[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section details Erie Indemnity Company's unaudited financial statements, including operations, position, cash flows, and comprehensive notes on accounting policies and investments [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited financial statements for Erie Indemnity Company, including statements of operations, comprehensive income, financial position, shareholders' equity, and cash flows, along with detailed notes explaining the company's operations, accounting policies, revenue recognition, investments, and other financial disclosures for the three months ended March 31, 2024 and 2023 [Statements of Operations (Unaudited)](index=4&type=section&id=Statements%20of%20Operations%20(Unaudited)) For the three months ended March 31, 2024, Erie Indemnity Company reported a significant increase in net income, reaching $124.55 million, up 44.4% from $86.24 million in the prior year, primarily driven by a 17.0% increase in total operating revenue and a positive shift in total investment income from a loss to a gain | Metric | 3 Months Ended March 31, 2024 (in thousands) | 3 Months Ended March 31, 2023 (in thousands) | YoY Change (%) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------- | | Total operating revenue | $880,701 | $752,465 | 17.0% | | Total operating expenses | $741,889 | $641,922 | 15.6% | | Operating income | $138,812 | $110,543 | 25.6% | | Total investment income (loss) | $15,079 | $(4,732) | NM | | Income before income taxes | $157,302 | $109,148 | 44.1% | | Net income | $124,552 | $86,241 | 44.4% | | Class A common stock – basic EPS | $2.67 | $1.85 | 44.3% | | Class A common stock – diluted EPS | $2.38 | $1.65 | 44.2% | | Class B common stock – basic and diluted EPS | $401 | $278 | 44.2% | | Dividends declared per share (Class A) | $1.275 | $1.19 | 7.1% | | Dividends declared per share (Class B) | $191.25 | $178.50 | 7.1% | [Statements of Comprehensive Income (Unaudited)](index=5&type=section&id=Statements%20of%20Comprehensive%20Income%20(Unaudited)) For the three months ended March 31, 2024, comprehensive income increased to $122.72 million from $93.99 million in the prior year, primarily driven by a substantial increase in net income, partially offset by a shift from other comprehensive income to a loss due to changes in unrealized holding gains/losses on available-for-sale securities | Metric | 3 Months Ended March 31, 2024 (in thousands) | 3 Months Ended March 31, 2023 (in thousands) | YoY Change (approx.) | | :------------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------- | | Net income | $124,552 | $86,241 | 44.4% | | Other comprehensive (loss) income, net of tax | $(1,830) | $7,752 | NM | | Change in unrealized holding (losses) gains on AFS securities | $(754) | $10,494 | NM | | Amortization of prior service costs and net actuarial gain on pension and other postretirement plans | $(1,076) | $(2,742) | 60.8% | | Comprehensive income | $122,722 | $93,993 | 30.6% | [Statements of Financial Position](index=6&type=section&id=Statements%20of%20Financial%20Position) As of March 31, 2024, Erie Indemnity Company reported a **3.4% increase in total assets to $2.56 billion** from $2.47 billion at December 31, 2023, mainly driven by increases in fixed assets and the defined benefit pension plan asset, while total liabilities increased by 2.5% and total shareholders' equity rose by 3.8% to $1.73 billion | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | QoQ Change (%) | | :--------------------------------------- | :------------------------------ | :------------------------------- | :------------- | | **Assets:** | | | | | Cash and cash equivalents | $144,872 | $144,055 | 0.6% | | Receivables from Erie Insurance Exchange and affiliates, net | $641,691 | $625,338 | 2.6% | | Total current assets | $941,771 | $930,189 | 1.2% | | Available-for-sale securities, net | $892,952 | $879,224 | 1.6% | | Fixed assets, net | $461,914 | $442,610 | 4.3% | | Defined benefit pension plan | $66,270 | $34,320 | 93.1% | | Total assets | $2,555,794 | $2,471,964 | 3.4% | | **Liabilities:** | | | | | Commissions payable | $384,613 | $353,709 | 8.7% | | Agent incentive compensation | $26,968 | $68,077 | (60.4)% | | Accounts payable and accrued liabilities | $213,062 | $175,622 | 21.3% | | Total current liabilities | $727,516 | $708,977 | 2.6% | | Total liabilities | $829,614 | $809,129 | 2.5% | | **Shareholders' Equity:** | | | | | Retained earnings | $2,868,864 | $2,803,689 | 2.3% | | Total shareholders' equity | $1,726,180 | $1,662,835 | 3.8% | [Statements of Shareholders' Equity (Unaudited)](index=7&type=section&id=Statements%20of%20Shareholders'%20Equity%20(Unaudited)) Total shareholders' equity increased to **$1.73 billion** as of March 31, 2024, from $1.66 billion at December 31, 2023, primarily driven by net income of **$124.55 million**, partially offset by an other comprehensive loss of **$1.83 million** and dividends declared totaling **$59.38 million** | Metric | Balance, December 31, 2023 (in thousands) | Net Income (in thousands) | Other Comprehensive Loss (in thousands) | Dividends Declared (in thousands) | Balance, March 31, 2024 (in thousands) | | :--------------------------------------- | :---------------------------------------- | :------------------------ | :-------------------------------------- | :-------------------------------- | :--------------------------------------- | | Total shareholders' equity | $1,662,835 | $124,552 | $(1,830) | $(59,377) | $1,726,180 | [Statements of Cash Flows (Unaudited)](index=8&type=section&id=Statements%20of%20Cash%20Flows%20(Unaudited)) Net cash provided by operating activities significantly increased to **$87.19 million** for the three months ended March 31, 2024, up from $48.03 million in the prior year, driven by higher management fees received and reduced agent incentive compensation paid, while net cash used in investing activities increased to **$27.00 million** and net cash used in financing activities remained stable at **$59.38 million** due to dividends paid | Metric | 3 Months Ended March 31, 2024 (in thousands) | 3 Months Ended March 31, 2023 (in thousands) | YoY Change (in thousands) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------ | | Net cash provided by operating activities | $87,193 | $48,031 | $39,162 | | Net cash used in investing activities | $(26,999) | $(12,326) | $(14,673) | | Net cash used in financing activities | $(59,377) | $(55,419) | $(3,958) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $817 | $(19,714) | $20,531 | | Cash, cash equivalents, and restricted cash end of period | $144,872 | $122,376 | $22,496 | [Notes to Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Financial%20Statements%20(Unaudited)) This section provides detailed disclosures and explanations for the financial statements, covering the company's nature of operations, significant accounting policies, revenue recognition, earnings per share, fair value measurements, investment details, credit risk, commitments, contingencies, and subsequent events [Note 1. Nature of Operations](index=9&type=section&id=Note%201.%20Nature%20of%20Operations) Erie Indemnity Company serves as the attorney-in-fact for the Erie Insurance Exchange, a reciprocal insurer, performing policy issuance and renewal services, as well as administrative services like claims handling and investment management, with its financial performance directly dependent on the growth and financial health of the Exchange as management fees are calculated as a percentage of premiums written by the Exchange - Erie Indemnity Company's primary function is to act as attorney-in-fact for the Erie Insurance Exchange, providing policy issuance, renewal, and administrative services[25](index=25&type=chunk) - The company's results of operations are directly tied to the growth and financial condition of the Exchange, with management fees based on premiums written by the Exchange[28](index=28&type=chunk) [Note 2. Significant Accounting Policies](index=10&type=section&id=Note%202.%20Significant%20Accounting%20Policies) The financial statements are prepared under GAAP for interim periods, involving significant management estimates, and the company is currently evaluating the disclosure impact of new FASB ASUs (2023-07 on Segment Reporting, 2023-09 on Income Taxes) and SEC climate-related disclosure rules (SEC Release No. 33-11275), with no expected impact on the financial statements themselves - The company is evaluating the impact of **ASU 2023-07 (Segment Reporting)** and **ASU 2023-09 (Income Taxes)** on its disclosures, with no impact on financial statements[32](index=32&type=chunk)[33](index=33&type=chunk) - The company is evaluating the impact of **SEC Release No. 33-11275 (Climate-Related Disclosures)** on its disclosures, with disclosure requirements phasing in for fiscal years beginning in 2025[34](index=34&type=chunk) [Note 3. Revenue](index=11&type=section&id=Note%203.%20Revenue) The majority of revenue comes from management fees, which are a percentage of direct and affiliated assumed written premiums of the Exchange, allocated between policy issuance/renewal and administrative services, with administrative services reimbursement revenue recognized at cost and revenue from administrative services recognized over a four-year period | (in thousands) | 2024 | 2023 | | :------------------------------------------ | :----- | :----- | | Management fee revenue - policy issuance and renewal services | $665,686 | $558,090 | | Management fee revenue - administrative services | $16,934 | $15,189 | | Administrative services reimbursement revenue | $191,567 | $172,827 | | Total revenue from administrative services | $208,501 | $188,016 | - Revenue allocated to administrative services is recognized over a four-year period, with **$15.0 million** recognized in Q1 2024 from the prior year's contract liability[39](index=39&type=chunk) [Note 4. Earnings Per Share](index=12&type=section&id=Note%204.%20Earnings%20Per%20Share) Basic earnings per share for Class A and Class B common stock is calculated using the two-class method, while Class A diluted earnings per share is determined by the if-converted method, accounting for the conversion of Class B shares and the dilutive effect of stock-based awards | Metric | 3 Months Ended March 31, 2024 | 3 Months Ended March 31, 2023 | | :--------------------------------------- | :---------------------------- | :---------------------------- | | Class A – Basic EPS | $2.67 | $1.85 | | Class A – Diluted EPS | $2.38 | $1.65 | | Class B – Basic and diluted EPS | $401 | $278 | | Weighted average shares outstanding – Basic (Class A) | 46,189,014 | 46,188,819 | | Weighted average shares outstanding – Diluted (Class A) | 52,301,803 | 52,296,621 | [Note 5. Fair Value](index=13&type=section&id=Note%205.%20Fair%20Value) The company values available-for-sale and equity securities at fair value, categorized into Level 1, 2, or 3 based on input observability, with valuations primarily obtained from a nationally recognized pricing service, supplemented by internal reviews, and total Level 3 securities increased from **$24.37 million** at December 31, 2023, to **$26.45 million** at March 31, 2024 Fair Value Measurements by Level (March 31, 2024) | (in thousands) | Total | Level 1 | Level 2 | Level 3 | | :--------------------------------------- | :------ | :------ | :------ | :------ | | Total available-for-sale securities | $969,645 | $0 | $951,160 | $18,485 | | Total equity securities | $86,578 | $524 | $78,086 | $7,968 | | Total | $1,056,223 | $524 | $1,029,246 | $26,453 | Level 3 Assets – Year-to-Date Change (2024) | (in thousands) | Beginning balance at Dec 31, 2023 | Ending balance at Mar 31, 2024 | | :--------------------------------------- | :-------------------------------- | :----------------------------- | | Total available-for-sale securities | $17,034 | $18,485 | | Equity securities | $7,334 | $7,968 | | Total Level 3 securities | $24,368 | $26,453 | [Note 6. Investments](index=16&type=section&id=Note%206.%20Investments) The company's fixed maturity securities portfolio, comprising available-for-sale and held-to-maturity securities, had an estimated fair value of **$974.48 million** at March 31, 2024, with gross unrealized losses totaling **$37.87 million**, primarily driven by interest rate fluctuations, and are not considered credit-related, with no intent to sell these securities before anticipated recovery of amortized cost Total Fixed Maturity Securities (March 31, 2024) | (in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Estimated fair value | | :--------------------------------------- | :------------- | :--------------------- | :---------------------- | :------------------- | | Total available-for-sale securities, net | $1,001,906 | $5,613 | $37,874 | $969,645 | | Held-to-maturity securities | $4,833 | $0 | $0 | $4,833 | | Total fixed maturity securities, net | $1,006,739 | $5,613 | $37,874 | $974,478 | Available-for-Sale Securities by Unrealized Loss Position (March 31, 2024) | (dollars in thousands) | Fair value (Less than 12 months) | Unrealized losses (Less than 12 months) | Fair value (12 months or longer) | Unrealized losses (12 months or longer) | Total Fair value | Total Unrealized losses | | :--------------------------------------- | :------------------------------- | :-------------------------------------- | :------------------------------- | :-------------------------------------- | :--------------- | :---------------------- | | Total available-for-sale securities | $147,521 | $1,763 | $507,072 | $36,111 | $654,593 | $37,874 | [Note 6. Investments - Credit loss allowances & Net investment income](index=19&type=section&id=Note%206.%20Investments%20-%20Credit%20loss%20allowances%20%26%20Net%20investment%20income) Credit loss allowances for available-for-sale securities decreased slightly to **$575 thousand**, while held-to-maturity securities saw a new allowance of **$2.17 million** in Q1 2024, and net investment income significantly increased to **$15.90 million**, up from $2.18 million in Q1 2023, primarily driven by a positive swing in limited partnership earnings and higher bond income Credit Loss Allowances Roll-Forward (March 31, 2024) | (in thousands) | Available-for-sale securities | Held-to-maturity securities | Other loans receivable | Agent loans | | :--------------------------------------- | :---------------------------- | :-------------------------- | :--------------------- | :---------- | | Balance, beginning of period | $597 | $0 | $11,081 | $957 | | Provision and recoveries | $164 | $2,167 | $172 | $0 | | Sales/collections and write-offs | $(186) | $0 | $0 | $0 | | Balance, end of period | $575 | $2,167 | $11,253 | $957 | Net Investment Income (3 Months Ended March 31) | (in thousands) | 2024 | 2023 | | :--------------------------------------- | :----- | :----- | | Available-for-sale securities | $11,613 | $9,833 | | Equity securities | $1,218 | $1,015 | | Limited partnerships | $525 | $(10,752) | | Cash equivalents and other | $2,948 | $2,105 | | Total investment income | $16,304 | $2,201 | | Less: investment expenses | $401 | $18 | | Net investment income | $15,903 | $2,183 | [Note 6. Investments - Net realized and unrealized investment gains (losses) & Net impairment losses recognized in earnings](index=19&type=section&id=Note%206.%20Investments%20-%20Net%20realized%20and%20unrealized%20investment%20gains%20(losses)%20%26%20Net%20impairment%20losses%20recognized%20in%20earnings) The company reported net realized and unrealized investment gains of **$1.85 million** in Q1 2024, a substantial turnaround from a **$5.28 million** loss in Q1 2023, driven by positive market value adjustments in the preferred stock portfolio, while net impairment losses increased to **$2.68 million**, primarily due to **$2.17 million** in expected credit losses on held-to-maturity securities Net Realized and Unrealized Investment Gains (Losses) (3 Months Ended March 31) | (in thousands) | 2024 | 2023 | | :--------------------------------------- | :----- | :----- | | Net realized losses on available-for-sale securities | $(262) | $(1,619) | | Equity securities | $2,115 | $(3,663) | | Net realized and unrealized investment gains (losses) | $1,853 | $(5,282) | Net Impairment Losses Recognized in Earnings (3 Months Ended March 31) | (in thousands) | 2024 | 2023 | | :--------------------------------------- | :----- | :----- | | Available-for-sale securities | $(338) | $(1,633) | | Held-to-maturity securities - expected credit losses | $(2,167) | $— | | Other loans receivable - expected credit losses | $(172) | $0 | | Net impairment losses recognized in earnings | $(2,677) | $(1,633) | [Note 7. Bank Line of Credit](index=22&type=section&id=Note%207.%20Bank%20Line%20of%20Credit) Erie Indemnity Company maintains a **$100 million** bank revolving line of credit, expiring in October 2026, with **$99.2 million** remaining available as of March 31, 2024, no outstanding borrowings, and the company in compliance with all covenants - The company has a **$100 million** bank revolving line of credit, with **$99.2 million** available as of March 31, 2024, and no outstanding borrowings[70](index=70&type=chunk) - Investments with a fair value of **$117.1 million** were pledged as collateral on the line of credit[70](index=70&type=chunk) [Note 8. Postretirement Benefits](index=22&type=section&id=Note%208.%20Postretirement%20Benefits) Erie Indemnity Company sponsors a noncontributory defined benefit pension plan and an unfunded supplemental employee retirement plan (SERP), with cost allocations and reimbursements occurring between the company and the Exchange, and a **$33 million** contribution was made to the defined benefit pension plan in January 2024 Pension Plan Income Components (3 Months Ended March 31) | (in thousands) | 2024 | 2023 | | :--------------------------------------- | :----- | :----- | | Service cost for benefits earned | $8,651 | $7,191 | | Interest cost on benefit obligation | $13,145 | $12,548 | | Expected return on plan assets | $(20,198) | $(17,218) | | Prior service cost amortization | $389 | $362 | | Net actuarial gain amortization | $(1,751) | $(3,833) | | Settlement gain | $(249) | $— | | Pension plan income | $(13) | $(950) | - A **$33 million** contribution was made to the defined benefit pension plan in January 2024[73](index=73&type=chunk) [Note 9. Income Taxes](index=23&type=section&id=Note%209.%20Income%20Taxes) The effective income tax rate for the three months ended March 31, 2024, was **20.8%**, a slight decrease from **21.0%** in the same period of 2023 - Effective income tax rate for Q1 2024 was **20.8%**, compared to **21.0%** for Q1 2023[76](index=76&type=chunk) [Note 10. Capital Stock](index=23&type=section&id=Note%2010.%20Capital%20Stock) Class B common stock is convertible into Class A common stock at a **2,400:1 ratio**, with no conversions occurring in the first quarter of 2024, and the company has approximately **$17.8 million** of repurchase authority remaining under its **$150 million** stock repurchase program, with no shares repurchased under this program during the quarter - Class B shares are convertible into Class A shares at a rate of **2,400 to 1**[77](index=77&type=chunk) - Approximately **$17.8 million** of repurchase authority remained under the stock repurchase program at March 31, 2024[78](index=78&type=chunk) [Note 11. Accumulated Other Comprehensive Income (Loss)](index=23&type=section&id=Note%2011.%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) Accumulated other comprehensive loss increased to **$15.23 million** at March 31, 2024, from **$13.40 million** at December 31, 2023, driven by other comprehensive losses from both investment securities and pension and other postretirement plans during the quarter Changes in Accumulated Other Comprehensive Income (Loss) (3 Months Ended March 31) | (in thousands) | AOCI (loss), beginning of period (Net) | OCI (loss) (Net) | AOCI (loss), end of period (Net) | | :--------------------------------------- | :------------------------------------- | :--------------- | :------------------------------- | | Investment securities | $(24,807) | $(754) | $(25,561) | | Pension and other postretirement plans | $11,407 | $(1,076) | $10,331 | | Total | $(13,400) | $(1,830) | $(15,230) | [Note 12. Concentrations of Credit Risk](index=24&type=section&id=Note%2012.%20Concentrations%20of%20Credit%20Risk) Erie Indemnity Company faces a concentration of credit risk from unsecured receivables due from the Erie Insurance Exchange and its affiliates, which amounted to **$641.7 million** at March 31, 2024, including a **$0.6 million** credit loss allowance - Unsecured receivables from the Exchange and its affiliates totaled **$641.7 million** at March 31, 2024, representing a concentration of credit risk[80](index=80&type=chunk) [Note 13. Commitments and Contingencies](index=24&type=section&id=Note%2013.%20Commitments%20and%20Contingencies) The company has commitments including an agent loan participation program with a maximum potential guarantee of **$7.3 million** and guarantees for real estate development projects totaling **$7.8 million**, and is also involved in litigation, for which reserves are established based on probability and estimability of loss, believing current accruals are appropriate - Maximum potential obligation for guarantees related to the agent loan participation program is **$7.3 million** at March 31, 2024[81](index=81&type=chunk) - Maximum potential obligation related to guarantees for real estate development projects is **$7.8 million** at March 31, 2024[82](index=82&type=chunk) - The company is involved in litigation and establishes reserves when a loss is probable and reasonably estimable, believing current accruals are appropriate[83](index=83&type=chunk) [Note 14. Subsequent Events](index=24&type=section&id=Note%2014.%20Subsequent%20Events) On April 23, 2024, subsequent to the financial statement date, the maximum amount of loans to be funded through the agent loan participation program was increased to **$150 million** - The maximum amount of loans for the agent loan participation program was increased to **$150 million** on April 23, 2024[85](index=85&type=chunk) [PART II. OTHER INFORMATION](index=25&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides management's discussion and analysis of financial condition, results of operations, market risks, controls, legal proceedings, and other disclosures [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting key factors influencing performance, including operating overview, detailed results of operations, financial condition, liquidity, capital resources, and critical accounting estimates, and includes a cautionary statement regarding forward-looking information [Cautionary Statement Regarding Forward-Looking Information](index=25&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Information) This section serves as a 'Safe Harbor' statement, indicating that forward-looking statements in the report are subject to various risks and uncertainties that could cause actual outcomes to differ materially, with key risks including dependence on the Erie Insurance Exchange, general economic conditions, insurance industry competition, and financial market volatility - Forward-looking statements are subject to risks and uncertainties, including dependence on the Erie Insurance Exchange and its financial condition, general business and economic conditions, and factors affecting insurance industry competition[89](index=89&type=chunk)[90](index=90&type=chunk) - Other risks include the ability to attract and retain talent, manage technology initiatives, maintain business operations, and comply with evolving laws and regulations[90](index=90&type=chunk) [Recent Accounting Standards and Disclosure Rules](index=26&type=section&id=Recent%20Accounting%20Standards%20and%20Disclosure%20Rules) This section refers readers to Note 2, 'Significant Accounting Policies,' within Part I, Item 1 of this report for a detailed discussion of recently issued accounting standards and disclosure rules and their known or potential impact on the company's financial statements [Operating Overview](index=26&type=section&id=Operating%20Overview) Erie Indemnity Company operates as the attorney-in-fact for the Erie Insurance Exchange, generating management fee revenue from policy issuance, renewal, and administrative services, with its financial performance closely tied to the Exchange's premium growth, and in Q1 2024, operating income increased by **25.6%** and net income by **44.4%**, primarily due to a **19.3%** rise in management fee revenue for policy services and a positive swing in investment income - Erie Indemnity Company's earnings are primarily driven by management fee revenue from services provided to the Erie Insurance Exchange, based on direct and affiliated assumed premiums written[95](index=95&type=chunk)[97](index=97&type=chunk) Financial Overview (3 Months Ended March 31) | (dollars in thousands, except per share data) | 2024 | 2023 | % Change | | :-------------------------------------------- | :----- | :----- | :------- | | Operating income | $138,812 | $110,543 | 25.6 % | | Total investment income (loss) | $15,079 | $(4,732) | NM | | Income before income taxes | $157,302 | $109,148 | 44.1 % | | Net income | $124,552 | $86,241 | 44.4 % | | Net income per share – diluted | $2.38 | $1.65 | 44.4 % | - Management fee revenue for policy issuance and renewal services increased **19.3% to $665.7 million** in Q1 2024, driven by a **19.0% increase** in direct and affiliated assumed premiums written by the Exchange[99](index=99&type=chunk) [General Conditions and Trends Affecting Our Business](index=27&type=section&id=General%20Conditions%20and%20Trends%20Affecting%20Our%20Business) The company's business is sensitive to economic conditions, where factors like declining consumer confidence, inflation, and recession threats could negatively impact the Exchange's premium revenue and, consequently, the company's management fees, and financial market volatility poses a risk to the fair value of the investment portfolio and total investment income - Unfavorable economic conditions (e.g., inflation, recession) may lead to reduced premium revenue for the Exchange, adversely affecting the company's management fee revenue[103](index=103&type=chunk) - The investment portfolio is subject to market volatility, which could cause considerable fluctuations in fair value and total investment income, with geopolitical events and inflation posing future risks[104](index=104&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) This section details the drivers behind the company's financial performance, including management fee revenue, direct and affiliated assumed premiums written by the Exchange, costs associated with policy issuance and administrative services, and a comprehensive analysis of total investment income and its components [Management fee revenue](index=28&type=section&id=Management%20fee%20revenue) Management fee revenue is generated from two performance obligations: policy issuance and renewal services, and administrative services, calculated as a percentage of direct and affiliated assumed premiums written by the Exchange, with the management fee rate at **25%** for both 2024 and 2023, and a minor change in transaction price allocation in 2024 Management Fee Revenue Allocation (3 Months Ended March 31) | (dollars in thousands) | 2024 | 2023 | % Change | | :------------------------------------------ | :----- | :----- | :------- | | Management fee revenue - policy issuance and renewal services | $665,686 | $558,090 | 19.3 % | | Management fee revenue - administrative services | $16,934 | $15,189 | 11.5 % | - Direct and affiliated assumed premiums written by the Exchange increased **19.0% to $2.74 billion** in Q1 2024[107](index=107&type=chunk) - The management fee rate was **25%** for both 2024 and 2023, with a minor change in transaction price allocation in 2024[106](index=106&type=chunk) [Direct and affiliated assumed premiums written by the Exchange](index=29&type=section&id=Direct%20and%20affiliated%20assumed%20premiums%20written%20by%20the%20Exchange) Direct and affiliated assumed premiums written by the Exchange increased **19.0%** in Q1 2024, driven by growth in both new and renewal business, particularly in personal lines and commercial multi-peril, supported by increases in policies in force and average premium per policy - Direct and affiliated assumed premiums written by the Exchange increased **19.0% to $2.74 billion** in Q1 2024[110](index=110&type=chunk) - Year-over-year policies in force for all lines of business increased **7.1%** in Q1 2024, and average premium per policy increased **10.6%**[110](index=110&type=chunk) - Premiums from new business increased **32.4% to $449 million**, while renewal business premiums increased **16.7% to $2.3 billion** in Q1 2024[111](index=111&type=chunk)[112](index=112&type=chunk) [Policy issuance and renewal services](index=31&type=section&id=Policy%20issuance%20and%20renewal%20services) Operating income from policy issuance and renewal services increased by **27.8% to $121.88 million** in Q1 2024, driven by higher management fee revenue (**24.40%** of premiums) due to increased direct and affiliated assumed premiums written by the Exchange Policy Issuance and Renewal Services Operating Income (3 Months Ended March 31) | (dollars in thousands) | 2024 | 2023 | % Change | | :------------------------------------------ | :----- | :----- | :------- | | Management fee revenue - policy issuance and renewal services | $665,686 | $558,090 | 19.3 % | | Service agreement revenue | $6,514 | $6,359 | 2.4 % | | Cost of operations - policy issuance and renewal services | $550,322 | $469,095 | 17.3 % | | Operating income - policy issuance and renewal services | $121,878 | $95,354 | 27.8 % | - The management fee revenue allocated for policy issuance and renewal services was **24.40%** of direct and affiliated assumed premiums written by the Exchange in Q1 2024[119](index=119&type=chunk) [Cost of policy issuance and renewal services](index=31&type=section&id=Cost%20of%20policy%20issuance%20and%20renewal%20services) The total cost of operations for policy issuance and renewal services increased by **17.3% to $550.32 million** in Q1 2024, mainly driven by a **21.7% increase** in commissions due to premium growth and higher agent incentive compensation, and an **8.9% increase** in non-commission expenses, despite a decrease in information technology costs Cost of Operations - Policy Issuance and Renewal Services (3 Months Ended March 31) | (dollars in thousands) | 2024 | 2023 | % Change | | :--------------------------------------- | :----- | :----- | :------- | | Total commissions | $375,760 | $308,808 | 21.7 % | | Total non-commission expense | $174,562 | $160,287 | 8.9 % | | Total cost of operations - policy issuance and renewal services | $550,322 | $469,095 | 17.3 % | - Commissions increased by **$67.0 million**, primarily due to growth in direct and affiliated assumed written premium and higher agent incentive compensation[121](index=121&type=chunk) - Information technology costs decreased by **$3.7 million** due to increased capitalized professional fees and personnel costs related to technology initiatives[122](index=122&type=chunk) [Administrative services](index=32&type=section&id=Administrative%20services) Total revenue allocated to administrative services increased by **10.9% to $208.50 million** in Q1 2024, including management fee revenue (**0.60%** of premiums) and administrative services reimbursement revenue, which is recognized monthly as services are provided and settled at cost Administrative Services Revenue and Expenses (3 Months Ended March 31) | (dollars in thousands) | 2024 | 2023 | % Change | | :------------------------------------------ | :----- | :----- | :------- | | Management fee revenue - administrative services | $16,934 | $15,189 | 11.5 % | | Administrative services reimbursement revenue | $191,567 | $172,827 | 10.8 % | | Total revenue allocated to administrative services | $208,501 | $188,016 | 10.9 % | | Claims handling services | $167,963 | $148,200 | 13.3 % | | Investment management services | $8,593 | $8,745 | (1.7)% | | Life management services | $15,011 | $15,882 | (5.5)% | | Operating income - administrative services | $16,934 | $15,189 | 11.5 % | - The management fee revenue allocated to administrative services was **0.60%** of direct and affiliated assumed premiums written by the Exchange in Q1 2024[124](index=124&type=chunk) [Cost of administrative services](index=32&type=section&id=Cost%20of%20administrative%20services) As the attorney-in-fact for the Exchange and service provider for its subsidiaries, Erie Indemnity Company incurs administrative service expenses, including claims handling, investment management, and life management services, which are fully reimbursed at cost by the Exchange and its subsidiaries, with reimbursements recorded as a receivable - Administrative services expenses incurred by Indemnity on behalf of the Exchange and its subsidiaries are reimbursed at cost[125](index=125&type=chunk) [Total investment income (loss)](index=33&type=section&id=Total%20investment%20income%20(loss)) Total investment income saw a significant positive swing to **$15.08 million** in Q1 2024 from a loss of **$4.73 million** in Q1 2023, driven by increased net investment income and a shift from net realized/unrealized losses to gains Total Investment Income (Loss) (3 Months Ended March 31) | (dollars in thousands) | 2024 | 2023 | % Change | | :--------------------------------------- | :----- | :----- | :------- | | Net investment income | $15,903 | $2,183 | NM % | | Net realized and unrealized investment gains (losses) | $1,853 | $(5,282) | NM | | Net impairment losses recognized in earnings | $(2,677) | $(1,633) | (63.9)% | | Total investment income (loss) | $15,079 | $(4,732) | NM % | [Net investment income](index=33&type=section&id=Net%20investment%20income) Net investment income increased significantly by **$13.7 million** in Q1 2024, primarily due to higher equity in earnings from limited partnerships and increased bond income from higher yields - Net investment income increased by **$13.7 million** in Q1 2024, primarily due to higher equity in earnings of limited partnerships and increased bond income from higher yields[128](index=128&type=chunk) - Limited partnership earnings were **$0.5 million** in Q1 2024, a significant improvement from losses of **$10.8 million** in Q1 2023[128](index=128&type=chunk) [Net realized and unrealized investment gains (losses)](index=33&type=section&id=Net%20realized%20and%20unrealized%20investment%20gains%20(losses)) The company reported net realized and unrealized investment gains of **$1.85 million** in Q1 2024, a positive reversal from a **$5.28 million** loss in Q1 2023, primarily driven by market value adjustments in the preferred stock portfolio Net Realized and Unrealized Investment Gains (Losses) Breakdown (3 Months Ended March 31) | (in thousands) | 2024 | 2023 | | :--------------------------------------- | :----- | :----- | | Available-for-sale securities | $(262) | $(1,619) | | Equity securities | $2,115 | $(3,663) | | Net realized and unrealized investment gains (losses) | $1,853 | $(5,282) | - Net unrealized gains recognized on equity securities held at the reporting date were **$2.05 million** in Q1 2024, compared to losses of **$1.16 million** in Q1 2023[66](index=66&type=chunk) [Net impairment losses recognized in earnings](index=33&type=section&id=Net%20impairment%20losses%20recognized%20in%20earnings) Net impairment losses increased to **$2.68 million** in Q1 2024, primarily due to **$2.17 million** in current expected credit losses on held-to-maturity securities, in addition to impairments on available-for-sale securities Net Impairment Losses (3 Months Ended March 31) | (in thousands) | 2024 | 2023 | | :--------------------------------------- | :----- | :----- | | Available-for-sale securities | $(338) | $(1,633) | | Held-to-maturity securities - expected credit losses | $(2,167) | $— | | Other loans receivable - expected credit losses | $(172) | $0 | | Net impairment losses recognized in earnings | $(2,677) | $(1,633) | [Financial Condition of Erie Insurance Exchange](index=34&type=section&id=Financial%20Condition%20of%20Erie%20Insurance%20Exchange) The Erie Insurance Exchange, the company's sole customer, maintains a strong financial condition with an **A+ 'Superior' rating** from A.M. Best, with its statutory direct written premiums growing **19.0%** in Q1 2024, and policyholders' surplus reaching **$9.5 billion** - The Erie Insurance Exchange is rated **A+ 'Superior'** by A.M. Best, the second highest financial strength rating, with a stable outlook[132](index=132&type=chunk) - Statutory direct written premiums of the Exchange grew **19.0% to $2.7 billion** in Q1 2024[133](index=133&type=chunk) - Policyholders' surplus was **$9.5 billion** at March 31, 2024, and the year-over-year policy retention ratio was **91.2%**[133](index=133&type=chunk) [FINANCIAL CONDITION](index=35&type=section&id=FINANCIAL%20CONDITION) This section provides an overview of the company's investment portfolio, detailing the composition and management of fixed maturity and equity securities, and their impact on the company's financial position [Investments](index=35&type=section&id=Investments) The company's investment portfolio, managed to maximize after-tax returns on a risk-adjusted basis, totaled **$1.15 billion** at March 31, 2024, with available-for-sale securities constituting **84%** of the portfolio and equity securities making up **8%** Investment Portfolio Carrying Value (March 31, 2024) | (dollars in thousands) | March 31, 2024 | % to total | | :--------------------------------------- | :------------- | :--------- | | Available-for-sale securities | $969,645 | 84 % | | Equity securities | $86,578 | 8 % | | Agent loans | $67,448 | 6 % | | Other investments | $28,374 | 2 % | | Total investments | $1,152,045 | 100 % | [Fixed maturities](index=35&type=section&id=Fixed%20maturities) The fixed maturity portfolio is high quality and diversified, managed to achieve reasonable returns while limiting risk, with net unrealized losses on fixed maturities, net of deferred taxes, totaling **$25.5 million** at March 31, 2024 - Net unrealized losses on fixed maturities, net of deferred taxes, totaled **$25.5 million** at March 31, 2024, compared to **$24.7 million** at December 31, 2023[139](index=139&type=chunk) Fair Value of Fixed Maturity Portfolio by Industry Sector and Rating (March 31, 2024) | (in thousands) | AAA | AA | A | BBB | Non investment grade | Fair value | | :--------------------------------------- | :---- | :--- | :-- | :---- | :------------------- | :--------- | | Basic materials | $0 | $0 | $957 | $5,366 | $5,920 | $12,243 | | Communications | $0 | $2,903 | $13,660 | $9,039 | $12,602 | $38,204 | | Consumer | $0 | $1,959 | $22,861 | $65,632 | $41,017 | $131,469 | | Energy | $0 | $0 | $5,638 | $20,734 | $14,447 | $40,819 | | Financial | $0 | $2,041 | $97,008 | $122,412 | $16,146 | $237,607 | | Structured securities | $139,122 | $188,164 | $29,749 | $15,347 | $132 | $372,514 | | Total | $141,020 | $196,106 | $180,437 | $315,617 | $141,298 | $974,478 | [Equity securities](index=36&type=section&id=Equity%20securities) Equity securities, predominantly nonredeemable preferred stocks, are recorded at fair value with all changes in unrealized gains and losses recognized in the Statements of Operations, and the fair value of equity securities increased to **$86.58 million** at March 31, 2024, from **$84.25 million** at December 31, 2023 Fair Value of Equity Securities by Sector (March 31, 2024) | (in thousands) | March 31, 2024 | December 31, 2023 | | :--------------------------------------- | :------------- | :---------------- | | Financial services | $70,834 | $69,900 | | Utilities | $5,876 | $5,810 | | Energy | $3,698 | $3,901 | | Consumer | $4,425 | $3,915 | | Technology | $1,500 | $500 | | Industrial | $221 | $180 | | Communications | $24 | $47 | | Total | $86,578 | $84,253 | [LIQUIDITY AND CAPITAL RESOURCES](index=36&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's ability to generate cash flows to meet its short- and long-term obligations, detailing sources and uses of cash, cash flow activities, capital outlook, and off-balance sheet arrangements, while monitoring economic conditions and market volatility [Sources and Uses of Cash](index=36&type=section&id=Sources%20and%20Uses%20of%20Cash) The company's liquidity is primarily generated from management fee revenue and investment income, which are used to fund operating expenses, commissions, salaries, pension plans, share repurchases, dividends, and capital expenditures, and it maintains sufficient liquidity through cash, liquid marketable securities, and a **$100 million** bank revolving line of credit, continuously monitoring economic conditions and market volatility - Liquidity requirements are primarily met by management fee revenue and income from investments[145](index=145&type=chunk) - Cash is used to fund management operations, including commissions, salaries, pension plans, share repurchases, dividends, and capital expenditures[145](index=145&type=chunk) - The company believes it has sufficient access to liquidity through its cash position, diverse liquid marketable securities, and a **$100 million** bank revolving line of credit[144](index=144&type=chunk) [Cash flow activities](index=37&type=section&id=Cash%20flow%20activities) Net cash provided by operating activities rose to **$87.19 million** in Q1 2024, up from $48.03 million in Q1 2023, primarily due to increased management fees and reduced agent incentive compensation, while net cash used in investing activities increased to **$27.00 million**, mainly for fixed asset purchases, and financing activities was **$59.38 million**, consistent with dividends paid Condensed Cash Flow Information (3 Months Ended March 31) | (in thousands) | 2024 | 2023 | | :--------------------------------------- | :----- | :----- | | Net cash provided by operating activities | $87,193 | $48,031 | | Net cash used in investing activities | $(26,999) | $(12,326) | | Net cash used in financing activities | $(59,377) | $(55,419) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $817 | $(19,714) | - Increased cash from operating activities was primarily due to a **$106.4 million** increase in management fees received and a **$26.5 million** decrease in agent incentive compensation paid[148](index=148&type=chunk) - Dividends paid to shareholders increased by **7.1%** for both Class A and Class B common stock in 2024[150](index=150&type=chunk) [Capital Outlook](index=37&type=section&id=Capital%20Outlook) The company regularly forecasts cash requirements for normal and extreme risk events and believes it has sufficient alternatives to meet future funding needs, including unrestricted cash, a **$100 million** bank revolving line of credit, and liquid investment grade bonds - Unrestricted and unpledged cash and cash equivalents totaled approximately **$128.0 million** at March 31, 2024[152](index=152&type=chunk) - The company has access to a **$100 million** bank revolving line of credit and **$801.1 million** in unpledged equity securities and investment grade bonds[152](index=152&type=chunk)[153](index=153&type=chunk) [Off-Balance Sheet Arrangements](index=37&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has contingent obligations related to guarantees, as further detailed in Note 13, 'Commitments and Contingencies,' and management believes these arrangements will not have a material current or future effect on the company's financial condition, results of operations, or cash flows - The company has contingent obligations for guarantees, which are not expected to have a material effect on financial condition, results of operations, or cash flows[154](index=154&type=chunk) [CRITICAL ACCOUNTING ESTIMATES](index=38&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) The company's financial statements involve significant estimates and assumptions, with the most critical relating to investment valuation and retirement benefit plans for employees, and while management believes these estimates are appropriate, actual amounts may differ - Significant estimates affecting financial statements include investment valuation and retirement benefit plans[156](index=156&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposure is from fluctuations in interest rates and prices, and despite the current inflationary environment and rising interest rates, there have been no material changes to its portfolio or asset allocations in Q1 2024 - Primary market risk exposure is related to fluctuations in interest rates and prices[157](index=157&type=chunk) - No material changes impacted the investment portfolio or reshaped periodic investment reviews of asset allocations during Q1 2024, despite the inflationary and rising interest rate environment[158](index=158&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, and furthermore, there were no material changes in internal control over financial reporting during the three months ended March 31, 2024 - Disclosure controls and procedures were effective as of March 31, 2024[159](index=159&type=chunk) - No material changes in internal control over financial reporting occurred during Q1 2024[160](index=160&type=chunk) [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company is vigorously defending against an ongoing class-action lawsuit alleging breaches of fiduciary duty related to management fees, and a district court recently granted a preliminary injunction preventing further state court proceedings, which is now under appeal - The company is a defendant in a class-action lawsuit alleging breaches of fiduciary duty related to the setting of its management fee[162](index=162&type=chunk)[167](index=167&type=chunk) - A district court granted a preliminary injunction on February 28, 2024, to prevent further state court proceedings on claims previously dismissed in federal court[174](index=174&type=chunk) - The district court's preliminary injunction is currently under appeal by the plaintiffs[174](index=174&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023[176](index=176&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased **1,238 shares** of Class A common stock in March 2024 to fund a rabbi trust for deferred stock compensation, with approximately **$17.75 million** remaining under its **$150 million** stock repurchase program Class A Common Stock Share Repurchases (Q1 2024) | Period | Total number of shares purchased | Average price paid per share | Dollar value of shares that may yet be purchased under the program | | :----------------- | :----------------------------- | :--------------------------- | :--------------------------------------------------------------- | | January 1-31, 2024 | — | $— | $17,754 | | February 1-29, 2024 | — | $— | $17,754 | | March 1-31, 2024 | 1,238 | $405.57 | $17,754 | | Total | 1,238 | $405.57 | | - The repurchased shares were used to fund the rabbi trust for the outside director deferred stock compensation plan[178](index=178&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists the various exhibits filed with the Form 10-Q, including certifications, XBRL documents, and the cover page interactive data file - Exhibits include certifications (31.1, 31.2, 32) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[180](index=180&type=chunk) [SIGNATURES](index=42&type=section&id=SIGNATURES) The report is officially signed on behalf of Erie Indemnity Company by Timothy G. NeCastro, President & CEO, and Julie M. Pelkowski, Executive Vice President & CFO, on April 25, 2024, affirming compliance with Securities Exchange Act requirements - The report was signed by Timothy G. NeCastro, President & CEO, and Julie M. Pelkowski, Executive Vice President & CFO, on April 25, 2024[183](index=183&type=chunk)

Erie Indemnity Company Statements of Financial Position Exhibit 99.2 Erie Indemnity Company Statements of Operations (dollars in thousands, except per share data) | | | | Three months ended March 31, | | | --- | --- | --- | --- | --- | | | | 2024 | | 2023 | | | | | (Unaudited) | | | Operating revenue | | | | | | Management fee revenue - policy issuance and renewal services | $ | 665,686 | $ | 558,090 | | Management fee revenue - administrative services | | 16,934 | | 15,189 | | Administrative services reimb ...

ERIE, Pa., April 12, 2024 /PRNewswire/ -- Erie Indemnity Company (NASDAQ: ERIE) will host a pre-recorded audio webcast with the financial community providing financial results for the first quarter on Friday, April 26th, at 10 a.m. Eastern Time. Erie Indemnity will issue a press release reporting its results after the close of the market on Thursday, April 25th. The pre-recorded audio will be available on the company's Investor Relations website at www.erieinsurance.com/about/investors.aspx. To access the p ...

Growth stocks are attractive to many investors, as above-average financial growth helps these stocks easily grab the market's attention and produce exceptional returns. However, it isn't easy to find a great growth stock.In addition to volatility, these stocks carry above-average risk by their very nature. Also, one could end up losing from a stock whose growth story is actually over or nearing its end.However, the Zacks Growth Style Score (part of the Zacks Style Scores system), which looks beyond the trad ...

Most of us have heard the dictum "the trend is your friend." And this is undeniably the key to success when it comes to short-term investing or trading. But it isn't easy to ensure the sustainability of a trend and profit from it.Often, the direction of a stock's price movement reverses quickly after taking a position in it, making investors incur a short-term capital loss. So, it's important to ensure that there are enough factors -- such as sound fundamentals, positive earnings estimate revisions, etc. -- ...

Investors seek growth stocks to capitalize on above-average growth in financials that help these securities grab the market's attention and produce exceptional returns. But finding a growth stock that can live up to its true potential can be a tough task.That's because, these stocks usually carry above-average risk and volatility. In fact, betting on a stock for which the growth story is actually over or nearing its end could lead to significant loss.However, it's pretty easy to find cutting-edge growth sto ...

Erie Indemnity (ERIE) could be a solid choice for investors given its recent upgrade to a Zacks Rank #2 (Buy). This upgrade primarily reflects an upward trend in earnings estimates, which is one of the most powerful forces impacting stock prices.A company's changing earnings picture is at the core of the Zacks rating. The system tracks the Zacks Consensus Estimate -- the consensus measure of EPS estimates from the sell-side analysts covering the stock -- for the current and following years.Since a changing ...

When it comes to short-term investing or trading, they say "the trend is your friend." And there's no denying that this is the most profitable strategy. But making sure of the sustainability of a trend to profit from it is easier said than done.Often, the direction of a stock's price movement reverses quickly after taking a position in it, making investors incur a short-term capital loss. So, it's important to ensure that there are enough factors -- such as sound fundamentals, positive earnings estimate rev ...

Financial Data and Key Metrics - Net income for Erie Indemnity Company reached an all-time high of more than $446 million in 2023, compared to $299 million in 2022 [5] - Growth for Erie Insurance Exchange hit a 20-year high of 17%, reaching $10 billion in premiums in Q4 2023 [5] - Policyholder surplus ended at $9.3 billion in December 2023, with a $203 million increase in Q4 [6] - Combined ratio for the year ended at 119.1%, an improvement from September year-to-date but 3 points higher than year-end 2022 [6][19] - Management fee revenue increased by $98 million (19.5%) in Q4 2023 and $354 million (17%) for the full year compared to 2022 [7] - Pre-tax income from investments was $29 million in 2023, compared to $600,000 in 2022 [9] Business Line Data and Key Metrics - New business premium grew over 43% in Q4 2023 and almost 38% for the year compared to the prior year [7] - Non-commission expenses grew by $1 million in Q4 2023 and $47 million for the full year, driven by technology and customer service investments [8] - Commission expenses grew by $53 million in Q4 2023 and $169 million for the full year, driven by increased premiums [22] - Underwriting and policy processing costs increased by $9.4 million due to growth in the number of policies [23] Market Data and Key Metrics - Weather-related claims rose to nearly 70,000 in 2023, compared to roughly 50,000 in 2022 [19] - Retention levels remained strong at 91.2% despite rate increases [20] - Erie ranked number one in home insurance customer satisfaction by J.D. Power, with a score of 856, 37 points higher than the segment average [1][14] Company Strategy and Industry Competition - The company is modernizing legacy platforms, with a 75% reduction in system outage time after migrating Erie Claim Center to the cloud [11] - Investments in technology and customer service are aimed at long-term expense savings and innovation [25] - Erie Strategic Ventures, formed in 2022, focuses on investing in the personal and commercial insurance value chain [13] - The company is implementing rate increases and reinforcing underwriting standards to improve profitability [19] Management Commentary on Operating Environment and Future Outlook - The company faced significant challenges from economic and environmental pressures but achieved record growth [5] - Management expects long-term savings from modernization efforts and new digital capabilities [19] - The company is optimistic about the benefits of recent rate increases and strong retention levels [20] Other Important Information - The company paid $222 million in dividends in 2023 and approved a 7.1% increase in the 2024 regular quarterly cash dividend [24] - Erie launched a refreshed workers' compensation platform across all states in its footprint, with over 75 enhancements in 2023 [26][27] - Initial startup investments include Wagmo, Roots Automation, and Trust & Will, aimed at delivering value to Erie and its stakeholders [28] Q&A Session - No Q&A session was held as the call was prerecorded [4]

PART I [ITEM 1. Business](index=4&type=section&id=Item%201.%20Business) Erie Indemnity Company serves as attorney-in-fact for Erie Insurance Exchange, managing operations and earning fees, with a focus on human capital and regulatory compliance - Erie Indemnity Company (Indemnity) serves as the attorney-in-fact for the Erie Insurance Exchange (Exchange), providing policy issuance, renewal, claims handling, and investment management services[11](index=11&type=chunk)[12](index=12&type=chunk) - Indemnity's primary revenue source is a management fee, calculated as a percentage (not exceeding **25%**) of direct and affiliated assumed premiums written by the Exchange[12](index=12&type=chunk)[15](index=15&type=chunk) - The Exchange's business is segmented into personal lines (**70%** of 2023 premiums) and commercial lines (**30%**), distributed exclusively through independent agencies[16](index=16&type=chunk)[17](index=17&type=chunk)[18](index=18&type=chunk) - Indemnity's human capital strategy emphasizes attracting, retaining, and developing talent through a positive employee value proposition, including competitive pay, comprehensive benefits, work/life balance, and professional development opportunities[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) - Diversity, Equity & Inclusion (DEI) is a core business strategy, led by a Chief Diversity Officer, with initiatives like a Future Focus internship program and nine affinity networks to foster an inclusive workplace[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) Workforce Metrics (Years ended December 31) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Full-time workforce size | 6,481 | 5,970 | 5,805 | | Part-time workforce size | 24 | 23 | 30 | | Temporary workforce size | 51 | 45 | 41 | | Turnover | 9.0 % | 11.2 % | 8.0 % | | Voluntary turnover | 4.8 % | 6.9 % | 4.8 % | | Retirements | 2.8 % | 3.6 % | 2.2 % | | Average tenure (years) | 10.4 | 11.7 | 12.6 | - Indemnity and the Exchange, along with its subsidiaries, operate as an insurance holding company system, subject to extensive state insurance regulations requiring fairness and reasonableness in intercompany transactions and prior approval for material amendments[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) [ITEM 1A. Risk Factors](index=8&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from its dependence on the Exchange, operational challenges, and market, capital, and liquidity factors - Risks are categorized into those related to the Erie Insurance Exchange (dependence on management fees, premium growth, financial condition), operating risks (service costs, talent, technology, cybersecurity), and market, capital, and liquidity risks (investment portfolio, financial obligations)[44](index=44&type=chunk) - A reduction in the management fee rate or a significant decrease in direct and affiliated assumed premiums written by the Exchange could materially adversely affect revenues and profitability[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) - The Exchange faces significant competition, macroeconomic condition impacts, and risks related to its independent agency distribution channel and brand reputation, all of which could impair its ability to grow and renew business, thereby affecting Indemnity's management fee revenue[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk) - The Exchange's financial condition is crucial, with risks including failure to maintain acceptable financial strength ratings (currently **A+ 'Superior'**), investment portfolio performance (fixed income, equity, limited partnerships), extensive regulatory supervision, and litigation[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk) - Operating risks include controlling service costs (commissions, employee, technology), attracting and retaining talent, maintaining system availability, managing technology initiatives (including AI), and mitigating difficulties with technology, data, and network security (cyber attacks, third-party reliance)[63](index=63&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk) - Market, capital, and liquidity risks are tied to the performance of Indemnity's investment portfolio (**85%** fixed maturity, **15%** equity/other), which is subject to interest rate, credit, sector/concentration, and liquidity risks. Failure to accurately estimate capital needs or market volatility could impact liquidity and access to capital[77](index=77&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk) [ITEM 1B. Unresolved Staff Comments](index=14&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company has no unresolved staff comments from the SEC - There are no unresolved staff comments[85](index=85&type=chunk) [ITEM 1C. Cybersecurity](index=14&type=section&id=Item%201C.%20Cybersecurity) The company maintains a robust cybersecurity program aligned with NIST, overseen by a dedicated committee, with no material breaches reported - Cybersecurity risk management is overseen by the Privacy and Information Security Committee, reporting to the Executive Council and Board of Directors[86](index=86&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk) - The cybersecurity program aligns with the NIST Cybersecurity Framework, focusing on identification, protection, detection, response, and recovery from threats, including annual risk assessments and third-party validations[87](index=87&type=chunk) - A Core Incident Response Team, with specialized leaders (CISO, Privacy leader, Legal leader) and augmented by internal and external experts, is responsible for analyzing and responding to cyber incidents[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) - To date, the company is not aware of any cybersecurity breach or incident that would have a material impact on its business strategy, results of operations, or financial condition[93](index=93&type=chunk) [ITEM 2. Properties](index=15&type=section&id=Item%202.%20Properties) The company shares a 996,000 square foot corporate campus and 25 field offices with the Exchange, with costs allocated by occupied space - Indemnity and the Exchange share a corporate home office campus in Erie, Pennsylvania, totaling approximately **996,000 square feet**[94](index=94&type=chunk) - The entities own or lease **25 field offices** in **12 states**, primarily supporting claims activities, with rental costs for shared facilities allocated by square footage[95](index=95&type=chunk) [ITEM 3. Legal Proceedings](index=16&type=section&id=Item%203.%20Legal%20Proceedings) The company is vigorously defending a class action lawsuit alleging breaches of fiduciary duty regarding its management fee, with a petition pending before the Supreme Court - Erie Indemnity Company is a defendant in a class action lawsuit alleging breaches of fiduciary duty concerning the setting of its management fee from the Erie Insurance Exchange[96](index=96&type=chunk)[97](index=97&type=chunk)[101](index=101&type=chunk) - The lawsuit seeks damages, disgorgement of profits, or other injunctive relief for the period starting two years prior to August 24, 2021, and continuing through 2021[97](index=97&type=chunk)[98](index=98&type=chunk)[102](index=102&type=chunk) - The case has undergone several procedural changes, including removal to federal court, voluntary dismissal, refiling, remand to state court, and appeals, with a Petition for Writ of Certiorari currently pending before the Supreme Court of the United States[99](index=99&type=chunk)[100](index=100&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk) - Indemnity intends to vigorously defend against all allegations and has filed a separate complaint in Federal Court to protect prior binding judgments in its favor[103](index=103&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) [ITEM 4. Mine Safety Disclosures](index=17&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine Safety Disclosures are not applicable to the registrant - Mine Safety Disclosures are not applicable to the registrant[110](index=110&type=chunk) PART II [ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=18&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Class A common stock trades on NASDAQ, Class B is closely held, with historical dividends and a $150 million repurchase program having $17.8 million remaining - Class A common stock (ERIE) trades on NASDAQ, while Class B voting common stock has no active market and is closely held[113](index=113&type=chunk) - The company historically pays quarterly cash dividends, with future payments dependent on operating results, financial condition, cash requirements, and business conditions[113](index=113&type=chunk) Stock Performance (Cumulative Total Shareholder Return, $100 invested) | Year | Erie Indemnity Company Class A common stock | Standard & Poor's 500 Stock Index | Standard & Poor's Supercomposite Insurance Industry Group Index | | :--- | :--- | :--- | :--- | | 2018 | $100 | $100 | $100 | | 2019 | $127 | $131 | $128 | | 2020 | $194 | $156 | $127 | | 2021 | $155 | $200 | $163 | | 2022 | $205 | $164 | $178 | | 2023 | $281 | $207 | $196 | - A stock repurchase program for Class A common stock, authorized for **$150 million** in 2011 with no time limitation, had approximately **$17.8 million** remaining as of December 31, 2023[119](index=119&type=chunk)[120](index=120&type=chunk) Issuer Purchases of Equity Securities (Quarter ending December 31, 2023) | Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced program | Dollar value of shares that may yet be purchased under the program | | :--- | :--- | :--- | :--- | :--- | | October 1–31, 2023 | — | $— | — | $17,754 | | November 1–30, 2023 | 1,258 | $277.03 | — | $17,754 | | December 1–31, 2023 | — | $— | — | $17,754 | | Total | 1,258 | $277.03 | — | | - The **1,258 shares** purchased in November 2023 were for funding the rabbi trust for the outside director deferred stock compensation plan, not the publicly announced repurchase program[120](index=120&type=chunk) [ITEM 6. Selected Financial Data](index=19&type=section&id=Item%206.%20Selected%20Financial%20Data) Selected Financial Data is not applicable to the company - Selected Financial Data is not applicable[122](index=122&type=chunk) [ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial condition and operations, focusing on management fees, economic impacts, accounting estimates, and liquidity [Cautionary Statement Regarding Forward-Looking Information](index=20&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Information) Forward-looking statements are subject to risks and uncertainties, and the company disclaims any obligation to update them - Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including dependence on the Exchange, economic conditions, competition, talent retention, technology, and regulatory changes[125](index=125&type=chunk)[126](index=126&type=chunk) - The company undertakes no obligation to publicly update or revise any forward-looking statement[127](index=127&type=chunk) [Recent Accounting Standards](index=21&type=section&id=Recent%20Accounting%20Standards) The company is evaluating new accounting standards for segment reporting and income tax disclosures, with no expected financial statement impact - The company is evaluating the impact of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures) on its disclosures, with no expected impact on financial statements[128](index=128&type=chunk)[279](index=279&type=chunk)[280](index=280&type=chunk) [Operating Overview](index=21&type=section&id=Operating%20Overview) The company's operating overview highlights its role as attorney-in-fact, management fee revenue, and the impact of economic conditions on financial performance - Erie Indemnity Company acts as the managing attorney-in-fact for the Erie Insurance Exchange, providing policy issuance, renewal, and administrative services[129](index=129&type=chunk) - Management fee revenue, the primary driver of earnings, is based on direct and affiliated assumed premiums written by the Exchange and a management fee rate, which was set at **25%** for 2021, 2022, 2023, and 2024[131](index=131&type=chunk)[132](index=132&type=chunk)[135](index=135&type=chunk) Financial Overview (Years ended December 31, in thousands, except per share data) | Metric | 2023 | % Change | 2022 | % Change | 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating income | $520,256 | 38.3 % | $376,214 | 18.3 % | $318,097 | | Total investment income | $28,968 | NM | $632 | (99.1) % | $67,332 | | Interest expense, net | $— | NM | $2,009 | (51.4) % | $4,132 | | Other income (expense) | $12,712 | NM | $1,615 | NM | $(4,893) | | Income before income taxes | $561,936 | 49.3 % | $376,452 | 0.0 % | $376,404 | | Income tax expense | $115,875 | 48.8 % | $77,883 | (0.8) % | $78,544 | | Net income | $446,061 | 49.4 % | $298,569 | 0.2 % | $297,860 | | Net income per share - diluted | $8.53 | 49.4 % | $5.71 | 0.3 % | $5.69 | - Operating income increased significantly in 2023 (**38.3%**) due to operating revenue growth outpacing expense growth. Net income also saw a substantial increase of **49.4%** in 2023[137](index=137&type=chunk) - Direct and affiliated assumed premiums written by the Exchange increased **17.0%** to **$10.1 billion** in 2023 and **9.2%** to **$8.6 billion** in 2022[137](index=137&type=chunk) - Cost of operations for policy issuance and renewal services increased **12.0%** in 2023 and **7.0%** in 2022, driven by higher scheduled commissions, employee compensation, and technology costs, partially offset by decreased agent incentive compensation[138](index=138&type=chunk) - Total investment income increased by **$28.3 million** in 2023, primarily due to lower net realized and unrealized investment losses and an increase in net investment income[140](index=140&type=chunk) - Unfavorable economic conditions (inflation, high unemployment, recession threat) and financial market volatility could adversely affect the Exchange's premium revenue and Indemnity's management fees and investment portfolio[142](index=142&type=chunk)[143](index=143&type=chunk) [Critical Accounting Estimates](index=23&type=section&id=Critical%20Accounting%20Estimates) Critical accounting estimates involve investment valuation, including fair value measurements and impairments, and retirement benefit plans - Critical accounting estimates include investment valuation (fair value measurements, impairments) and retirement benefit plans for employees (pension obligations, discount rates, expected return on assets)[144](index=144&type=chunk)[145](index=145&type=chunk) - Fair value measurements for investments are primarily classified as Level 2, using observable inputs from industry-standard models[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - Impairments on fixed maturity and equity portfolios are regularly monitored, with credit-related or intent-to-sell impairments recognized in earnings[152](index=152&type=chunk) - Pension plan obligations are based on actuarial estimates, with key assumptions including discount rates (**5.34%** for 2023 PBO) and expected rates of return on plan assets (increased to **7.00%** for 2024)[155](index=155&type=chunk)[156](index=156&type=chunk)[159](index=159&type=chunk) - A **25 basis point** decrease in the discount rate would increase pension cost by **$4.1 million** and the pension benefit obligation by **$37.2 million**[156](index=156&type=chunk) - The company recognized net pension benefit income of **$3.8 million** in 2023, primarily due to higher discount rates and expected return on assets, and projects **$4.3 million** in 2024[161](index=161&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This section details revenue allocation, premium growth drivers, expense trends, and investment income performance - Management fee revenue is allocated between policy issuance and renewal services (recognized at policy issuance/renewal) and administrative services (recognized over a four-year period)[164](index=164&type=chunk)[165](index=165&type=chunk) Revenue Allocation and Disaggregation (Years ended December 31, in thousands) | Revenue Category | 2023 | % Change | 2022 | % Change | 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Management fee revenue - policy issuance and renewal services | $2,442,073 | 17.0 % | $2,087,846 | 9.1 % | $1,913,166 | | Management fee revenue - administrative services | $63,669 | 9.2 % | $58,323 | 0.1 % | $58,286 | | Administrative services reimbursement revenue | $737,139 | 10.3 % | $668,268 | 4.7 % | $638,483 | | Total revenue from administrative services | $800,808 | 10.2 % | $726,591 | 4.3 % | $696,769 | - Direct and affiliated assumed premiums written by the Exchange increased **17.0%** to **$10.1 billion** in 2023, driven by a **6.9%** increase in policies in force and a **9.4%** increase in average premium per policy[168](index=168&type=chunk) - New business premiums increased **37.9%** to **$1.5 billion** in 2023, while renewal business premiums increased **13.9%** to **$8.5 billion**[169](index=169&type=chunk)[170](index=170&type=chunk) - The Exchange implemented rate increases in 2021, 2022, and 2023 due to increased claims frequency and inflation-driven severity, with full recognition taking 12-24 months[171](index=171&type=chunk)[172](index=172&type=chunk) Policy Issuance and Renewal Services (Years ended December 31, in thousands) | Metric | 2023 | % Change | 2022 | % Change | 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Management fee revenue - policy issuance and renewal services | $2,442,073 | 17.0 % | $2,087,846 | 9.1 % | $1,913,166 | | Service agreement revenue | $26,059 | 1.4 % | $25,687 | 6.8 % | $24,042 | | Total revenue | $2,468,132 | 16.8 % | $2,113,533 | 9.1 % | $1,937,208 | | Cost of operations - policy issuance and renewal services | $2,011,545 | 12.0 % | $1,795,642 | 7.0 % | $1,677,397 | | Operating income - policy issuance and renewal services | $456,587 | 43.6 % | $317,891 | 22.4 % | $259,811 | - Commissions, the largest expense, increased by **$169.0 million** in 2023 due to premium growth, partially offset by decreased agent incentive compensation from higher claims severity[182](index=182&type=chunk)[183](index=183&type=chunk) - Non-commission expenses increased by **$46.9 million** in 2023, driven by higher underwriting, IT, and administrative personnel costs, and increased incentive plan awards[184](index=184&type=chunk) Administrative Services (Years ended December 31, in thousands) | Metric | 2023 | % Change | 2022 | % Change | 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Management fee revenue - administrative services | $63,669 | 9.2 % | $58,323 | 0.1 % | $58,286 | | Administrative services reimbursement revenue | $737,139 | 10.3 % | $668,268 | 4.7 % | $638,483 | | Total revenue allocated to administrative services | $800,808 | 10.2 % | $726,591 | 4.3 % | $696,769 | | Administrative services expenses | | | | | | | Claims handling services | $635,043 | 10.1 % | $576,799 | 5.5 % | $546,962 | | Investment management services | $34,958 | (5.0) % | $36,795 | (5.3) % | $38,862 | | Life management services | $67,138 | 22.8 % | $54,674 | 3.8 % | $52,659 | | Operating income - administrative services | $63,669 | 9.2 % | $58,323 | 0.1 % | $58,286 | - Administrative services expenses and reimbursements are reported gross, with reimbursements settled at cost monthly, having no net impact on operating income[134](index=134&type=chunk)[139](index=139&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk) Total Investment Income (Years ended December 31, in thousands) | Metric | 2023 | % Change | 2022 | % Change | 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net investment income | $44,572 | 55.9 % | $28,585 | (54.0) % | $62,177 | | Net realized and unrealized investment (losses) gains | $(5,838) | 78.6 % | $(27,286) | NM | $4,946 | | Net impairment (losses) recoveries recognized in earnings | $(9,766) | NM | $(667) | NM | $209 | | Total investment income | $28,968 | NM | $632 | (99.1) % | $67,332 | - Net investment income increased by **$16.0 million** in 2023 due to higher bond and cash equivalent income from increased yields and rates[191](index=191&type=chunk) - Net realized and unrealized investment losses decreased to **$5.8 million** in 2023 from **$27.3 million** in 2022, partially offset by market value adjustment gains on equity securities[192](index=192&type=chunk) - Net impairment losses were **$9.8 million** in 2023, including **$7.3 million** for real estate development loans and **$2.4 million** for available-for-sale securities[193](index=193&type=chunk) [Financial Condition of Erie Insurance Exchange](index=31&type=section&id=Financial%20Condition%20of%20Erie%20Insurance%20Exchange) The Erie Insurance Exchange maintains a strong A+ 'Superior' financial strength rating, with significant premium growth and high policy retention - The Exchange and its subsidiaries hold an **A+ 'Superior'** financial strength rating from A.M. Best, the second highest rating, with a stable outlook affirmed on August 10, 2023[195](index=195&type=chunk) - Statutory direct written premiums grew **17.0%** to **$10.1 billion** in 2023, and policyholders' surplus was **$9.3 billion** at December 31, 2023[196](index=196&type=chunk) - The year-over-year policy retention ratio remained high at **91.2%** in 2023[196](index=196&type=chunk) [Financial Condition](index=32&type=section&id=Financial%20Condition) The company's investment portfolio, primarily fixed maturities, is managed for risk-adjusted returns and continuously reviewed for impairment - The investment portfolio is managed to maximize after-tax returns on a risk-adjusted basis, with continuous review for impairment[199](index=199&type=chunk)[201](index=201&type=chunk) Investment Portfolio Carrying Value (December 31, in thousands) | Investment Type | 2023 | % to total | 2022 | % to total | | :--- | :--- | :--- | :--- | :--- | | Fixed maturities | $961,241 | 85 % | $894,661 | 84 % | | Equity securities | $84,253 | 7 % | $72,560 | 7 % | | Agent loans | $67,787 | 6 % | $69,476 | 7 % | | Other investments | $23,026 | 2 % | $30,511 | 2 % | | Total investments | $1,136,307 | 100 % | $1,067,208 | 100 % | - Net unrealized losses on fixed maturities, net of deferred taxes, decreased to **$24.7 million** at December 31, 2023, from **$52.5 million** at December 31, 2022[203](index=203&type=chunk) Fixed Maturity Portfolio by Industry Sector and Rating (December 31, 2023, in thousands) | Industry Sector | AAA | AA | A | BBB | Non-investment grade | Fair value | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Basic materials | $0 | $0 | $954 | $4,345 | $5,814 | $11,113 | | Communications | $0 | $2,905 | $13,845 | $11,474 | $15,466 | $43,690 | | Consumer | $0 | $1,989 | $21,874 | $66,538 | $37,449 | $127,850 | | Diversified | $0 | $0 | $0 | $0 | $204 | $204 | | Energy | $0 | $0 | $3,860 | $21,854 | $9,239 | $34,953 | | Financial | $0 | $2,066 | $98,091 | $123,301 | $13,799 | $237,257 | | Industrial | $0 | $0 | $7,856 | $19,281 | $26,907 | $54,044 | | Structured securities | $137,058 | $190,550 | $27,517 | $16,464 | $117 | $371,706 | | Technology | $1,909 | $0 | $2,971 | $21,464 | $13,686 | $40,030 | | Utilities | $0 | $0 | $1,730 | $33,641 | $5,023 | $40,394 | | Total | $138,967 | $197,510 | $178,698 | $318,362 | $127,704 | $961,241 | Equity Securities Fair Value by Sector (December 31, in thousands) | Sector | 2023 | 2022 | | :--- | :--- | :--- | | Financial services | $69,900 | $61,084 | | Utilities | $5,810 | $5,708 | | Energy | $3,901 | $3,576 | | Consumer | $3,915 | $1,854 | | Technology | $500 | $0 | | Industrial | $180 | $0 | | Communications | $47 | $338 | | Total | $84,253 | $72,560 | [Shareholders' Equity](index=33&type=section&id=Shareholders%27%20Equity) Shareholders' equity related to postretirement plans decreased in 2023 due to actuarial losses, partially offset by higher asset returns - Shareholders' equity related to postretirement plans decreased by **$33.8 million** (net of tax) in 2023, primarily due to a current period actuarial loss driven by a lower discount rate, partially offset by higher than expected return on plan assets[208](index=208&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity through management fee revenue, investment income, and a revolving credit line to fund operations and shareholder distributions - Liquidity is primarily met by management fee revenue and investment income, used to fund operating costs, share repurchases, dividends, and capital expenditures[211](index=211&type=chunk) - The company maintains sufficient liquidity through cash, diverse liquid marketable securities, and a **$100 million** bank revolving line of credit (expires October 2026)[210](index=210&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) Condensed Cash Flow Information (Years ended December 31, in thousands) | Cash Flow Activity | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $381,205 | $366,152 | $402,794 | | Net cash used in investing activities | $(157,565) | $(106,922) | $(185,490) | | Net cash used in financing activities | $(221,675) | $(300,842) | $(194,842) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $1,965 | $(41,612) | $22,462 | - Operating cash increased in 2023 due to higher management fees, partially offset by increased agent commissions, pension contributions, and operating expenses[215](index=215&type=chunk) - Investing activities used **$157.6 million** in 2023, primarily for fixed asset purchases (software, home office renovations) and loans for real estate development[216](index=216&type=chunk) - Financing activities used **$221.7 million** in 2023, mainly for dividends paid to shareholders[217](index=217&type=chunk) - Future funding requirements can be met through unrestricted cash (**$128.7 million** at Dec 31, 2023), the **$100 million** revolving line of credit, and liquidation of unpledged investment assets (**$799.0 million** at Dec 31, 2023)[219](index=219&type=chunk) [Off-Balance Sheet Arrangements](index=35&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has contingent obligations for guarantees but does not expect a material impact on its financial condition or cash flows - The company has contingent obligations for guarantees, but does not believe they will have a material current or future effect on its financial condition, results of operations, or cash flows[221](index=221&type=chunk) [Enterprise Risk Management](index=36&type=section&id=Enterprise%20Risk%20Management) The ERM function identifies, manages, and monitors significant risks to achieve strategic objectives, with Board oversight and scenario testing - The ERM function ensures significant risks are identified, understood, managed, and monitored to achieve strategic objectives, with oversight from the Board of Directors and executive management[222](index=222&type=chunk)[223](index=223&type=chunk) - The ERM process includes extreme event analyses and scenario testing to quantify potential variability and assess capital and liquidity sufficiency[223](index=223&type=chunk) [Transactions/Agreements with Related Parties](index=36&type=section&id=Transactions%2FAgreements%20with%20Related%20Parties) The Board oversees intercompany relationships with the Exchange, ensuring fair transactions within the regulated insurance holding company system - The Board of Directors oversees intercompany relationships with the Exchange, making decisions that benefit subscribers and the Exchange's overall health[224](index=224&type=chunk) - Indemnity and the Exchange, along with its subsidiaries, form an insurance holding company system, subject to state regulations requiring fair and reasonable intercompany transactions[225](index=225&type=chunk)[226](index=226&type=chunk) - Intercompany agreements include the subscriber's agreement (management fee for services) and service agreements for administrative services and shared facilities, with reimbursements settled at cost[227](index=227&type=chunk)[228](index=228&type=chunk) - Net receivables from the Exchange and affiliates were **$625.3 million** (**25.3%** of total assets) at December 31, 2023, representing a concentration of credit risk[230](index=230&type=chunk) - In December 2023, Indemnity issued two senior secured loans totaling **$13.6 million** to fund a real estate development project with related party investors[231](index=231&type=chunk)[385](index=385&type=chunk)[386](index=386&type=chunk) [ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Market risk primarily arises from the investment portfolio's exposure to interest rate, credit, concentration, liquidity, and equity price risks - Market risk arises from adverse changes in interest rates, credit spreads, equity prices, and foreign exchange rates, with the investment portfolio (**85%** fixed maturity) being the primary exposure[232](index=232&type=chunk)[233](index=233&type=chunk) - Interest rate risk is managed by monitoring effective duration; a **100-basis point** parallel increase in interest rates would decrease the fair value of the fixed maturity portfolio by an estimated **$25.8 million** in 2023[233](index=233&type=chunk)[234](index=234&type=chunk)[235](index=235&type=chunk) Fixed Maturities Interest-Rate Sensitivity Analysis (December 31, in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Fair value of fixed maturity portfolio | $961,241 | $894,661 | | Fair value assuming 100-basis point rise in interest rates | $935,444 | $868,919 | | Effective duration (as a percentage) | 2.7 | 2.9 | - Investment credit risk is managed through upfront underwriting analysis and ongoing credit quality reviews, with the majority of fixed maturities being investment grade[238](index=238&type=chunk)[239](index=239&type=chunk) Fixed Maturity Investments by Rating (December 31, in thousands) | Rating Category | Amortized cost (2023) | Fair value (2023) | Percent of total (2023) | Amortized cost (2022) | Fair value (2022) | Percent of total (2022) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | AAA, AA, A | $537,751 | $515,175 | 54 % | $518,088 | $479,413 | 54 % | | BBB | $324,538 | $318,362 | 33 % | $318,801 | $300,900 | 33 % | | Total investment grade | $862,289 | $833,537 | 87 % | $836,889 | $780,313 | 87 % | | BB | $51,564 | $50,170 | 5 % | $45,784 | $41,978 | 5 % | | B | $65,453 | $65,251 | 7 % | $66,574 | $62,530 | 7 % | | CCC, CC, C, and below | $13,247 | $12,283 | 1 % | $11,888 | $9,840 | 1 % | | Total non-investment grade | $130,264 | $127,704 | 13 % | $124,246 | $114,348 | 13 % | | Total | $992,553 | $961,241 | 100 % | $961,135 | $894,661 | 100 % | - Concentration risk is monitored against internal policies for individual issuers and industry sectors. Liquidity risk is managed by actively managing the maturity profile of the fixed maturity portfolio[242](index=242&type=chunk)[243](index=243&type=chunk) - Equity price risk, primarily from nonredeemable preferred stock, is not hedged[244](index=244&type=chunk) PART III [ITEM 8. Financial Statements and Supplementary Data](index=40&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section provides audited financial statements, including statements of operations, financial position, and cash flows, along with detailed notes and auditor's report - The financial statements, audited by Ernst & Young LLP, present fairly the financial position, results of operations, and cash flows in conformity with U.S. GAAP[247](index=247&type=chunk) Statements of Operations (Years ended December 31, in thousands) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total operating revenue | $3,268,940 | $2,840,124 | $2,633,977 | | Total operating expenses | $2,748,684 | $2,463,910 | $2,315,880 | | Operating income | $520,256 | $376,214 | $318,097 | | Total investment income | $28,968 | $632 | $67,332 | | Income before income taxes | $561,936 | $376,452 | $376,404 | | Income tax expense | $115,875 | $77,883 | $78,544 | | Net income | $446,061 | $298,569 | $297,860 | | Net income per share - diluted (Class A) | $8.53 | $5.71 | $5.69 | Statements of Financial Position (December 31, in thousands) | Asset/Liability/Equity | 2023 | 2022 | | :--- | :--- | :--- | | Total assets | $2,471,964 | $2,239,456 | | Total liabilities | $809,129 | $791,048 | | Total shareholders' equity | $1,662,835 | $1,448,408 | Statements of Cash Flows (Years ended December 31, in thousands) | Cash Flow Activity | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $381,205 | $366,152 | $402,794 | | Net cash used in investing activities | $(157,565) | $(106,922) | $(185,490) | | Net cash used in financing activities | $(221,675) | $(300,842) | $(194,842) | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $1,965 | $(41,612) | $22,462 | | Cash, cash equivalents, and restricted cash, end of year | $144,055 | $142,090 | $183,702 | - The company's primary function is to serve as attorney-in-fact for the Erie Insurance Exchange, providing policy issuance, renewal, and administrative services, for which it retains a management fee based on direct and affiliated assumed premiums[271](index=271&type=chunk)[272](index=272&type=chunk) - Management fee revenue for policy issuance and renewal services is recognized at the time of policy issuance or renewal, while revenue for administrative services is recognized over a four-year period[293](index=293&type=chunk)[294](index=294&type=chunk) - The company's investment portfolio consists primarily of fixed maturity securities (**85%** in 2023) and equity securities, with unrealized gains and losses on available-for-sale securities recognized in other comprehensive income[199](index=199&type=chunk)[283](index=283&type=chunk) - Fixed assets, primarily software and buildings, are depreciated using the straight-line method, with construction in progress for home office renovations expected to complete by 2027[288](index=288&type=chunk)[327](index=327&type=chunk)[328](index=328&type=chunk) - The company has access to a **$100 million** bank revolving line of credit, with **$99.1 million** available as of December 31, 2023, and is in compliance with all covenants[330](index=330&type=chunk) - Pension plans include a defined benefit plan and an unfunded SERP, with a **$95 million** contribution made in 2023, resulting in a net benefit asset of **$34.3 million**[331](index=331&type=chunk)[338](index=338&type=chunk) - Deferred compensation plans for executives and directors include annual and long-term incentive plans, with awards settled in cash or Class A common stock, often held in a rabbi trust[352](index=352&type=chunk)[353](index=353&type=chunk)[354](index=354&type=chunk)[355](index=355&type=chunk)[359](index=359&type=chunk)[360](index=360&type=chunk)[361](index=361&type=chunk)[362](index=362&type=chunk) - The company's effective tax rate is reconciled to the statutory federal income tax rate, and it had no valuation allowance for deferred tax assets at December 31, 2023 or 2022[369](index=369&type=chunk)[370](index=370&type=chunk) - Significant receivables from the Exchange and its affiliates (**$625.3 million** at Dec 31, 2023) represent a concentration of credit risk[387](index=387&type=chunk) - The company is involved in litigation in the ordinary course of business and establishes reserves when losses are probable and estimable, believing current accruals are appropriate[390](index=390&type=chunk)[391](index=391&type=chunk) [ITEM 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure](index=76&type=section&id=Item%209.%20Changes%20In%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no changes in or disagreements with accountants regarding accounting or financial disclosure - There were no changes in or disagreements with accountants on accounting and financial disclosure[395](index=395&type=chunk) [ITEM 9A. Controls and Procedures](index=76&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes - Disclosure controls and procedures were evaluated and deemed effective as of December 31, 2023, by management, including the CEO and CFO[396](index=396&type=chunk)[397](index=397&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[398](index=398&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 31, 2023, based on the 2013 COSO framework[399](index=399&type=chunk) - Ernst & Young LLP, the independent auditor, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[400](index=400&type=chunk)[403](index=403&type=chunk)[404](index=404&type=chunk) [ITEM 9B. Other Information](index=76&type=section&id=Item%209B.%20Other%20Information) No additional information was filed in the fourth quarter of 2023 that had not already been reported in a Form 8-K - No additional information was filed in the fourth quarter of 2023 that had not already been reported in a Form 8-K[401](index=401&type=chunk) PART IV [ITEM 10. Directors, Executive Officers and Corporate Governance](index=78&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the Schedule 14C, with established codes of conduct - Information on directors, executive officers, corporate governance, audit committee, and Section 16(a) compliance is incorporated by reference to the Schedule 14C information statement[412](index=412&type=chunk) - The company has a Code of Conduct for all directors, officers, and employees, and a Code of Ethics for Senior Financial Officers[413](index=413&type=chunk) Executive Officers of the Registrant (Age as of 12/31/2023) | Name | Age | Principal Occupation and Positions for Past Five Years | | :--- | :--- | :--- | | Timothy G. NeCastro | 63 | President and Chief Executive Officer since August 2016. Director of EFL, EIC, Flagship, ENY and EPC. | | Brian W. Bolash | 58 | Executive Vice President, Secretary and General Counsel since January 2022. Senior Vice President, Secretary and General Counsel, October 2018-December 2021. Senior Counsel and Corporate Secretary, January 2016-September 2018. Director of EFL, EIC, Flagship, ENY and EPC. | | Sean D. Dugan | 55 | Executive Vice President, Human Resources and Corporate Services since January 2023. Senior Vice President, Human Resources, March 2020-December 2022. Corporate Human Resources Officer, October 2018-March 2020. Director of EFL, EIC, Flagship, ENY and EPC. | | Lorianne Feltz | 54 | Executive Vice President, Claims & Customer Service since November 2016. | | Julie M. Pelkowski | 54 | Executive Vice President and Chief Financial Officer since May 2023. Senior Vice President, Enterprise Office, March 2022-April 2023. Senior Vice President and Controller, August 2016-February 2022. Director of EFL, EIC, Flagship, ENY and EPC. | | Douglas E. Smith | 49 | Executive Vice President, Sales & Products since November 2016. | | Parthasarathy Srinivasa | 52 | Executive Vice President and Chief Information Officer since April 2022. Prior roles at Verisk Analytics and Safe Auto Insurance. | [ITEM 11. Executive Compensation](index=79&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation information is incorporated by reference from the Schedule 14C information statement - Executive compensation information is incorporated by reference to the Schedule 14C information statement[415](index=415&type=chunk) [ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=79&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership and equity compensation plan information is incorporated by reference from the Schedule 14C information statement - Information on security ownership and equity compensation plans is incorporated by reference to the Schedule 14C information statement[416](index=416&type=chunk) [ITEM 13. Certain Relationships and Related Transactions, and Director Independence](index=79&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information on certain relationships with outside directors is incorporated by reference from the Schedule 14C information statement - Information on certain relationships with outside directors is incorporated by reference to the Schedule 14C information statement[417](index=417&type=chunk) [ITEM 14. Principal Accountant Fees and Services](index=79&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the Schedule 14C information statement - Information on principal accountant fees and services is incorporated by reference to the Schedule 14C information statement[418](index=418&type=chunk) [ITEM 15. Exhibits and Financial Statement Schedules](index=80&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists exhibits and financial statement schedules, including the auditor's report, financial statements, and a detailed Exhibit Index - The section includes the Report of Independent Registered Public Accounting Firm, financial statements (Operations, Comprehensive Income, Financial Position, Shareholders' Equity, Cash Flows), and Notes to Financial Statements[424](index=424&type=chunk) - A detailed Exhibit Index lists corporate documents (Articles of Incorporation, Bylaws), agreements (Subscriber's Agreement, Services Agreements, Indemnification Agreements, Credit Agreements), and compensation plans (Annual Incentive Plan, Long-Term Incentive Plan, Equity Compensation Plan, Deferred Compensation Plans, Retirement Plans)[426](index=426&type=chunk)[427](index=427&type=chunk)[428](index=428&type=chunk) [ITEM 16. Form 10-K Summary](index=80&type=section&id=Item%2016.%20Form%2010-K%20Summary) No Form 10-K Summary is provided - No Form 10-K Summary is provided[423](index=423&type=chunk)