Scott Beilharz - VP of Investor Relations Terry Cavanaugh - President and Chief Executive Officer Greg Gutting - Interim EVP and Chief Financial Officer Sean McLaughlin - EVP and General Counsel..

Katelyn Young - William Blair.

Good morning and welcome to the Erie Indemnity’s Fourth Quarter 2015 Earnings Conference Call. I would like to introduce your host for today's call, Scott Beilharz, Vice President of Investor Relations..

Thank you, Tamara, and welcome everyone. We appreciate you joining us for today's discussion about the 2015 fourth quarter and total year results.

Joining me today are Terry Cavanaugh, President and Chief Executive Officer; Greg Gutting, Interim Executive Vice President and Chief Financial Officer; and Sean McLaughlin, Executive Vice President and General Counsel.

Our earnings release and financial supplement were issued yesterday afternoon after the market close and are available within the Investor Relations section of our website, erieinsurance.com. We will start the call today with opening remarks from Terry and Greg 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 25, 2016 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 after 12:30 PM Eastern Time.

Your participation on this call constitutes your consent to recording, its 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. Today I will provide a brief look at our 2015 results and update you on the progress we are making with our strategic initiatives. But first, I would like to acknowledge the recent departure of Rick Burt, Executive Vice President of Products.

I would like to thank Rick for his contribution to Erie and wish him the best in the next phase of his career. Indemnity’s earnings per share increased from $3.18 in 2014 to $3.33 in 2015. Net revenue from operations increased by nearly $10 million to $233 million.

Direct and assumed premiums written by the exchange, the primary driver of Indemnity’s net revenue grew an impressive 7.3%. We consistently outpaced the industry results and we handily beat [Koning's] [ph] current 2015 estimate of 4.3%. The growth we achieved in 2015 is a direct result of the business strategy we implemented two years ago.

In 2015, we introduced and enhanced many products. We opened a state-of-the-art technical learning center and we expanded our geographic reach.

Additionally, our investment in technology culminated in new and better tools for our agents and allowed us to increase efficiency and create additional revenue opportunities for the exchange that benefits Indemnity.

We built out key business platforms like DSpro Web with eSignature functionality that reduced the quote to buying time of policies substantially. The 94% adoption rate of eSignature demonstrates our continued efforts to improve ease of doing business with our agents.

Our improved online auto quote is another example of the importance we placed on system upgrades. Once again, positive agent response to these successful tools demonstrate why investment in this area is vital.

In 2015, we also met market needs by delivering new and enhanced products that provide valuable coverage for our customers at competitive prices. In personal lines our auto policy enhancements including ride sharing coverage targeted at changing environment that will manifest itself in additional revenue and customer loyalty.

In our popular new motorcycle product introduced in five states in 2015 we will continue to rollout into four additional states this year. Our custom collection suite of products continues to complement our commercial portfolio by targeting quality business segments.

In addition to restaurants, wholesaler distributors, veterinarian and pet care and auto services, this line will broaden to include additional business classes, later this year, including professional offices, retail, and technology.

Not only do we developed and offer new and enhanced products in 2015, but we brought the claims experience to a higher level, upping our promise of superior service. Last year, we went live with claim center.

Workers compensation was the first line of business deployed in this new automated claims platform and we look forward to adding personal and commercial auto later this year. We also opened the technical learning center giving agents and employees an interactive classroom who wish to hone their skills.

And we are now utilizing the learning center for our smart start program that puts a renewed emphasis on cultivating and training talent in our claims force. In 2015, we added a fully dedicated CAT response team to our organization. Along with the use of new tools like Drones, we continue to enhance the claims experience.

Finally, during the fourth quarter, we introduced commercial line products into our newest state, Kentucky completing our product portfolio there. We exceeded revenue expectations in this state and I’d like to congratulate and thank the entire Kentucky team.

Our 2200 agents and 5000 employees continue to work with resolve to execute on our overall strategy and we are seeing strong results from their efforts. As we started the New Year, we do so having gained market share in every state in our footprint creating over 5 million policies in force. We grew average premium per agency to $2.7 million.

We provided better claims service for our customers and we strengthened the exchange’s balance sheet. 2015, our 90th year of business was a very good year for us. Our employees and agents take great pride in being part of the team that creates customer satisfaction and shareholder value.

We recognize there are ongoing challenges facing our industry including economic uncertainty, emerging technologies, and an ever-evolving loss picture. We will face these challenges by continuing to offer contemporary products and exceptional services with the best employees and agency force in the industry.

Now, I will ask Greg to discuss our financial results in more detail.

Greg?.

Thank you, Terry. Before I discuss our fourth quarter and full year 2015 results, I want to remind everyone that we adopted the new consolidation guidance issued by the Financial Accounting Standards Board as evidenced by our Form 10-K filed yesterday.

Under the new guidance, Indemnity is no longer deemed to have a variable interest in the exchange as the fees paid for services provided to the exchange no longer represent a variable interest.

The compensation received by Indemnity for services provided for acting as the attorney in fact for the exchange is commensurate with the level of effort required to perform these services.

Under the previously issued accounting guidance, Indemnity was deemed to be the primary beneficiary of the exchange and the exchange’s financial position and operating results were consolidated with Indemnity.

Accordingly, the statements of operations, statements of financial position and statements of cash flow in our Form 10-K filed yesterday with the SEC reflect results for Indemnity only.

I want to make it clear that our adoption of the new guidance and subsequent deconsolidation of the exchange and Indemnity’s results does not impact Indemnity’s net income or shareholder equity. That said, 2015 results confirm that we had another good year.

Net income grew $7 million to $175 million resulting in an increase in earnings per share on a diluted basis from $3.18 in 2014 to $3.33 in 2015. Our net income growth was driven by an increase in net revenues from operations and investment income. Income from operations grew 4.3% to $233 million in 2015.

Top-line growth of 7% was driven primarily by a 7.3% increase in the direct and assumed premiums written by the exchange. Increases in both policies in force and the average premium per policy for all major product lines contributed to this premium increase. For the year, expenses increased 7.5% driven by an 8.3% increase in commissions.

Higher agent incentive cost related to profitable growth was the major contributor to the increased commissions. Non-commission expense growth of 5.9% for the year was notably lower than the revenue growth of 7%. We are pleased that we are able to effectively manage these expenses and we will continue to prioritize spending.

Investment income grew 18.6% or $5.3 million for the year, primarily due to higher earnings from our limited partnership investments.

Although we had strong returns from this asset class in 2015, it is important to note that this portion of the portfolio is in run-off and we expect to see more limited and inconsistent earnings from this part of our investment portfolio based on the nature of the asset class.

With respect to the fourth quarter, earnings per diluted share totaled $0.57, compared to $0.48 in the fourth quarter of 2014. Revenue grew 5.7% and expenses grew 4.2% resulting in a gross margin from operations of 11.7% versus 10.5% in the fourth quarter of 2014. Revenues from investments increased $2 million from the quarter, compared to last year.

This increase was driven primarily by income from operations – from limited partnerships.

Finally, we are pleased to report that in 2015, we returned $127 million to our shareholders in the form of dividend and in December, our Board of Directors once again approved a 7.2% increase in the regular quarterly cash dividends for both Class A and Class B shares for 2016. I will now turn the call back over to Terry. .

Thank you, Greg. Our strong results were affirmed by the position we continue to enjoy as a Fortune-500 company and the four top honors we were awarded by J.D. Power and Associates in 2015.

We were honored to be named highest in the renters insurance segment of the Household Insurance Study, highest in customer satisfaction with the Auto Insurance Purchase Experience, highest among auto insurers in the Mid-Atlantic region in the Auto Insurance Study, and highest in customer satisfaction nationally in the Small Business Commercial Insurance Study.

We also ranked first among mid-cap financial institution in Forbes 50 most trustworthy financial companies for 2015. We are grateful that our business model and our culture are recognized by third parties. Their recognition is a strong indicator that we are on the right path.

Finally, as you recall, last October, I announced that I will retire at the end of 2016. Our Board of Directors is working diligently to identify my successor. As that process takes place, we’ll remain focused continuing to execute on our well defined strategy and in creating value for the long-term. Now we will open the call for your questions. .

Thank you. [Operator Instructions] And our first question comes from the line of Katelyn Young with William Blair. Your line is now open..

Hey, thanks. Good morning. .

Good morning..

I am wondering if you could talk about some of the trends in the commercial lines, specifically, kind of written premiums and PIF growth for the quarter..

I’ sorry, written premium, what was the other?.

And the PIF growth rates, for the commercial lines?.

For just the fourth quarter?.

Yes, I mean, it looks like there has been a deceleration in the growth of those metrics in the quarter.

Just trying to think about that going forward?.

Yes, and Kate, the growth did slowdown in the fourth quarter. It is slower quarter than normal but year-over-year, obviously, it did grow less than the fourth quarter of 2014. We had – I think, less contest activity and we also are being more discriminate, I would suggest in terms of some of the opportunities we have.

The commercial lines business is a business that you have to pay attention to in terms of risk selection and we want to make sure that we are making the right calls from that standpoint. I would also suggest that competition has gotten a little bit heavier across our footprint. More companies are operating – I think, in that space.

The larger companies are kind of come down – I think it’s an attractive marketplace. But we are holding our own. I think our growth rate was very attractive as it relates to other markets.

We are comfortable we can continue to grow the business effectively and do so with underwriting profit and maintaining great agency relationships and customer relationships. .

Great. Thanks and then, thinking about some of the costs in the quarter. It sounds like there was an increase in the commission, sort of offset by management of non-commission expenses.

Is that something that you see continuing for the next year in terms of being able to manage sort of the technology investment and what not in the company, with the revenue growth next year?.

The commission growth was primarily driven by the variable compensation plans we have in place with our agents. So the more profitability they produce for us, the larger that number becomes. And so that is a good news story in terms of again, for the exchange, and it’s a good news story in terms of the compensation that’s available to our agents.

And so, that’s a formula that we think works and that won’t be touched next year. In terms of the non-commission expenses, we are always trying to make sure that we manage those effectively. As I’ve said in the past, the way we spend is a bit lumpy and it’s not as straight-line.

But what as you saw in the fourth quarter how we did a nice job in terms of managing that number in a slower growth quarter. And the management team here is very focused on making sure that we do that in 2016. .

Okay, thank you..

Thank you. [Operator Instructions] And I am showing no further questions at this time. And I would like to turn the conference back over to Mr. Scott Beilharz for any closing comments..

Thanks again for joining us. A recording of this call will be posted on our website erieinsurance.com after 12:30 PM Eastern Time today. If you have any additional questions, please call me at 814-870-7312. Thanks again..

Thank you for your interest and support.

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..