Spruce Point Capital Management, LLC issued a detailed report entitled, “Insuring Against A Management Fee Reduction,” that outlines why it believes and estimates that shares of Erie Indemnity (ERIE) Co. face up to 35%-55% potential long-term downside and market underperformance risk. The firm said it has “grave” concerns about the sustainability of Erie’s 25% management fee collected on premiums written by the Erie Insurance Exchange, and that based on its probe, estimates a 35%-55% downside risk, or approximately $217-$314 per share. Given the recent deterioration of the Exchange’s financial performance and historical precedent, Spruce Point believes it is increasingly likely that Erie’s management fee will decline for the first time in decades which could reset earnings expectations by approximately 20% and slow premium growth at the Exchange over the coming years.
