Erie Indemnity(US:ERIE)2025-08-07 20:28PART I. FINANCIAL INFORMATION Presents the company's unaudited consolidated financial statements and management's analysis of financial condition and operational results Item 1. Financial Statements Unaudited consolidated financial statements show increased net income, total assets, and operating cash flow for the first half of 2025 Consolidated Statements of Operations Total operating revenue and net income increased significantly for the six months ended June 30, 2025, driven by higher management fees | Financial Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Total Operating Revenue | $2,049,496 thousand | $1,871,139 thousand | +9.5% | | Operating Income | $350,549 thousand | $329,020 thousand | +6.5% | | Net Income | $313,102 thousand | $288,455 thousand | +8.5% | | Diluted EPS (Class A) | $5.99 | $5.52 | +8.5% | - Dividends declared per Class A common stock share increased to $2.73 for the first six months of 2025, up from $2.55 in the same period of 202412 Consolidated Statements of Financial Position Total assets grew to $3.13 billion by June 30, 2025, primarily due to increases in cash and receivables, with shareholders' equity also rising | Balance Sheet Item | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $3,128,214 thousand | $2,888,614 thousand | | Cash and cash equivalents | $358,027 thousand | $298,397 thousand | | Available-for-sale securities, net | $1,048,584 thousand | $991,726 thousand | | Total Liabilities | $943,669 thousand | $901,356 thousand | | Total Shareholders' Equity | $2,184,545 thousand | $1,987,258 thousand | Consolidated Statements of Cash Flows Net cash from operating activities increased significantly in the first half of 2025, while investing and financing activities used cash | Cash Flow Activity (Six months ended June 30) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $295,694 thousand | $218,620 thousand | | Net cash used in investing activities | ($136,572) thousand | ($79,632) thousand | | Net cash used in financing activities | ($99,492) thousand | ($112,409) thousand | | Net increase in cash | $59,630 thousand | $26,579 thousand | Notes to Consolidated Financial Statements Details the company's operations as attorney-in-fact for Erie Insurance Exchange, revenue recognition, segment information, and investment accounting - The company's primary function is to act as the attorney-in-fact for the subscribers at the Erie Insurance Exchange, performing policy issuance, renewal, and administrative services2425 - The company has one reportable segment: management operations. The chief operating decision maker assesses performance based on net income40 - The majority of revenue and receivables are from the Erie Insurance Exchange and its affiliates, representing a significant concentration of credit risk. Net receivables from the Exchange were $769.1 million as of June 30, 202589 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 6.5% operating income increase, driven by higher management fee revenue and premium growth, alongside an information security incident and strong liquidity Operating Overview Operating income and net income grew in the first half of 2025, fueled by premium growth, despite a non-material information security incident - On June 7, 2025, the company identified an information security incident. A forensics investigation found no evidence that sensitive personal or financial data was breached. Full business operations resumed on July 7, 2025. The financial impact is not expected to be material106107 | Metric (Six months ended June 30) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Operating income | $350,549 thousand | $329,020 thousand | 6.5% | | Net income | $313,102 thousand | $288,455 thousand | 8.5% | | Net income per share – diluted | $5.99 | $5.52 | 8.5% | Results of Operations Management fee revenue increased 10.7% due to 11.4% premium growth at the Exchange, while total investment income rose 35.4% - Direct and affiliated assumed premiums written by the Exchange, the primary driver of revenue, increased 11.4% to $6.5 billion for the six months ended June 30, 2025118 - Total commissions expense for the six months ended June 30, 2025, increased 13.1% to $900.3 million, driven by premium growth and higher agent incentive compensation due to improved profitability130 - Net investment income for the first six months of 2025 increased by 25.3% to $40.0 million, primarily due to higher income from bonds and cash equivalents136137 Financial Condition The company's financial condition is linked to the Erie Insurance Exchange's A+ rating, with its investment portfolio growing to $1.35 billion - The Erie Insurance Exchange is rated A+ "Superior" by A.M. Best. However, on August 8, 2024, the financial strength rating outlook was revised from stable to negative, driven by recent profitability challenges140 | Investment Type | June 30, 2025 | % of Total | | :--- | :--- | :--- | | Available-for-sale securities | $1,126,148 thousand | 84% | | Equity securities | $85,228 thousand | 6% | | Agent loans | $99,572 thousand | 7% | | Other investments | $35,225 thousand | 3% | | Total investments | $1,346,173 thousand | 100% | Liquidity and Capital Resources Strong liquidity is maintained through operating cash flows and a diverse investment portfolio, with a planned $100 million donation to a new foundation - The company announced the formation of the Erie Insurance Foundation and plans to donate $100 million to its endowment, expected to be funded in the next twelve months156 | Cash Flow (Six months ended June 30) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $295,694 thousand | $218,620 thousand | | Net cash used in investing activities | ($136,572) thousand | ($79,632) thousand | | Net cash used in financing activities | ($99,492) thousand | ($112,409) thousand | - Future funding requirements can be met through unrestricted cash of $329.6 million, a $100 million credit line, and liquidation of $882.9 million in unpledged investment assets as of June 30, 2025161 PART II. OTHER INFORMATION Addresses legal proceedings, updated risk factors, and details on unregistered equity sales and share repurchases Item 1. Legal Proceedings The company is defending against a fiduciary duty lawsuit and several class action complaints related to a June 2025 information security incident - A complaint alleges breach of fiduciary duty by the company in connection with setting the management fee it receives from the Erie Insurance Exchange. The company is vigorously defending against these allegations170174176 - Following the June 2025 information security incident, 14 putative class action complaints were filed. As of the report date, 11 have been voluntarily dismissed, leaving three pending. The company plans to vigorously defend these claims, noting no evidence of a sensitive data breach was found181182184 Item 1A. Risk Factors No material changes to risk factors, except for expanded disclosure on extensive regulation, including cybersecurity, data privacy, DEI, and ESG matters - The company highlights increased risks from complex and evolving laws and regulations, particularly concerning cybersecurity, data privacy, diversity, equity, and inclusion (DEI), and ESG matters187189 - Failure to comply with new regulations or manage stakeholder expectations, especially around DEI and ESG, could expose the company to litigation, fines, and reputational damage189 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has a $150 million stock repurchase program, with approximately $17.8 million remaining, and repurchased 139 shares in Q2 2025 for stock-based awards | Period (2025) | Total Shares Purchased | Average Price Paid | Value Remaining in Program | | :--- | :--- | :--- | :--- | | April 1-30 | 0 | $— | $17,754 thousand | | May 1-31 | 139 | $359.85 | $17,754 thousand | | June 1-30 | 0 | $— | $17,754 thousand | - The shares repurchased during the quarter were acquired on the open market to satisfy stock-based awards under the company's equity compensation plan192