Erie Indemnity Co. Q3 2008 Earnings Call Transcript

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Erie Indemnity Company (ERIE)

Q3 FY08 Earnings Call

November 6, 2008, 10:00 AM ET

Executives

Karen Kraus Phillips - Manager and VP Corporate Communications and IR

Terrence W. Cavanaugh - President and CEO

Philip A. Garcia - EVP and CFO

Analysts

Michael Phillips - Stifel, Nicolaus & Co., Inc.

Dan Schlemmer - Fox-Pitt Kelton Cochran Caronia Waller

Ron Bobman - Capital Returns

Presentation

Operator

Hello and welcome to the Erie Indemnity Company Third Quarter 2008 Earnings Conference. At the request of Erie Indemnity, this conference is being recorded for instant replay purposes. At this time, all participants are in a listen-only mode. Following prepared remarks from management we will open the call for questions and answers.

Now, I would like to introduce your host for today's conference call, Karen Kraus Phillips, Vice President and Manager of Corporate Communications and Investor Relations. Please go ahead Ma'am.

Karen Kraus Phillips - Manager and Vice President Corporate Communications and Investor Relations

Thank you, Cecilia and good morning everyone. We appreciate all you joining us for today's call. On today's call, management will discuss our third quarter 2008 results. Joining me are Terry Cavanaugh, President and CEO; Executive Vice President and Chief Financial Officer, Phil Garcia; Jim Tanous, Executive Vice President, Secretary and General Counsel and George Lucore, Executive Vice President, Field Operations.

Today's prepared remarks will be approximately 30 minutes. Following those remarks we'll open the call for questions. We issued our earnings release and additional supplements yesterday afternoon. If you need a copy of the press release or any of these exhibits, you can find these in the Investor Relations section of our website at erieinsurance.com. We also filed Form 10-Q with the SEC.

On today's call, the management of Erie Indemnity Company will share important information about current and future initiatives being undertaken at the company. As a result, certain forward-looking statements maybe incorporated into their comments.

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.

Many of the factors that will determine future events or achievements are beyond our ability to control or predict. 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 filed November 5, 2008, and in the related press release and 8-K.

In this call, we will discuss some non-GAAP measures. You can find a reconciliation of those measures to GAAP measures in the press release and in the supplement posted on our investor website at erieinsurance.com.

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 PM 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.

And now I'll turn the call over to Erie's President and CEO, Terry Cavanaugh, Terry?

Terrence W. Cavanaugh - President and Chief Executive Officer

Thanks. Good morning. About 90 days ago, a week in a my new job, I had the opportunity to join all of you on Erie's second quarter earnings call. My perspective of Erie at that point was still largely, as one looking in from the outside.

And while I am sure you'll agree that I picked an interesting time to become a CEO, considering the country's economic condition. I am now fully engaged and more confident than ever that I made the right call to join the Erie team. Today, I will share some of my early observations with you and where I see the company headed in 2009.

In addition, to covering key points of the third quarter financials, I may have still to talk about our capital and liquidity position, both at the Indemnity Company and at the Erie Insurance Exchange which I know is of primary interest to all of you.

Over the past quarter, we have been riding the financial storm along with everyone else. We incurred $41.1 million in realized capital losses for the third quarter. Saw a substantial reduction in our share of earnings from a limited partnership investments and a $10.1 million loss from our equity in earnings from Erie Family Life. As you might expect Erie Family Life also has significant realized capital losses from investments. These factors and the impact of Hurricane Ike on our underwriting performance were the primary drivers of our earnings per share result of $0.07 per share for the quarter.

Even after taking into account the impacts of the capital and securities markets, the quality and substance of our balance sheet of both the Indemnity Company and Erie Insurance Exchange continues to be remarkably strong. As of September 30, 2008, we had nearly... we had over $900 million in capital at Erie Indemnity Company and a policyholders' surplus of more than $4.4 billion at Erie Insurance Exchange. The strength of our balance sheet continues to give us a distinct advantage in the current insurance marketplace.

We see additional evidence of our competitors' strength as well. Overall, policies of the property and casualty group are growing at 2.8% on a year-over-year basis. Underlying that result, our new policies enforced growth of 3.3% on a year-over-year basis and an All Lines policy retention rate of 90.5%.

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