TMC the metals Q1 2023 Earnings Call Transcript

There are 4 speakers on the call.

Operator

Good morning, and welcome to the Erie Indemnity Company First Quarter 2023 Earnings Conference Call. This call was prerecorded, and there will be no questions and answer session following the recording. Now I'd like to introduce your host of the call today, Vice President, Investor Relations, Scott Bauharth. Your line is open.

Speaker 1

Thank you, and welcome, everyone. We appreciate you joining us for this recorded discussion about our Q1 results. This recording will include remarks from Tim Nicastro, President and Chief Executive Officer and Greg Gutting, 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, at yourinsurance.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.

Speaker 1

These remarks are based on assumptions subject to known and expected 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, and questions. Please see the Safe Harbor statements in our Form 10 Q filed with the SEC dated April 27, 2023 and in the related press release. This pre recorded call is the profit of Your Indemnity Company.

Speaker 1

It may not be reproduced or rebroadcast by any other party obtained without written consent of Erie Indemnity Company. With that, we move on to Tim's remarks. Tim?

Speaker 2

Thanks, Scott. And thanks to all of you for your interest in Erie's performance for the Q1 of 2023. Last week on April 20th, We marked the 98th anniversary of our company's founding. A few days later held our annual meeting with shareholders. For the first time in 3 years, We were able to hold this meeting in person and we did so just a block from our home office at the historic Warner Theatre in Downtown Erie, Pennsylvania.

Speaker 2

Earlier this month, we also welcomed the final groups of employees returning to on-site work. This move marked the end of our pandemic driven working arrangements with the COVID-nineteen public health emergency set to expire in just a few weeks. We look forward to moving fully into a new mode of interaction and engagement as we embrace hybrid work as a model for the majority of our workforce. Pandemic pushed the brakes on many aspects of how we live and work, while at the same time accelerating the pace of technology and change. Additional challenges like inflation, supply chain issues and labor shortages emerged from the pandemic and have persisted even as COVID has slowed.

Speaker 2

Many of these challenges have had a direct impact on the unusually high combined ratio for Erie Insurance Exchange. We're continuing with a slate of intentional steps to reduce our combined issued to a measured approach to rate increases, adherence to expense management and strict underwriting guidelines and agency profitability reviews. We're also placing a high priority on modernizing our legacy technology platforms and investing in digital capabilities that meet customer needs and expectations. I'll share more about that notable progress that's been made so far this year. But first, let's turn to our Q1 financials.

Speaker 2

Like the rest of the industry, our combined ratio continues to be impacted negatively by the inflationary environment. That was compounded in the Q1 by an increase in the severity to the weather events. Cat losses from the 4 weather events experienced in the Q1 added 14 points to the combined ratio and adverse development from New Smyrna Beach, which occurred late in 2022, had another 4 points to the Q1 from Waiarico, which reached 122 7 compared to 104.6 for the Q1 of 2022. Tornadoes, severe winds and flooding have battered Kentucky and Ohio, in In particular, during the 1st few months of 2023, I'd like to extend my gratitude to our catastrophe claims and the personal loss of loss teams as well as agents and staff working tirelessly to serve our policyholders affected by these unrelenting storms. Now, I'll turn the call over to Greg to expand on our Q1 results.

Speaker 2

Greg?

Speaker 3

Thanks, Tim. Good morning, everyone, and thank you for joining our Q1 2023 earnings call. Earlier, Tim mentioned that we held our 98th Annual at this time. As you know, that meeting was my last serving as Chief Financial Officer given my retirement effective April 30. Over my 37 year career, I have been afforded many wonderful opportunities, and I am thankful for all the relationships I have cultivated during my tenure.

Speaker 3

With our prior 3 shareholder meetings being held virtually, it was wonderful to have everyone attend the live event in person and get a chance to spend time with our long term shareholders. As I begin the next chapter in my life, Julie Zalkowski will be taking over as your company's newest CFO. Julie has had a distinguished career at Erie, 1st joining our internal audit department in 1998. In 2016, Julie was named Senior Vice President and Controller, and I look forward to seeing all the great success Erie will have under her leadership. Now I would like to share with you the Q1 results for 2023.

Speaker 3

Beginning with the exchange, the insurance operations we manage. Direct written premium growth for the Q1 was 14.6%, driven by substantial growth in new business premium, which increased 36% over the prior year. With the combined ratio for the quarter of 122.7, the Exchange's policyholder surplus decreased to $9,900,000,000 down $200,000,000 from December 31. Now shifting to Indemnity. In the Q1, Indemnity generated net income of $86,200,000 or $1.65 per diluted share compared to $68,600,000 or $1.31 per diluted share in the Q1 of 2022.

Speaker 3

Operating income increased 31.1 percent or $26,200,000 in the Q1 of 2023 compared to the Q1 of 2022. Indemnity's management fee revenue for policy issuance and renewal services Increased $70,100,000 or 14.4 percent in the Q1 of 2023 compared to the Q1 of 2022. Management fee revenue allocated to administrative services increased $900,000 in the Q1. Turning to Indemnity's cost of operations for policy issuance and renewal services, commissions increased $27,700,000 in the Q1 of 2023 compared to the same period in 2022. The increases in agent compensation were driven by increases in the direct and assumed premiums written by the exchange, slightly offset by decreased agent compensation awards.

Speaker 3

Non commission expense increased $17,000,000 in the Q1 of 2023 compared to 2022. Underwriting and policy processing expenses increased $2,700,000 primarily due to increased personnel and underwriting report costs. Information Technology costs increased by $11,500,000 driven by increased professional fees, hardware and software costs and personnel costs. Also administrative and other expenses increased $2,900,000 in the Q1 of 2023 compared to the same period in 2022, driven by the increased personnel costs related to compensation and building occupancy costs, Partially offset by a decrease in professional fees. Investment losses before taxes totaled $5,000,000 in the Q1.

Speaker 3

The results were primarily driven by equity and losses of limited partnerships of $10,800,000 in the Q1. I will remind you that the limited partnership asset class is in runoff and we continue to expect more limited and inconsistent earnings from this asset class in the future. As always, we take a very measured approach to our capital management and we maintain a strong balance sheet. And for the 1st 3 months of 2023, our financial performance has enabled us to pay our shareholders over $55,000,000 in dividends. Thank you again for your time today.

Speaker 3

And now I'll turn the call back over to Tim. Tim?

Speaker 2

Thank you, Greg. As I mentioned earlier, modernizing our legacy platforms and investing in greater digital capabilities are among our highest priorities in 2023. We're making significant progress in several areas, but perhaps the most visible are recent updates to our claim status platform. A series of iterative redesigns were introduced last year, all influenced by agent feedback. And cross portfolio teams have been working to develop additional updates launched and merged that provide more robust claims information to agents and customers on a more intuitive platform.

Speaker 2

As one of our agents recently said, the updates to claim status are moving the needle toward becoming a true concierge service for customers. These recent enhancements are just the beginning and one example of the investments we're making to further improve the experience of customers and agents. In our last call, I mentioned that our online account platform, which acts as a digital self-service tool for customers, is now being used by more than 1,000,000 households. This is an important milestone because of the value this one tool delivers. Online account gives customers the self-service features they want and expect and that allows our customer service team and agents to spend less time fielding questions about topics like billing and more time on meaningful and valuable interactions with customers.

Speaker 2

The growth of online account also creates opportunities to increase efficiency and reduce waste and expenses. Earlier this month, A paperless option for policy documents was introduced. Now in addition to paperless billing, customers can choose to access policies on demand through the platform. With an average policy document of 15 pages and up to 97% of personalized policies being eligible for paperless, It's easy to see the potential these capabilities have to reduce our expenses and environmental impact. Also at the heart of these enhancements is our commitment to providing the best possible service to our customers.

Speaker 2

Our goal is to ensure everyone we serve has a positive experience no matter who they are or how they're engaging with us. These efforts continue to be affirmed through industry accolades On the heels of the 1st place ranking last fall by J. D. Power for independent agent satisfaction among personal lines. We are proud to be ranked highest in another important Katy Power study for customer satisfaction in the 2023 U.

Speaker 2

S. Property Claims Assessment released in February. Erie scored 38 points higher than the industry average and jumped 30 points over 2022. These accolades are not our only gauge of our success, but they do affirm that we're doing the right thing by our customers and agents. What's also notable about this particular recognition is that it comes at a time when our frontline teams are facing significant talent shortages.

Speaker 2

I'd like to commend our teams in claims, customer care operations and first notice of loss for their continued commitment to being above all in service. We are also proud to recently be named to the 2023 Best of the Best List of Insurance Industry for the Black And for more than 10 years in a row, Erie was recognized by the American Heart Association for the National Platinum Level Workforce Well-being Award for our commitment to employee health and wellness. These three recognitions are an affirmation of our continued efforts to be a great place to work for all. Before we close, I would like to wish CFO, Greg Gutting, all the best in his upcoming retirement after an impressive 37 year career at Erie. He will certainly be missed by the company as Chief Financial Officer and will personally be missed by many, including myself, as a valued colleague and friend.

Speaker 2

Greg is leaving us, however, in very capable hands. Julie Pelkowski will assume the CFO role on May 1 and will join me to share Erie's financial results on our Q2 call. Until then, thank you all again for your interest in Erie.

Earnings Conference Call
TMC the metals Q1 2023
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