Results

Erie Indemnity Company

02/23/2026 | Press release | Distributed by Public on 02/23/2026 15:27

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of financial condition and results of operations highlights significant factors influencing Erie Indemnity Company ("Indemnity", "we", "us", "our"). This discussion should be read in conjunction with the audited financial statements and related notes and all other items contained within this Annual Report on Form 10-K as these contain important information helpful in evaluating our financial condition and results of operations. This section of the Form 10-K generally discusses 2025 and 2024 results and year-to-year comparisons between 2025 and 2024. For a discussion of 2023 results and year-to-year comparisons between 2024 and 2023 refer to Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the year ended December 31, 2024 as contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2025.
INDEX
Page Number
Cautionary Statement Regarding Forward-Looking Information
18
Recent Accounting Standards
19
Operating Overview
19
Critical Accounting Estimates
22
Results of Operations
24
Financial Condition
30
Investments
30
Shareholders' Equity
31
Liquidity and Capital Resources
32
Transactions/Agreements with Related Parties
34
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995:
Statements contained herein that are not historical fact are forward-looking statements and, as such, are subject to risks and uncertainties that could cause actual events and results to differ, perhaps materially, from those discussed herein. Forward-looking statements relate to future trends, events or results and include, without limitation, statements and assumptions on which such statements are based that are related to our plans, strategies, objectives, expectations, intentions, and adequacy of resources. Examples of forward-looking statements are discussions relating to premium and investment income, expenses, operating results, and compliance with contractual and regulatory requirements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Among the risks and uncertainties, in addition to those set forth in our filings with the Securities and Exchange Commission, that could cause actual results and future events to differ from those set forth or contemplated in the forward-looking statements include the following:
•dependence upon our relationship with the Erie Insurance Exchange ("Exchange") and the management fee under the agreement with the subscribers at the Exchange;
•dependence upon our relationship with the Exchange and the growth of the Exchange, including:
◦general business and economic conditions;
◦factors impacting the timing of premium rates charged for policies;
◦factors affecting insurance industry competition, including technological innovations;
◦dependence upon the independent agency system; and
◦ability to maintain our brand, including our reputation for customer service;
•dependence upon our relationship with the Exchange and the financial condition of the Exchange, including:
◦the Exchange's ability to maintain acceptable financial strength ratings;
◦factors affecting the quality and liquidity of the Exchange's investment portfolio;
◦changes in government regulation of the insurance industry;
◦litigation and regulatory actions;
◦emergence of significant unexpected events, including pandemics, economic or social inflation, and changes in tariff policies;
◦emerging claims and coverage issues in the industry; and
◦severe weather conditions or other catastrophic losses, including terrorism;
•costs of providing policy issuance and renewal services to the subscribers at the Exchange under the subscriber's agreement;
•ability to attract, develop, retain, and protect talented management and employees;
•ability to ensure system availability and effectively manage technology initiatives;
•difficulties with technology, data or network security breaches, including cyber attacks;
•ability to maintain uninterrupted business operations;
•compliance with complex and evolving laws and regulations and outcome of pending and potential litigation;
•factors affecting the quality and liquidity of our investment portfolio; and
•ability to meet liquidity needs and access capital.
A forward-looking statement speaks only as of the date on which it is made and reflects our analysis only as of that date. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in assumptions, or otherwise.
RECENT ACCOUNTING STANDARDS
See Item 8. "Financial Statements and Supplementary Data - Note 2, Significant Accounting Policies, of Notes to Consolidated Financial Statements" contained within this report for a discussion of recently adopted and issued accounting standards and the impact on our consolidated financial statements if known.
OPERATING OVERVIEW
Overview
We are a Pennsylvania business corporation that since 1925 has been the managing attorney-in-fact for the subscribers (policyholders) at the Exchange, a reciprocal insurer that writes property and casualty insurance. Our primary function as attorney-in-fact is to perform policy issuance and renewal services on behalf of the subscribers at the Exchange. We also act as attorney-in-fact on behalf of the subscribers at the Exchange, as well as the service provider for the Exchange's insurance subsidiaries, with respect to all administrative services.
The Exchange is a reciprocal insurance exchange, which is an unincorporated association of individuals, partnerships, and corporations that agree to insure one another. Each applicant for insurance (a subscriber) to the Exchange signs a subscriber's agreement, which contains an appointment of Indemnity as their attorney-in-fact to transact the business of the Exchange on their behalf.
In accordance with the subscriber's agreement for acting as attorney-in-fact in these two capacities, we retain a management fee. Management fee revenue is based upon all direct and affiliated assumed premiums written by the Exchange and the management fee rate, which is not to exceed 25%. Our Board of Directors sets the management fee rate at least annually, generally in December for the following year. The process of setting the management fee rate includes, but is not limited to, the evaluation of current year operating results compared to both prior year and industry estimated results for both Indemnity and the Exchange, and consideration of several factors for both entities including, but not limited to: their relative financial strength and capital position; projected revenue, expense and earnings for the subsequent year; future capital needs; as well as competitive position. The management fee rate was set at 25% for 2025 and 2024. Based on analysis of the foregoing factors, our Board of Directors set the 2026 management fee rate again at 25%.
Our earnings are primarily driven by the management fee revenue generated for the services we provide on behalf of the subscribers at the Exchange. The policy issuance and renewal services we provide are related to the sales, underwriting, and issuance of policies. The sales related services we provide include agent compensation and certain sales and advertising support services. Agent compensation includes scheduled commissions to agents based upon premiums written as well as incentive compensation, which is earned by achieving targeted measures. Agent compensation comprised approximately 71% of our 2025 policy issuance and renewal expenses. The underwriting services we provide include underwriting and policy processing and comprised approximately 8% of our 2025 policy issuance and renewal expenses. The remaining services we provide include customer service and administrative support. We also provide information technology services that support all the functions listed above that comprised approximately 10% of our 2025 policy issuance and renewal expenses. Included in these expenses are allocations of costs for departments that support these policy issuance and renewal functions.
Consistent with its legal structure as a reciprocal insurer, the Exchange does not have any employees or officers. Therefore, it enters into contractual relationships by and through the subscribers' attorney-in-fact. Indemnity serves as the attorney-in-fact on
behalf of the subscribers at the Exchange with respect to its administrative services as enumerated in the subscriber's agreement. The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. Claims handling services include costs incurred in the claims process, including the adjustment, investigation, defense, recording, and payment functions. Life insurance management services include costs incurred in the management and processing of life insurance business. Investment management services are related to investment trading activity, accounting, and all other functions attributable to the investment of funds. In 2025, approximately 71% of the administrative services expenses were entirely attributable to the respective administrative functions (claims handling, life insurance management, and investment management), while the remaining 29% of these expenses were allocations of costs for departments that support these administrative functions. The expenses we incur and related reimbursements we receive for administrative services are presented gross in our Consolidated Statements of Operations. The subscriber's agreement and service agreements provide for reimbursement of amounts incurred for these services to Indemnity. Reimbursements are settled at cost on a monthly basis. State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department.
Our results of operations are tied to the growth and financial condition of the Exchange as the Exchange is our sole customer, and our earnings are largely generated from management fees based on the direct and affiliated assumed premiums written by the Exchange. The Exchange generates revenue by insuring preferred and standard risks, with personal lines comprising 71% of the 2025 direct and affiliated assumed written premiums and commercial lines comprising the remaining 29%. The principal personal lines products are private passenger automobile and homeowners. The principal commercial lines products are commercial multi-peril, commercial automobile, and workers compensation.
We generate investment income from our fixed maturity and equity security portfolios. Our portfolios are managed with the objective of maximizing after-tax returns on a risk-adjusted basis. We actively evaluate the fixed maturity portfolios for securities in an unrealized loss position and record impairment write-downs on investments in instances where we have the intent to sell or it's more likely than not that we would be required to sell the security. Impairments resulting from a credit loss are recognized in earnings with a corresponding allowance on the Consolidated Statements of Financial Position.
Information security incident
Earlier in the year, we experienced an information security incident that has since been remediated and did not have a material impact on our consolidated financial condition, results of operations, or cash flows. As of December 31, 2025, we continue to pursue recovery of a portion of lost income due to business interruption and related expenses from our cybersecurity insurance policy.
Financial Overview
Years ended December 31,
(dollars in thousands, except per share data) 2025 % Change 2024 % Change 2023
Operating income $ 717,184 6.0 % $ 676,455 30.0 % $ 520,256
Total investment income 84,861 22.5 69,260 NM 28,968
Other income
8,558 (26.0) 11,564 (9.0) 12,712
Contribution to charitable foundation
(100,000) NM - NM -
Income before income taxes 710,603 (6.2) 757,279 34.8 561,936
Income tax expense 151,268 (3.6) 156,965 35.5 115,875
Net income $ 559,335 (6.8) % $ 600,314 34.6 % $ 446,061
Net income per share - diluted $ 10.69 (6.8) % $ 11.48 34.6 % $ 8.53
NM = not meaningful
Operating income increased in 2025 compared to 2024 as operating revenue exceeded operating expenses. Operating income is primarily comprised of management fee revenue less the cost of policy issuance and renewal services. Management fee revenue is based upon the management fee rate we charge and the direct and affiliated assumed premiums written by the Exchange. The management fee rate was 25% for 2025 and 2024. The direct and affiliated assumed premiums written by the Exchange increased 8.9% to $13.0 billion in 2025.
Cost of operations for policy issuance and renewal services increased 8.7% to $2.5 billion in 2025 primarily due to higher scheduled commissions driven by direct and affiliated assumed written premium growth, increased agent incentive compensation due to improved profitability, and increased personnel and hardware and software costs.
Management fee revenue for administrative services increased 8.3% to $74.1 million in 2025. The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $836.6 million in 2025, but had no net impact on operating income.
Total investment income increased $15.6 million in 2025 primarily due to an increase in net investment income.
Net income in 2025 was reduced by $80.6 million, reflecting the after-tax impact of a $100 million charitable contribution made to the Erie Insurance Foundation. See Item 8. "Financial Statements and Supplementary Data - Note 15, Related Party, of Notes to Consolidated Financial Statements" for additional details.
General Conditions and Trends Affecting Our Business
Economic conditions
Unfavorable changes in economic conditions, including declining consumer confidence, inflation, high unemployment, and the threat of recession, among others, may lead the Exchange's customers to modify coverage, not renew policies, or even cancel policies, which could adversely affect the premium revenue of the Exchange, and consequently our management fee revenue. Elevated inflation, supply chain disruptions, or changes in tariff policies could impact the Exchange's operations and our management fees. In particular, unanticipated increased inflation costs including medical cost inflation, building material cost inflation, auto repair and replacement cost inflation, and social inflation may impact adequacy of estimated loss reserves and future premium rates of the Exchange. If any of these items impacted the financial condition or operations of the Exchange, it could have an impact on our financial results. See Financial Condition, Liquidity and Capital Resources, and Part I, Item 1A. "Risk Factors" contained within this report for a discussion of potential impacts to our operations or those of the Exchange.
Financial market volatility
Our portfolio of available-for-sale and equity security investments is subject to market volatility, especially in periods of instability in the worldwide financial markets. Net investment income is impacted by the general level of interest rates, which impact reinvested cash flow from the portfolio and business operations. Depending upon market conditions, considerable fluctuation could occur in the fair value of our investment portfolio and reported total investment income, which could have an adverse impact on our consolidated financial condition, results of operations, and cash flows. Various ongoing geopolitical events, the uncertain tariff, inflationary, and interest rate environment, and a potential economic slowdown could have a significant impact on the global financial markets with the potential for future losses and/or impairments on our investment portfolio.
CRITICAL ACCOUNTING ESTIMATES
The financial statements include amounts based upon estimates and assumptions that have a significant effect on reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period and related disclosures. We consider an accounting estimate to be critical if 1) it requires assumptions to be made that were uncertain at the time the estimate was made, and 2) different estimates that could have been used, or changes in the estimate that are likely to occur from period-to-period, could have a material impact on our Consolidated Statements of Operations or Financial Position.
The following presents a discussion of those accounting policies surrounding estimates that we believe are the most critical to our reported amounts and require the most subjective and complex judgment. If actual events differ significantly from the underlying assumptions, there could be material adjustments to prior estimates that could potentially adversely affect our results of operations, financial condition, and cash flows. The estimates and the estimating methods used are reviewed continually, and any adjustments considered necessary are reflected in current earnings.
Investment Valuation
Fair Value Measurements
We make estimates concerning the fair value of our investments using valuation techniques to derive the fair value of the fixed maturity and equity investments we hold. Fair value is the price that would be received to sell an asset in an orderly transaction between willing market participants at the measurement date.
Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Our investments are categorized into a three-level fair value hierarchy which assigns a Level 1 for highly observable inputs and a Level 3 to unobservable inputs. We continually assess whether or not an active market exists for all of our investments and as of each reporting date we re-evaluate their classification in the fair value hierarchy.
As of each reporting period, financial instruments recorded at fair value are classified based upon the lowest level of input that is significant to the fair value measurement. The presence of at least one unobservable input that has significant impact to the fair value measurement would result in classification as a Level 3 instrument. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and considers factors specific to the asset, such as the relative impact on the fair value as a result of including a particular input and market conditions. While estimates of the fair values of our investment portfolio are obtained from outside pricing services, we ultimately determine whether the inputs used are observable or unobservable.
As of December 31, 2025, substantially all of the securities measured at fair value in our investment portfolio are classified as Level 2. Level 2 securities are valued using industry-standard models that consider various inputs, such as the interest rate and credit spread for the underlying financial instruments. All significant inputs are observable, or derived from observable information in the marketplace, or are supported by observable levels at which transactions are executed in the marketplace. At December 31, 2025, our investments classified as Level 3 were not significant.
See Item 8. "Financial Statements and Supplementary Data - Note 6, Fair Value, of Notes to Consolidated Financial Statements" contained within this report for additional details on the fair value measurement of our investments.
Retirement Benefit Plan for Employees
Our primary pension plan is a noncontributory defined benefit pension plan covering substantially all employees. Although we are the sponsor of this postretirement plan and record the funded status of the plan, there are reimbursements between us and the Exchange and its insurance subsidiaries for their allocated share of pension income or cost. See Item 8. "Financial Statements and Supplementary Data - Note 10, Postretirement Benefits, of Notes to Consolidated Financial Statements" contained within this report for additional details on these reimbursements.
Our pension obligation is developed from actuarial estimates. Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the plan. Key factors include assumptions about the discount rates and expected rates of return on plan assets. We review these assumptions annually and modify them considering historical experience, current market conditions, including changes in investment returns and interest rates, and expected future trends.
Accumulated and projected benefit obligations are expressed as the present value of future cash payments. We discount those cash payments based upon a yield curve developed from corporate bond yield information with maturities that correspond to the payment of benefits. Lower discount rates increase present values and subsequent year pension expense, while higher discount rates decrease present values and subsequent year pension expense. The construction of the yield curve is based upon yields of corporate bonds rated AA or equivalent quality. Target yields are developed from bonds at various maturity points and a curve is fitted to those targets. Spot rates (zero coupon bond yields) are developed from the yield curve and used to discount benefit payment amounts associated with each future year. The present value of plan benefits is calculated by applying the spot/discount rates to projected benefit cash flows. A single discount rate is then developed to produce the same present value. The cash flows from the yield curve were matched against our projected benefit payments in the pension plan, which have a duration of about 15 years. This yield curve supported the selection of a 5.72% discount rate for the projected benefit obligation at December 31, 2025 and for the 2026 pension expense. The same methodology was used to develop the 5.87% and 5.34% discount rates used to determine the projected benefit obligation for 2024 and 2023, respectively, and the pension cost (income) for 2025 and 2024, respectively. A 25 basis point decrease in the discount rate assumption, with other assumptions held constant, would increase pension cost in the following year by $4.0 million, of which our share would be approximately $1.6 million, and would increase the pension benefit obligation by $40.0 million.
Unrecognized actuarial gains and losses arise from several factors, including experience and assumption changes in the obligations and from the difference between expected returns and actual returns on plan assets. These unrecognized gains and losses are recorded in the pension plan obligation and accumulated other comprehensive income (loss). These amounts are systematically recognized to net periodic pension expense in future periods, with gains decreasing and losses increasing future pension expense. If actuarial net gains or losses exceed 5% of the greater of the projected benefit obligation and the market-related value of plan assets, the excess is recognized through the net periodic pension expense equally over the estimated service period of the employee group, which is currently 13 years.
The expected long-term rate of return for the pension plan represents the average rate of return to be earned on plan assets over the period the benefits included in the benefit obligation are to be paid. To determine the expected long-term rate of return assumption, we utilized models based upon rigorous historical analysis and forward-looking views of the financial markets based upon key factors such as historical returns for the asset class' applicable indices, the correlations of the asset classes under various market conditions and consensus views on future real economic growth and inflation. The expected future return for each asset class is then combined by considering correlations between asset classes and the volatilities of each asset class to produce a reasonable range of asset return results within which our expected long-term rate of return assumption falls. The expected long-term rate of return is generally less susceptible to annual revisions as there are typically no significant changes in the asset mix. Based on the current asset allocation and a review of the key factors and expectations of future asset performance as well as the current market environment, the expected return on asset assumption will remain at 7.00% for 2026. A change of 25 basis points in the expected long-term rate of return assumption, with other assumptions held constant, would have an estimated $2.8 million impact on net pension benefit cost in the following year, of which our share would be approximately $1.1 million.
We use a four-year averaging method to determine the market-related value of plan assets, which is used to determine the expected return component of pension expense. Under this methodology, asset gains or losses that result from returns that differ from our long-term rate of return assumption are recognized in the market-related value of assets on a level basis over a four-year period. The market-related asset experience during 2025 that related to the actual investment return being different from that assumed during the prior year was a gain of $10.1 million. Recognition of this gain will be deferred and recognized over a four-year period, consistent with the market-related asset value methodology. Once factored into the market-related asset value, these experience gains and losses will be amortized over a period of 13 years, which is the remaining service period of the employee group.
We recognized net pension benefit expense of $9.6 million in 2025 primarily driven by plan progression as well as demographic assumption updates from a 2024 experience study, partially offset by a higher discount rate, compared to 2024. We expect to recognize net pension benefit expense of $18.0 million in 2026. The estimated increase from 2025 is primarily driven by anticipated plan progression and a decrease in the discount rate. Our share of the net pension benefit expense after reimbursements was $3.7 million in 2025. We expect our share of the net pension benefit expense to be approximately $7.0 million in 2026, of which expense of $14.5 million will be recorded in operating expense and income of $7.5 million will be recorded in other income.
The actuarial assumptions we used in determining our pension obligation may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants. While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may materially affect our consolidated financial position, results of operations, or cash flows. See Item 8. "Financial Statements and
Supplementary Data - Note 10, Postretirement Benefits, of Notes to Consolidated Financial Statements" contained within this report for additional details on the pension plan.
RESULTS OF OPERATIONS
Management fee revenue
We have two performance obligations in the subscriber's agreement, providing policy issuance and renewal services and acting as attorney-in-fact for the subscribers at the Exchange, as well as the service provider for the Exchange's insurance subsidiaries, with respect to all administrative services. We retain management fees for acting as the attorney-in-fact for the subscribers at the Exchange in these two capacities and allocate our revenues between our performance obligations.
The management fee is calculated by multiplying all direct and affiliated assumed premiums written by the Exchange by the management fee rate, which is set by our Board of Directors at least annually. The management fee rate was set at 25% for 2025 and 2024. Changes in the management fee rate can affect our revenue and net income significantly. The transaction price, including management fee revenue and administrative services reimbursement revenue, includes variable consideration and is allocated based on the estimated standalone selling prices developed using industry information and other available information for similar services. We update the transaction price and the related allocation at least annually based upon the most recent information available or more frequently if there have been significant changes in any components considered in the transaction price. Our current transaction price allocation review resulted in a minor change in the allocation between the two performance obligations in 2025 compared to 2024, which did not have a material impact on our consolidated financial statements.
The following table presents the allocation and disaggregation of revenue for our two performance obligations:
Years ended December 31,
(dollars in thousands) 2025 % Change 2024 % Change 2023
Policy issuance and renewal services
Direct and affiliated assumed premiums written by the Exchange
$ 12,957,469 8.9 % $ 11,903,759 18.4 % $ 10,056,484
Management fee rate 24.37 % 24.40 % 24.30 %
Management fee revenue 3,157,735 8.7 2,904,517 18.9 2,443,726
Change in estimate for management fee returned on cancelled policies (1)
(25,929) NM (10,443) NM (1,653)
Management fee revenue - policy issuance and renewal services $ 3,131,806 8.2 % $ 2,894,074 18.5 % $ 2,442,073
Administrative services
Direct and affiliated assumed premiums written by the Exchange
$ 12,957,469 8.9 % $ 11,903,759 18.4 % $ 10,056,484
Management fee rate 0.63 % 0.60 % 0.70 %
Management fee revenue 81,632 14.3 71,423 1.5 70,395
Change in contract liability (2)
(7,268) NM (2,985) 55.4 (6,690)
Change in estimate for management fee returned on cancelled policies (1)
(306) NM (83) NM (36)
Management fee revenue - administrative services 74,058 8.3 68,355 7.4 63,669
Administrative services reimbursement revenue
836,639 3.8 806,336 9.4 737,139
Total revenue from administrative services
$ 910,697 4.1 % $ 874,691 9.2 % $ 800,808
NM = not meaningful
(1) A constraining estimate of variable consideration exists related to the potential for management fees to be returned if a policy were to be cancelled mid-term. Management fees are returned to the Exchange when policies are cancelled mid-term and unearned premiums are refunded.
(2) Management fee revenue - administrative services is recognized over time as the services are provided. See Item 8. "Financial Statements - Note 3, Revenue, of Notes to Consolidated Financial Statements" contained within this report.
Direct and affiliated assumed premiums written by the Exchange
Direct and affiliated assumed premiums include premiums written directly by the Exchange and premiums assumed from its wholly owned property and casualty subsidiaries. Direct and affiliated assumed premiums written by the Exchange increased 8.9% to $13.0 billion in 2025, from $11.9 billion in 2024, primarily driven by increased personal lines and commercial multi-peril premiums written. The year-over-year average premium per policy for all lines of business increased 9.6% at December 31, 2025 compared to 13.4% at December 31, 2024. Year-over-year policies in force for all lines of business decreased 1.1% in 2025 as a result of a decrease in new business policies written.
Premiums generated from new business decreased 17.8% to $1.5 billion in 2025. Contributing to this change was a 22.8% decrease in new business policies written, partially offset by a 6.5% increase in year-over-year average premium per policy on new business at December 31, 2025.
Premiums generated from renewal business increased 13.4% to $11.5 billion in 2025, resulting from an increase in year-over-year average premium per policy of 10.3% at December 31, 2025, as well as an increase in year-over-year policies in force of 2.4% in 2025.
The Exchange implements rate changes in order to meet loss cost expectations. In 2022 through 2024, the Exchange implemented rate increases primarily in response to inflation-driven severity trends in order to restore rate adequacy. As these cumulative rate actions have been recognized into earned premium, the Exchange implemented more moderate rate increases in 2025, reflecting alignment between pricing and underlying loss costs while continuing to monitor loss trends. As the Exchange writes policies almost exclusively with annual terms, premium rate actions take 12 months to be fully recognized in written premium and 24 months to be recognized in earned premiums. Since rate changes are realized at renewal, it takes 12 months to implement a rate change to all policyholders and another 12 months to earn the increased or decreased premiums in full. As a result, certain rate changes approved in 2024 were reflected in 2025, and a portion of the premium rate actions approved in 2025 will be reflected in 2026. Furthermore, the Exchange writes certain personal auto policies with a rate locking feature, which generally extends the amount of time it takes for premium rate actions to be recognized related to these policies. The Exchange continuously evaluates pricing and product offerings to maintain rate adequacy while meeting consumer demands.
Personal lines- Total personal lines premiums written increased 8.3% to $9.2 billion in 2025, from $8.5 billion in 2024, driven by a 9.4% increase in total personal lines year-over-year average premium per policy, partially offset by a 1.5% decrease in total personal lines policies in force.
Commercial lines- Total commercial lines premiums written increased 10.1% to $3.8 billion in 2025, from $3.4 billion in 2024, driven by a 7.7% increase in the total commercial lines year-over-year average premium per policy and a 2.2% increase in total commercial lines policies in force.
Future trends-premium revenue- Through a careful agency selection and monitoring process, the Exchange plans to continue efforts to utilize its agency force to increase market penetration in existing operating territories to contribute to future growth.
Changes in premium levels attributable to the growth in policies in force directly affect the profitability of the Exchange and have a direct bearing on our management fee revenue. Our continued focus on underwriting discipline and the maturing of pricing sophistication models support risk selection and long-term rate adequacy. In 2025, policy retention declined slightly compared to prior periods, primarily reflecting competitive market conditions. The continued growth of the Exchange's policy base is dependent upon its ability to retain existing and attract new subscribers (policyholders). A lack of new policy growth or the inability to retain existing customers could have an adverse effect on the Exchange's premium level growth, and consequently our management fee revenue.
Changes in premium levels attributable to rate changes also directly affect the profitability of the Exchange and have a direct bearing on our management fee revenue. Pricing actions contemplated or taken by the Exchange are subject to various regulatory requirements of the states in which it operates. Future premiums could be impacted by potential changes in regulation, inflationary trends, and tariff policies, among others. The pricing actions already implemented, or to be implemented, have an effect on the market competitiveness of the Exchange's insurance products. Such pricing actions, and those of the Exchange's competitors, could affect the ability of the Exchange's agents to retain and attract new business. We expect the Exchange's pricing actions in 2025 to result in an increase in direct written premiums in 2026; however, exposure reductions and/or changes in mix of business as a result of economic conditions could impact the average direct and affiliated assumed premium written by the Exchange, as customers may reduce coverages. See also Part I, Item 1A. "Risk Factors".
Policy issuance and renewal services
Years ended December 31,
(dollars in thousands) 2025 % Change 2024 % Change 2023
Management fee revenue - policy issuance and renewal services $ 3,131,806 8.2 % $ 2,894,074 18.5 % $ 2,442,073
Service agreement revenue 24,755 (6.1) 26,350 1.1 26,059
3,156,561 8.1 2,920,424 18.3 2,468,132
Cost of operations - policy issuance and renewal services 2,513,435 8.7 2,312,324 15.0 2,011,545
Operating income - policy issuance and renewal services
$ 643,126 5.8 % $ 608,100 33.2 % $ 456,587
Policy issuance and renewal services
The management fee revenue allocated for providing policy issuance and renewal services was 24.37% and 24.40% of the direct and affiliated assumed premiums written by the Exchange in 2025 and 2024, respectively. This portion of the management fee is recognized as revenue when the policy is issued or renewed because it is at that time that the services we provide are substantially complete and the executed insurance policy is transferred to the customer. The increase in management fee revenue for policy issuance and renewal services was driven by the increase in the direct and affiliated assumed premiums written by the Exchange discussed previously.
Service agreement revenue
Service agreement revenue primarily consists of service charges we collect from subscribers (policyholders) for providing multiple payment plans on policies written by the Exchange and its property and casualty subsidiaries and also includes late payment and policy reinstatement fees. The service charges are fixed dollar amounts per billed installment. Service agreement revenue also includes fees received from the Exchange for the use of shared office space.
Cost of policy issuance and renewal services
Years ended December 31,
(dollars in thousands) 2025 % Change 2024 % Change 2023
Commissions:
Total commissions $ 1,777,043 11.0 % $ 1,601,401 18.8 % $ 1,348,530
Non-commission expense:
Underwriting and policy processing $ 204,245 2.4 % $ 199,485 10.2 % $ 181,003
Information technology 239,789 11.3 215,488 (0.6) 216,746
Sales and advertising 66,475 0.0 66,480 12.9 58,905
Customer service 46,538 8.1 43,045 25.2 34,391
Administrative and other 179,345 (3.8) 186,425 8.4 171,970
Total non-commission expense 736,392 3.6 710,923 7.2 663,015
Total cost of operations - policy issuance and renewal services
$ 2,513,435 8.7 % $ 2,312,324 15.0 % $ 2,011,545
Commissions- Commissions increased $175.6 million in 2025 compared to 2024, primarily driven by the growth in direct and affiliated assumed written premium and an increase in agent incentive compensation due to improved property and casualty underwriting profitability for the three-year period ended 2025 compared to the three-year period ended 2024.
Non-commission expense- Non-commission expense increased $25.5 million in 2025 compared to 2024. Underwriting and policy processing expense increased $4.8 million primarily due to increased postage and personnel costs, partially offset by a decrease in underwriting report costs. Information technology costs increased $24.3 million primarily due to an increase in personnel costs and hardware and software costs. Customer service costs increased $3.5 million primarily due to increased credit card processing fees and personnel costs. Administrative and other costs decreased $7.1 million primarily due to decreased professional fees and personnel costs.
Personnel costs in all expense categories in 2025 were impacted by increased healthcare costs compared to 2024. Personnel costs in 2025 were also impacted by decreased incentive compensation compared to 2024. Decreases in incentive plan costs were primarily driven by lower performance metrics compared to 2024 and a decrease in company stock price during 2025 compared to an increase during 2024.
Administrative services
Years ended December 31,
(dollars in thousands) 2025 % Change 2024 % Change 2023
Management fee revenue - administrative services $ 74,058 8.3 % $ 68,355 7.4 % $ 63,669
Administrative services reimbursement revenue
836,639 3.8 806,336 9.4 737,139
Total revenue allocated to administrative services
910,697 4.1 874,691 9.2 800,808
Administrative services expenses
Claims handling services
735,330 6.5 690,662 8.8 635,043
Investment management services
32,908 (5.7) 34,889 (0.2) 34,958
Life management services
68,401 (15.3) 80,785 20.3 67,138
Operating income - administrative services
$ 74,058 8.3 % $ 68,355 7.4 % $ 63,669
Administrative services
The management fee revenue allocated to administrative services was 0.63% and 0.60% of the direct and affiliated assumed premiums written by the Exchange in 2025 and 2024, respectively. This portion of the management fee is recognized as revenue over a four-year period representing the time over which the services are provided. We also report reimbursed costs as revenues, which are recognized monthly as services are provided. The administrative services expenses we incur and the related reimbursements we receive are recorded gross in the Consolidated Statements of Operations.
Cost of administrative services
Consistent with its legal structure as a reciprocal insurer, the Exchange does not have any employees or officers. Therefore, it enters into contractual relationships by and through the subscribers' attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the subscribers at the Exchange with respect to its administrative services as enumerated in the subscriber's agreement. The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. The subscriber's agreement and service agreements provide for reimbursement of amounts incurred for these services to Indemnity. Reimbursements due from the Exchange and its insurance subsidiaries are recorded as a receivable and settled at cost.
Total investment income
A summary of the results of our investment operations is as follows for the years ended December 31:
(dollars in thousands) 2025 % Change 2024 % Change 2023
Net investment income $ 85,837 22.4 % $ 70,155 57.4 % $ 44,572
Net realized and unrealized investment gains (losses) 2,336 (27.6) 3,229 NM (5,838)
Net impairment losses recognized in earnings (3,312) 19.7 (4,124) 57.8 (9,766)
Total investment income $ 84,861 22.5 % $ 69,260 NM % $ 28,968
NM = not meaningful
Net investment income
Net investment income includes interest and dividends on our fixed maturity and equity security portfolios and the results of our limited partnership investments, net of investment expenses. Net investment income increased $15.7 million in 2025, compared to 2024, primarily due to an increase in bond and cash and cash equivalent income as a result of higher average holdings and bond yields.
Net realized and unrealized investment gains (losses)
A breakdown of our net realized and unrealized investment gains (losses) is as follows for the years ended December 31:
(in thousands) 2025 2024 2023
Securities sold:
Available-for-sale securities $ 53 $ (1,620) $ (6,719)
Equity securities 341 1,213 (2,328)
Change in fair value on remaining equity securities 1,937 3,635 3,199
Miscellaneous 5 1 10
Net realized and unrealized investment gains (losses) $ 2,336 $ 3,229 $ (5,838)
Net impairment losses recognized in earnings
Net impairment losses of $3.3 million in 2025 primarily included both credit-related and intent to sell impairments on available-for-sale securities and current expected credit losses on other loans receivable. Impairment losses of $4.1 million in 2024 primarily included current expected credit losses on held-to-maturity securities and other loans receivable . See "Other assets" in Item 8. "Financial Statements and Supplementary Data - Note 2, Significant Accounting Policies, of Notes to Consolidated Financial Statements" for additional information on other loans receivable and held-to-maturity securities.
Financial Condition of Erie Insurance Exchange
Serving in the capacity of attorney-in-fact for the subscribers at the Exchange, we are dependent on the growth and financial condition of the Exchange, who is our sole customer. The strength of the Exchange and its wholly owned subsidiaries is rated annually by AM Best through assessing its financial stability and ability to pay claims. The ratings are generally based upon factors relevant to policyholders and are not directed toward return to investors. On September 5, 2025, the Exchange and each of its property and casualty insurance subsidiaries were downgraded from A+ "Superior" to A "Excellent" and its financial strength rating was revised from negative to stable. The A "Excellent" rating is the third highest financial strength rating assigned to companies that have achieved excellent overall performance when compared to the standards established by AM Best and have an excellent ability to meet obligations to policyholders over the long term. While the Exchange's policyholder surplus continues to be classified in AM Best's strongest category, the downgrade was primarily driven by the Exchange's large underwriting losses in recent years, driven by elevated weather-related events and increased severity in the auto and homeowners' segments. The stable financial strength rating reflects the expectation that the Exchange's profitability initiatives will accelerate and stabilize operating results over the near term. Furthermore, the stable outlook reflects the strongest level of balance sheet strength as assessed by AM Best.
The financial statements of the Exchange are prepared in accordance with statutory accounting principles prescribed by the Commonwealth of Pennsylvania. Financial statements prepared under statutory accounting principles focus on the solvency of the insurer and generally provide a more conservative approach than under U.S. generally accepted accounting principles. Statutory direct written premiums of the Exchange and its wholly owned property and casualty insurance subsidiaries grew 8.9% to $13.0 billion in 2025 from $11.9 billion in 2024. These premiums, along with investment income, are the major sources of cash that support the operations of the Exchange. Policyholders' surplus, determined under statutory accounting principles, was $10.1 billion and $9.3 billion at December 31, 2025 and 2024, respectively. The Exchange and its wholly owned property and casualty insurance subsidiaries' year-over-year policy retention ratio continues to be high at 88.4% at December 31, 2025 and 90.4% at December 31, 2024.
We have prepared our consolidated financial statements considering the financial strength of the Exchange based on its AM Best rating and strong level of surplus. See Part I, Item 1A. "Risk Factors" for possible outcomes that could impact that determination.
FINANCIAL CONDITION
Investments
Our investment portfolio is managed with the objective of maximizing after-tax returns on a risk-adjusted basis. The following table presents the carrying value of our investments as of December 31:
(dollars in thousands) 2025 % to total 2024 % to total
Available-for-sale securities (1)
$ 1,364,828 85 % $ 1,043,615 83 %
Equity securities (2)
90,763 6 85,891 7
Agent loans (3)
109,331 7 92,731 7
Other investments (4)
37,342 2 29,610 3
Total investments
$ 1,602,264 100 % $ 1,251,847 100 %
(1)This includes $44.4 million and $7.3 million of securities lent under a securities lending agreement as of December 31, 2025 and 2024, respectively.
(2)This includes $20.1 million of securities lent under a securities lending agreement as of December 31, 2025.
(3)The current portion of agent loans is included in the line item "Prepaid expenses and other current assets, net" in the Consolidated Statements of Financial Position.
(4)The current and long-term portions of other investments are included in the line items "Prepaid expenses and other current assets, net" and "Other assets, net", respectively, in the Consolidated Statements of Financial Position.
We continually review our investment portfolio for impairment and determine whether the impairment is a result of credit loss or other factors. We analyze all positions with an emphasis on those in a significant unrealized loss position. If we have the intent to sell or it's more likely than not that we would be required to sell the security before recovery of the amortized cost basis, the entire impairment is recognized in earnings. Factors considered in the evaluation of credit loss include the extent to which fair value is less than cost and fundamental factors specific to the issuer such as financial condition, changes in credit ratings, near and long-term business prospects and other factors, as well as the likelihood of recovery of the amortized cost of the security. Impairment resulting from credit loss is recognized in earnings with a corresponding allowance on the Consolidated Statements of Financial Position. We believe our investment valuation philosophy and accounting practices result in appropriate and timely measurement of fair value and recognition of impairment.
Available-for-sale securities
Under our investment strategy, we maintain an available-for-sale portfolio that is of high quality and well diversified within each market sector. This investment strategy also achieves a balanced maturity schedule. Our available-for-sale portfolio is managed with the goal of achieving reasonable returns while limiting exposure to risk.
Available-for-sale securities are carried at fair value with unrealized gains and losses, net of deferred taxes, included in shareholders' equity. Net unrealized gains on available-for-sale securities, net of deferred taxes, totaled $1.3 million at December 31, 2025, compared to unrealized losses of $17.6 million at December 31, 2024. Our evaluation of deferred tax assets and the need for a valuation allowance included available tax planning strategies that could be implemented, if necessary, to support the realizability of deferred tax assets. We believe those tax strategies are feasible and prudent.
The following table presents a breakdown of the fair value of our available-for-sale portfolio by industry sector and rating as of December 31, 2025: (1)
(in thousands) AAA AA A BBB Non-investment
grade 		Fair
value
Basic materials $ 0 $ 0 $ 1,531 $ 4,899 $ 7,230 $ 13,660
Communications 0 3,055 15,684 7,782 19,627 46,148
Consumer 0 8,971 50,525 76,566 51,938 188,000
Diversified 0 0 0 1,047 1,616 2,663
Energy 0 908 5,666 42,493 20,293 69,360
Financial 0 0 134,221 173,493 20,769 328,483
Industrial 0 1,020 15,277 29,104 38,082 83,483
Structured securities (2)
203,375 247,121 21,547 13,827 1,228 487,098
Technology 1,985 0 0 15,419 15,679 33,083
U.S. Treasury 0 24,163 0 0 0 24,163
Utilities 0 0 12,903 56,778 19,006 88,687
Total
$ 205,360 $ 285,238 $ 257,354 $ 421,408 $ 195,468 $ 1,364,828
(1) Ratings are supplied by S&P, Moody's, and Fitch . The table is based upon the lowest rating for each security.
(2) Structured securities include residential and commercial mortgage-backed securities, collateralized debt obligations, and asset-backed securities.
Equity securities
Equity securities primarily include nonredeemable preferred stocks and are carried at fair value in the Consolidated Statements of Financial Position with all changes in unrealized gains and losses reflected in the Consolidated Statements of Operations.
The following table presents an analysis of the fair value of our equity securities by sector as of December 31:
(in thousands) 2025 2024
Financial services $ 74,614 $ 69,930
Utilities 3,696 5,629
Energy 2,713 4,117
Consumer 5,563 3,341
Technology 3,224 1,974
Communications 953 900
Total
$ 90,763 $ 85,891
Shareholders' Equity
Postretirement benefit plans
The funded status of our postretirement benefit plans is recognized in the Consolidated Statements of Financial Position, with a corresponding adjustment to accumulated other comprehensive income (loss), net of tax. At December 31, 2025, shareholders' equity amounts related to these postretirement plans decreased by $23.3 million, net of tax, of which $1.1 million primarily represents amortization of net actuarial gain and $22.2 million primarily represents the current period actuarial loss. The 2025 actuarial loss was driven primarily by the lower discount rate used to measure the future benefit obligations, partially offset by higher than expected return on plan assets. Although we are the sponsor of these postretirement plans and record the funded status of these plans, there are reimbursements between us and the Exchange and its insurance subsidiaries for their allocated share of pension income or cost. See Item 8. "Financial Statements and Supplementary Data - Note 10, Postretirement Benefits, of Notes to Consolidated Financial Statements" contained within this report for additional details on these reimbursements.
LIQUIDITY AND CAPITAL RESOURCES
We continue to monitor the sufficiency of our liquidity and capital resources given the potential impact of current economic conditions, including the uncertain tariff, inflationary, and interest rate environment. While we did not see a significant impact on our sources or uses of cash in 2025, future market disruptions could occur which may affect our liquidity position. If our normal operating and investing cash activities were to become insufficient to meet future funding requirements, we believe we have sufficient access to liquidity through our cash position, diverse liquid marketable securities, and our $100 million bank revolving line of credit that does not expire until November 2029. See broader discussions of potential risks to our operations in Operating Overview and Part I, Item 1A. "Risk Factors" contained within this report.
Sources and Uses of Cash
Liquidity is a measure of a company's ability to generate sufficient cash flows to meet the short- and long-term cash requirements of its business operations and growth needs. Our liquidity requirements have been met primarily by funds generated from management fee revenue and income from investments. Cash provided from these sources is used primarily to fund the costs of our management operations including commissions, salaries and wages, pension plans, share repurchases, dividends to shareholders, the purchase and development of information technology, and other capital expenditures. We expect that our operating cash needs will be met by funds generated from operations. Cash in excess of our operating needs is primarily invested in investment grade fixed maturities. As part of our liquidity review, we regularly evaluate our capital needs based on current and projected results and consider the potential impacts to our liquidity, borrowing capacity, financial covenants and capital availability.
We have certain obligations and commitments to make future payments under various agreements. Cash requirements within the next twelve months include accounts payable, accrued liabilities, and other current obligations.
Our long-term cash requirements under various contractual obligations and commitments include:
•Pension- We have a funded noncontributory defined benefit pension plan covering substantially all employees and an unfunded SERP for certain members of executive and senior management. See Item 8. "Financial Statements and Supplementary Data - Note 10, Postretirement Benefits, of Notes to Consolidated Financial Statements" for the funding policy and related contributions for our defined benefit pension plan, and accumulated benefit obligation for our unfunded SERP.
•Deferred compensation- We have two deferred compensation plans for our executives, senior vice presidents and other selected officers, and two deferred compensation plans for our outside directors. See Item 8. "Financial Statements and Supplementary Data - Note 11, Incentive and Deferred Compensation Plans, of Notes to Consolidated Financial Statements" for additional details of these obligations and estimated future payments.
•Home office renovations- We have agreements with external contracting firms for renovations to office buildings that are part of our principal headquarters. Remaining commitments related to the underlying contracts total $77.5 million at December 31, 2025, of which the majority is due in the next 12 months. Additional contracts will be executed as we begin each new phase of the overall renovation projects and will be funded using our working capital. See Item 8. "Financial Statements and Supplementary Data - Note 8, Fixed Assets, of Notes to Consolidated Financial Statements" for additional details on construction in progress costs and expected completion date.
•Other commitments- We have commitments for approximately $473 million which include agreements for various services, including information technology, support and maintenance obligations, operating leases for equipment, vehicles, and real estate, and other obligations in the ordinary course of business. We expect to make future cash payments according to the contract terms. These agreements are enforceable and legally binding and specify fixed amounts or minimum quantities to be purchased. Some agreements may contain cancellation provisions, some of which may require us to pay a termination fee. Approximately two-thirds of these commitments are due in the next 12 months. We are reimbursed from the Exchange and its insurance subsidiaries for the portion of these costs related to administrative services.
We maintain relationships and cash balances at diversified and well-capitalized financial institutions and have established processes to monitor them. We believe that our current cash, cash equivalents and marketable securities and cash generated from operations will be sufficient to meet our current and future cash requirements.
Volatility in the financial markets presents challenges to us as we occasionally access our investment portfolio as a source of cash. Some of our fixed income investments, despite being publicly traded, may be illiquid. Additionally, if we require significant amounts of cash on short notice in excess of anticipated cash requirements, or if we are required to return cash
collateral in connection with our securities lending program, we may have difficulty selling investments in a timely manner, or be forced to sell at deep discounts. We believe we have sufficient liquidity to meet our needs from sources other than the liquidation of securities.
Cash flow activities
The following table provides condensed cash flow information for the years ended December 31:
(in thousands) 2025 2024 2023
Net cash provided by operating activities $ 686,657 $ 611,249 $ 381,205
Net cash used in investing activities (439,328) (226,912) (157,565)
Net cash used in financing activities (199,852) (229,995) (221,675)
Net increase in cash, cash equivalents and restricted cash
$ 47,477 $ 154,342 $ 1,965
Net cash provided by operating activities was $686.7 million in 2025, compared to $611.2 million in 2024. Increased cash provided by operating activities in 2025, compared to 2024, was primarily due to an increase in management fees received of $311.1 million driven by growth in direct and affiliated assumed premiums written by the Exchange and a decrease in income taxes paid of $55.9 million driven by lower taxable income compared to 2024, resulting from changes in tax legislation and increased charitable contributions. This was partially offset by increases in cash paid for agent commissions of $165.3 million driven by premium growth, and the charitable contribution to the Erie Insurance Foundation of $100 million.
Net cash used in investing activities was $439.3 million in 2025, compared to $226.9 million in 2024. Increased cash used in investing activities was primarily due to an increase in purchases, net of sales and maturities/calls, of available-for-sale securities of $226.7 million.
Net cash used in financing activities was $199.9 million in 2025, compared to $230.0 million in 2024. Decreased cash used in financing activities was primarily due to increased cash collateral received related to increased lending of securities under our securities lending program. This was partially offset by increased dividends paid to shareholders. We increased both our Class A and Class B shareholder regular quarterly dividends by 7.1% for 2025, compared to 2024.
Capital Outlook
We regularly prepare forecasts evaluating the current and future cash requirements for both normal and extreme risk events. Should an extreme risk event result in a cash requirement exceeding normal cash flows, we have the ability to meet our future funding requirements through various alternatives available to us.
Outside of our normal operating and investing cash activities, future funding requirements could be met through: 1) unrestricted and unpledged cash and cash equivalents, which totaled approximately $315.0 million at December 31, 2025, 2) $100 million available bank revolving line of credit, and 3) liquidation of unrestricted and unpledged assets held in our investment portfolio, including equity securities and investment grade bonds, which totaled approximately $1.1 billion at December 31, 2025. Volatility in the financial markets could impair our ability to sell certain fixed income securities or cause such securities to sell at deep discounts. Additionally, we have the ability to curtail or modify discretionary cash outlays such as those related to shareholder dividends and share repurchase activities. See Item 8. "Financial Statements and Supplementary Data - Note 9, Bank Line of Credit, of Notes to Consolidated Financial Statements" for additional information related to our bank revolving line of credit.
Off-Balance Sheet Arrangements
We have entered into certain contingent obligations for guarantees. See Item 8. "Financial Statements and Supplementary Data - Note 17, Commitments and Contingencies, of Notes to Consolidated Financial Statements" for additional information. We do not believe that these obligations will have a material current or future effect on our consolidated financial condition, results of operations, or cash flows.
Enterprise Risk Management
The role of our Enterprise Risk Management ("ERM") function is to ensure that all significant risks are clearly identified, understood, proactively managed and consistently monitored to achieve strategic objectives for all stakeholders. Our ERM program views risk holistically across all our companies and facilitates implementation of risk responses to mitigate potential impacts. See Part I, Item 1A. "Risk Factors" contained in this report for a list of risk factors.
Our ERM program is founded on a governance framework that includes oversight at multiple levels of our organization, including our Board of Directors and executive management. Accountability to identify, manage, and mitigate risk is
embedded within all functions and areas of our business. We establish risk tolerance ranges to monitor and manage significant risks. In addition to identifying, evaluating, prioritizing, monitoring, and mitigating significant risks, our ERM process includes extreme event analyses and scenario testing. Given our defined tolerance for risk, risk model output is used to quantify the potential variability of future performance and the sufficiency of capital and liquidity levels.
TRANSACTIONS/AGREEMENTS WITH RELATED PARTIES
Board Oversight
Our Board of Directors has a broad oversight responsibility over our intercompany relationships with the Exchange. Thus, our Board of Directors may be required to make decisions or take actions that may benefit subscribers at the Exchange and the overall health of the Exchange. These actions may ultimately benefit our shareholders.
Insurance Holding Company System
Most states have enacted legislation that regulates insurance holding company systems, defined as two or more affiliated persons, one or more of which is an insurer. The Exchange has the following wholly owned property and casualty insurance subsidiaries: Erie Insurance Company, Erie Insurance Company of New York, Erie Insurance Property & Casualty Company, and Flagship City Insurance Company, and a wholly owned life insurance company, Erie Family Life Insurance Company. Indemnity and the Exchange, and its wholly owned subsidiaries, meet the definition of an insurance holding company system.
Transactions within a holding company system affecting the member insurers of the holding company system must be fair and reasonable and any charges or fees for services performed must be reasonable. Approval by the applicable insurance commissioner is required prior to the consummation of certain transactions affecting the members within a holding company system.
Intercompany Agreements
Subscriber's and services agreements
We serve as attorney-in-fact for the subscribers at the Exchange, a reciprocal insurance exchange. Each applicant for insurance to a reciprocal insurance exchange (a subscriber) signs a subscriber's agreement that contains an appointment of an attorney-in-fact. Through the designation of attorney-in-fact, we are required to provide policy issuance and renewal services and act as the attorney-in-fact for the subscribers at the Exchange with respect to all administrative services, as discussed previously. In accordance with the subscriber's agreement, we retain a management fee for these services calculated as a percentage of the direct and affiliated assumed premiums written by the Exchange. Consistent with its legal structure as a reciprocal insurer, the Exchange does not have any employees or officers. Therefore, it enters into contractual relationships by and through the subscribers' attorney-in-fact. The Exchange's insurance subsidiaries also utilize Indemnity for all administrative services in accordance with the service agreements between each of the subsidiaries and Indemnity. The subscriber's agreement and service agreements provide for reimbursement of amounts incurred for these services to Indemnity. Reimbursements are settled at cost on a monthly basis. State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department.
Shared facilities
The Exchange and its insurance subsidiaries have a service agreement with Indemnity to use space in Indemnity-owned properties. See Item 8. "Financial Statements and Supplementary Data - Note 15, Related Party, of Notes to Consolidated Financial Statements" for additional details.
Cost Allocation
The allocation of costs affects our consolidated financial condition and that of the Exchange and its wholly owned insurance subsidiaries. Management's role is to determine that allocations are consistently made in accordance with the subscriber's agreement with the subscribers at the Exchange, intercompany service agreements, and applicable insurance laws and regulations. Allocation of costs under these various agreements requires judgment and interpretation by Indemnity, and such allocations are performed using a consistent methodology, which is intended to adhere to the terms and intentions of the underlying agreements.
Intercompany Receivables
We have significant receivables from the Exchange and its affiliates that result in a concentration of credit risk. These receivables include management fees due for policy issuance and renewal services performed by us under the subscriber's agreement, and certain costs we incur acting as the attorney-in-fact on behalf of the subscribers at the Exchange as well as the service provider for the Exchange's insurance subsidiaries with respect to all administrative services, as discussed previously.
See Item 8. "Financial Statements and Supplementary Data - Note 16, Concentrations of Credit Risk, of Notes to Consolidated Financial Statements" for additional details.
Other Loans Receivable
In 2023, we issued two senior secured loans totaling $13.6 million to fund a real estate development project supporting revitalization efforts in our community. Ownership in the project includes related party and unrelated investors. See Item 8. "Financial Statements and Supplementary Data - Note 15, Related Party, of Notes to Consolidated Financial Statements" for additional details.
Erie Insurance Foundation
In 2025, we made a $100 million charitable contribution to the Erie Insurance Foundation (the "Foundation"). Certain of Indemnity's directors and employees serve as directors and officers of the Foundation. See Item 8. "Financial Statements and Supplementary Data - Note 15, Related Party, of Notes to Consolidated Financial Statements" for additional details.
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