ERIE - NASDAQ

Good morning, and welcome to the Erie Indemnity Company First Quarter 2024 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.

Thank you, and welcome, everyone. We appreciate you joining us for this recorded discussion about our first 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. 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 filed yesterday and in the related press release. 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'll move on to Tim's remarks. Tim?

Thanks, Scott, and thanks to all of you for your interest in Erie's performance for the first quarter of 2024. Last week, on April 20, we marked the 99th anniversary of our company's founding. Now on April 23, and we held our annual medium shareholders in person in the Thomas B. Hagen Building. At that meeting, I reflected on a remarkable journey Erie Insurance has been on for nearly a century. Two young men, H.O. Hirt and O.G. Crawford, opened the doors to the Erie Insurance in 1925 and brought in less than $30,000 in net premiums after the first year. Today, Erie's business has grown more than $10 billion in premium and almost 7 million policies in force, covering 12 states plus the District of Columbia with more than 6,500 employees and more than 14,000 independent agents. I'm humbled and proud to be leading the company, and I'm confident in our position in the industry and our financial stability as we enter our 100th year of business. I'll share some first quarter updates on our business and workplace in a few minutes. But first, let's look at our financials. In our last call, we reported that weather-related claims were up significantly in 2023, which had a negative impact on our combined ratio. So far this year, we're starting to see a turnaround and our ratio is headed in the right direction. I'll now turn it over to Julie to discuss our financial results in greater detail. Julie?

Thank you, Tim, and good morning, everyone. In 2023, we talked about our proactive approach to addressing the profitability challenge experienced by the Exchange, and that the most significant impact would come as a result of the higher rate increases that were taken. We anticipated a larger impact from these rate increases in 2024, given the fact that we have 12-month policies. Continued incremental improvement from rate increases, coupled with weather events that were lower in severity compared to the first quarter of last year, drove an improvement in profitability in the first quarter of 2024. Our combined ratio in the first quarter was 106% compared to 122.7% in the first quarter of 2023. Weather events contributed to 9 points to the combined ratio in the first quarter of 2024 versus 12.6 points in the same period last year. The rate increases continue to contribute to significant growth for the Exchange as well. During the first quarter, direct and assumed written premium of the Exchange increased 19%. Strong new growth continues with new business premium growing 32.4% compared to the same period last year. Total policies in force grew 7.1%. We also maintained a solid policy retention ratio of 91.2%. The continued strong premium growth along with high retention and a more favorable combined ratio resulted in the policyholder surplus of the Exchange growing $180 million in the quarter to $9.5 billion as of March 31, 2024. Shifting to the results for Indemnity. Net income was $125 million or $2.38 per diluted share in the first quarter of 2024 and compared to $86 million or $1.65 per diluted share in the first quarter of 2023. Operating income in the first quarter increased over 25% to almost $139 million compared to the first quarter of 2023. Management fee revenue from policy issuance and renewal services increased 19.3% to just over $665 million in the first quarter of 2024 compared to the first quarter of 2023, in line with the increase in the direct and assumed written premiums of the Exchange. The total cost of operations from policy issuance and renewal services increased $81 million or 17.3% for the first quarter of 2024 compared to the same period in 2023. The most significant portion of our expenses are commissions, grew $67 million for the first quarter, driven by the increase in direct and affiliated assumed written premiums of the Exchange. Non-commission expenses for the first quarter grew just over $14 million, driven primarily by increased personnel costs and agent-related costs. The significant growth in the Exchange's premium drove increases in our production support cost as well, such as underwriting and policy processing. Technology investments continue, although overall technology costs were lower as more development costs were capitalized in the first quarter of 2024 compared to the same period in 2023. Income from investments totaled $15 million compared to a loss of nearly $5 million in the first quarter of 2023. Net investment income was nearly $16 million in the first quarter compared to just $2 million in the same period of last year due to increased limited partnership earnings and higher bond income. As always, we take a measured approach to capital management, and we maintain a strong balance sheet. And for the first 3 months of 2024, our financial performance has enabled us to pay our shareholders over $59 million in dividends. With that, I'll turn the call back over to Tim. Tim?