Erie Indemnity Company 4Q 2025 Earnings Call - Rate Actions Improve Underwriting, But Growth and Earnings Face Ongoing Headwinds

Call Moderator, Erie Indemnity Company: Good morning, welcome to the Erie Indemnity Company fourth quarter and year-end 2025 earnings conference call. This call was prerecorded and there will be no question-and-answer session following the recording. Now, I’d like to introduce your host for the call, Vice President of Investor Relations, Scott Beilharz.

Scott Beilharz, Vice President of Investor Relations, Erie Indemnity Company: Thank you, and welcome, everyone. We appreciate you joining us for this recorded discussion about our fourth quarter results. This recording will include remarks from Tim Nicastro, President and Chief Executive Officer, and Julie Kalkowski, Executive Vice President and Chief Financial Officer. Our earnings release and financial supplement were issued yesterday afternoon after the market closed and are available within the Investor Relations section of our website, erieinsurance.com. Before we begin, I would like to remind everyone that today’s discussion may contain forward-looking remarks that reflect the company’s current views about future events. These remarks are based on assumptions subject to known and unexpected risks and uncertainties. These risks and uncertainties may cause results to differ materially from those described in these remarks.

For information on important factors that may cause such differences, please see the safe harbor statements in our Form 10-K filing with the SEC filed yesterday and in the related press release. This prerecorded call is the property of Erie Indemnity Company. It may not be reproduced or rebroadcast by any other party without the prior written consent of Erie Indemnity Company. With that, we will move on to Tim’s remarks. Tim?

Tim Nicastro, President and Chief Executive Officer, Erie Indemnity Company: Thanks, Scott. Good morning, everyone. Now that 2025, our hundredth year in business, is behind us, I wanted to take a minute to reflect on that full year before we walk through our fourth quarter and year-end financial results. When we entered 2025, we were celebrating a remarkable milestone, a century of service. At the same time, we were navigating one of the more challenging underwriting environments in our history, shaped by the elevated weather activity, higher claim severity, and competitive market dynamics. Throughout the year, our focus remained consistent: restoring sustainable profitability to the exchange, maintaining our financial strength, and positioning the company for long-term growth without compromising the service that defines Erie. The first half of the year brought continued weather volatility and economic pressure, including the costliest weather event in our history.

As the year progressed, we saw clear evidence that the rate actions implemented over the past several years were taking hold, and that our disciplined focus on profitability and financial strength was making a measurable difference. While we still have a challenging landscape in front of us, I’m confident that our consistent long-term strategy, one that has sustained us for 100 years, positions us well for a strong year ahead. With that, I’ll turn it over to our Chief Financial Officer and my good friend, Julie Pelkowski, to share more details on our fourth quarter and full year results.

Julie Kalkowski, Executive Vice President and Chief Financial Officer, Erie Indemnity Company: Thank you, Tim. Good morning, everyone. As Tim just mentioned, in 2025, we’ve seen continued progress in our long-term plan to restore profitability of the Erie Insurance Exchange, the insurance operations we manage, despite increased severity in weather events experienced in the first half of the year. Starting with the results of the Exchange, direct written premiums grew approximately 5% in the fourth quarter compared to the prior year, and almost 9% for the full year compared to 2024, driven primarily by the realization of prior rate actions. Average premium per policy for the total year grew 9.6% compared to 2024. As our more significant rate actions have been realized, more moderate rate increases were taken in 2025, reflecting alignment between pricing and loss cost trends. The competitive market conditions contributed to a continued slowdown in growth.

Policies in force, while still above the 7 million mark, declined 1.1%. Retention declined to 88.4%. As these headwinds continue this year, we will respond through targeted pricing adjustments and product enhancements, such as Erie Secure Auto. From a profitability perspective, the fourth quarter combined ratio improved significantly to 94.1%, compared to 105.7% in the same quarter last year. With catastrophe losses contributing only 0.7 points to the fourth quarter combined ratio, the 94.1% reflects the improved rate adequacy. From a full year perspective, the combined ratio improved from 110.4% in 2024 to 104.9% in 2025.

The significant catastrophe losses experienced in the first half of the year were offset with lower-than-expected catastrophe losses in the second half of the year. This resulted in catastrophe losses contributing 10.6 points to the combined ratio on a reported basis, compared to 9.6 points in 2024. Together, the lower underwriting losses and strong investment earnings in 2025 resulted in an increase to policyholder surplus from approximately $9.3 billion at the beginning of the year to approximately $10.1 billion at year-end. This growth demonstrates the strength of our capital position and our ability to withstand volatility while continuing to deliver long-term value to our policyholders.

Let’s turn to the results of the indemnity. Net income was over $63 million, or $1.21 per diluted share in the fourth quarter of 2025, compared to $152 million, or $2.91 per diluted share in the fourth quarter of 2024. For the full year, net income totaled over $559 million, or $10.69 per diluted share, compared to over $600 million, or $11.48 per diluted share in 2024. Net income for both the fourth quarter and full year was impacted by a $100 million contribution to our charitable foundation in the fourth quarter. While this contribution reduced net income, it did not impact operating income.

Operating income decreased nearly $10 million or 5.7% in the fourth quarter compared to the same period last year. Expense growth for policy issuance and renewal services of approximately $40 million or 7.3%, outpaced management fee revenue growth for policy issuance and renewal services of $29 million or 4.2% in the fourth quarter. Our revenue growth was in line with the growth in direct written premiums of the exchange. Agent compensation, our largest cost of operations, grew $30 million, or 7.8% in the fourth quarter, driven by higher base commissions in line with direct written premium growth, as well as higher agent incentive compensation due to improved profitability. The remaining increase in non-commission expenses was primarily driven by higher personnel costs and information technology costs.

Looking at the full year, operating income increased nearly $41 million or 6% compared to 2024. Management fee revenue for policy issuance and renewal services grew approximately $238 million or 8.2%, while expense growth for policy issuance and renewal services totaled approximately $201 million or 8.7%. Agent compensation for 2025 grew nearly $176 million in total, or approximately 11%, driven by an increase in both base commissions and agent incentive compensation similar to the fourth quarter. Non-commission expenses increased approximately 3.6% to about $736 million. Also, similar to the fourth quarter, these expenses were driven by higher personnel and information technology costs. Total investment income was just over $24 million in the fourth quarter, compared to $21 million in the fourth quarter of 2024.

For the full year, total investment income was almost $85 million, compared to approximately $69 million in 2024. Both the fourth quarter and full year results were primarily driven by higher net investment income due to higher balances and yields. In 2025, we established a tax-exempt private charitable foundation to support our long-term charitable giving and grant-making efforts. As I mentioned, we made a $100 million contribution to the foundation, which reduced diluted earnings per share for the fourth quarter and full year by $1.54. In 2025, we paid our shareholders over $254 million in dividends. In December, our board of directors approved a 7.1% increase in the quarterly dividend for 2026. With that, I’ll turn the call back over to Tim.

Tim Nicastro, President and Chief Executive Officer, Erie Indemnity Company: Thanks, Julie. As we move into 2026, our focus remains clear: continuing to strengthen profitability, supporting disciplined growth, and investing in product offerings and capabilities that will position Erie for long-term success. On the personal lines side, we continue to make meaningful progress with Erie Secure Auto, which offers more flexible and competitive rates. It was successfully deployed in West Virginia in late December and Virginia in February, with plans to roll it out in additional states in the first half of this year. During the initial Erie Secure Auto pilot in Ohio last fall, we saw it make impressive impacts on submitted applications and direct written premiums in that state, and we expect it to further enhance our competitive position across our footprint. In commercial lines, we’re continuing the expansion of Business Auto Two ponto across our footprint.

The product was released to North Carolina in late January, bringing the total to nine states, with more expected before the end of the first quarter. These enhancements improve the quoting and servicing experience for our agents and customers, while also supporting more consistent underwriting and operational efficiency. We’re also advancing innovation beyond our core platforms. Through Erie Strategic Ventures, our venture capital arm, launched in 2022, we recently announced investments in two new portfolio companies, Atomic and Feathery. Atomic delivers embedded brokerage and wealth management solutions designed for financial institutions, while Feathery provides an AI-powered data intake platform that helps streamline traditionally manual processes. The Erie Strategic Ventures Fund focuses on investing in the personal and commercial insurance value chain, as well as adjacencies that offer potential to deliver value to Erie, its agents, and our policyholders.

We believe these latest investments with startups operating at the intersection of technology and financial services provide numerous opportunities for mutual benefit. As we focus on the future with new products, technology, and non-core sources of revenue, our 100-year commitment to service is always at the forefront. Recent recognitions affirm the strength of that commitment. In November, Erie earned the highest ranking in customer claim satisfaction among auto insurers in J.D. Power 2025 U.S. Auto Claims Satisfaction Study, leading in overall satisfaction and in key areas such as trust. This followed another first-place ranking from J.D. Power last September for small business insurance customer satisfaction. Erie was also named to Newsweek’s list of America’s Best Customer Service 2026, based on independent consumer feedback across multiple service factors. Altogether, 2025 was a year of meaningful progress.

We strengthened the core of our business, preserved our financial resilience, and positioned Erie to begin its second century with clarity and confidence. As many of you know, I recently shared my intention to retire from Erie at the end of 2026. Having the opportunity to lead this company, especially during its hundredth year, has been the greatest privilege of my professional life. Erie is a special organization built on strong values, deep relationships, and an unwavering commitment to service. Over the next year, my focus remains exactly where it has always been, continuing to execute our strategy and supporting our employees and agents, while ensuring a thoughtful and seamless leadership transition. We have an exceptional team in place, and I’m confident the culture and discipline that have carried Erie through the past century will continue to guide it forward.

Thank you, shareholders, for your continued trust and support, and thank you all for your interest in Erie.