Scott Beilharz - VP, Capital Management, IR Terry Cavanaugh – President and CEO Marcia Dall - EVP and CFO.

Adam Klauber - William Blair.

Good morning and welcome to the Erie Indemnity Company Fourth Quarter 2014 Earnings Conference Call. I would like to introduce your host for today's call Scott Beilharz, Vice President of Investor Relations.

Thank you, Danielle, and welcome everyone. We appreciate you joining us for today's discussion about fourth quarter 2014 results. Joining me today are Terry Cavanaugh, President and Chief Executive Officer; Marcia Dall, Executive Vice President and Chief Financial Officer; and Sean McLaughlin, Executive Vice President, Secretary and General Counsel.

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. As we typically do, we will start the call today with opening remarks from Terry and Marcia and then we will open the call for your questions.

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 such differences, please see the Safe Harbor statements in our Form 10-K filing with the SEC dated February 26, 2015 and in the related press release.

Also during this call, we may discuss Non-GAAP measures. A reconciliation to the GAAP-based results can be found in our Form 10-K that was filed with the SEC yesterday. This call is being recorded and recording 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. A replay will be available on our website today after 12:30 PM Eastern Time.

Your participation on this call constitutes your consent to the recording, this publication webcast and 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. With that, I will now turn the call over to Terry..

Thank you, Scott and good morning everyone. Thank you for joining our call this morning. Today I'm going to give you a brief overview of our results for 2014 and then update you on the progress we've made on our strategic initiatives. Marcia then will take you through a more detailed view of our financial results.

Indemnity's net income per share increased from $3.08 to $3.18 in 2014. Our commitment to being above and on service and our dedication to our agents and customers' satisfaction has not wavered over the decades and is what enables us to continue to have consistent earnings growth.

Our management operations income before taxes increased 6.5% for the year reflecting a strong top-line growth. This increase was partially offset by higher agent compensation based on profitable growth and ongoing technology investments to position us for the future.

Indemnity's top-line growth was fueled by nearly 9% increase in direct written premium from the property and casualty group. This growth outpaced Koning's annual industry projection of 4.6% and we believe we will mark the third year in a row of growth that is more than three points higher than the industry.

Before I ask Marcia to walk you through the financial results; let me first provide you with a brief update on the progress we made in 2014 on our strategic initiatives to expand our product offerings and increase our footprint, enhance the customer and agent experience and remain above all in service.

We continue to proactively explore ways to incorporate new technology and innovative ideas. For example, our web based technology, DSpro allows our agents to complete in auto, home, [board] [ph], PCL and term life quote in less than five minutes.

Looking at the future, we are evaluating game changing technology like drones that can be employed in areas such as claims and loss control. We continue to expand our product lines by giving our agents more choices for their customers.

In the fourth quarter, we initiated ridesharing coverage for drivers of companies like Uber and Lyft to fill in the coverage gaps associated with this type of exposure. In our commercial lines we introduced the custom collection suite of products and services that offer protection and risk management tailor-made for targeted class of business owners.

We started with our restaurant program and plan to offer similar comprehensive protection to other business classes over the next few years. In December, we launched two new innovative universal life products; ErieSecure Life and ErieSecure Life Plus.

They combine the best features of both universal and whole life products such as cash accumulation, guaranteed benefits and flexible premiums. These products provide us with another avenue to grow and compete directly with the whole life products that have been leading the industry over the past few years.

We also took an important step forward in expanding our geographic footprint in 2014 with the addition of Kentucky. We introduced auto, home and life products and plan to offer commercial lines in early 2016. The Kentucky market has been very receptive of our agents and our brand and we are very pleased with our success today.

We raised the bar for enhanced agent and customer experience with the completion of our technical learning center. With the doors opened in January of this year, we unveiled a state-of-the-art hands-on claims training facility. This is a key part of our proactive approach to the claims process.

It will benefit our loss control representatives and claims adjusters among others making them better equipped to evaluate risks, assess losses and settle claims.

In an era where nearly every insured has superior service, our industry-leading technical learning center is a concrete example of our continued investment and commitment to remain above all in service. At this point, I will ask Marcia to walk you through our financial results..

Thank you, Terry, and good morning everyone. As we finalized the reporting for 2014 we decided to simplify our press release for our investors so that it would be easier to see the results and key highlights for the fourth quarter and the total year. In my commentary today, I'm going to provide additional context on these results.

On a full-year basis, 2014 was another very good year. Our earnings per share on a diluted basis increased $0.10 per share to $3.18. We delivered strong top-line growth and growth in management operating income. However, our net income grew at a slower pace as a result of lower earnings from our alternative investment portfolio.

Indemnities top-line growth of 8.5% was driven by nearly 9% growth in the direct premium of the property and casualty group. Direct written premium benefited from both solid increases and policies enforced and average premium per policy on all of our major product lines.

Our agents and employees help us maintain an outstanding retention rate of over 90%. This is a reflection of our strong brand and above all service philosophy even in an ever-increasing competitive environment. At the end of 2014, we had nearly 2,200 highly loyal independent agencies with over 11,000 producers across our footprint.

Our management operating income grew 6.5% in 2014 to $223 million based on strong top-line growth that was partially offset by higher agent compensation from profitable growth and ongoing strategic technology investments.

Although, we began the year with significant weather related events including a May hailstorm that increased the property and casualty group combined ratios significantly. We ended the year at a statutory combined ratio of 100.6%.

We had an exceptionally low combined ratio in the fourth quarter based on improved current accident year trends from lower frequency and severity. No major weather-related events and reserve releases from the settlement of a number of more significant claims.

As a result of the lower combined ratio, the profitability bonus for our agents increased in the fourth quarter resulting in agent compensation for the year growing at a slightly higher pace than our top-line growth. Our non-commission expenses grew 6% overall in 2014. More than two points lower than our top-line growth rate of 8.5%.

While we continue to manage expenses diligently and prioritize spending, our top-line growth drives our underwriting, policy processing and customer service variable expenses. Our investment income was down in 2014 based on the decline in our alternative investment portfolio earnings most of which was reflected in our fourth quarter earnings.

We made a strategic decision almost 10 years ago to discontinue additional investment commitments in this asset class for Indemnity. As this portfolio continues to run-off, we expect to see more limited and inconsistent earnings from this part of our investment portfolio based on the nature of this asset class.

Regarding the fourth quarter, our management operating earnings were down significantly from the prior period due to three primary factors. First, as I mentioned before, we ended the year with a significantly lower combined ratio than we expected at the end of third quarter.

So we incurred additional commission related expense based on a higher agent profitability and bonus payout. Second, the lower combined ratio resulted in a higher annual incentive payout for our employees, which was also reported in the fourth quarter.

And finally due to the 20% growth in the indemnity stock price during the fourth quarter we incurred an additional expense related to both our long-term incentive plan and the directors deferred compensation plan, which includes a component based on the Indemnity's share price.

Turning to our balance sheet, we continue to focus on effectively managing our capital. Dividends paid to shareholders held almost $119 million during 2014. Furthermore in December, our Board approved a 7.2% increase in the regular quarterly cash dividend of a Class A and Class B shares for 2015. Now, I'll turn the call back over to Terry..

Thank you, Marcia. Looking back on 2014, we had a very successful year. Now in 2015, we look forward to another successful year as we celebrate our 90th anniversary a significant milestone for our company. Our theme for the 90th anniversary is above all together.

Our year-long celebration will give us time to thank our agents, our customers, our employees, our retirees and all those who came before us for their support and contributions over nine decades.

We recognize that our success comes from an unwavering focus on our agents and customer satisfaction and a continued investment in our employees, technology and products. This strategy allows us to continue to be well-positioned for long-term growth in revenue and earnings.

Now, I'd be happy to take your questions, so I'll turn the call back over to the operator to open up the line. Thank you..

Thank you. [Operator Instructions] And your first question comes from Adam Klauber from William Blair. Your line is now open. Please go ahead..

Thank you. Good morning, everyone.

Couple of different questions, so if you exclude some of the incentive comp with the margin from management operations being in line with fourth quarter last year, better or worse?.

So when you look at our annual incentive comp for the year for 2014, it was actually lower in total than the - what we paid down in 2013..

Right. But in the fourth quarter you had again commissions were higher - I'm asking more in the fourth quarter not for 2014..

So your question again was fourth quarter expenses for this year excluding --.

Right. If you look at –.

Incentive comp what occurred, right?.

Right. And the higher commissions, yes..

Yes. According to variable compensation that was utilized in terms of the improving loss ratio for our agents and then the incentive comp, I'm looking at the numbers now I would suggest that it was pretty similar in terms of flat from last year..

Okay, okay. So I know you don't give forecast.

I'm not asking for specifically, but as we think about that - the margin for the management operations, should we think about being stable for next year or there potential for improvement?.

Again, our business is a bit unique in terms of again how we play-off each other in terms of the exchange and the Indemnity company. And as you saw in the fourth quarter based upon the success of the exchange there was some additional costs associated with Indemnity.

We are very focused on making sure the exchange as a vehicle for our agents and customers success is always well-managed and is again, we invest in that very effectively. So we believe that again over the long-term, we can continue to grow the top-line as well as we will grow earnings.

I'm not going to suggest that in any one quarter or in a year that will be linear..

Okay, okay. And then as far as top-line, in general it seems P&C industry is getting more competitive.

Are you seeing that in your business?.

I would say as a general statement, yes. So when we say more competitive I think, again, after a series of years there are more of our competitors are anxious to hold onto their book of business. I think they may be a little reluctant to raise prices to do that. But I'm very bullish in our ability to be able to grow our business.

I think again, as you see we have a significant advantage with our agency force. I think again, we've had a good model in terms of the product and prices what we have. I think again, we can continue to grow our geography as well as expanding geography. And I think, we will continue to look for opportunities to price effectively.

I do believe there's still opportunity especially in the auto line or the homeowners line and I'll call it the commercial property lines. And we're beginning to see some signs of exposure growth both personal and commercial..

Okay, okay. That's good to see.

In auto specifically, have you seen more recently any pick up in frequency compared to six months ago?.

From six months ago?.

Whatever from 6, 12 months ago is frequency higher today?.

No. Not really. Obviously, I think there is some of their statistics would indicate there is more mileage being put on automobiles but they are safer. The general population that we have as a customer seems to be doing a good job, so I would say our frequency is not growing..

Okay, okay. Thank you though that's my questions. Thank you very much..

Thanks Adam..

Thank you. [Operator Instructions] And I'm not showing any further questions at this time. I would now like to turn the call back to Terry Cavanaugh for any further remarks..

Well, thank you very much. We appreciate you dialing in and we look forward to the continuing dialogue in 2015..

Thanks again for joining us. I'm sorry, go ahead Danielle..

No. Go ahead..

Okay. A recording of this call we posted on website erieinsurance.com after 12:30 PM Eastern Time today. If you have any additional questions, please call me at area code 814-870-7312. Thank you..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day..

Okay. Thank you..