2017 Erie Indemnity Company Annual Report

2017 Erie Indemnity Company Annual Report

On the cover:

It's a tough task to identify what makes ERIE strong and unique and enduring. Like the artwork that commands the entrance to our Technical Learning Center--it's not any one thing, but the committed assemblage that makes us ERIE.

The custom work by Ohio artist Michelle Stitzlein comprises materials salvaged from renovated properties on ERIE's campus in northwestern Pennsylvania. Together with other salvaged items, the woodwork, shutters and finials create a representation of ERIE's logo--the cupola that tops Founders' Hall.

Our Founding Purpose

To provide our Policyholders with as near perfect

protection, as near perfect service as is humanly possible,

and to do so at the lowest possible cost.

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To Our Shareholders

When I came to ERIE

21 years ago to lead our

Internal Audit team,

I already knew the

company's reputation

for strong and steady

financial management.

President and CEO

It didn't take me long to

Tim NeCastro

realize the other reason

for ERIE's continued

success. Here, people and relationships truly

matter. In the more than 90 years we've been in

business, we've continually embraced the words

of our founder to be "Above all in SERVICE" and

"never lose the human touch." To us, these aren't

just taglines or catchy phrases. They guide who

we are and everything we do.

As a former controller, the financials have always been important to me. But I also enjoy the people side of leadership. In 2017, my first full year as CEO, I wanted to focus on strengthening some of the essential characteristics that make ERIE so special and successful.

We continued our unwavering approach to financial discipline while deepening our commitment to collaboration, relationships and exceptional service. This was a year of fortifying the ERIE house, in both tangible and intangible ways.

While achieving another year of favorable operating results (as you'll see in the following pages), we also solidified our leadership team and completed the reorganization started in late 2016. I'm extremely confident in the structure we now have in place and the people who are leading the way.

Our executive team worked on our chief priority, refining the strategic direction that will frame our success in the future, while making significant progress on initiatives already underway.

We broke ground and began construction on a seven-story office building. The facility is planned to open in 2020 and will accommodate growth at our Home Office campus.

We completed the rollout of our new claims management system, which will enable us to deliver exceptional claims service well into the future.

We delivered new capabilities to our Agents, making it faster and easier to write and service business with ERIE.

It's been a busy year following the start of our transition, but as the results show, it's also been a solid year for both Erie Indemnity and the Erie Insurance Exchange.

2017 results

We are in a good place financially, with strong-- and balanced--results for both Indemnity and the Exchange, as you'll see on page 5. This balance is always important: the health of the Exchange, the primary insurer we manage, drives the success of Indemnity.

In 2017, the Exchange grew Property & Casualty premium 6.0 percent over the prior year, exceeding the latest industry growth forecast of 4.8 percent from Conning. That makes 10 straight years of premium growth, coupled with steady gains in market share across our territories.

Last year was the third year in a row--and the fourth in the past five years--that the Exchange experienced an underwriting profit. Our latest reported combined ratio of 96.2 percent reflects sound underwriting practices and favorable weather across most of our footprint.

We also continued to grow Policyholder surplus, policies in force and average premium per policy. First-year annualized life premium grew 31.1 percent year over year to nearly $21 million.

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ERIE's Founders' Hall and its distinctive cupola are framed by steel from the seven-story office building under construction in Erie, Pennsylvania. The new office is planned to open in 2020 with space for up to 1,200 Employees.

For Indemnity, operating revenue and investment income both grew, though net income was down slightly, at nearly $197 million.

Indemnity's management margin of 17.0 percent, down from 18.3 percent in 2016, reflects the increased investments we are making in technology. These investments will create new efficiencies in our systems and strengthen our data capabilities so we're equipped not just to compete, but win, in a competitive marketplace. Technology investments put pressure on the margin and require that we continue to adhere to careful expense management.

ERIE continued to shine in consumer-driven performance studies like those by J.D. Power.

In 2017, ERIE earned the J.D. Power award for "Highest Customer Satisfaction with the Auto Insurance Purchase Experience" for the fifth year in a row and top honors in the Renters Insurance Segment of the J.D. Power Household Insurance Study. That makes 21 awards for Customer satisfaction since J.D. Power began presenting awards in our industry in 1999. That's more than any other agency carrier in the United States, including those that partner with independent agents and those with captive agents as part of their workforce. (J.D. Power was not alone in recognizing ERIE; for other acknowledgments, see pages 6?7.)

Building for the future

Here at ERIE, 2017 was a great year, but we can't let success keep us from finding ways to be even better--especially in today's rapidly evolving world.

This past year, we identified four areas of strategic focus that we believe will bolster our progress in the years ahead:

Improving, replacing and expanding our business platforms and uses of data

Identifying and developing new sources of revenue

Continuing to enhance the ERIE experience

Preparing for the workforce--and workplace-- of the future

These initiatives have many layers, and each will require careful planning, collaboration and hard work. We've set priorities to invest first in those areas that will provide a foundation for future success.

Initially, we'll focus on improving efficiency for our Agents and Customers. At the same time, we'll be expanding our capabilities for managing and using data to inform decision-making and drive innovation.

We'll continue to make incremental enhancements to our products while also planning for new and innovative products and services. ERIE was one of the first insurers to offer Customers coverage for ridesharing services like Uber. Now, we're expanding our homeowners coverage for Customers who open their homes for short-term rentals through services like Airbnb.

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