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» Erie Indemnity Co. Q3 2009 Earnings Conference Call
This is 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 the 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 consent to the recording publication webcast broadcast and use of your name, voice, and comments by Erie Indemnity. If you don’t agree with the terms, please disconnect at this time. I will now turn the call over to Erie’s President and CEO, Terry Cavanaugh. Terry? Terry Cavanaugh Thank you, Karen and good morning, everyone. Indemnity’s first quarter 2012 results show strong top-line growth in our management fee revenue. We also saw higher operating expenses and lower investment results. Combined, these led to Indemnity net income per share of $0.67 compared to $0.78 per share last year. I will talk more about the drivers of our top-line growth in a minute and Marcia will cover our financial results. But first, I want to comment on our operating margin. We recognize that our management margin declined in the first quarter compared to last year due to investments in the business and projected increases in variable agent compensation, because of strong underwriting results. We need to invest in the business to ensure our strong value proposition remains relevant going forward for all of our stakeholders. So we’re investing in things we believe are important for the business, like service, technology, marketing, and our people. We believe these types of investments will take dividends for customers and agents, employees and shareholders over the long-term. Indemnity is independent upon the performance of the exchanges property and casualty group for its primary source of revenue. The fee it earns from managing the operations of the exchange, while claimed losses do not directly impact Indemnity’s results, the healthy exchange that’s growing and profitable is vital to Indemnity.
In 2011, the Property and Casualty group ended the year with 108 combined ratio, driven by severe catastrophe losses. I am pleased to say that we ended the first quarter of 2012 with a combined ratio of 93%. Additionally, the exchange grew surplus again in the first quarter.From the perspective of top line growth, we’ve added new policies and we’re taking rate increases where merited. We also continue to retain customers at high levels ending the quarter with a year-over-year retention rate of nearly 91%. Consequently, the direct written premium of the Property and Casualty group grew nearly 7%, which drove the similar increase in Indemnity’s management fee revenue. Toward the end of the fourth quarter last year, we began to see new policy sales increase, and that has continued through the first quarter in all lines of business. Our competitive position is good, and our initiatives to generate new business are working. In personal auto, our largest line of business, we’ve been able to gain positive momentum in new policy sales. New personal auto policies were up over the prior year quarter by more than 9%, with new personal auto premium growing more than 13%. In particular, we’re seeing good adoption of our new Erie rate lock product. It’s a great example of building a product that customers appreciate and agents can sell. In home insurance, given the catastrophe losses of 2011, there is significant disruption in the marketplace. Insurers are raising rates and increasing deductibles and people are actively shopping. We, too, are taking rate increases where exposure and experience support it. We’re also taking a disciplined approach to adding new home insurance customers. Our strategy is around out – in account with auto and home, applying consistent underwriting that allows us to price competitively over the long-term for the benefit of customers, agents, and shareholders. Read the rest of this transcript for free on seekingalpha.com