Good morning and welcome to the Erie Indemnity Fourth Quarter 2016 Earnings Conference Call. I would like to introduce your host for today’s call, Scott Beilharz, Vice President, Investor Relations.

Thank you, Nichole, and welcome, everyone. We appreciate you joining us for today’s discussion about the fourth quarter and full-year 2016 results. Joining me today are Tim NeCastro, President and Chief Executive Officer; Greg Gutting, 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 closed and are available within the Investor Relations section of our website, erieinsurance.com. Before we hear from Tim and Greg, 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 23, 2017 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 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 Tim.

Thank you, Scott, and good morning, everyone. Yesterday, we reported Erie Indemnity’s 2016 results and the numbers were very good across the board. Compared to 2015, net income was up over 20% and our gross margin improved by nearly 3 points. Premiums written and assumed by Erie Insurance Exchange drove Indemnity’s top line growth while continued attention to expense management help to improve the bottom line. We had a really good year and I’m very pleased to report record earnings per share of $4.01. As you know, the growth and profitability of the Exchange is an integral part of Indemnity’s success. So with that relationship in mind, I’ll offer some context around the performance of the Exchange before Greg reviews Indemnity’s 2016 financial results. The results for last year affirm that the Exchange remains strong growing profitably. In 2016, record written premiums of the Exchange increased 6.2% over 2015, well ahead of Conning’s current industry forecast of 3.6%, and for 2016, the Exchange reported a combined ratio of 96.5%. That too surpassed Conning’s most recent industry forecast of 99.8%. Policyholder surplus is now just over $7.7 billion. The Exchange is indeed thriving and Indemnity continues to benefit from that solid performance. Indemnity also generated very strong results in 2016. The 2016 was more than just a year of strong performance. It was also a transitional year at Erie, marked by a new executive leadership in the anticipation of what that change might look like internally. And through that change, our employees and agents remain true through to our service promise conducting business with the dedication and expertise that allowed for a seamless transition and record results with no disruption to our operation. I’m very thankful to our employees and agents for their consistent professionalism and dedication. We accomplished a great…

Thanks, Tim. Yesterday, we reported excellent 2016 financial results for both the fourth quarter and full-year. Beginning with the fourth quarter results, net income increased to $46 million, or $0.87 per diluted share compared to $30 million, or $0.57 per diluted share in the fourth quarter of 2015. The growth was driven by increased revenues, net revenues from operations and total investment income. Net revenue from operations before taxes increased nearly $15 million in the fourth quarter of 2016, representing a 35% increase over the fourth quarter of 2015. Indemnity’s management fee revenue increased $23 million, or 6.7% in the fourth quarter of 2016 compared to 2015, while the cost of operations increased 2.7%, or just over $8 million in the same period. Commission-related expenses in the fourth quarter increased $10 million compared to the fourth quarter of 2015, while non-commission-related expenses decreased nearly $2 million during that same period. Our resulting gross margin for the fourth quarter of 2016 was 14.9% versus a 11.7% in the fourth quarter of 2015. Finally, investment income for the quarter totaled $13.5 million compared to $4.2 million in the fourth quarter of 2015. The increase was driven primarily by earnings from our limited partnerships. Indemnity’s full-year results also tell a story of strong growth. Net income for the year was $210 million, or $4.01 per diluted share compared to $175 million, or $3.33 per diluted share in 2015. The increased earnings were driven by net revenue from operations as revenue growth outpaced expense growth. As a result, Indemnity’s gross margin for the full-year 2016 was 18.3% compared to 15.4% in 2015. Management fee revenue in 2016 increased $92million, or 6.2% compared to 2015, while the total operating expenses increased just over $31 million, or 2.5% year-over-year. When we talk about expenses, we make…

Thank you, Greg. As we look ahead to 2017 and Erie’s business approach, our executive team isn’t looking for revolutionary changes to our business model. We will capitalize on our brand strength evolving it and giving it a contemporary look. I know with certainty that we’ll have to address disruptive trends in our industry and that the customer of the future will have a new face and new expectation. And while change won’t happen overnight, the evolving needs of the customer is the certainty that will help shape our priorities. We remain unquestionably committed to our proven distribution channel. Our dedicated independent agents will continue to be the face of Erie forging lasting relationships with our customers. It will be our job to build out the core and improve our existing business model. We will continue to strengthen the Erie experience for our agents, customers, and employee by linking digital capabilities with our distinctive human touch and becoming more efficient on a 24/7 timetable. We want to Erie to always be the agents and customers coverage of choice. We will also respond to changing consumer behavior, new risk patterns, and the needs that arise from emerging technology, and we will continue to look for prime opportunities to grow market share. And as we did with Erie Claim Center, we will look closely at our infrastructure and begin our journey of replacing legacy platforms and solutions to improve efficiency, service, and data management paramount to better decision-making in our business. We will examine the workforce and workplace of tomorrow focusing on the skills, capabilities, and space needed to succeed in a changing industry. We will continue to recruit and develop talent and provide the environment that will keep our employees engage, while allowing us to meet new levels of service for customers and agents. Flexibility were possible leads to happier, healthier, and more productive employees. Thinking ahead and anticipating disruptive forces will provide opportunity, our world and our industry are changing. And while that change won’t happen tomorrow, it will happen and we have to start planning for it today. It is in this way that the Exchange will continue to thrive and Indemnity will continue to produce value for you, our shareholders in 2017 and beyond. Now, we’ll be happy to take your questions.

Thank you. [Operator Instructions] Our first question comes from the line of Amit Kumar of Macquarie. Your line is open.

Thanks and good morning. Just a few questions, I guess, to start with. Number one, if I look at the combined ratio for private passenger auto, can you just broadly talk about how you’re thinking about the loss cost trends and the rate increases you might be looking at going forward?

Certainly. Good morning, Amit. Erie’s experience is on par, in fact, a little bit better than the industry. And from our perspective, we look at personal lines households, not just at the automobile line of business. And so when we look at things in the aggregate and as our agents sell more package policies, we are seeing very consistent profitability trends for ourselves in the personal lines arena. Certainly, we are seeing increases in loss costs like the industry is seeing. We know that those things are attributable to things like distracted driving and the advent of new technology is being utilized in cars. For Erie, we see relatively moderate rate actions. We tend to handle profitability concerns really with three levers. So while we could take rate and we certainly adjust rates periodically from time to time using sophisticated pricing, we also handle profitability through our agency management practices and our underwriting practices. And really underwriting has been one of the consistent strengths and strategic strengths of Erie for many, many years.

In terms of when you talk about that, is a loss cost uptick, is that on the bodily injury side, or is that on the property damage side for you?

It’s on the – it’s predominantly on the property damage side.

Okay.

Industry is I think – we are seeing industry results that are far more skewed toward BI than ours are, but we are seeing it more on the PD side and we attribute that to the increased repair cost on automobiles, because there’s so much technology built into them today.

Got it. Moving on to the commercial auto piece and I know it’s a smaller piece for Erie, that’s one of the new sort of hotspots. Any thoughts on how you expect that to emerge over 2017?

This is Greg Gutting. Our book is a little bit different on commercial auto than the industry. So we have like the small fleets and whatnot. So we are not seeing a lot of the same things that the industry is seeing there.

Got it. The final question I have is, in the past you talked about, I guess, cross-selling, if you will, in terms of personal lines policyholders also owning life insurance policies. Any updated thoughts on the penetration levels on that?

We’re seeing – this is Greg, again. We’re seeing some gains there and that’s something we’re looking to focus on in the future and nothing substantial at this point.

Amit, this is Tim. Really some of the work that we’ve accomplished in the customer arena. It’s really systems based. It’s giving us a broader view of who our customers are and how deeply penetrated we are. I would say, we’re early on. We are seeing some marginal improvement. But we think that some of the work that the foundational work that’s being accomplished is going to help us far more in the future.

Got it. That makes sense. That – that’s all I have for now. Thanks for the answers and good luck for the future.

Great. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Adam Klauber of William Blair. Your line is now open.

Good morning, guys. Nice quarter.

Good morning, Adam.

A couple of different questions and sorry, I missed the first part of the call, so I apologize if you had talked about these. Yes, for 2017, how should we think about the direction of some of the expense items, the salaries and some of the other expenses, technology investments, could you – and I apologize if you said that already, but could you walk through just directionally where the…?

Well, we had the advantage this year of some lower costs. The pension were down just as a function of the discount rate. So those costs are going to go up a little bit in 2017. The medical expenses were down and we’re self insured, so that flows through. So we experienced less medical claims parity there on the larger claims, so we saw some of that. We saw the benefit of some of the – or the bonus plans for executives who left or where we hadn’t grow up, or which were removed, so that was part of it. We also altered the payment plans that we take credit cards on during 2016, which reduced the credit card expense, which we expect that to go back up a little bit in 2017. So we had – we were benefited on a few fronts on the 2016 on the expenses.

Adam, I would say on the technology front, we’re going to continue to make investments in our legacy platform replacing that platform. And it’s difficult to predict what the expense stream is going to look like. A lot of it is kind of built on itself, but we expect 2017 to be a very rigorous year in the technology arena.

Okay. And as far as other expenses non-tech and again not looking for exact numbers. But are there going to be investments, or is it just more normal growth of the expense base next year?

And we continually invest not only in IT, but in other process improvement and customer experience things. But I don’t see any major expenditures there, but it’s more in line with what we’ve done in the past.

Okay, okay. Then how are you thinking about cash usage for 2017, or what are your priorities?

Well, we have very good cash flows with the building coming on. We actually were able to leverage our strength there and lock in a very good rate for financing most of the buildings. So I see that’s similar to what we’ve seen in the past.

Really I’d say predominantly to fund our operation, of course, fund dividends for shareholders, we don’t anticipate any major drains on cash in 2017.

Okay. So still mainly dividends, buyback, is that consideration, or not that much?

The dividends for sure the buybacks.

Yes, look at those…

Yes.

If it’s opportunistic.

Yes.

Okay. And then as far as growth of the agency for us, I guess, which states or which areas do you think you’ll see some pockets of growth this year?

Yes, I mean, we’ve had some – we’ve had a relatively stable agency portion in terms of numbers of agencies, it’s been hovering around 2,250 agencies or so. And we continue to make appointments in some of the newer territories, or lesser developed territories like Tennessee and Illinois. I would continue to see those types of appointments occur. The license producers is the area where we’re seeing greater growth. We’ve seen increase of almost 3,000 licensed producers over the past five years, and so now we’re around 4,500 producers up there. So that’s growth within existing agencies. I think that the number, I think that we’re averaging around $2.9 million of direct written premium per agency, as we sit here today, and that’s up from about $1.7 million about five years ago. So we are more deeply penetrated in the existing agency plant.

Great, great. So as we think about 2017, maybe not a lot of growth in the agency for us, but continued growth on those and that number of producers, is that a way to think about it?

Yes. Now my feel [ph] dimension, we’ll be appointing producers in Kentucky, our newest territory as well.

Okay, great. Thanks a lot.

Thank you.

Thank you. [Operator Instructions] And I’m showing no further questions at this time. I’d like to hand the call back to Scott Beilharz for any closing remarks.

Thanks, Nichole. Excuse me, thanks again for joining us. A recording of this call will be posted on our website, erieinsurance.com at 4:30 PM Eastern time today. If you have any questions, please call me at Erie code 814-870-7312. Thank you.

Thanks, everybody.

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