

Hello and welcome to the Erie Indemnity Company Third Quarter 2011 Earnings Conference. I’d like to introduce to your host for today’s conference call Karen Kraus, Vice President and Director of Investor Relations.

Karen Kraus Phillips

Thank you, Sean and good morning we appreciate all of you joining us. On today’s call, management will discuss our third quarter 2011 results and other matters. Joining me are Terry Cavanaugh, President and CEO; Marcia Dall, Executive Vice President and Chief Financial Officer; Chip Dufala, Executive Vice President, Services; John Kearns, Executive Vice President, Sales and Marketing; Jim Tanous, Executive Vice President, Secretary and General Counsel; and Mike Zavasky, Executive Vice President, Insurance Operations.

Our earnings release and financial supplements are issued yesterday afternoon and its have been posted to our website erieinsurance.com. As a reminder, Indemnity’s third quarter 2011 results do not include the results of the property and casualty insurance operations or life operations that result to the Exchange. However the direct written premium produced by the Exchange’s property and casualty operations is a primary driver of Indemnity’s financial results and therefore pertinence to our discussion.

On today’s call, management will share important information about current and future company initiatives, as a result forward-looking statements may be incorporated into their comments. These forward-looking statements reflect the company’s current views about future events and are based on assumptions subject to known and unknown risks and uncertainties. These risks and uncertainties may cause results to differ materially from those anticipated as described in those statements.

For information on important factors that may cause such difference, please see the Safe Harbor statements in our latest 10-Q filing with the SEC dated November 3, 2011 and in the related press release. In this call we will discuss non-GAAP measures you can find the reconciliation to the GAAP based results in the 10-Q. This call is being recorded and the recording is the property of Erie Indemnity Company. It is not intended for reproduction or rebroadcast by any other party without the prior written consent of Erie Indemnity Company.

A replay will be available on our website today after 12:30 p.m. Eastern Time. Your participation on this call will constitute consents to the recording, publication, webcast, broadcast and the use of your name, voice and comments by Erie Indemnity, if you do not agree with these terms, please disconnect at this time.

I'll now turn the call over to Erie’s President and CEO, Terry Cavanaugh. Terry?

Terrence W. Cavanaugh

Thank you, Karen and good morning everyone. I am pleased with Indemnity’s financial results in the third quarter. Net income per share was $0.87 compared to $0.94 per share last year. Included in the last year’s third quarter result was $0.13 per share from the insurance operations, which we sold to the Exchange in December. Operating income per share was $0.93 compared to $0.89 a year ago.

Our management fee revenue Indemnity’s primary source of revenue increased again this quarter up over 5% from a year ago, which is consistent with the increase in the Exchange’s direct written premium.

We continue to grow premium at the Exchange, which is encouraging in this economy. Our strong customer retention now with 90.8% and improved pricing are driving the results.

New renewal premium increased this quarter compared to the prior year with personal lines up nearly 5% and commercial nearly 8%. In personal lines private passenger auto new business premiums increased slightly compared to a decrease a year earlier. The result in the current quarter was due to an increase in average premium per policy. New personal auto policies enforced declined year-over-year.

We continue to attract new customers but at a lesser rate than the strong growth we saw in 2010. Private passenger auto renewal premium increased as well due large part to our continued strong customer retention in this business at 91.6%.

We also saw premium increases in our homeowners line this quarter in both new and renewal business. Again strong retention and an increase in average premium per policy drove this result. We’re generating revenue growth in our commercial business as well, driven by increases in rate, market share and a continued positive trend and workers comp audit premiums. Our capability to underwrite, sell and service commercial business has improved.

And with the initial roll out of our new commercial system, we have the foundation to launch new and enhanced coverages. Severe weather has been a big theme in the industry in the first nine months of this year and while the insurance related losses of the Exchange had no effect on Indemnity’s results, I’d like to touch on the topic briefly.

During the third quarter, Tennessee, Pennsylvania, Maryland, North Carolina, and Virginia saw multiple severe weather events from Hurricane Irene, and Tropical Storm Lee among others.

For the third quarter 2011, the statutory combined ratio of the Exchange totaled 105.4% and include 16.5 points or $174 million of catastrophe related losses. As always I’d like to acknowledge the hard work of our employees and agents to resolve customer claims quickly and fairly.

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