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What changed in Erie Indemnity's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Erie Indemnity's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+240 added−233 removedSource: 10-K (2025-02-27) vs 10-K (2024-02-26)

Top changes in Erie Indemnity's 2024 10-K

240 paragraphs added · 233 removed · 208 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe hold a shared responsibility view of retirement planning whereby we provide tools and resources that employees are expected to use to achieve their retirement goals. We set ourselves apart by offering both a 401(k) savings plan and a noncontributory defined benefit pension plan.
Biggest changeIn 2024, we were recognized as a Best Employers: Excellence in Health & Well-being by the Business Group on Health for our commitment to advancing employee well-being for the 15 th consecutive year. We hold a shared responsibility view of retirement planning whereby we provide tools and resources that employees are expected to use to achieve their retirement goals.
The Exchange has wholly owned property and casualty subsidiaries including: Erie Insurance Company, Erie Insurance Company of New York, Erie Insurance Property & Casualty Company and Flagship City Insurance Company, and a wholly owned life insurance company, Erie Family Life Insurance Company ("EFL").
The Exchange has wholly owned property and casualty insurance subsidiaries including: Erie Insurance Company, Erie Insurance Company of New York, Erie Insurance Property & Casualty Company and Flagship City Insurance Company, and a wholly owned life insurance company, Erie Family Life Insurance Company ("EFL").
The Exchange and its subsidiaries reimburse us monthly for the cost of these services. (2) Temporary employees are hired for short-term work and paid directly by us. (3) Turnover is calculated using the number of employees who exited, divided by the average headcount of the period and represents the percentage of employees who left voluntarily or involuntarily, including retirements.
The Exchange and its insurance subsidiaries reimburse us monthly for the cost of these services. (2) Temporary employees are hired for short-term work and paid directly by us. (3) Turnover is calculated using the number of employees who exited, divided by the average headcount of the period and represents the percentage of employees who left voluntarily or involuntarily, including retirements.
State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department. Erie Insurance Exchange As our primary purpose is to manage the affairs at the Exchange for the benefit of the subscribers (policyholders) through the policy issuance and renewal services and administrative services, the Exchange is our sole customer.
State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department. 3 Table of Contents Erie Insurance Exchange As our primary purpose is to manage the affairs at the Exchange for the benefit of the subscribers (policyholders) through the policy issuance and renewal services and administrative services, the Exchange is our sole customer.
We also have an exposure to a concentration of credit risk related to the unsecured receivables due from the Exchange for net management fee and other reimbursements. See Part II, Item 8. "Financial Statements and Supplementary Data - Note 15, Concentrations of Credit Risk, of Notes to Financial Statements" contained within this report.
We also have an exposure to a concentration of credit risk related to the unsecured receivables due from the Exchange for net management fee and other reimbursements. See Part II, Item 8. "Financial Statements and Supplementary Data - Note 16, Concentrations of Credit Risk, of Notes to Consolidated Financial Statements" contained within this report.
This focus allows the Exchange to accomplish its mission of providing as near perfect protection, as near perfect service as is humanly possible at the lowest possible cost. See the risk factors related to our dependency on the growth and financial condition of the Exchange in Item 1A.
This focus allows the Exchange 4 Table of Contents to accomplish its mission of providing as near perfect protection, as near perfect service as is humanly possible at the lowest possible cost. See the risk factors related to our dependency on the growth and financial condition of the Exchange in Item 1A.
We offer competitive pay with a signature and affordable benefits package including options designed to meet the unique needs of our employees and their families. Employees have access to an employee assistance plan, emergency child and elder care providers, adoption assistance, and infertility assistance, among others.
We offer competitive pay with a signature and affordable benefits package including options designed to meet the unique needs of our employees and their families. Employees have access to an employee assistance plan, mental and emotional well-being resources, emergency child and elder care providers, adoption assistance, and infertility assistance, among others.
We are also intentional about leveraging talent from the neuro diverse population, engaging individuals to support various enterprise initiatives. We foster an inclusive workplace through the endorsement of nine affinity networks and five business resource groups. Affinity networks are employee-driven groups that focus on particular dimensions of diversity and are designed to foster greater awareness and a culture of inclusion.
We are also intentional about leveraging talent from the neuro diverse population, engaging individuals to support various enterprise initiatives. Additionally, we foster an inclusive workplace through the endorsement of nine affinity networks and five business resource groups. Affinity networks are employee-driven groups designed to foster greater awareness and a culture of inclusion.
"Risk Factors" contained within this report for further discussion on competition in the insurance industry. 4 Table of Contents Human Capital Management Employee Value Proposition Our human capital management strategy, including initiatives to shape our workforce and workplace, is designed to attract, retain, and develop talent to ensure we are well positioned for the future.
"Risk Factors" contained within this report for further discussion on competition in the insurance industry. Human Capital Management Our human capital management strategy, including initiatives to shape our workforce and workplace, is designed to attract, retain, and develop talent to ensure we are well positioned for the future.
Through these groups, we are taking a broader approach to problem-solving and innovation by aligning cross-functional teams of employees to our business strategy. 5 Table of Contents Workforce Metrics We used the following human capital metrics as part of managing our business for the years ended December 31: 2023 2022 2021 Workforce size Full-time (1) 6,481 5,970 5,805 Part-time 24 23 30 Temporary (2) 51 45 41 Turnover (3) 9.0 % 11.2 % 8.0 % Voluntary 4.8 % 6.9 % 4.8 % Retirements 2.8 % 3.6 % 2.2 % Average tenure (4) 10.4 11.7 12.6 (1) Includes 50% of employees who provide claims and life insurance management services exclusively for the Exchange and its subsidiaries for all periods presented.
Business resource groups address business issues by aligning cross-functional teams of employees to our business strategy, providing a broader approach to problem-solving and innovation. 5 Table of Contents Workforce Metrics We used the following human capital metrics as part of managing our business for the years ended December 31: 2024 2023 2022 Workforce size Full-time (1) 6,715 6,481 5,970 Part-time 26 24 23 Temporary (2) 60 51 45 Turnover (3) 8.2 % 9.0 % 11.2 % Voluntary 4.8 % 4.8 % 6.9 % Retirements 2.3 % 2.8 % 3.6 % Average tenure (4) 10.6 10.4 11.7 (1) Includes approximately 50% of employees who provide claims and life insurance management services exclusively for the Exchange and its insurance subsidiaries for all periods presented.
The Exchange generates revenue by insuring preferred and standard risks, with personal lines comprising 70% of the 2023 direct and affiliated assumed written premiums and commercial lines comprising the remaining 30%. The principal personal 3 Table of Contents lines products are private passenger automobile and homeowners. The principal commercial lines products are commercial multi-peril, commercial automobile and workers compensation.
The Exchange generates revenue by insuring preferred and standard risks, with personal lines comprising 71% of the 2024 direct and affiliated assumed written premiums and commercial lines comprising the remaining 29%. The principal personal lines products are private passenger automobile and homeowners. The principal commercial lines products are commercial multi-peril, commercial automobile and workers compensation.
Investment management services are related to investment trading activity, accounting and all other functions attributable to the investment of funds. Included in these expenses are allocations of costs for departments that support these administrative functions. The subscriber's agreement and service agreements provide for reimbursement of amounts incurred for these services to Indemnity. Reimbursements are settled at cost.
Included in these expenses are allocations of costs for departments that support these administrative functions. The subscriber's agreement and service agreements provide for reimbursement of amounts incurred for these services to Indemnity. Reimbursements are settled at cost.
Agent compensation includes scheduled commissions to agents based upon premiums written as well as incentive compensation, which is earned by achieving targeted measures. Agent compensation comprised approximately 67% of our 2023 policy issuance and renewal expenses. The underwriting services we provide include underwriting and policy processing and comprised approximately 9% of our 2023 policy issuance and renewal expenses.
The sales related services we provide include agent compensation and certain sales and advertising support services. Agent compensation includes scheduled commissions to agents based upon premiums written as well as incentive compensation, which is earned by achieving targeted measures. Agent compensation comprised approximately 69% of our 2024 policy issuance and renewal expenses.
The remaining services we provide include customer service and administrative support. We also provide information technology services that support all the functions listed above that comprised approximately 11% of our 2023 policy issuance and renewal expenses. Included in these expenses are allocations of costs for departments that support these policy issuance and renewal functions.
The underwriting services we provide include underwriting and policy processing and comprised approximately 9% of our 2024 policy issuance and renewal expenses. The remaining services we provide include customer service and administrative support. We also provide information technology services that support all the functions listed above that comprised approximately 9% of our 2024 policy issuance and renewal expenses.
Our recruiting strategy includes access to multiple talent channels. We work to expand our pool of potential talent to include an array of skills, backgrounds, and experiences.
We recognize the importance of diverse backgrounds and experiences and are committed to providing equal employment opportunity for all employees. Our recruiting strategy includes access to multiple talent channels. We work to expand our pool of potential talent to include an array of skills, backgrounds, and experiences.
We offer a volunteer program that provides employees with an allotment of paid hours annually to volunteer with eligible nonprofit organizations. We also offer a matching gifts program for donations to eligible nonprofit organizations. Diversity, Equity & Inclusion Diversity, equity, and inclusion ("DEI") is integral to our business success.
Our employees also share in our values to give back and make a positive difference in their communities. We offer a volunteer program that provides employees with an allotment of paid hours annually to volunteer with eligible nonprofit organizations. We also offer a matching gifts program for donations to eligible nonprofit organizations.
We also grow and develop our employees by offering talent mobility opportunities such as expanded leadership experience, job shadowing, cross-training, stretch assignments, and formal career development programs. Our employees also share in our values to give back and make a positive difference in their communities.
Employees have access to skills enhancement training and programs as well as a generous tuition reimbursement program for higher education. We also grow and develop our employees by offering talent mobility opportunities such as expanded leadership experience, job shadowing, cross-training, stretch assignments, and formal career development programs.
Consistent with its legal structure as a reciprocal insurer, the Exchange does not have any employees or officers. Therefore, it enters into contractual relationships by and through the subscribers' attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the subscribers at the Exchange with respect to its administrative services as enumerated in the subscriber's agreement.
Included in these expenses are allocations of costs for departments that support these policy issuance and renewal functions. Consistent with its legal structure as a reciprocal insurer, the Exchange does not have any employees or officers. Therefore, it enters into contractual relationships by and through the subscribers' attorney-in-fact.
Our partnership with our employees is one of the cornerstones of our success. Our employee value proposition includes a culture that focuses on physical, financial, and emotional well-being. In 2023, we were Certified™ by Great Place To Work® for our positive employee experience.
Our partnership with our employees is one of the cornerstones of our success. Our employee value proposition includes a culture that focuses on physical, financial, and emotional well-being. We strive to maintain a positive employee experience through a continuous listening approach that seeks employee feedback through various mechanisms such as periodic pulse surveys and all-employee forums.
We encourage a work/life balance for all employees and recognize the need for employee flexibility by offering an allowance of remote work days to use throughout the year. An engaged workforce is necessary for accomplishing organizational objectives and our portfolio of employee experience initiatives demonstrates our commitment to provide employees an engaging environment throughout all stages of their careers.
An engaged workforce is necessary for accomplishing organizational objectives and our portfolio of employee experience initiatives demonstrates our commitment to provide employees an engaging environment throughout all stages of their careers. We offer professional development opportunities that are designed to prepare employees for future career growth.
The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. Claims handling services include costs incurred in the claims process, including the adjustment, investigation, defense, recording and payment functions. Life insurance management services include costs incurred in the management and processing of life insurance business.
Claims handling services include costs incurred in the claims process, including the adjustment, investigation, defense, recording and payment functions. Life insurance management services include costs incurred in the management and processing of life insurance business. Investment management services are related to investment trading activity, accounting and all other functions attributable to the investment of funds.
Services The policy issuance and renewal services we provide on behalf of the subscribers at the Exchange are related to the sales, underwriting and issuance of policies. The sales related services we provide include agent compensation and certain sales and advertising support services.
Further discussion of financial results for our single operating segment is provided in and referenced to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained within this report. Services The policy issuance and renewal services we provide on behalf of the subscribers at the Exchange are related to the sales, underwriting and issuance of policies.
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We offer professional development opportunities that are designed to prepare employees for future career growth. Employees have access to skills enhancement training and programs as well as a generous tuition reimbursement program for higher education.
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Business Segments We operate under a single reportable segment: management operations. Financial information about this segment is set forth in and referenced to Item 8. “Financial Statements and Supplementary Data - Note 4, Segment Information, of Notes to Consolidated Financial Statements” contained within this report.
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Our DEI efforts are led by a Chief Diversity Officer who reports directly to the Chief Executive Officer, affirming our commitment to DEI from executive leadership. These efforts are further supported by a dedicated team of professionals including a Vice President of Diversity, Equity, and Inclusion. We recognize the importance of diverse backgrounds and experiences.
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Indemnity serves as the attorney-in-fact on behalf of the subscribers at the Exchange with respect to its administrative services as enumerated in the subscriber's agreement. The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity.
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In support of our recruiting strategy, members of these networks engage with various colleges and universities throughout the country, including Historically Black Colleges and Universities. Business resource groups address business issues using a DEI lens.
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We set ourselves apart by offering both a 401(k) savings plan and a noncontributory defined benefit pension plan. We encourage a work/life balance for all employees and recognize the need for employee flexibility by offering an allowance of remote work days to use throughout the year.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFurther, there can be no assurance that we, our third-party service providers and our independent agents are in full compliance with all applicable laws and regulations at all times. Efforts at compliance with all laws and regulations are further complicated by new and evolving regulations regarding cybersecurity, artificial intelligence and ESG matters.
Biggest changeIn some cases, these laws and regulations may increase our costs, negatively impact revenues, or impose operational limitations on our business. Further, there can be no assurance that we, our third-party service providers and our independent agents are in full compliance with all applicable laws and regulations at all times.
While we maintain cyber liability insurance to mitigate the financial risk around cyber incidents, such insurance may not cover all costs associated with the consequences of information or systems being compromised, and such insurance may become prohibitively expensive to maintain.
While we also maintain cyber liability insurance to mitigate the financial risk around cyber incidents, such insurance may not cover all costs associated with the consequences of information or systems being compromised, and such insurance may become prohibitively expensive to maintain.
The uncertainty of risks that emerge upon the occurrence of significant unexpected events, such as pandemics, or unexpected economic or social inflation caused by supply chain issues, societal trends, or otherwise, may cause additional challenges in the process of estimating loss and loss adjustment expense reserves or premiums to accommodate future claims and expenses.
The uncertainty of risks that emerge upon the occurrence of significant unexpected events, such as pandemics, or unexpected economic or social inflation caused by supply chain issues, changes in tariffs, societal trends, or otherwise, may cause additional challenges in the process of estimating loss and loss adjustment expense reserves or premiums to accommodate future claims and expenses.
We review the fixed income portfolio on a periodic basis to evaluate positions that are in an unrealized loss position to determine whether impairments are a result of credit loss or other factors. Inherent in management's evaluation of a security are assumptions and estimates about the operations of the issuer and its future earnings potential.
We review the fixed maturity portfolio on a periodic basis to evaluate positions that are in an unrealized loss position to determine whether impairments are a result of credit loss or other factors. Inherent in management's evaluation of a security are assumptions and estimates about the operations of the issuer and its future earnings potential.
Our interactions with, and reliance upon, third parties may also expose us to increased risk related to data security, service disruptions or effectiveness of our control system, particularly as we increase our reliance on cloud-based computing and software-as-a-service from third parties to operate our business.
Our interactions with, and reliance upon, third parties expose us to increased risk related to data security, service disruptions or effectiveness of our control system, particularly as we increase our reliance on cloud-based computing and software-as-a-service from third parties to operate our business.
Man-made disasters such as terrorist attacks and riots could also cause losses from insurance claims related to the property and casualty insurance operations, which could adversely affect its financial condition. 9 Table of Contents Operating risks If the costs of providing services to the Exchange are not controlled, our profitability could be materially adversely affected.
Man-made disasters such as terrorist attacks and riots could also cause losses from insurance claims related to the property and casualty insurance operations, which could adversely affect its financial condition. Operating risks If the costs of providing services to the Exchange are not controlled, our profitability could be materially adversely affected.
Best rating could reduce the competitive position of the Exchange, making it more difficult to attract profitable business in the highly competitive property and casualty insurance market and potentially result in reduced sales of its products and lower premium revenue. The performance of the Exchange's investment portfolio is subject to a variety of investment risks.
Best rating could reduce the competitive position of the Exchange, making it more difficult to attract profitable business in the highly competitive property and casualty insurance market and potentially result in reduced sales of its products and lower premium revenue. 8 Table of Contents The performance of the Exchange's investment portfolio is subject to a variety of investment risks.
This may result in changes to the Exchange's estimated level of loss and loss adjustment expense reserves or impact the adequacy of premiums to accommodate future claims and expenses. As insurance industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge.
These risks may result in changes to the Exchange's estimated level of loss and loss adjustment expense reserves or impact the adequacy of premiums to accommodate future claims and expenses. As insurance industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge.
The performance of the fixed income portfolio is subject to a number of risks including, but not limited to: • Interest rate risk - the risk of adverse changes in the value of fixed income securities as a result of increases in market interest rates. • Investment credit risk - the risk that the value of certain investments may decrease due to the deterioration in financial condition of, or the liquidity available to, one or more issuers of those securities or, in the case of structured securities, due to the deterioration of the loans or other assets that underlie the securities, which, in each case, also includes the risk of permanent loss. • Sector/Concentration risk - the risk that the portfolio may be too heavily concentrated in the securities of one or more issuers, sectors, or industries.
The performance of the fixed maturity portfolio is subject to a number of risks including, but not limited to: • Interest rate risk - the risk of adverse changes in the value of fixed maturity securities as a result of increases in market interest rates. • Investment credit risk - the risk that the value of certain investments may decrease due to the deterioration in financial condition of, or the liquidity available to, one or more issuers of those securities or, in the case of structured securities, 12 Table of Contents due to the deterioration of the loans or other assets that underlie the securities, which, in each case, also includes the risk of permanent loss. • Sector/Concentration risk - the risk that the portfolio may be too heavily concentrated in the securities of one or more issuers, sectors, or industries.
The Exchange's common stock and preferred equity securities have exposure to price risk, the risk of potential loss in estimated fair value resulting from an adverse change in prices. Limited partnerships are 8 Table of Contents significantly less liquid and generally involve higher degrees of price risk than publicly traded securities.
The Exchange's common stock and preferred equity securities have exposure to price risk, the risk of potential loss in estimated fair value resulting from an adverse change in prices. Limited partnerships are significantly less liquid and generally involve higher degrees of price risk than publicly traded securities.
While we continue to test and assess our business continuity and disaster recovery plans to validate they meet the needs of our core business operations and address multiple business interruption events, there is no assurance that core business operations could be performed upon the occurrence of such an event.
While we continue to test and assess our business continuity and disaster recovery plans to validate they meet the needs of our core business operations and address multiple business interruption events, there is no assurance that core business operations 11 Table of Contents could be performed upon the occurrence of such an event.
If the Exchange's ability to grow or renew policies were adversely impacted, the premium revenue of the Exchange could be adversely affected, which could reduce our management fee revenue. The circumstances or events that might impair the Exchange's ability to grow include, but are not limited to, the items discussed below.
If the Exchange's ability to grow or renew policies or implement rate changes were adversely impacted, the premium revenue of the Exchange could be adversely affected, which could reduce our management fee revenue. The circumstances or events that might impair the Exchange's ability to grow include, but are not limited to, the items discussed below.
All of our fixed income and equity securities are subject to market volatility. To the extent that future market volatility negatively impacts our investments, our financial condition will be negatively impacted.
All of our fixed maturity and equity securities are subject to market volatility. To the extent that future market volatility negatively impacts our investments, our financial condition will be negatively impacted.
If the Exchange's competitors offer property and casualty products with more coverage, offer lower rates, or introduce innovative services in response to evolving customer 7 Table of Contents preferences, and the Exchange is unable to implement product or service improvements quickly enough to keep pace, its ability to grow and renew its business may be adversely impacted.
If the Exchange's competitors offer property and casualty products with more coverage, offer lower rates, or introduce innovative services in response to evolving customer preferences, and the Exchange is unable to implement product or service improvements quickly enough to keep pace, its ability to grow and renew its business may be adversely impacted.
If there were legislative action in response to a pandemic or other significant unexpected event that retroactively mandated coverage irrespective of terms, exclusions or other conditions included in policies, such as business interruption, that would otherwise preclude coverage, it could have a material impact on the financial condition, results of operations and cash flows of the Exchange.
If there were legislative action in response to a pandemic or other significant unexpected event that retroactively mandated coverage irrespective of terms, exclusions or other conditions included in policies that would otherwise preclude coverage, it could have a material impact on the financial condition, results of operations and cash flows of the Exchange.
Cyber threats can create significant risks such as destruction of systems or data, denial or interruption of service, disruption of transaction execution, loss or exposure of customer data, theft or exposure of our intellectual property, theft of funds or disruption of other important business functions.
Our systems regularly face cyber threats, which can create significant risks such as destruction of systems or data, denial or interruption of service, disruption of transaction execution, loss or exposure of customer data, theft or exposure of our intellectual property, theft of funds or disruption of other important business functions.
If claims frequency and loss expenses were to decrease significantly as a result of an unexpected event, such as a pandemic, the profitability component of our agent incentive compensation would improve, and our agent compensation costs would increase. Our second largest expense is employee costs, including salaries, healthcare, pension, and other benefit costs.
If claims frequency and loss expenses were to decrease significantly as a result of an unexpected event, such as a pandemic, the profitability component of our agent incentive compensation would improve, and our agent compensation costs would increase. Our second largest expense category includes employee costs such as salaries, healthcare, pension, and other benefit costs.
Accordingly, any reduction in direct and affiliated assumed premiums written by the Exchange and/or the management fee rate could have a negative effect on our revenues and net income. The management fee rate is determined by our Board of Directors and may not exceed 25% of the direct and affiliated assumed premiums written by the Exchange.
Accordingly, any reduction in direct and affiliated assumed premiums written by the Exchange and/or the management fee rate could have a negative effect on our revenues and net income. The management fee rate is set at least annually by our Board of Directors and may not exceed 25% of the direct and affiliated assumed premiums written by the Exchange.
Approximately 36% of our fixed maturity portfolio is expected to mature over the next three years. 12 Table of Contents Our equity securities have exposure to price risk. Equity markets, sectors, industries, and individual securities may also be subject to some of the same risks that affect our fixed income portfolio, as discussed above.
Approximately 32% of our fixed maturity portfolio is expected to mature over the next three years. Our equity securities have exposure to price risk. Equity markets, sectors, industries, and individual securities may also be subject to some of the same risks that affect our fixed maturity portfolio, as discussed above.
Regulatory developments, provider relationships, pandemics and demographic and economic factors that are beyond our control, such as inflation, are indicators that employee costs could increase, which could reduce our profitability.
Regulatory developments, provider relationships, pandemics and demographic and economic factors that are beyond our control, such as inflation, are indicators that employee costs could increase, which could reduce our profitability or impact our personnel strategy.
Our activities are subject to extensive regulation under federal and state laws on matters as diverse as internal control over financial reporting and disclosure controls, securities regulation, data privacy and protection, cybersecurity, taxation, immigration, wage-and-hour standards and employment and labor relations.
Our activities are subject to extensive regulation under federal and state laws on matters as diverse as internal control over financial reporting and disclosure controls, securities regulation, data privacy and protection, cybersecurity, taxation, immigration, wage-and-hour standards and employment and labor relations. These laws and regulations are complex and evolving, and compliance with these laws requires significant resources.
In addition, talented employees in the actuarial, finance, human resources, information technology, law, and risk management areas are also essential to support our core functions. If we are unable to effectively maintain system availability or manage technology initiatives, we may experience adverse financial consequences and/or may be unable to compete effectively.
In addition, talented employees in actuarial, finance, human resources, law, risk management and information technology, including artificial intelligence and data analytics, are also essential to support our core functions. 10 Table of Contents If we are unable to effectively maintain system availability or manage technology initiatives, we may experience adverse financial consequences and/or may be unable to compete effectively.
Third parties on whom we rely for certain business processing functions are also subject to these risks, and their failure to adhere to these laws and regulations could negatively impact us. The number, complexity, and sophistication of cyber threats continue to increase over time.
Third parties on whom we rely for certain business processing functions are also subject to these risks, and their failure to adhere to these laws and regulations could negatively impact us. The number, complexity, and sophistication of cyber threats continue to increase over time. Rapid technological advancements can also introduce new risks related to data security and operational efficiency.
We are also subject to litigation arising out of our general business activities such as contractual and employment relationships and claims regarding the infringement of the intellectual property of others.
We are also subject to litigation arising out of our general business activities such as contractual and employment relationships and claims regarding the infringement of the intellectual property of others, whether by us or our third-party service providers.
The models that are used to determine appropriate premium levels, forecast future losses and expenses, estimate loss and loss adjustment expense reserves, and assess financial strength may be created or deployed in a manner that results in inaccurate predictions.
Technology advancements, such as electric and autonomous vehicles, could impact frequency or severity of losses. The models that are used to determine appropriate premium levels, forecast future losses and expenses, estimate loss and loss adjustment expense reserves, and assess financial strength may be created or deployed in a manner that results in inaccurate predictions.
The Exchange faces significant competition from other regional and national insurance companies. The property and casualty insurance industry is highly competitive on the basis of product, price and service.
The property and casualty insurance industry is highly competitive on the basis of product, price and service.
The Exchange's insurance operations are exposed to claims arising out of catastrophes. Common natural catastrophic events include hurricanes, earthquakes, tornadoes, hail storms, and severe winter weather. The frequency and severity of these catastrophes is inherently unpredictable.
The Exchange's insurance operations are exposed to claims arising out of catastrophes. Common natural catastrophic events include hurricanes, earthquakes, tornadoes, hail storms, and severe winter weather. The frequency and severity of these 9 Table of Contents catastrophes are inherently uncertain. Changing climate conditions have created additional uncertainty regarding the future trends in the frequency and severity of natural disasters.
For example, the behavior of claimants and policyholders and the timing and amounts of claims settlements may change in unexpected ways. Furthermore, actions taken by governmental bodies, both legislative and regulatory, in reaction to significant unexpected events, and their related impacts, are hard to predict. Technology advancements, such as electric and autonomous vehicles, could impact frequency or severity of losses.
For example, the behavior of claimants and policyholders and the timing and amounts of claims settlements may change in unexpected ways, including increased attorney involvement and third-party litigation financing, which could result in large jury awards. Furthermore, actions taken by governmental bodies, both legislative and regulatory, in reaction to significant unexpected events, and their related impacts, are hard to predict.
If we experience difficulties with technology, data and network security, including those that could result from cyber attacks, third-party relationships or cloud-based relationships, our ability to conduct our business could be adversely impacted. In the normal course of business, we collect, use, store and where appropriate, disclose data concerning individuals and businesses.
This may in turn lead to adverse operational or financial performance and adverse customer or investor confidence. If we experience difficulties with technology, data or network security, including those that could result from cyber attacks, third-party relationships or cloud-based relationships, our ability to conduct our business could be adversely impacted.
At December 31, 2023, our investment portfolio consisted of approximately 85% fixed maturity securities, with the remaining 15% invested in equity securities and other investments. General economic conditions and other factors beyond our control can adversely affect the value of our investments and the realization of net investment income or result in realized investment losses.
General economic conditions, geopolitical events, fiscal and monetary policy and other factors beyond our control can adversely affect the value of our investments and the realization of net investment income or result in realized investment losses.
We face a significant risk of litigation and regulatory investigations and actions in the ordinary course of operating our businesses including the risk of class action lawsuits.
Efforts at compliance with all laws and regulations are further complicated by new and evolving regulations regarding cybersecurity, artificial intelligence and ESG matters. We face a significant risk of litigation and regulatory investigations and actions in the ordinary course of operating our businesses including the risk of class action lawsuits.
Changing climate conditions have added to the unpredictability of the frequency and severity of natural disasters and have created additional uncertainty as to future trends and exposures. A single catastrophic occurrence or aggregation of multiple smaller occurrences within the geographical region of the Exchange or its assumed property reinsurance portfolio could adversely affect the financial condition of the Exchange.
Increases in the insured value and geographic concentration of exposures, as well as the impact of inflation, may increase the severity of catastrophe losses. A single catastrophic occurrence or aggregation of multiple smaller occurrences within the geographical region of the Exchange or its assumed property reinsurance portfolio could adversely affect the financial condition of the Exchange.
If we do not effectively and efficiently manage and upgrade our technology systems, or attract and retain qualified information technology employees and contract personnel to support those systems, our ability to serve our customers and implement our strategic initiatives could be adversely impacted. 10 Table of Contents Additionally, we depend on a large amount of data to price policies appropriately, track exposures, perform financial analysis, report to regulatory bodies, and ultimately make business decisions.
If we do not effectively and efficiently manage new technology initiatives, maintain existing systems, or attract and retain qualified information technology employees and contract personnel to support them, our ability to serve our customers and implement our strategic initiatives could be adversely impacted.
We also conduct business using third parties who may provide software, data storage, cloud-based computing and other technology services. We have on occasion experienced, and will continue to experience, cyber threats to our data and systems.
In the normal course of business, we collect, use, store and where appropriate, disclose data concerning individuals and businesses. We also conduct business using third parties who may provide software, data storage, cloud-based computing and other technology services.
Should this data be inaccurate or insufficient, risk exposure may be underestimated and/or poor business decisions may be made. This may in turn lead to adverse operational or financial performance and adverse customer or investor confidence.
Additionally, we depend on a large amount of data to price policies appropriately, track exposures, perform financial analysis, report to regulatory bodies, and ultimately make business decisions. Should this data be inaccurate or insufficient, risk exposure may be underestimated and/or poor business decisions may be made.
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The Board of Directors sets the management fee rate each December for the following year. At their discretion, the rate can be changed at any time.
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The direct written premium of the Exchange is impacted by the premium rates charged for policies. The Exchange writes policies almost exclusively with annual terms, therefore, premium rate actions take 12 months to be fully recognized in written premium. The Exchange also writes certain personal auto policies with a rate locking feature.
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More broadly, if independent agents face challenges sustaining their own business operations due to unfavorable economic conditions or staffing constraints, it could result in the sale or closure of their businesses, thereby reducing the agency force of the Exchange.
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These product features 7 Table of Contents generally extend the amount of time it takes for premium rate actions to be recognized related to these policies, affecting the premium revenue of the Exchange, and consequently our management fee. The Exchange faces significant competition from other regional and national insurance companies.
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The Exchange and its subsidiaries have also been named as defendants in a number of pandemic-related lawsuits and, therefore, are subject to the risks and uncertainties of such litigation.
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Additionally, as the Exchange writes policies almost exclusively with annual terms, premium rate actions take 12 months to be fully recognized in written premium and another 12 months to earn the increased or decreased premiums in full.
Removed
These laws and regulations are complex and 11 Table of Contents evolving, and compliance with these laws requires significant resources. In some cases, these laws and regulations may increase our costs, negatively impact revenues, or impose operational limitations on our business.
Added
The Exchange also writes certain personal auto policies with a rate locking feature, which generally extends the amount of time it takes for premium rate actions to be recognized related to these policies.
Removed
It is also possible that changes in economic conditions and steps taken by federal, state, and local governments in response to a pandemic or other significant events could cause an increase in taxes at the federal, state, and local levels, which could adversely impact our results of operations.
Added
If we experience service disruptions or need to replace essential third-party software or services, we may not be able to find a viable alternative, or alternatives may be costly and/or require significant time and resources to integrate with our systems, which could negatively impact our operations or financial results.
Added
As we continue to adapt our internal processes and systems to these rapidly evolving threats, we may be required to make certain judgments about additional investments in these areas that we believe will protect us from cybersecurity risks, which may not be effective.
Added
At December 31, 2024, our investment portfolio consisted of approximately 84% fixed maturity securities, with the remaining 16% invested in equity securities and other investments.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThis committee is sponsored by and reports directly to our Executive Council, which includes our Chief Executive Officer and executive vice presidents.
Biggest changeThis committee is sponsored by and reports directly to our Executive Council, which includes our Chief Executive Officer ("CEO"), Chief Financial Officer, executive vice presidents and certain senior vice presidents reporting directly to the CEO as applicable.
Our cybersecurity philosophy and approach align to the National Institute of Standards and Technology Cybersecurity Framework and its core elements to identify, protect, detect, respond, and recover from the various forms of cyber threats.
Our cybersecurity philosophy and approach align to the National Institute of Standards and Technology Cybersecurity Framework and its core elements to govern, identify, protect, detect, respond, and recover from the various forms of cyber threats.
In accordance with applicable legal and regulatory requirements, this analysis and triage step includes an assessment of the potential for material impact to us from a cybersecurity incident or a series of individually immaterial related incidents that are material when aggregated.
In accordance with applicable legal and regulatory requirements, this analysis and triage step 14 Table of Contents includes an assessment of the potential for material impact to us from a cybersecurity incident or a series of individually immaterial related incidents that are material when aggregated.
ITEM 1C. CYBERSECURITY Cybersecurity Risk Management Our Privacy and Information Security Committee, comprised of officers and senior leaders, is responsible for overseeing the development and maintenance of information privacy and security policies and effective operation of our corporate information security and cybersecurity program in compliance with applicable state insurance regulations and other legal and regulatory requirements.
Our Privacy and Information Security Committee, comprised of officers and senior leaders, is responsible for overseeing the development and maintenance of information privacy and security policies and effective operation of our corporate information security and cybersecurity program in compliance with applicable state insurance regulations and other legal and regulatory requirements.
Management provides reports on our 13 Table of Contents cybersecurity risk management program, including our risk evaluation, the results of independent third-party security assessments, and our efforts to manage cyber related risks.
Management provides reports on the emerging cybersecurity threat landscape and our cybersecurity risk management program, including our risk evaluation, the results of independent third-party security assessments, and our efforts to manage cyber related risks.
As part of our overall Enterprise Risk Management ("ERM") program, we employ a cybersecurity program of technical, administrative, and physical controls intended to reduce the risk of cyber threats and protect our information, as well as documented processes to determine and make appropriate disclosures regarding potential material threats and incidents.
Our cybersecurity program of technical, administrative, and physical controls is intended to reduce the risk of cyber threats and protect our information, as well as document processes to determine and make appropriate disclosures regarding potential material threats and incidents.
Added
ITEM 1C. CYBERSECURITY Cybersecurity Risk Management We maintain a cybersecurity program in alignment with our overall Enterprise Risk Management ("ERM") program. See Part II, Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" contained within this report for additional information on the ERM function.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES Indemnity and the Exchange share a corporate home office campus in Erie, Pennsylvania, which comprises approximately 996,000 square feet. Additionally, we lease two office buildings and one warehouse facility from third parties and are charged rent for the related square footage we occupy.
Biggest changeITEM 2. PROPERTIES Indemnity and the Exchange share a corporate home office campus in Erie, Pennsylvania, which comprises approximately one million square feet. Additionally, we lease an office building and a warehouse facility from third parties and are charged rent for the related square footage we occupy.
We expect that most leases will be renewed or replaced upon expiration. Rental costs of shared facilities are allocated based upon square footage occupied. 14 Table of Contents
We expect that most leases will be renewed or replaced upon expiration. Rental costs of shared facilities are allocated based upon square footage occupied.
Indemnity and the Exchange also own or lease 25 field offices in 12 states used to primarily support claims-related activities. The Exchange owns seven field offices and leases another 16 from third parties. Indemnity owns one field office and leases another from a third party. Commitments for properties leased from third parties expire periodically through 2029.
Indemnity and the Exchange also own or lease 24 field offices in 12 states used to primarily support claims-related activities. The Exchange owns five field offices and leases another 17 from third parties. Indemnity owns one field office and leases another from a third party. Commitments for properties leased from third parties expire periodically through 2030.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeBy Memorandum Opinion and Order dated September 28, 2022, the Court granted the Motion for Remand and directed the case be remanded to the Court of Common Pleas of Allegheny County, Pennsylvania. On September 30, 2022, Indemnity filed a Motion to Stay the Remand Order pending an appeal to the United States Court of Appeals for the Third Circuit.
Biggest changeOn September 30, 2022, Indemnity filed a Motion to Stay the Remand Order pending an appeal to the United States Court of Appeals for the Third Circuit. On October 3, 2022, the Court granted the Stay. On October 11, 2022, Indemnity filed a Petition for Permission to Appeal the Remand Order with the Third Circuit.
Separately, Indemnity filed a Complaint in Federal Court to invoke certain provisions of the "All Writs Act" and the "Anti-Injunction Act." By filing this complaint, Indemnity seeks to protect the federal court’s prior binding, final judgments in favor of Indemnity and thereby foreclose further litigation of the claims and issues pertaining to the compensation practices that were the subject of the prior judgments.
Separately, Indemnity filed a Complaint in Federal Court to invoke certain provisions of the “All Writs Act” and the “Anti-Injunction Act.” By filing this complaint, Indemnity seeks to protect the federal court’s prior binding, final judgments in favor of Indemnity and thereby foreclose further litigation of the claims and issues pertaining to the compensation practices that were the subject of the prior judgments.
On November 21, 2022, Indemnity filed a Petition for Rehearing requesting that the Third Circuit permit the appeal. By Order dated January 9, 2023, the Court granted the petition for rehearing and vacated the prior Order of October 7, 2022, denying permission to appeal. On April 20, 2023, argument was held before a three-judge panel of the Third Circuit.
By Order dated January 9, 2023, the Court granted the petition for rehearing and vacated the prior Order of October 7, 2022, denying permission to appeal. On April 20, 2023, argument was held before a three-judge panel of the Third Circuit.
On October 20, 2023, Indemnity filed a Petition for Writ of Certiorari with the Supreme Court of the United States. The Petition seeks a determination from the Court that the lower courts improperly denied federal jurisdiction.
On October 20, 2023, Indemnity filed a Petition for Writ of Certiorari with the Supreme Court of the United States. The Petition sought a determination from the Court that the lower courts improperly denied federal jurisdiction. By order dated February 26, 2024, the United States Supreme Court denied Indemnity's Petition for Writ of Certiorari.
On October 3, 2022, the Court granted the Stay. On October 11, 2022, Indemnity filed a Petition for Permission to Appeal the Remand Order with the Third Circuit. By Order dated November 7, 2022, a three judge panel of the Court denied the Petition to Appeal.
By Order dated November 7, 2022, a three judge panel of the Court denied the Petition to Appeal. On November 21, 2022, Indemnity filed a Petition for Rehearing requesting that the Third Circuit permit the appeal.
A Notice of Removal to the United States District Court for the Western District of Pennsylvania was filed on January 27, 2022. Indemnity intends to vigorously defend against all of the allegations and requests for relief in the complaint.
A Notice of Removal to the United States District Court for the Western District of Pennsylvania was filed on January 27, 2022.
For additional information on contingencies, see Part II, Item 8. "Financial Statements and Supplementary Data - Note 16, Commitment and Contingencies, of Notes to Financial Statements". ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 16 Table of Contents PART II
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 16 Table of Contents PART II
The Petition is currently pending before the Court. 15 Table of Contents Indemnity intends to vigorously defend against all of the allegations and requests for relief in the complaint.
Indemnity intends to vigorously defend against all of the allegations and requests for relief in the complaint. 15 Table of Contents By Memorandum Opinion and Order dated September 28, 2022, the Court granted the Motion for Remand and directed the case be remanded to the Court of Common Pleas of Allegheny County, Pennsylvania.
Added
After the denial of certiorari, the district court, by Opinion and Order dated February 28, 2024, granted Indemnity’s motion for a preliminary injunction under the All Writs Act after determining that the gravamen of the plaintiff’s state court action “is the same” as two actions previously dismissed in federal court, that Indemnity would be irreparably harmed if it is forced to relitigate those same issues in state court, plaintiffs had a full and fair opportunity to litigate the same issues in prior litigation, and that an injunction would serve the public interest.
Added
The Court’s order preliminarily enjoined the named plaintiffs from pursuing the Erie Ins. Exch. v. Erie Indem. Co. action and enjoined the state court from conducting further proceedings in that action. The court ordered Indemnity to file a motion to convert the preliminary injunction into a permanent injunction.
Added
In the meantime, plaintiffs filed a Notice of Appeal with the United States Court of Appeals for the Third Circuit. As a result of the filing of the appeal, the trial court stayed the order issuing an injunction. The appeal has been briefed and oral argument was held on October 29, 2024, before a three-judge panel of the Third Circuit.
Added
The parties are currently awaiting a decision. Indemnity intends to vigorously defend the district court’s order on appeal and to otherwise defend against all allegations and requests for relief sought by plaintiffs. For additional information on contingencies, see Part II, Item 8. "Financial Statements and Supplementary Data - Note 17, Commitment and Contingencies, of Notes to Consolidated Financial Statements".

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 16 II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 17 Item 6. Selected Financial Data 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 36 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 16 II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 17 Item 6. [RESERVED] 18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 36 Item 8. Financial Statements and Supplementary Data 39

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe Standard & Poor's Supercomposite Insurance Industry Group Index is made up of 56 constituent members represented by property and casualty insurers, insurance brokers, and life insurers, and is a capitalization weighted index. 2018 2019 2020 2021 2022 2023 Erie Indemnity Company Class A common stock $ 100 (1) $ 127 $ 194 $ 155 $ 205 $ 281 Standard & Poor's 500 Stock Index 100 (1) 131 156 200 164 207 Standard & Poor's Supercomposite Insurance Industry Group Index 100 (1) 128 127 163 178 196 (1) Assumes $100 invested at the close of trading, including reinvestment of dividends, on the last trading day preceding the first day of the fifth preceding fiscal year, in our Class A common stock, the Standard & Poor's 500 Stock Index, and the Standard & Poor's Supercomposite Insurance Industry Group Index. 17 Table of Contents Issuer Purchases of Equity Securities We may purchase shares, from time-to-time, in the open market, through trading plans entered into with one or more brokerage firms pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, or through privately negotiated transactions.
Biggest changeThe Standard & Poor's Supercomposite Insurance Industry Group Index is made up of 56 constituent members represented by property and casualty insurers, insurance brokers, and life insurers, and is a capitalization weighted index. 2019 2020 2021 2022 2023 2024 Erie Indemnity Company Class A common stock $ 100 (1) $ 152 $ 122 $ 161 $ 221 $ 276 Standard & Poor's 500 Stock Index 100 (1) 118 152 125 157 197 Standard & Poor's Supercomposite Insurance Industry Group Index 100 (1) 98 127 139 153 193 (1) Assumes $100 invested at the close of trading, including reinvestment of dividends, on the last trading day preceding the first day of the fifth preceding fiscal year, in our Class A common stock, the Standard & Poor's 500 Stock Index, and the Standard & Poor's Supercomposite Insurance Industry Group Index. 17 Table of Contents Issuer Purchases of Equity Securities We may purchase shares, from time-to-time, in the open market, through trading plans entered into with one or more brokerage firms pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, or through privately negotiated transactions.
See Item 8. "Financial Statements and Supplementary Data - Note 10, Incentive and Deferred Compensation Plans, of Notes to Financial Statements" contained within this report for additional information on shares purchased outside of this program.
See Item 8. "Financial Statements and Supplementary Data - Note 11, Incentive and Deferred Compensation Plans, of Notes to Consolidated Financial Statements" contained within this report for additional information on shares purchased outside of this program.
The following table presents the number and average price of our outstanding Class A nonvoting common stock shares purchased during the quarter ending December 31, 2023: (dollars in thousands, except per share data) 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) 1,258 277.03 — 17,754 December 1–31, 2023 — — — 17,754 Total 1,258 277.03 — (1) Represents shares purchased on the open market to fund the rabbi trust for the outside director deferred stock compensation plan.
The following table presents the number and average price of our outstanding Class A nonvoting common stock shares purchased during the quarter ending December 31, 2024: (dollars in thousands, except per share data) 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, 2024 — $ — — $ 17,754 November 1–30, 2024 (1) 777 402.38 — 17,754 December 1–31, 2024 — — — 17,754 Total 777 402.38 — (1) Represents shares purchased on the open market to fund the rabbi trust for the outside director deferred stock compensation plan.
Broadridge Corporate Issuer Solutions, Inc. serves as our transfer agent and registrar. As of February 20, 2024, there were approximately 504 shareholders of record for the Class A non-voting common stock and 8 shareholders of record for the Class B voting common stock.
Broadridge Corporate Issuer Solutions, Inc. serves as our transfer agent and registrar. As of February 21, 2025, there were approximately 484 shareholders of record for the Class A non-voting common stock and 8 shareholders of record for the Class B voting common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changePolicy issuance and renewal services Years ended December 31, (dollars in thousands) 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 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 Policy issuance and renewal services The management fee revenue allocated for providing policy issuance and renewal services was 24.30% of the direct and affiliated assumed premiums written by the Exchange for 2023, 2022, and 2021.
Biggest changeWe expect the Exchange's pricing actions in 2024 to result in an increase in direct written premiums in 2025; however, exposure reductions and/or changes in mix of business as a result of economic conditions could impact the average direct and affiliated assumed premium written by the Exchange, as customers may reduce coverages. 26 Table of Contents Policy issuance and renewal services Years ended December 31, (dollars in thousands) 2024 % Change 2023 % Change 2022 Management fee revenue - policy issuance and renewal services $ 2,894,074 18.5 % $ 2,442,073 17.0 % $ 2,087,846 Service agreement revenue 26,350 1.1 26,059 1.4 25,687 2,920,424 18.3 2,468,132 16.8 2,113,533 Cost of operations - policy issuance and renewal services 2,312,324 15.0 2,011,545 12.0 1,795,642 Operating income - policy issuance and renewal services $ 608,100 33.2 % $ 456,587 43.6 % $ 317,891 Policy issuance and renewal services The management fee revenue allocated for providing policy issuance and renewal services was 24.40% of the direct and affiliated assumed premiums written by the Exchange in 2024 and 24.30% in both 2023 and 2022.
Total investment income increased $28.3 million in 2023 primarily due to lower net realized and unrealized investment losses and an increase in net investment income compared to 2022.
Total investment income increased $28.3 million in 2023 primarily due to lower realized and unrealized investment losses and an increase in net investment income compared to 2022.
The Exchange has the following wholly owned property and casualty subsidiaries: Erie Insurance Company, Erie Insurance Company of New York, Erie Insurance Property & Casualty Company and Flagship City Insurance Company, and a wholly owned life insurance company, Erie Family Life Insurance Company.
The Exchange has the following wholly owned property and casualty insurance subsidiaries: Erie Insurance Company, Erie Insurance Company of New York, Erie Insurance Property & Casualty Company and Flagship City Insurance Company, and a wholly owned life insurance company, Erie Family Life Insurance Company.
State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department. Shared facilities The Exchange and its subsidiaries have a service agreement with Indemnity to use space in Indemnity-owned properties. See Item 8.
State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department. Shared facilities The Exchange and its insurance subsidiaries have a service agreement with Indemnity to use space in Indemnity-owned properties. See Item 8.
Allocation of costs under these various agreements requires judgment and interpretation by Indemnity, and such allocations are performed using a consistent methodology, which is intended to adhere to the terms and intentions of the underlying agreements. 35 Table of Contents Intercompany Receivables We have significant receivables from the Exchange and its affiliates that result in a concentration of credit risk.
Allocation of costs under these various agreements requires judgment and interpretation by Indemnity, and such 35 Table of Contents allocations are performed using a consistent methodology, which is intended to adhere to the terms and intentions of the underlying agreements. Intercompany Receivables We have significant receivables from the Exchange and its affiliates that result in a concentration of credit risk.
We do not believe that these obligations will have a material current or future effect on our financial condition, results of operations, or cash flows. 34 Table of Contents Enterprise Risk Management The role of our Enterprise Risk Management ("ERM") function is to ensure that all significant risks are clearly identified, understood, proactively managed and consistently monitored to achieve strategic objectives for all stakeholders.
We do not believe that these obligations will have a material current or future effect on our consolidated financial condition, results of operations, or cash flows. 34 Table of Contents Enterprise Risk Management The role of our Enterprise Risk Management ("ERM") function is to ensure that all significant risks are clearly identified, understood, proactively managed and consistently monitored to achieve strategic objectives for all stakeholders.
We consider an accounting estimate to be critical if 1) it requires assumptions to be made that were uncertain at the time the estimate was made, and 2) different estimates that could have been used, or changes in the estimate that are likely to occur from period-to-period, could have a material impact on our Statements of Operations or Financial Position.
We consider an accounting estimate to be critical if 1) it requires assumptions to be made that were uncertain at the time the estimate was made, and 2) different estimates that could have been used, or changes in the estimate that are likely to occur from period-to-period, could have a material impact on our Consolidated Statements of Operations or Financial Position.
The Exchange and each of its property and casualty subsidiaries are rated A+ "Superior", the second highest financial strength rating, which is assigned to companies that have achieved superior overall performance when compared to the standards established by A.M. Best and have a superior ability to meet obligations to policyholders over the long term.
The Exchange and each of its property and casualty insurance subsidiaries are rated A+ "Superior", the second highest financial strength rating, which is assigned to companies that have achieved superior overall performance when compared to the standards established by A.M. Best and have a superior ability to meet obligations to policyholders over the long term.
This portion of the management fee is recognized as revenue over a four-year period representing the time over which the services are provided. We also report reimbursed costs as revenues, which are recognized monthly as services are provided. The administrative services expenses we incur and the related reimbursements we receive are recorded gross in the Statements of Operations.
This portion of the management fee is recognized as revenue over a four-year period representing the time over which the services are provided. We also report reimbursed costs as revenues, which are recognized monthly as services are provided. The administrative services expenses we incur and the related reimbursements we receive are recorded gross in the Consolidated Statements of Operations.
The expenses we incur and related reimbursements we receive for administrative services are presented gross in our Statements of Operations. The subscriber's agreement and service agreements provide for reimbursement of amounts incurred for these services to Indemnity. Reimbursements are settled at cost on a monthly basis.
The expenses we incur and related reimbursements we receive for administrative services are presented gross in our Consolidated Statements of Operations. The subscriber's agreement and service agreements provide for reimbursement of amounts incurred for these services to Indemnity. Reimbursements are settled at cost on a monthly basis.
Administrative and other expenses increased $20.0 million primarily due to an increase in personnel costs. Personnel costs in 2023 were impacted by increased compensation including higher estimated costs for incentive plan awards, partially offset by lower pension costs due to an increase in the discount rate compared to 2022.
Administrative and other costs increased $20.0 million primarily due to an increase in personnel costs. Personnel costs in 2023 were impacted by increased compensation including higher estimated costs for incentive plan awards, partially offset by lower pension costs due to an increase in the discount rate compared to 2022.
At December 31, 2023, shareholders' equity amounts related to these postretirement plans decreased by $33.8 million, net of tax, of which $11.0 million represents amortization of the prior service cost and net actuarial gain and $22.8 million represents the current period actuarial loss.
At December 31, 2023, shareholders' equity amounts related to these postretirement plans decreased by $33.8 million, net of tax, of which $11.0 million represents amortization of the prior service cost and net actuarial gain and $22.8 million primarily represents the current period actuarial loss.
"Financial Statements - Note 3, Revenue, of Notes to Financial Statements" contained within this report. 25 Table of Contents Direct and affiliated assumed premiums written by the Exchange Direct and affiliated assumed premiums include premiums written directly by the Exchange and premiums assumed from its wholly owned property and casualty subsidiaries.
"Financial Statements - Note 3, Revenue, of Notes to Consolidated Financial Statements" contained within this report. 25 Table of Contents Direct and affiliated assumed premiums written by the Exchange Direct and affiliated assumed premiums include premiums written directly by the Exchange and premiums assumed from its wholly owned property and casualty subsidiaries.
We are reimbursed from the Exchange and its subsidiaries for the portion of these costs related to administrative services. We maintain relationships and cash balances at diversified and well-capitalized financial institutions and have established processes to monitor them.
We are reimbursed from the Exchange and its insurance subsidiaries for the portion of these costs related to administrative services. We maintain relationships and cash balances at diversified and well-capitalized financial institutions and have established processes to monitor them.
Although we are the sponsor of these postretirement plans and record the funded status of these plans, there are reimbursements between us and the Exchange and its subsidiaries for their allocated share of pension income or cost. See Item 8.
Although we are the sponsor of these postretirement plans and record the funded status of these plans, there are reimbursements between us and the Exchange and its insurance subsidiaries for their allocated share of pension income or cost. See Item 8.
Commercial lines – Total commercial lines premiums written increased 13.0% to $3.0 billion in 2023, compared to 2022, driven by a 9.5% increase in the total commercial lines year-over-year average premium per policy and a 3.2% increase in total commercial lines policies in force.
Total commercial lines premiums written increased 13.0% in 2023, compared to 2022, driven by a 9.5% increase in the total commercial lines year-over-year average premium per policy and a 3.2% increase in total commercial lines policies in force.
While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may materially affect our financial position, results of operations, or cash flows. See Item 8.
While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may materially affect our consolidated financial position, results of operations, or cash flows. See Item 8.
The 2023 actuarial loss was driven primarily by the lower discount rate used to measure the future benefit obligations, partially offset by higher than expected return on plan assets.
The 2023 actuarial loss was driven by the lower discount rate used to measure the future benefit obligations, partially offset by higher than expected return on plan assets.
See broader discussions of potential risks to our operations in Part I, Item 1A. "Risk Factors" contained within this report. Sources and Uses of Cash Liquidity is a measure of a company's ability to generate sufficient cash flows to meet the short- and long-term cash requirements of its business operations and growth needs.
See broader discussions of potential risks to our operations in Operating Overview and Part I, Item 1A. "Risk Factors" contained within this report. Sources and Uses of Cash Liquidity is a measure of a company's ability to generate sufficient cash flows to meet the short- and long-term cash requirements of its business operations and growth needs.
The present value of plan benefits is calculated by applying the spot/discount rates to projected benefit cash flows. A single discount rate is then developed to produce the same present value. The cash flows from the yield curve were matched against our projected benefit payments in the pension plan, which have a duration of about 15 years.
The present value of plan benefits is calculated by applying the spot/discount rates to projected benefit cash flows. A single discount rate is then developed to produce the same present value. The cash flows from the yield curve were matched against our projected benefit payments in the pension plan, which have a duration of about 14 years.
Among the risks and uncertainties, in addition to those set forth in our filings with the Securities and Exchange Commission, that could cause actual results and future events to differ from those set forth or contemplated in the forward-looking statements include the following: • dependence upon our relationship with the Erie Insurance Exchange ("Exchange") and the management fee under the agreement with the subscribers at the Exchange; • dependence upon our relationship with the Exchange and the growth of the Exchange, including: ◦ general business and economic conditions; ◦ factors affecting insurance industry competition, including technological innovations; ◦ dependence upon the independent agency system; and ◦ ability to maintain our brand, including our reputation for customer service; • dependence upon our relationship with the Exchange and the financial condition of the Exchange, including: ◦ the Exchange's ability to maintain acceptable financial strength ratings; ◦ factors affecting the quality and liquidity of the Exchange's investment portfolio; ◦ changes in government regulation of the insurance industry; ◦ litigation and regulatory actions; ◦ emergence of significant unexpected events, including pandemics and economic or social inflation; ◦ emerging claims and coverage issues in the industry; and ◦ severe weather conditions or other catastrophic losses, including terrorism; • costs of providing policy issuance and renewal services to the subscribers at the Exchange under the subscriber's agreement; • ability to attract and retain talented management and employees; • ability to ensure system availability and effectively manage technology initiatives; • difficulties with technology or data security breaches, including cyber attacks; 19 Table of Contents • ability to maintain uninterrupted business operations; • compliance with complex and evolving laws and regulations and outcome of pending and potential litigation; • factors affecting the quality and liquidity of our investment portfolio; and • ability to meet liquidity needs and access capital.
Among the risks and uncertainties, in addition to those set forth in our filings with the Securities and Exchange Commission, that could cause actual results and future events to differ from those set forth or contemplated in the forward-looking statements include the following: • dependence upon our relationship with the Erie Insurance Exchange ("Exchange") and the management fee under the agreement with the subscribers at the Exchange; • dependence upon our relationship with the Exchange and the growth of the Exchange, including: ◦ general business and economic conditions; ◦ factors impacting the timing of premium rates charged for policies; ◦ factors affecting insurance industry competition, including technological innovations; ◦ dependence upon the independent agency system; and ◦ ability to maintain our brand, including our reputation for customer service; • dependence upon our relationship with the Exchange and the financial condition of the Exchange, including: ◦ the Exchange's ability to maintain acceptable financial strength ratings; ◦ factors affecting the quality and liquidity of the Exchange's investment portfolio; ◦ changes in government regulation of the insurance industry; ◦ litigation and regulatory actions; ◦ emergence of significant unexpected events, including pandemics and economic or social inflation; ◦ emerging claims and coverage issues in the industry; and ◦ severe weather conditions or other catastrophic losses, including terrorism; • costs of providing policy issuance and renewal services to the subscribers at the Exchange under the subscriber's agreement; • ability to attract and retain talented management and employees; • ability to ensure system availability and effectively manage technology initiatives; 19 Table of Contents • difficulties with technology, data or network security breaches, including cyber attacks; • ability to maintain uninterrupted business operations; • compliance with complex and evolving laws and regulations and outcome of pending and potential litigation; • factors affecting the quality and liquidity of our investment portfolio; and • ability to meet liquidity needs and access capital.
While estimates of the fair values of our investment portfolio are obtained from outside pricing services, we ultimately determine whether the inputs used are observable or unobservable. As of December 31, 2023, substantially all of the securities measured at fair value in our investment portfolio are classified as Level 2.
While estimates of the fair values of our investment portfolio are obtained from outside pricing services, we ultimately determine whether the inputs used are observable or unobservable. As of December 31, 2024, substantially all of the securities measured at fair value in our investment portfolio are classified as Level 2.
The management fee rate was set at 25% for 2023, 2022 and 2021. Based on analysis of the foregoing factors, our Board of Directors set the 2024 management fee rate again at 25%. Our earnings are primarily driven by the management fee revenue generated for the services we provide on behalf of the subscribers at the Exchange.
The management fee rate was set at 25% for 2024, 2023 and 2022. Based on analysis of the foregoing factors, our Board of Directors set the 2025 management fee rate again at 25%. Our earnings are primarily driven by the management fee revenue generated for the services we provide on behalf of the subscribers at the Exchange.
"Financial Statements and Supplementary Data - Note 9, Postretirement Benefits, of Notes to Financial Statements" contained within this report for additional details on these reimbursements. 32 Table of Contents LIQUIDITY AND CAPITAL RESOURCES We continue to monitor the sufficiency of our liquidity and capital resources given the potential impact of current economic conditions, including the uncertain inflationary and interest rate environment.
"Financial Statements and Supplementary Data - Note 10, Postretirement Benefits, of Notes to Consolidated Financial Statements" contained within this report for additional details on these reimbursements. 32 Table of Contents LIQUIDITY AND CAPITAL RESOURCES We continue to monitor the sufficiency of our liquidity and capital resources given the potential impact of current economic conditions, including the uncertain inflationary and interest rate environment.
"Financial Statements and Supplementary Data - Note 2, Significant Accounting Policies, of Notes to Financial Statements" contained within this report for a discussion of recently issued accounting standards and the impact on our financial statements if known.
"Financial Statements and Supplementary Data - Note 2, Significant Accounting Policies, of Notes to Consolidated Financial Statements" contained within this report for a discussion of recently adopted and issued accounting standards and the impact on our consolidated financial statements if known.
"Financial Statements and Supplementary Data - Note 9, Postretirement Benefits, of Notes to Financial Statements" for the funding policy and related contributions for our defined benefit pension plan, and accumulated benefit obligation for our unfunded SERP. • Deferred compensation – We have two deferred compensation plans for our executives, senior vice presidents, and other selected officers and two deferred compensation plans for our outside directors.
"Financial Statements and Supplementary Data - Note 10, Postretirement Benefits, of Notes to Consolidated Financial Statements" for the funding policy and related contributions for our defined benefit pension plan, and accumulated benefit obligation for our unfunded SERP. • Deferred compensation – We have two deferred compensation plans for our executives, senior vice presidents and other selected officers, and two deferred compensation plans for our outside directors.
(2) The current and long-term portions of other investments are included in the line items "Prepaid expenses and other current assets" and "Other assets, net", respectively, in the Statements of Financial Position. We continually review our investment portfolio for impairment and determine whether the impairment is a result of credit loss or other factors.
(3) The current and long-term portions of other investments are included in the line items "Prepaid expenses and other current assets, net" and "Other assets, net", respectively, in the Consolidated Statements of Financial Position. We continually review our investment portfolio for impairment and determine whether the impairment is a result of credit loss or other factors.
Volatility in the financial markets could impair our ability to sell certain fixed income securities or cause such securities to sell at deep discounts. Additionally, we have the ability to curtail or modify discretionary cash outlays such as those related to shareholder dividends and share repurchase activities.
Volatility in the financial markets could impair our ability to sell certain fixed income securities or cause such securities to sell at deep discounts. Additionally, we have the ability to curtail or modify discretionary cash outlays such as those related to shareholder dividends and share repurchase activities. See Item 8.
"Financial Statements and Supplementary Data - Note 9, Postretirement Benefits, of Notes to Financial Statements" contained within this report for additional details on the pension plans. 24 Table of Contents RESULTS OF OPERATIONS Management fee revenue We have two performance obligations in the subscriber’s agreement, providing policy issuance and renewal services and acting as attorney-in-fact for the subscribers at the Exchange, as well as the service provider for the Exchange's insurance subsidiaries, with respect to all administrative services.
"Financial Statements and Supplementary Data - Note 10, Postretirement Benefits, of Notes to Consolidated Financial Statements" contained within this report for additional details on the pension plan. 24 Table of Contents RESULTS OF OPERATIONS Management fee revenue We have two performance obligations in the subscriber’s agreement, providing policy issuance and renewal services and acting as attorney-in-fact for the subscribers at the Exchange, as well as the service provider for the Exchange's insurance subsidiaries, with respect to all administrative services.
These receivables from the Exchange and other affiliates are settled monthly. We continually monitor the financial strength of the Exchange. Other Loans Receivable In December 2023, we issued two senior secured loans totaling $13.6 million to fund a real estate development project supporting revitalization efforts in our community. Ownership in the project includes related party and unrelated investors.
These receivables from the Exchange and other affiliates are settled monthly. We continually monitor the financial strength of the Exchange. Other Loans Receivable In 2023, we issued two senior secured loans totaling $13.6 million to fund a real estate development project supporting revitalization efforts in our community. Ownership in the project includes related party and unrelated investors. See Item 8.
Furthermore, the Exchange writes certain personal auto policies with a rate locking feature, which generally extends the amount of time it takes for rate actions to be recognized. The Exchange continuously evaluates pricing and product offerings to meet consumer demands.
Furthermore, the Exchange writes certain personal auto policies with a rate locking feature, which generally extends the amount of time it takes for premium rate actions to be recognized related to these policies. The Exchange continuously evaluates pricing and product offerings to meet consumer demands.
Impairment resulting from credit loss is recognized in earnings with a corresponding allowance on the Statement of Financial Position. We believe our investment valuation philosophy and accounting practices result in appropriate and timely measurement of fair value and recognition of impairment.
Impairment resulting from credit loss is recognized in earnings with a corresponding allowance on the Consolidated Statements of Financial Position. We believe our investment valuation philosophy and accounting practices result in appropriate and timely measurement of fair value and recognition of impairment.
The management fee rate was set at 25% for 2023, 2022 and 2021. Changes in the management fee rate can affect our revenue and net income significantly.
The management fee rate was set at 25% for 2024, 2023 and 2022. Changes in the management fee rate can affect our revenue and net income significantly.
The pricing actions already implemented, or to be implemented, have an effect on the market competitiveness of the Exchange's insurance products. Such pricing actions, and those of the Exchange's 26 Table of Contents competitors, could affect the ability of the Exchange's agents to retain and attract new business.
The pricing actions already implemented, or to be implemented, have an effect on the market competitiveness of the Exchange's insurance products. Such pricing actions, and those of the Exchange's competitors, could affect the ability of the Exchange's agents to retain and attract new business.
"Financial Statements and Supplementary Data - Note 7, Fixed Assets, of Notes to Financial Statements" for additional details on construction in progress costs and expected completion date. • Other commitments – We have commitments for approximately $531 million which include agreements for various services, including information technology, support and maintenance obligations, operating leases for equipment, vehicles and real estate, and other obligations in the ordinary course of business.
"Financial Statements and Supplementary Data - Note 8, Fixed Assets, of Notes to Consolidated Financial Statements" for additional details on construction in progress costs and expected completion date. • Other commitments – We have commitments for approximately $460 million which include agreements for various services, including information technology, support and maintenance obligations, operating leases for equipment, vehicles and real estate, and other obligations in the ordinary course of business.
The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. Claims handling services include costs incurred in the claims process, including the adjustment, investigation, defense, recording and payment functions. Life insurance management services include costs incurred in the management and processing of life insurance business.
The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. Claims handling services include costs incurred in the claims process, including the adjustment, investigation, defense, recording and payment functions.
As the Exchange writes policies with annual terms only, rate actions take 12 months to be fully recognized in written premium and 24 months to be recognized in earned premiums.
As the Exchange writes policies almost exclusively with annual terms, premium rate actions take 12 months to be fully recognized in written premium and 24 months to be recognized in earned premiums.
If our normal operating and investing cash activities were to become insufficient to meet future funding requirements, we believe we have sufficient access to liquidity through our cash position, diverse liquid marketable securities, and our $100 million bank revolving line of credit that does not expire until October 2026.
If our normal operating and investing cash activities were to become insufficient to meet future funding requirements, we believe we have sufficient access to liquidity through our cash position, diverse liquid marketable securities, and our $100 million bank revolving line of credit that does not expire until November 1, 2029.
Financial market volatility Our portfolio of fixed maturity and equity security investments is subject to market volatility especially in periods of instability in the worldwide financial markets. Over time, net investment income could also be impacted by volatility and by the general level of interest rates, which impact reinvested cash flow from the portfolio and business operations.
Financial market volatility Our portfolio of fixed maturity and equity security investments is subject to market volatility, especially in periods of instability in the worldwide financial markets. Net investment income is impacted by the general level of interest rates, which impact reinvested cash flow from the portfolio and business operations.
We also provide information technology services that support all the functions listed above that comprised approximately 11% of our 2023 policy issuance and renewal expenses. Included in these expenses are allocations of costs for departments that support these policy issuance and renewal functions.
We also provide information technology services that support all the functions listed above that comprised approximately 9% of our 2024 policy issuance and renewal expenses. Included in these expenses are allocations of costs for departments that support these policy issuance and renewal functions.
If actuarial net gains or losses exceed 5% of the greater of the projected benefit obligation and the market- 23 Table of Contents related value of plan assets, the excess is recognized through the net periodic pension expense equally over the estimated service period of the employee group, which is currently 14 years.
If actuarial net gains or losses exceed 5% of the greater of the projected benefit obligation and the market-related value of plan assets, the excess is recognized through the net periodic pension expense equally over the estimated service period of the employee group, which is currently 13 years.
Various ongoing geopolitical events, the uncertain inflationary and interest rate environments, and a potential economic slowdown could have a significant impact on the global financial markets with the potential for future losses and/or impairments on our investment portfolio.
Various ongoing geopolitical events, the uncertain inflationary environment and a potential economic slowdown could have a significant impact on the global financial markets with the potential for future losses and/or impairments on our investment portfolio.
At December 31, 2023, our investments classified as Level 3 were not significant. See Item 8. "Financial Statements and Supplementary Data - Note 5, Fair Value, of Notes to Financial Statements" contained within this report for additional details on the fair value measurement of our investments.
At December 31, 2024, our investments classified as Level 3 were not significant. See Item 8. "Financial Statements and Supplementary Data - Note 6, Fair Value, of Notes to Consolidated Financial Statements" contained within this report for additional details on the fair value measurement of our investments.
A 25 basis point decrease in the discount rate assumption, with other assumptions held constant, would increase pension cost in the following year by $4.1 million, of which our share would be approximately $1.6 million, and would increase the pension benefit obligation by $37.2 million.
A 25 basis point decrease in the discount rate assumption, with other assumptions held constant, would increase pension cost in the following year by $4.6 million, of which our share would be approximately $1.8 million, and would increase the pension benefit obligation by $36.3 million.
This was partially offset by increases in cash paid for agent commissions of $157.9 million driven by premium growth, pension and employee benefits paid of $101.3 million primarily due to a $95.0 million pension contribution in 2023, and general operating expenses paid of $30.3 million primarily driven by higher information technology-related professional fees and hardware and software costs.
This was partially offset by increases in cash paid for agent commissions of $157.9 million driven by premium growth, pension and employee benefits paid of $101.3 million primarily due to higher pension contributions, and general operating expenses paid of $30.3 million primarily driven by higher information technology-related professional fees and hardware and software costs.
"Financial Statements and Supplementary Data - Note 14, Related Party, of Notes to Financial Statements" for additional details. Cost Allocation The allocation of costs affects our financial condition and that of the Exchange and its wholly owned subsidiaries.
"Financial Statements and Supplementary Data - Note 15, Related Party, of Notes to Consolidated Financial Statements" for additional details. Cost Allocation The allocation of costs affects our consolidated financial condition and that of the Exchange and its wholly owned insurance subsidiaries.
Non-commission expense – Non-commission expense increased $46.9 million in 2023 compared to 2022. Underwriting and policy processing costs increased $9.4 million primarily due to policies in force growth. Information technology costs increased $18.6 million primarily due to increased professional fees, personnel costs, and hardware and software costs.
Personnel costs in 2024 were impacted by increased compensation. In 2023, non-commission expense increased $46.9 million compared to 2022. Underwriting and policy processing expense increased $9.4 million primarily due to policies in force growth. Information technology costs increased $18.6 million primarily due to increased professional fees, personnel costs, and hardware and software costs.
Agent compensation comprised approximately 67% of our 2023 policy issuance and renewal expenses. The underwriting services we provide include underwriting and policy processing and comprised approximately 9% of our 2023 policy issuance and renewal expenses. The remaining services we provide include customer service and administrative support.
Agent compensation comprised approximately 69% of our 2024 policy issuance and renewal expenses. The underwriting services we provide include underwriting and policy processing and comprised approximately 9% of our 2024 policy issuance and renewal expenses. The remaining services we provide include customer service and administrative support.
Impairments resulting from a credit loss are recognized in earnings with a corresponding allowance on the Statement of Financial Position.
Impairments resulting from a credit loss are recognized in earnings with a corresponding allowance on the Consolidated Statements of Financial Position.
The market-related asset experience during 2023 that related to the actual investment return being different from that assumed during the prior year was a gain of $36.8 million. Recognition of this gain will be deferred and recognized over a four-year period, consistent with the market-related asset value methodology.
The market-related asset experience during 2024 that related to the actual investment return being different from that assumed during the prior year was a loss of $72.8 million. Recognition of this loss will be deferred and recognized over a four-year period, consistent with the market-related asset value methodology.
"Financial Statements and Supplementary Data - Note 9, Postretirement Benefits, of Notes to Financial Statements" contained within this report for additional details on these reimbursements. Our pension obligation is developed from actuarial estimates. Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the plans.
See Item 8. "Financial Statements and Supplementary Data - Note 10, Postretirement Benefits, of Notes to Consolidated Financial Statements" contained within this report for additional details on these reimbursements. Our pension obligation is developed from actuarial estimates. Several statistical and other factors, which attempt to anticipate future events, are used in calculating the expense and liability related to the plan.
See Item 8. "Financial Statements and Supplementary Data - Note 10, Incentive and Deferred Compensation Plans, of Notes to Financial Statements" for additional details of these obligations and estimated future payments. • Home office renovations – We have an agreement with an external contracting firm for renovations to an office building that is part of our principal headquarters.
See Item 8. "Financial Statements and Supplementary Data - Note 11, Incentive and Deferred Compensation Plans, of Notes to Consolidated Financial Statements" for additional details of these obligations and estimated future payments. • Home office renovations – We have agreements with external contracting firms for renovations to an office building that is part of our principal headquarters.
Our ERM process is founded on a governance framework that includes oversight at multiple levels of our organization, including our Board of Directors and executive management. Accountability to identify, manage, and mitigate risk is embedded within all functions and areas of our business. We have defined risk tolerances to monitor and manage significant risks within acceptable levels.
Our ERM process is founded on a governance framework that includes oversight at multiple levels of our organization, including our Board of Directors and executive management. Accountability to identify, manage, and mitigate risk is embedded within all functions and areas of our business. We establish risk tolerance ranges to monitor and manage significant risks.
The Exchange generates revenue by insuring preferred and standard risks, with personal lines comprising 70% of the 2023 direct and affiliated assumed written premiums and commercial lines comprising the remaining 30%. The principal personal lines products are private passenger automobile and homeowners. The principal commercial lines products are commercial multi-peril, commercial automobile and workers compensation.
The Exchange generates revenue by insuring preferred and standard risks, with personal lines comprising 71% of the 2024 direct and affiliated assumed written premiums and commercial lines comprising the remaining 29%. The principal personal lines products are private passenger automobile and homeowners. The principal commercial lines products are commercial multi-peril, commercial automobile and workers compensation.
Fixed maturities Under our investment strategy, we maintain a fixed maturity portfolio that is of high quality and well diversified within each market sector. This investment strategy also achieves a balanced maturity schedule. Our fixed maturity portfolio is managed with the goal of achieving reasonable returns while limiting exposure to risk.
Available-for-sale securities Under our investment strategy, we maintain an available-for-sale portfolio that is of high quality and well diversified within each market sector. This investment strategy also achieves a balanced maturity schedule. Our available-for-sale portfolio is managed with the goal of achieving reasonable returns while limiting exposure to risk.
Outside of our normal operating and investing cash activities, future funding requirements could be met through: 1) unrestricted and unpledged cash and cash equivalents, which total approximately $128.7 million at December 31, 2023, 2) $100 million available bank revolving line of credit, and 3) liquidation of unpledged assets held in our investment portfolio, including equity securities and investment grade bonds which totaled approximately $799.0 million at December 31, 2023.
Outside of our normal operating and investing cash activities, future funding requirements could be met through: 1) unrestricted and unpledged cash and cash equivalents, which totaled approximately $271.0 million at December 31, 2024, 2) $100 million available bank revolving line of credit, and 3) liquidation of unrestricted and unpledged assets held in our investment portfolio, including equity securities and investment grade bonds, which totaled approximately $849.8 million at December 31, 2024.
Additionally, purchases of investments exceeded proceeds generated from sales and maturities/calls of investments in both periods, while 2023 also included $13.6 million in loans issued to fund real estate development projects supporting revitalization efforts in our community.
Additionally, purchases of investments exceeded proceeds generated from sales and maturities/calls of investments in all periods, while 2024 and 2023 also included loans issued to fund real estate development projects supporting revitalization efforts in our community.
While we did not see a significant impact on our sources or uses of cash in 2023, future disruptions in the markets could occur which may affect our liquidity position.
While we did not see a significant impact on our sources or uses of cash in 2024, future market disruptions could occur which may affect our liquidity position.
In 2023, approximately 71% of the administrative services expenses were entirely attributable to the respective administrative functions (claims handling, life insurance management and investment management), while the remaining 29% of these expenses were allocations of costs for departments that support these administrative functions.
In 2024, approximately 70% of the administrative services expenses were entirely attributable to the respective administrative functions (claims handling, life insurance management and investment management), while the remaining 30% of these expenses were allocations of costs for departments that support these administrative functions.
"Financial Statements and Supplementary Data - Note 16, Commitments and Contingencies, of Notes to Financial Statements" for additional information.
"Financial Statements and Supplementary Data - Note 17, Commitments and Contingencies, of Notes to Consolidated Financial Statements" for additional information.
Our evaluation of deferred tax assets and the need for a valuation allowance included available tax planning strategies that could be implemented, if necessary, to support the realizability of deferred tax assets. We believe those tax strategies are feasible and prudent.
Our evaluation of deferred tax assets and the need for a valuation allowance included available tax planning strategies that could be implemented, if necessary, to support the realizability of deferred tax assets.
Net realized and unrealized investment (losses) gains A breakdown of our net realized and unrealized investment (losses) gains is as follows for the years ended December 31: (in thousands) 2023 2022 2021 Securities sold: Available-for-sale securities $ (6,719) $ (14,050) $ 5,131 Equity securities (2,328) (1,866) (76) Change in fair value on remaining equity securities 3,199 (11,372) (110) Miscellaneous 10 2 1 Net realized and unrealized investment (losses) gains $ (5,838) $ (27,286) $ 4,946 Net realized and unrealized losses of $5.8 million in 2023 were primarily due to disposals of available-for-sale and equity securities, partially offset by market value adjustment gains on equity securities.
Net realized and unrealized investment gains (losses) A breakdown of our net realized and unrealized investment gains (losses) is as follows for the years ended December 31: (in thousands) 2024 2023 2022 Securities sold: Available-for-sale securities $ (1,620) $ (6,719) $ (14,050) Equity securities 1,213 (2,328) (1,866) Change in fair value on remaining equity securities 3,635 3,199 (11,372) Miscellaneous 1 10 2 Net realized and unrealized investment gains (losses) $ 3,229 $ (5,838) $ (27,286) Net realized and unrealized gains of $3.2 million in 2024 were primarily due to favorable market value adjustments and gains on disposals of equity securities, partially offset by losses on disposals of available-for-sale securities.
Management fee revenue is based upon the management fee rate we charge and the direct and affiliated assumed premiums written by the Exchange. The management fee rate was 25% for 2023, 2022, and 2021. The 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.
Management fee revenue is based upon the management fee rate we charge and the direct and affiliated assumed premiums written by the Exchange. The management fee rate was 25% for 2024, 2023, and 2022. The direct and affiliated assumed premiums written by the Exchange increased 18.4% to $11.9 billion in 2024 and 17.0% to $10.1 billion in 2023.
Our ERM program views risk holistically across our entire group of companies. It ensures implementation of risk responses to mitigate potential impacts. See Part I, Item 1A. "Risk Factors" contained in this report for a list of risk factors.
Our ERM program views risk holistically across all our companies and facilitates implementation of risk responses to mitigate potential impacts. See Part I, Item 1A. "Risk Factors" contained in this report for a list of risk factors.
In 2023 and 2022, net cash used in investing activities was primarily driven by fixed asset purchases of $92.6 million and $67.2 million, respectively, mostly related to software and home office renovations.
Net cash used in investing activities was $226.9 million in 2024, compared to $157.6 million in 2023 and $106.9 million in 2022. In 2024, 2023 and 2022, net cash used in investing activities was primarily driven by fixed asset purchases of $124.8 million, $92.6 million and $67.2 million, respectively, mostly related to software and home office renovations.
Reimbursements due from the Exchange and its insurance subsidiaries are recorded as a receivable and settled at cost. 28 Table of Contents Total investment income A summary of the results of our investment operations is as follows for the years ended December 31: (dollars in thousands) 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 NM = not meaningful Net investment income Net investment income includes interest and dividends on our fixed maturity and equity security portfolios and the results of our limited partnership investments, net of investment expenses.
Reimbursements due from the Exchange and its insurance subsidiaries are recorded as a receivable and settled at cost. 28 Table of Contents Total investment income A summary of the results of our investment operations is as follows for the years ended December 31: (dollars in thousands) 2024 % Change 2023 % Change 2022 Net investment income $ 70,155 57.4 % $ 44,572 55.9 % $ 28,585 Net realized and unrealized investment gains (losses) 3,229 NM (5,838) 78.6 (27,286) Net impairment losses recognized in earnings (4,124) 57.8 (9,766) NM (667) Total investment income $ 69,260 NM % $ 28,968 NM % $ 632 NM = not meaningful Net investment income Net investment income includes interest and dividends on our fixed maturity and equity security portfolios and the results of our limited partnership investments, net of investment expenses.
Personal lines – Total personal lines premiums written increased 18.7% to $7.1 billion in 2023, from $6.0 billion in 2022, driven by a 10.5% increase in total personal lines year-over-year average premium per policy and a 7.4% increase in total personal lines policies in force.
Personal lines – Total personal lines premiums written increased 20.0% to $8.5 billion in 2024, from $7.1 billion in 2023, driven by a 15.1% increase in total personal lines year-over-year average premium per policy and a 4.8% increase in total personal lines policies in force.
Remaining commitments related to the underlying contracts due in the next 12 months totaled $30.8 million at December 31, 2023. Additional contracts will be executed as we begin each new phase of the overall renovation project and will be funded using our working capital. See Item 8.
Remaining commitments related to the underlying contracts total $45.4 million at December 31, 2024, of which over half is due in the next 12 months. Additional contracts will be executed as we begin each new phase of the overall renovation project and will be funded using our working capital. See Item 8.
The following table presents an analysis of the fair value of our equity securities by sector as of December 31: (in thousands) 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 Postretirement benefit plans The funded status of our postretirement benefit plans is recognized in the Statements of Financial Position, with a corresponding adjustment to accumulated other comprehensive income (loss), net of tax.
The following table presents an analysis of the fair value of our equity securities by sector as of December 31: (in thousands) 2024 2023 Financial services $ 69,930 $ 69,900 Utilities 5,629 5,810 Energy 4,117 3,901 Consumer 3,341 3,915 Technology 1,974 500 Industrial 0 180 Communications 900 47 Total $ 85,891 $ 84,253 Shareholders' Equity Postretirement benefit plans The funded status of our postretirement benefit plans is recognized in the Consolidated Statements of Financial Position, with a corresponding adjustment to accumulated other comprehensive income (loss), net of tax.
Underlying the trend in renewal business premiums in both periods were increases in year-over-year average premium per policy of 9.0% at December 31, 2023 and 4.7% at December 31, 2022, as well as an increase in year-over-year policies in force of 4.5% and 3.6% in 2023 and 2022, respectively, driven by a slight increase in policy retention ratios.
Underlying the trend in renewal business premiums in both periods were increases in year-over-year average premium per policy of 12.9% at December 31, 2024 and 9.0% at December 31, 2023, as well as an increase in year-over-year policies in force of 6.0% and 4.5% in 2024 and 2023, respectively.
The following table presents the allocation and disaggregation of revenue for our two performance obligations: Years ended December 31, (dollars in thousands) 2023 % Change 2022 % Change 2021 Policy issuance and renewal services Direct and affiliated assumed premiums written by the Exchange $ 10,056,484 17.0 % $ 8,595,960 9.2 % $ 7,868,311 Management fee rate 24.30 % 24.30 % 24.30 % Management fee revenue 2,443,726 17.0 2,088,818 9.2 1,912,000 Change in estimate for management fee returned on cancelled policies (1) (1,653) (70.0) (972) NM 1,166 Management fee revenue - policy issuance and renewal services $ 2,442,073 17.0 % $ 2,087,846 9.1 % $ 1,913,166 Administrative services Direct and affiliated assumed premiums written by the Exchange $ 10,056,484 17.0 % $ 8,595,960 9.2 % $ 7,868,311 Management fee rate 0.70 % 0.70 % 0.70 % Management fee revenue 70,395 17.0 60,172 9.2 55,078 Change in contract liability (2) (6,690) NM (1,865) NM 3,195 Change in estimate for management fee returned on cancelled policies (1) (36) NM 16 24.7 13 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 NM = not meaningful (1) A constraining estimate of variable consideration exists related to the potential for management fees to be returned if a policy were to be cancelled mid-term.
The following table presents the allocation and disaggregation of revenue for our two performance obligations: Years ended December 31, (dollars in thousands) 2024 % Change 2023 % Change 2022 Policy issuance and renewal services Direct and affiliated assumed premiums written by the Exchange $ 11,903,759 18.4 % $ 10,056,484 17.0 % $ 8,595,960 Management fee rate 24.40 % 24.30 % 24.30 % Management fee revenue 2,904,517 18.9 2,443,726 17.0 2,088,818 Change in estimate for management fee returned on cancelled policies (1) (10,443) NM (1,653) (70.0) (972) Management fee revenue - policy issuance and renewal services $ 2,894,074 18.5 % $ 2,442,073 17.0 % $ 2,087,846 Administrative services Direct and affiliated assumed premiums written by the Exchange $ 11,903,759 18.4 % $ 10,056,484 17.0 % $ 8,595,960 Management fee rate 0.60 % 0.70 % 0.70 % Management fee revenue 71,423 1.5 70,395 17.0 60,172 Change in contract liability (2) (2,985) 55.4 (6,690) NM (1,865) Change in estimate for management fee returned on cancelled policies (1) (83) NM (36) NM 16 Management fee revenue - administrative services 68,355 7.4 63,669 9.2 58,323 Administrative services reimbursement revenue 806,336 9.4 737,139 10.3 668,268 Total revenue from administrative services $ 874,691 9.2 % $ 800,808 10.2 % $ 726,591 NM = not meaningful (1) A constraining estimate of variable consideration exists related to the potential for management fees to be returned if a policy were to be cancelled mid-term.
Cost of operations for policy issuance and renewal services increased 12.0% to $2.0 billion in 2023 primarily due to higher scheduled commissions driven by direct and affiliated assumed written premium growth, as well as increased employee compensation and technology costs.
Cost of operations for policy issuance and renewal services increased 12.0% to $2.0 billion in 2023 primarily due to higher scheduled commissions driven by direct and affiliated assumed written premium growth, as well as increased employee compensation and technology costs, partially offset by decreased agent incentive compensation driven by higher claims severity and related loss costs experienced by the Exchange.
Year-over-year average premium per policy on new business increased 10.4% at December 31, 2022 and new business policies written increased 3.7% in 2022. Premiums generated from renewal business increased 13.9% to $8.5 billion in 2023, and increased 8.5% to $7.5 billion, in 2022.
Premiums generated from new business increased 37.9% to $1.5 billion in 2023. New business policies written increased 23.7% in 2023 and year-over-year average premium per policy on new business increased 11.5% at December 31, 2023. Premiums generated from renewal business increased 19.1% to $10.2 billion in 2024, and increased 13.9% to $8.5 billion, in 2023.
Net investment income increased $16.0 million in 2023, compared to 2022, primarily due to an increase in bond and cash and cash equivalent income as a result of higher yields and increased rates. Net investment income decreased $33.6 million in 2022, compared to 2021, primarily due to equity in (losses) earnings of limited partnerships.
Net investment income increased $16.0 million in 2023, compared to 2022, primarily due to an increase in bond and cash and cash equivalent income as a result of higher yields and increased rates.
Net realized and unrealized losses of $27.3 million in 2022 were primarily due to disposals of available-for-sale securities and market value adjustments on equity securities, while gains of $4.9 million in 2021 were primarily due to disposals of available-for-sale securities.
Net realized and unrealized losses of $5.8 million in 2023 were primarily due to disposals of available-for-sale and equity securities, partially offset by market value adjustment gains on equity securities, while losses of $27.3 million in 2022 were primarily due to disposals of available-for-sale securities and market value adjustments on equity securities.
We expect our share of the net pension benefit income to be approximately $1.4 million in 2024, of which expense of $13.0 million will be recorded in operating expense and income of $14.4 million will be recorded in other income.
We expect our share of the net pension benefit expense to be approximately $3.1 million in 2025, of which expense of $13.6 million will be recorded in operating expense and income of $10.5 million will be recorded in other income.
Administrative services Years ended December 31, (dollars in thousands) 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 The management fee revenue allocated to administrative services was 0.70% of the direct and affiliated assumed premiums written by the Exchange for 2023, 2022, and 2021.
Administrative services Years ended December 31, (dollars in thousands) 2024 % Change 2023 % Change 2022 Management fee revenue - administrative services $ 68,355 7.4 % $ 63,669 9.2 % $ 58,323 Administrative services reimbursement revenue 806,336 9.4 737,139 10.3 668,268 Total revenue allocated to administrative services 874,691 9.2 800,808 10.2 726,591 Administrative services expenses Claims handling services 690,662 8.8 635,043 10.1 576,799 Investment management services 34,889 (0.2) 34,958 (5.0) 36,795 Life management services 80,785 20.3 67,138 22.8 54,674 Operating income - administrative services $ 68,355 7.4 % $ 63,669 9.2 % $ 58,323 Administrative services The management fee revenue allocated to administrative services was 0.60% of the direct and affiliated assumed premiums written by the Exchange in 2024 and 0.70% in both 2023 and 2022.
As of December 31, 2023, we have access to a $100 million bank revolving line of credit. See Item 8. "Financial Statements and Supplementary Data - Note 8, Bank Line of Credit, of Notes to Financial Statements" for additional information. Off-Balance Sheet Arrangements We have entered into certain contingent obligations for guarantees. See Item 8.
"Financial Statements and Supplementary Data - Note 9, Bank Line of Credit, of Notes to Consolidated Financial Statements" for additional information related to our bank revolving line of credit. Off-Balance Sheet Arrangements We have entered into certain contingent obligations for guarantees. See Item 8.
Total personal lines year-over-year average premium per policy increased 4.4% at December 31, 2022 and policies in force increased 3.9% in 2022.
Total personal lines year-over-year average premium per policy increased 10.5% at December 31, 2023 and policies in force increased 7.4% in 2023.
Commissions increased $71.1 million in 2022 compared to 2021, primarily driven by the growth in direct and affiliated assumed written premium, partially offset by a decrease in agent 27 Table of Contents incentive compensation. The profitability component of agent incentive compensation decreased due to higher claims severity and related loss costs experienced primarily in 2022.
Commissions increased $169.0 million in 2023 compared to 2022, primarily driven by the growth in direct and affiliated assumed written premium, partially offset by a decrease in agent incentive compensation. The profitability component of agent incentive compensation decreased due to higher claims severity and related loss costs in the three-year period ended 2023 compared to the three-year period ended 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

10 edited+2 added−1 removed8 unchanged
Biggest changeWe classify all fixed maturities as available-for-sale securities, allowing us to meet our liquidity needs and provide greater flexibility to appropriately respond to changes in market conditions. 37 Table of Contents The following tables show our fixed maturity investments by rating (1) : At December 31, 2023 (dollars in thousands) Amortized cost Fair value Percent of total AAA, AA, A $ 537,751 $ 515,175 54 % BBB 324,538 318,362 33 Total investment grade 862,289 833,537 87 BB 51,564 50,170 5 B 65,453 65,251 7 CCC, CC, C, and below 13,247 12,283 1 Total non-investment grade 130,264 127,704 13 Total $ 992,553 $ 961,241 100 % At December 31, 2022 (dollars in thousands) Amortized cost Fair value Percent of total AAA, AA, A $ 518,088 $ 479,413 54 % BBB 318,801 300,900 33 Total investment grade 836,889 780,313 87 BB 45,784 41,978 5 B 66,574 62,530 7 CCC, CC, C, and below 11,888 9,840 1 Total non-investment grade 124,246 114,348 13 Total $ 961,135 $ 894,661 100 % (1) Ratings are supplied by S&P, Moody's, and Fitch.
Biggest changeThe following tables show our fixed maturity investments by rating (1) : At December 31, 2024 (dollars in thousands) Amortized cost Fair value Percent of total AAA, AA, A $ 584,600 $ 564,443 54 % BBB 328,561 326,990 31 Total investment grade 913,161 891,433 85 BB 71,000 70,845 7 B 68,944 69,068 6 CCC, CC, C, and below 17,684 17,203 2 Total non-investment grade 157,628 157,116 15 Total $ 1,070,789 $ 1,048,549 100 % At December 31, 2023 (dollars in thousands) Amortized cost Fair value Percent of total AAA, AA, A $ 537,751 $ 515,175 54 % BBB 324,538 318,362 33 Total investment grade 862,289 833,537 87 BB 51,564 50,170 5 B 65,453 65,251 7 CCC, CC, C, and below 13,247 12,283 1 Total non-investment grade 130,264 127,704 13 Total $ 992,553 $ 961,241 100 % (1) Ratings are supplied by S&P, Moody's, and Fitch with the exception of held-to-maturity securities, which are unrated.
The volatility and liquidity in the markets in which the underlying assets are traded directly influence market risk. The following is a discussion of our primary risk exposures, including interest rate risk, investment credit risk, concentration risk, liquidity risk, and equity price risk, and how those exposures are currently managed as of December 31, 2023.
The volatility and liquidity in the markets in which the underlying assets are traded directly influence market risk. The following is a discussion of our primary risk exposures, including interest rate risk, investment credit risk, concentration risk, liquidity risk, and equity price risk, and how those exposures are currently managed as of December 31, 2024.
Interest Rate Risk We invest primarily in fixed maturity investments, which comprised 85% of our invested assets at December 31, 2023. The value of the fixed maturity portfolio is subject to interest rate risk. As market interest rates decrease, the value of the portfolio increases with the opposite holding true in rising interest rate environments.
Interest Rate Risk We invest primarily in fixed maturity investments, which comprised 84% of our invested assets at December 31, 2024. The value of the fixed maturity portfolio is subject to interest rate risk. As market interest rates decrease, the value of the portfolio increases with the opposite holding true in rising interest rate environments.
Fixed maturities interest-rate sensitivity analysis (dollars in thousands) At December 31, 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 36 Table of Contents While the fixed maturity portfolio is sensitive to interest rates, the future principal cash flows that will be received by contractual maturity date are presented below at December 31, 2023 and 2022.
(dollars in thousands) 2024 2023 Fair value of fixed maturity portfolio $ 1,048,549 $ 961,241 Fair value assuming 100-basis point rise in interest rates $ 1,018,957 $ 935,444 Effective duration (as a percentage) 2.9 2.7 36 Table of Contents While the fixed maturity portfolio is sensitive to interest rates, the future principal cash flows that will be received by contractual maturity date are presented below at December 31, 2024.
The table is based upon the lowest rating for each security. We are also exposed to a concentration of credit risk with the Exchange. See the "Transactions/Agreements with Related Parties, Intercompany Receivables" section of Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained within this report for further discussion of this risk.
The table is based upon the lowest rating for each security. 37 Table of Contents We are also exposed to a concentration of credit risk with the Exchange. See the "Transactions/Agreements with Related Parties, Intercompany Receivables" section of Item 7.
Concentration Risk While our portfolio is well diversified within each market sector, there is an inherent risk of concentration in a particular industry or sector. We continually monitor our level of exposure to individual issuers as well as our allocation to each industry and market sector against internally established policies. See the "Financial Condition" section of Item 7.
We continually monitor our level of exposure to individual issuers as well as our allocation to each industry and market sector against internally established policies. See the "Financial Condition" section of Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained within this report for details of investment holdings by sector.
Equity securities are exposed to the risk of potential loss in estimated fair value resulting from an adverse change in prices ("price risk"). We do not hedge our exposure to price risk inherent in our equity investments. 38 Table of Contents
We do not hedge our exposure to price risk inherent in our equity investments. 38 Table of Contents
However, we actively manage the maturity profile of our fixed maturity portfolio such that scheduled repayments of principal occur on a regular basis. Equity Price Risk Our portfolio of equity securities, which primarily includes nonredeemable preferred stock, is carried on the Statements of Financial Position at estimated fair value.
Equity Price Risk Our portfolio of equity securities, which primarily includes nonredeemable preferred stock, is carried on the Consolidated Statements of Financial Position at estimated fair value. Equity securities are exposed to the risk of potential loss in estimated fair value resulting from an adverse change in prices ("price risk").
If not externally rated, we rate them internally on a basis consistent with that used by the rating agencies.
If not externally rated, we rate them internally on a basis consistent with that used by the rating agencies. We classify the vast majority of our fixed maturities as available-for-sale securities, allowing us to meet our liquidity needs and provide greater flexibility to appropriately respond to changes in market conditions.
"Management's Discussion and Analysis of Financial Condition and Results of Operations" contained within this report for details of investment holdings by sector. Liquidity Risk Periods of volatility in the financial markets can create conditions where fixed maturity investments, despite being publicly traded, can become illiquid.
Liquidity Risk Periods of volatility in the financial markets can create conditions where fixed maturity investments, despite being publicly traded, can become illiquid. However, we actively manage the maturity profile of our fixed maturity portfolio such that scheduled repayments of principal occur on a regular basis.
Removed
Contractual repayments of principal by maturity date (in thousands) Fixed maturities: December 31, 2023 2024 $ 81,072 2025 96,519 2026 79,385 2027 116,418 2028 137,065 Thereafter 481,895 Total $ 992,354 Fair value $ 961,241 (in thousands) Fixed maturities: December 31, 2022 2023 $ 24,561 2024 104,164 2025 125,785 2026 79,745 2027 116,571 Thereafter 500,905 Total $ 951,731 Fair value $ 894,661 Investment Credit Risk Our objective is to earn competitive returns by investing in a diversified portfolio of securities.
Added
(in thousands) Year ending December 31, Future Principal Cash Flows 2025 $ 45,052 2026 75,391 2027 130,135 2028 131,000 2029 123,003 Thereafter 572,918 Total $ 1,077,499 Fair value $ 1,048,549 Investment Credit Risk Our objective is to earn competitive returns by investing in a diversified portfolio of securities.
Added
"Management's Discussion and Analysis of Financial Condition and Results of Operations" contained within this report for further discussion of this risk. Concentration Risk While our portfolio is well diversified within each market sector, there is an inherent risk of concentration in a particular industry or sector.

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