Erie Indemnity's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Erie Indemnity Company (ERIE)

Q2 2012 Results Earnings Call

August 03, 2012 10:00 AM ET


Karen Kraus Phillips – Vice President, IR

Terry Cavanaugh – President and CEO

Marcia Dall – Executive Vice President and CFO

Chip Dufala – Executive Vice President, Services

John Kearns – Executive Vice President, Sales and Marketing

Jim Tanous – Executive Vice President, Secretary and General Counsel


Adam Klauber – William Blair



Good morning. And welcome to the Erie Indemnity Company Second Quarter 2012 Earnings Conference Call. I would like to introduce your host for today's call, Karen Kraus Phillips, Vice President of Investor Relations.

Karen Kraus Phillips

Thank you, Marie, and welcome everyone. We appreciate all of you joining us today. On today's call, management will discuss our second quarter 2012 results and other matters related to the company's second quarter operation.

Joining me today 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; and Jim Tanous, Executive Vice President, Secretary and General Counsel.

Our earnings release and financial supplements were issued yesterday afternoon, and are currently available on our website We will hear brief remarks from Terry and Marcia, and then open the call for Q&A.

Before we begin, let me remind everyone that today's discussion may contain forward-looking statements. 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 differences, please see the Safe Harbor statements in our latest 10-Q filing with the SEC dated August 2, 2012, 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 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 consent to the recording, publication, webcast, broadcast, and use of your name, voice and comments by Erie Indemnity. If you do not agree with these terms, please disconnect at this time.

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

Terry Cavanaugh

Thank you, Karen, and good morning, everyone. Indemnity second quarter 2012 results were impacted by three primary factors, strong management fee revenue, higher operating expenses and lower investment income.

Combined, these led to an Indemnity net income per share diluted for the quarter of $0.80 compared to $0.94 last year. While we are pleased with our top line growth, we recognized that we need to address our operating expenses and gain greater management margin in order to produce operating leverage and create shareholder value over the long term.

Today, I will discuss our top line growth, our strategy related to investing in the operations for long-term success, and operating expense trends. Then, Marcia will discuss our financial results, including investment income in more detail.

Indemnity continues to seek solid top line growth, driven by an 8% increase in the Property and Casualty Group's direct written premium, reflecting an increase in both policies in force and average premium per policy. This increase reflects an ongoing strong retention and double-digit new business growth in both personal and commercial lines.

Our agents generated an increase of nearly 28% in new business premium in the quarter compared to a year ago, reflecting increases in new policies written and average premium per policy. While Indemnity is seeing positive top line growth, we are also experiencing pressure on our management margin as a result of higher operating expenses.

As I discussed last quarter, we are making investments in the business to ensure our strong value proposition remains relevant going forward for all of our stakeholders. We continue to make investments in our strategic priorities, new products and pricing sophistication, ease of doing business and service excellence.

On last quarter's call, I discussed two examples of the progress we made and the development of new products and pricing sophistication. First, on ERIE Rate Lock, our new personal auto product, and second, ERIE Secure Home, a new home insurance product we've introduced in several states. With the use of new pricing sophistication, both of these products allow us to get the right customers at the right price.

Regarding ease of doing business, we are investing in two coding systems, personal lines and commercial lines that impact our agents and their producers. The personal lines were introduced in our new web-enabled coding system for auto and are near completion on the second phase that enables home quote. It is intended to improve the agent experience and efficiency in coding and issuing new policies.

As we discussed last quarter, we are also making enhancements to our commercial lines platform to facilitate ease in quoting our products to targeted new accounts and then more effectively service our existing customers.

In conjunction with our focus on ease of doing business, we are working with our agents to increase our marketing presence through local campaigns focused on driving brand awareness and new business quotes. These critical investments by our agents and indemnity are helping to fuel our growth today and build positive momentum for the future.

Read the rest of this transcript for free on

If you liked this article you might like

IX, ERIE And FNF, Pushing Financial Sector Downward

IX, ERIE And FNF, Pushing Financial Sector Downward

These 5 Stocks Could Be Turning Toxic in 2016 -- Do You Own Them?

These 5 Stocks Could Be Turning Toxic in 2016 -- Do You Own Them?

3 Stocks Pushing The Financial Sector Downward

3 Stocks Pushing The Financial Sector Downward

New Lifetime High Today: Erie Indemnity (ERIE)

New Lifetime High Today: Erie Indemnity (ERIE)

5 Financial Stocks to Trade for Gains in February: Barclays, KB Financial and More

5 Financial Stocks to Trade for Gains in February: Barclays, KB Financial and More