10q10k10q10k.net

What changed in Erie Indemnity's 10-K — 2024 vs 2025

vs

Paragraph-level year-over-year comparison of Erie Indemnity's 2024 and 2025 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 2025 report.

+191 added−197 removedSource: 10-K (2026-02-23) vs 10-K (2025-02-27)

Top changes in Erie Indemnity's 2025 10-K

191 paragraphs added · 197 removed · 161 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

11 edited+4 added−5 removed39 unchanged
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.
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.
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.
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 engagement surveys and forums.
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.
The Exchange generates revenue by insuring preferred and standard risks, with personal lines comprising 71% of the 2025 direct and affiliated assumed written premiums and commercial lines comprising the remaining 29%. The principal personal lines products are private passenger automobile and homeowners. The principal commercial lines products are commercial multi-peril, commercial automobile, and workers compensation.
We 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 recognize the importance of unique 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 continue to monitor turnover trends to determine the appropriate actions to ensure we are well positioned for the future. Government Regulation Most states have enacted legislation that regulates insurance holding company systems, defined as two or more affiliated persons, one or more of which is an insurer.
We continue to monitor turnover trends to determine the appropriate actions to ensure we are well positioned for the future. 5 Table of Contents Government Regulation Most states have enacted legislation that regulates insurance holding company systems, defined as two or more affiliated persons, one or more of which is an insurer.
Market competition bears directly on the price charged for insurance products and services subject to regulatory limitations. Industry capital levels can also significantly affect prices charged for coverage. Growth is driven by a company's ability to provide insurance services and competitive prices while maintaining target profit margins.
Market competition bears directly on the price charged for insurance products and services subject to regulatory limitations. Industry capital levels can also significantly affect prices charged for coverage. Growth is driven by a company's ability to provide insurance services and competitive prices while maintaining target profitability.
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 sales related services we provide include agent compensation and certain sales and advertising support services. Agent compensation includes scheduled commissions to agents based upon premiums written as well as incentive compensation, which is earned by achieving targeted measures. Agent compensation comprised approximately 71% of our 2025 policy issuance and renewal expenses.
The underwriting services we provide include underwriting and policy processing and comprised approximately 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.
The underwriting services we provide include underwriting and policy processing and comprised approximately 8% of our 2025 policy issuance and renewal expenses. The remaining services we provide include customer service and administrative support. We also provide information technology services that support all the functions listed above that comprised approximately 10% of our 2025 policy issuance and renewal expenses.
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.
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. We also have a comprehensive succession planning process designed to ensure continuity in critical roles as well as to support employee development.
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.
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.
We also offer a Future Focus internship program that provides opportunities for college students to gain relevant and real-world business experience in the insurance industry as well as an apprentice program to create a bridge for talent from high schools and community colleges into our workforce.
We also offer a Future Focus internship program that provides opportunities for college students to gain relevant and real-world business experience in the insurance industry. Additionally, we foster a collaborative and welcoming workplace by offering nine voluntary affinity networks that are open to all employees, and five business resource groups.
Removed
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.
Added
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.
Removed
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.
Added
Affinity networks are employee-driven groups designed to foster greater awareness and a culture of inclusion. 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.
Removed
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.
Added
Workforce Metrics As of December 31, 2025, our total workforce consists of 6,667 full-time employees, which includes approximately 50% of employees who provide claims and life insurance management services exclusively for the Exchange and its insurance subsidiaries. The Exchange and its insurance subsidiaries reimburse us monthly for the cost of these services.
Removed
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.
Added
Our average employee tenure in 2025 was 10.9 years with an overall voluntary turnover rate of 6.3%.
Removed
(4) Average tenure is calculated using the total number of years of employment, divided by average headcount of full-time and part-time employees for the period and represents the average number of years employees have been employed with the organization. The largest portion of our turnover continues to be voluntary turnover, excluding retirements, and remains lower than industry benchmark data.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

33 edited+6 added−0 removed83 unchanged
Biggest changeThe 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.
Biggest changeCommon natural catastrophic events in the Exchange's footprint include tropical cyclones, earthquakes, severe convective storms, and severe winter weather. Additional perils that the Exchange is exposed to through its assumed property reinsurance portfolio include wildfires, tsunamis, and floods. The frequency and severity of these catastrophes are inherently uncertain.
Unfavorable changes in macroeconomic conditions for any reason, including declining consumer confidence, inflation, high unemployment, lower demand for certain services, reduced personal income, and recession, among others, may lead the Exchange's customers to modify coverage, not renew policies, or even cancel policies, which could adversely affect the premium revenue of the Exchange, and consequently our management fee.
Unfavorable changes in macroeconomic conditions for any reason, including declining consumer confidence, inflation, high unemployment, lower demand for certain services, reduced personal income, and recession, among others, may lead the Exchange's customers to modify coverage, not renew policies, or even cancel policies, which could adversely affect the premium revenue of the Exchange, and consequently our management fee revenue.
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.
While we continue to test and assess our business continuity and disaster recovery plans to validate they 11 Table of Contents 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.
As we continue to develop technology initiatives in order to remain competitive, our profitability could be negatively impacted as we invest in system development. If we are unable to attract, develop, and retain talented executives, key managers, and employees our financial condition and results of operations could be adversely affected.
As we continue to develop technology initiatives in order to remain competitive, our profitability could be negatively impacted as we invest in system development. If we are unable to attract, develop, retain, and protect talented executives, key managers, and employees our financial condition and results of operations could be adversely affected.
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.
General economic conditions, geopolitical events, fiscal, trade, 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.
Plaintiffs in class action and other lawsuits against the Exchange may seek large or indeterminate amounts of damages, including punitive and treble damages, which may remain unknown for substantial periods of time.
Plaintiffs in class action and other lawsuits against the Exchange may seek large or indeterminate amounts of damages, including punitive and treble damages, the ultimate amounts of which may remain unknown for substantial periods of time.
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.
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 factors change, unexpected and unintended issues related to claims and coverage may emerge.
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.
Approximately 30% 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.
We have established business continuity and disaster recovery plans to provide for the continuation of core business operations in the event that normal business operations could not be performed due to catastrophic or other events, including pandemics.
We have established business continuity and disaster recovery plans to provide for the continuation of core business operations in the event that normal business operations could not be performed due to catastrophic or other events, including pandemics and cyber attacks.
The Exchange's investment portfolio is comprised principally of fixed income securities, equity securities and limited partnerships. The fixed income portfolio is subject to a number of risks including, but not limited to, interest rate risk, investment credit risk, sector/concentration risk and liquidity risk.
The performance of the Exchange's investment portfolio is subject to a variety of investment risks. The Exchange's investment portfolio is comprised principally of fixed income securities, equity securities and limited partnerships. The fixed income portfolio is subject to a number of risks including, but not limited to, interest rate risk, investment credit risk, sector/concentration risk and liquidity risk.
Commissions to independent agents are our largest expense. Commissions include scheduled commissions to agents based upon premiums written as well as incentive compensation, which is earned by achieving certain targeted measures. Changes to commission rates or incentive programs may result in increased future costs and lower profitability. Our agent incentive compensation includes a profitability component.
Commissions to independent agents are our largest expense. Commissions include scheduled commissions to agents based upon premiums written as well as incentive compensation, which is earned by achieving certain targeted measures. Changes to commission rates or incentive programs may result in increased future costs and lower profitability. Our agent incentive compensation includes a property and casualty underwriting profitability component.
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.
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 7 Table of Contents premium. The Exchange also writes certain personal auto policies with a rate locking feature.
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.
These product features 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 revenue. The Exchange faces significant competition from other regional and national insurance companies.
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.
In addition, talented employees with specialized skills in actuarial, finance, human resources, law, risk management and information technology, including artificial intelligence and data analytics, are also essential to support and grow 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.
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.
Our interactions with, and reliance upon, third parties, including our independent agents, 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.
Financial strength ratings are an important factor in establishing the competitive position of insurance companies such as the Exchange. Higher ratings generally indicate greater financial stability and a stronger ability to meet ongoing obligations to policyholders. The Exchange's A.M. Best rating is currently A+ ("Superior"). A.M.
Financial strength ratings are an important factor in establishing the competitive position of insurance companies such as the Exchange. Higher ratings generally indicate greater financial stability and a stronger ability to meet ongoing obligations to policyholders. The Exchange's AM Best rating is currently A ("Excellent").
Additionally, failure to recognize, evaluate, and respond to changing workforce trends including current labor market conditions and new ways of managing in hybrid work environments, or failure to execute proactive retention and replacement strategies could also have an adverse effect on our business performance.
Additionally, failure to recognize, evaluate, and respond to changing workforce trends including current labor market conditions and managing hybrid work environments, or failure to execute proactive retention and replacement strategies could also have an adverse effect on our business performance.
Similarly, the Exchange’s brand could be tarnished by reactions to business practices, adverse financial developments, perceptions of our corporate governance, how we address employee matters and concerns, environmental, social and governance (ESG) initiatives, or the conduct of our employees, officers and directors.
Similarly, the Exchange's brand could be tarnished by reactions to business practices, adverse financial developments, perceptions of our corporate governance, and how we address employee matters and concerns, the conduct of our employees, officers and directors, or environmental, social and governance (ESG) practices, including corporate diversity, equity and inclusion (DEI) initiatives.
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.
Accordingly, any reduction in direct and affiliated assumed premiums written by the Exchange and/or the management fee rate could decrease 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.
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.
Regulatory developments, provider relationships, and demographic and economic factors that are beyond our control, such as inflation and increased labor market competition, are indicators that employee costs could increase, which could reduce our profitability or impact our personnel strategy.
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.
This could reduce fair values of investments and generate significant unrealized losses or impairment charges which may adversely affect our financial results. 12 Table of Contents 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, 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.
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.
For example, the behavior of claimants and policyholders, including increased attorney involvement and third-party litigation financing, could result in higher 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 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.
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. 9 Table of Contents The Exchange's insurance operations are exposed to claims arising out of catastrophes.
Best periodically reviews the Exchange’s ratings and changes their rating criteria; therefore, the Exchange's current rating may not be maintained in the future. A significant downgrade in the A.M.
AM Best periodically reviews the Exchange's ratings and changes their rating criteria; therefore, the Exchange's current rating may not be maintained in the future.
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.
At December 31, 2025, our investment portfolio consisted of approximately 85% fixed maturity securities, with the remaining 15% invested in equity securities and other investments.
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.
A significant downgrade in the AM Best rating could reduce the competitive position of the Exchange, making it more difficult to 8 Table of Contents 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 loss of the services and leadership of certain key officers and the failure to plan for turnover or retirement or to attract and develop talented new executives and managers could prevent us from successfully communicating, implementing, and executing business strategies. Our success also depends on our ability to attract, develop, and retain a talented employee base.
The loss of the services and leadership of certain key officers and the failure to plan for turnover or retirement or to attract and develop talented new executives and managers could prevent us from successfully communicating, implementing, and executing business strategies.
The evaluation of these factors could result in a reduction to the management fee rate and our revenues and profitability could be materially adversely affected.
The evaluation of these factors could result in a reduction to the management fee rate and our revenues and profitability could be materially adversely affected. Regulatory or other third-party action affecting the management fee rate could also materially adversely affect our revenues and profitability.
In addition, downward economic trends also may have an adverse effect on our investment results by negatively impacting the business conditions and impairing credit for the issuers of securities held in our respective investment portfolios. This could reduce fair values of investments and generate significant unrealized losses or impairment charges which may adversely affect our financial results.
In addition, downward economic trends also may have an adverse effect on our investment results by negatively impacting the business conditions and impairing credit for the issuers of securities held in our respective investment portfolios.
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.
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.
Employee absence, physical premises damage, systems failures or outages could compromise our ability to perform our business functions in a timely manner, which could harm our ability to conduct business and hurt our business and customer relationships. Our operational resiliency is also dependent on third-party personnel, infrastructure and systems on which we rely, including cloud-based technologies and software-as-a-service applications.
Employee absence, physical premises damage, systems failures or outages could compromise our ability to perform our business functions in a timely manner, which could harm our ability to conduct business and hurt our business and customer relationships.
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.
Any significant decrease in claims frequency and loss expenses could improve the profitability component, resulting in increased agent compensation costs. Our second largest expense category includes employee costs such as salaries, healthcare, pension, and other benefit costs.
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.
Additionally, 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.
Added
Changing climate conditions have created additional uncertainty regarding the future trends in the frequency and severity of natural disasters. Increases in the insured value and geographic concentration of exposures, as well as the impact of inflation, may increase the severity of catastrophe losses.
Added
Additionally, our executives and other key management may be subject to physical or cyber threats, which if realized, could adversely affect our business operations. Our success also depends on our ability to attract, develop, and retain a talented employee base.
Added
While we also maintain business interruption insurance to mitigate the financial risk around disruptions to our core business operations, such insurance may not cover all costs associated with a disruption, and such insurance may become prohibitively expensive to maintain.
Added
Our operational resiliency is also dependent on third-party personnel, infrastructure and systems on which we rely, including cloud-based technologies and software-as-a-service applications.
Added
Efforts at compliance with all laws and regulations are further complicated by new and evolving regulations regarding cybersecurity, artificial intelligence and ESG matters, including DEI-related items. For example, recent changes in the U.S. regulatory environment relating to ESG matters has increased scrutiny of corporate ESG practices.
Added
Failure to effectively address current and future ESG regulatory developments and stakeholder expectations may expose our business to litigation, fines, penalties, and damage to our reputation, which, if material could adversely affect our financial condition and results of operations.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

2 edited+0 added−0 removed21 unchanged
Biggest changeTo date, we are not aware of any cybersecurity breach or other incident with respect to our systems or data that would have a material impact to our business strategy, results of operations or financial condition.
Biggest changeTo date, we are not aware of any cybersecurity breach or other incident with respect to our systems or data that have materially affected, or that are reasonably likely to materially affect our business strategy, results of operations or financial condition.
Our Legal leader, responsible for providing guidance on legal and other regulatory obligations in the areas of privacy, cybersecurity, technology, data use and third-party risk management, holds a Juris Doctor degree, is licensed to practice law, and has over 20 years of legal experience, including 10 years focused on privacy and cybersecurity and holds several information security and privacy certifications, including the CISSP.
Our Legal leader, responsible for providing guidance on legal and other regulatory obligations in the areas of privacy, cybersecurity, technology, data use and third-party risk management, holds a Juris Doctor degree, is licensed to practice law, and has over 20 years of legal experience, including over 10 years focused on privacy and cybersecurity and holds several information security and privacy certifications, including the CISSP.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed2 unchanged
Biggest changeIndemnity 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.
Biggest changeIndemnity 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 2031.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

3 edited+2 added−0 removed20 unchanged
Biggest changeThe 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".
Biggest changeOn January 12, 2026, Indemnity filed a Petition for Writ of Certiorari with the United States Supreme Court. The Petition is currently pending. Indemnity intends to vigorously defend against all allegations and requests for relief sought by plaintiffs. For additional information on contingencies, see Part II, Item 8.
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.
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.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 16 Table of Contents PART II
"Financial Statements and Supplementary Data - Note 17, Commitment and Contingencies, of Notes to Consolidated Financial Statements". ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 16 Table of Contents PART II
Added
On October 14, 2025, the Third Circuit issued an Opinion and concluded that “the District Court abused its discretion in granting Indemnity’s motion for preliminary injunction.” The Court determined that the Complaint in Stephenson only sought to challenge the management fee established in December 2019 and 2020.
Added
The Court went on to conclude that the issues were not litigated in either Ritz or Beltz and, therefore, the Stephenson plaintiffs were not precluded from challenging the management fee for those years. On October 28, 2025, Indemnity filed a Petition for Reargument before the Court en banc. On November 12, 2025, the Third Circuit denied the Petition for Reargument.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

1 edited+0 added−0 removed0 unchanged
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
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] 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 35 Item 8. Financial Statements and Supplementary Data 38

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+1 added−2 removed5 unchanged
Biggest changeSee 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.
Biggest change(2) Represents shares purchased on the open market for stock-based awards in conjunction with our equity compensation plan. 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.
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.
Broadridge Corporate Issuer Solutions, Inc. serves as our transfer agent and registrar. As of February 17, 2026, there were approximately 471 shareholders of record for the Class A non-voting common stock and 8 shareholders of record for the Class B voting common stock.
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.
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, 2025: (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, 2025 — $ — — $ 17,754 November 1–30, 2025 (1) 77 283.12 — 17,754 December 1–31, 2025 (2) 182 298.52 — 17,754 Total 259 293.94 — (1) Represents shares purchased on the open market to fund the rabbi trust for the outside director deferred stock compensation plan.
Removed
Stock Performance The following graph depicts the cumulative total shareholder return, assuming reinvestment of dividends, for the periods indicated for our Class A common stock compared to the Standard & Poor's 500 Stock Index and the Standard & Poor's Supercomposite Insurance Industry Group Index.
Added
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.
Removed
The 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.

Item 7. Management's Discussion & Analysis

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

100 edited+17 added−29 removed82 unchanged
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.
Biggest change"Risk Factors". 25 Table of Contents Policy issuance and renewal services Years ended December 31, (dollars in thousands) 2025 % Change 2024 % Change 2023 Management fee revenue - policy issuance and renewal services $ 3,131,806 8.2 % $ 2,894,074 18.5 % $ 2,442,073 Service agreement revenue 24,755 (6.1) 26,350 1.1 26,059 3,156,561 8.1 2,920,424 18.3 2,468,132 Cost of operations - policy issuance and renewal services 2,513,435 8.7 2,312,324 15.0 2,011,545 Operating income - policy issuance and renewal services $ 643,126 5.8 % $ 608,100 33.2 % $ 456,587 Policy issuance and renewal services The management fee revenue allocated for providing policy issuance and renewal services was 24.37% and 24.40% of the direct and affiliated assumed premiums written by the Exchange in 2025 and 2024, respectively.
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.
If our normal operating and investing cash activities were to become insufficient to meet future funding requirements, we believe we have sufficient access to liquidity through our cash position, diverse liquid marketable securities, and our $100 million bank revolving line of credit that does not expire until November 2029.
Depending upon market conditions, considerable fluctuation could occur in the fair value of our investment portfolio and reported total investment income, which could have an adverse impact on our financial condition, results of operations, and cash flows.
Depending upon market conditions, considerable fluctuation could occur in the fair value of our investment portfolio and reported total investment income, which could have an adverse impact on our consolidated financial condition, results of operations, and cash flows.
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.
Among the risks and uncertainties, in addition to those set forth in our filings with the Securities and Exchange Commission, that could cause actual results and future events to differ from those set forth or contemplated in the forward-looking statements include the following: • dependence upon our relationship with the Erie Insurance Exchange ("Exchange") and the management fee under the agreement with the subscribers at the Exchange; • dependence upon our relationship with the Exchange and the growth of the Exchange, including: ◦ general business and economic conditions; ◦ factors impacting the timing of premium rates charged for policies; ◦ factors affecting insurance industry competition, including technological innovations; ◦ dependence upon the independent agency system; and ◦ ability to maintain our brand, including our reputation for customer service; • dependence upon our relationship with the Exchange and the financial condition of the Exchange, including: ◦ the Exchange's ability to maintain acceptable financial strength ratings; ◦ factors affecting the quality and liquidity of the Exchange's investment portfolio; ◦ changes in government regulation of the insurance industry; ◦ litigation and regulatory actions; ◦ emergence of significant unexpected events, including pandemics, economic or social inflation, and changes in tariff policies; ◦ emerging claims and coverage issues in the industry; and ◦ severe weather conditions or other catastrophic losses, including terrorism; 18 Table of Contents • costs of providing policy issuance and renewal services to the subscribers at the Exchange under the subscriber's agreement; • ability to attract, develop, retain, and protect talented management and employees; • ability to ensure system availability and effectively manage technology initiatives; • difficulties with technology, data or network security breaches, including cyber attacks; • ability to maintain uninterrupted business operations; • compliance with complex and evolving laws and regulations and outcome of pending and potential litigation; • factors affecting the quality and liquidity of our investment portfolio; and • ability to meet liquidity needs and access capital.
"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.
"Financial Statements and Supplementary Data - Note 8, Fixed Assets, of Notes to Consolidated Financial Statements" for additional details on construction in progress costs and expected completion date. • Other commitments – We have commitments for approximately $473 million which include agreements for various services, including information technology, support and maintenance obligations, operating leases for equipment, vehicles, and real estate, and other obligations in the ordinary course of business.
"Financial Statements and Supplementary Data - Note 2, Significant Accounting Policies, of Notes to Consolidated Financial Statements" for additional information on other loans receivable and held-to-maturity securities. 29 Table of Contents Financial Condition of Erie Insurance Exchange Serving in the capacity of attorney-in-fact for the subscribers at the Exchange, we are dependent on the growth and financial condition of the Exchange, who is our sole customer.
"Financial Statements and Supplementary Data - Note 2, Significant Accounting Policies, of Notes to Consolidated Financial Statements" for additional information on other loans receivable and held-to-maturity securities. 28 Table of Contents Financial Condition of Erie Insurance Exchange Serving in the capacity of attorney-in-fact for the subscribers at the Exchange, we are dependent on the growth and financial condition of the Exchange, who is our sole customer.
Additionally, if we require significant amounts of cash on short notice in excess of anticipated cash requirements, or if we are required to return cash 33 Table of Contents collateral in connection with our securities lending program, we may have difficulty selling investments in a timely manner, or be forced to sell at deep discounts.
Additionally, if we require significant amounts of cash on short notice in excess of anticipated cash requirements, or if we are required to return cash 32 Table of Contents collateral in connection with our securities lending program, we may have difficulty selling investments in a timely manner, or be forced to sell at deep discounts.
We retain management fees for acting as the attorney-in-fact for the subscribers at the Exchange in these two capacities and allocate our revenues between our performance obligations. The management fee is calculated by multiplying all direct and affiliated assumed premiums written by the Exchange by the management fee rate, which is determined by our Board of Directors at least annually.
We retain management fees for acting as the attorney-in-fact for the subscribers at the Exchange in these two capacities and allocate our revenues between our performance obligations. The management fee is calculated by multiplying all direct and affiliated assumed premiums written by the Exchange by the management fee rate, which is set by our Board of Directors at least annually.
The 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.
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.
(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.
(4) The current and long-term portions of other investments are included in the line items "Prepaid expenses and other current assets, net" and "Other assets, net", respectively, in the Consolidated Statements of Financial Position. We continually review our investment portfolio for impairment and determine whether the impairment is a result of credit loss or other factors.
A change of 25 basis points in the expected long-term rate of return assumption, with other assumptions held constant, would have an estimated $2.9 million impact on net pension benefit cost in the following year, of which our share would be approximately $1.2 million.
A change of 25 basis points in the expected long-term rate of return assumption, with other assumptions held constant, would have an estimated $2.8 million impact on net pension benefit cost in the following year, of which our share would be approximately $1.1 million.
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.
At December 31, 2025, our investments classified as Level 3 were not significant. See Item 8. "Financial Statements and Supplementary Data - Note 6, Fair Value, of Notes to Consolidated Financial Statements" contained within this report for additional details on the fair value measurement of our investments.
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.
While estimates of the fair values of our investment portfolio are obtained from outside pricing services, we ultimately determine whether the inputs used are observable or unobservable. As of December 31, 2025, substantially all of the securities measured at fair value in our investment portfolio are classified as Level 2.
Management fee revenue is based upon all direct and affiliated assumed premiums written by the Exchange and the management fee rate, which is not to exceed 25%. Our Board of Directors establishes the management fee rate at least annually, generally in December for the following year.
Management fee revenue is based upon all direct and affiliated assumed premiums written by the Exchange and the management fee rate, which is not to exceed 25%. Our Board of Directors sets the management fee rate at least annually, generally in December for the following year.
The 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.
The Exchange generates revenue by insuring preferred and standard risks, with personal lines comprising 71% of the 2025 direct and affiliated assumed written premiums and commercial lines comprising the remaining 29%. The principal personal lines products are private passenger automobile and homeowners. The principal commercial lines products are commercial multi-peril, commercial automobile, and workers compensation.
"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.
"Financial Statements - Note 3, Revenue, of Notes to Consolidated Financial Statements" contained within this report. 24 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 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 10, Postretirement Benefits, of Notes to Consolidated Financial Statements" contained within this report for additional details on these reimbursements. 31 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 tariff, inflationary, and interest rate environment.
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.
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 19 Table of Contents behalf of the subscribers at the Exchange with respect to its administrative services as enumerated in the subscriber's agreement.
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.
Allocation of costs under these various agreements requires judgment and interpretation by Indemnity, and such allocations are performed using a consistent methodology, which is intended to adhere to the terms and intentions of the underlying agreements. Intercompany Receivables We have significant receivables from the Exchange and its affiliates that result in a concentration of credit risk.
Based on the current asset allocation and a review of the key factors and expectations of future asset performance as well as the current market environment, the expected return on asset assumption will remain at 7.00% for 2025.
Based on the current asset allocation and a review of the key factors and expectations of future asset performance as well as the current market environment, the expected return on asset assumption will remain at 7.00% for 2026.
Elevated inflation or supply chain disruptions could impact the Exchange's operations and our management fees. In particular, unanticipated increased inflation costs including medical cost inflation, building material cost inflation, auto repair and replacement cost inflation, and social inflation may impact adequacy of estimated loss reserves and future premium rates of the Exchange.
Elevated inflation, supply chain disruptions, or changes in tariff policies could impact the Exchange's operations and our management fees. In particular, unanticipated increased inflation costs including medical cost inflation, building material cost inflation, auto repair and replacement cost inflation, and social inflation may impact adequacy of estimated loss reserves and future premium rates of the Exchange.
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.
While we did not see a significant impact on our sources or uses of cash in 2025, future market disruptions could occur which may affect our liquidity position.
The 2024 actuarial loss was driven primarily by the lower than expected return on plan assets, partially offset by the higher discount rate used to measure the future benefit obligations.
The 2025 actuarial loss was driven primarily by the lower discount rate used to measure the future benefit obligations, partially offset by higher than expected return on plan assets.
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.
The management fee rate was set at 25% for 2025 and 2024. Based on analysis of the foregoing factors, our Board of Directors set the 2026 management fee rate again at 25%. Our earnings are primarily driven by the management fee revenue generated for the services we provide on behalf of the subscribers at the Exchange.
The strength of the Exchange and its wholly owned subsidiaries is rated annually by A.M. Best through assessing its financial stability and ability to pay claims. The ratings are generally based upon factors relevant to policyholders and are not directed toward return to investors.
The strength of the Exchange and its wholly owned subsidiaries is rated annually by AM Best through assessing its financial stability and ability to pay claims. The ratings are generally based upon factors relevant to policyholders and are not directed toward return to investors.
As a result, certain rate changes approved in 2023 were reflected in 2024, and a portion of the premium rate actions approved in 2024 will be reflected in 2025.
As a result, certain rate changes approved in 2024 were reflected in 2025, and a portion of the premium rate actions approved in 2025 will be reflected in 2026.
Our assessment of the significance of a particular input to the fair value measurement requires judgment, and considers factors specific to the asset, such as the relative impact on 22 Table of Contents the fair value as a result of including a particular input and market conditions.
Our assessment of the significance of a particular input to the fair value measurement requires judgment, and considers factors specific to the asset, such as the relative impact on the fair value as a result of including a particular input and market conditions.
We expect to make future cash payments according to the contract terms. These agreements are enforceable and legally binding and specify fixed amounts or minimum quantities to be purchased. Some agreements may contain cancellation provisions, some of which may require us to pay a termination fee. Over half of these commitments are due in the next 12 months.
We expect to make future cash payments according to the contract terms. These agreements are enforceable and legally binding and specify fixed amounts or minimum quantities to be purchased. Some agreements may contain cancellation provisions, some of which may require us to pay a termination fee. Approximately two-thirds of these commitments are due in the next 12 months.
INDEX Page Number Cautionary Statement Regarding Forward-Looking Information 19 Recent Accounting Standards 20 Operating Overview 20 Critical Accounting Estimates 22 Results of Operations 25 Financial Condition 31 Investments 31 Shareholders' Equity 32 Liquidity and Capital Resources 33 Transactions/Agreements with Related Parties 35 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements contained herein that are not historical fact are forward-looking statements and, as such, are subject to risks and uncertainties that could cause actual events and results to differ, perhaps materially, from those discussed herein.
INDEX Page Number Cautionary Statement Regarding Forward-Looking Information 18 Recent Accounting Standards 19 Operating Overview 19 Critical Accounting Estimates 22 Results of Operations 24 Financial Condition 30 Investments 30 Shareholders' Equity 31 Liquidity and Capital Resources 32 Transactions/Agreements with Related Parties 34 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements contained herein that are not historical fact are forward-looking statements and, as such, are subject to risks and uncertainties that could cause actual events and results to differ, perhaps materially, from those discussed herein.
We generate investment income from our fixed maturity and equity security portfolios. Our portfolio is managed with the objective of maximizing after-tax returns on a risk-adjusted basis.
We generate investment income from our fixed maturity and equity security portfolios. Our portfolios are managed with the objective of maximizing after-tax returns on a risk-adjusted basis.
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.
See Item 8. "Financial Statements and Supplementary Data - Note 11, Incentive and Deferred Compensation Plans, of Notes to Consolidated Financial Statements" for additional details of these obligations and estimated future payments. • Home office renovations – We have agreements with external contracting firms for renovations to office buildings that are part of our principal headquarters.
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.
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.
In addition to identifying, evaluating, prioritizing, monitoring, and mitigating significant risks, our ERM process includes extreme event analyses and scenario testing. Given our defined tolerance for risk, risk model output is used to quantify the potential variability of future performance and the sufficiency of capital and liquidity levels.
We establish risk tolerance ranges to monitor and manage significant risks. In addition to identifying, evaluating, prioritizing, monitoring, and mitigating significant risks, our ERM process includes extreme event analyses and scenario testing. Given our defined tolerance for risk, risk model output is used to quantify the potential variability of future performance and the sufficiency of capital and liquidity levels.
These receivables include management fees due for policy issuance and renewal services performed by us under the subscriber's agreement, and certain costs we incur acting as the attorney-in-fact on behalf of the subscribers at the Exchange as well as the service provider for the Exchange's insurance subsidiaries with respect to all administrative services, as discussed previously.
These receivables include management fees due for policy issuance and renewal services performed by us under the subscriber's agreement, and certain costs we incur acting as the attorney-in-fact on behalf of the subscribers at the Exchange as well as the service provider for the Exchange's insurance subsidiaries with respect to all administrative services, as discussed previously. 34 Table of Contents See Item 8.
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.
We also provide information technology services that support all the functions listed above that comprised approximately 10% of our 2025 policy issuance and renewal expenses. Included in these expenses are allocations of costs for departments that support these policy issuance and renewal functions.
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.
Financial market volatility Our portfolio of available-for-sale and equity security investments is subject to market volatility, especially in periods of instability in the worldwide financial markets. Net investment income is impacted by the general level of interest rates, which impact reinvested cash flow from the portfolio and business operations.
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.
Furthermore, the Exchange writes certain personal auto policies with a rate locking feature, which generally extends the amount of time it takes for premium rate actions to be recognized related to these policies. The Exchange continuously evaluates pricing and product offerings to maintain rate adequacy while meeting consumer demands.
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.
A 25 basis point decrease in the discount rate assumption, with other assumptions held constant, would increase pension cost in the following year by $4.0 million, of which our share would be approximately $1.6 million, and would increase the pension benefit obligation by $40.0 million.
Our current transaction price allocation review resulted in a minor change in the allocation between the two performance obligations in 2024 compared to prior years, which did not have a material impact on our financial statements.
Our current transaction price allocation review resulted in a minor change in the allocation between the two performance obligations in 2025 compared to 2024, which did not have a material impact on our consolidated financial statements.
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.
Outside of our normal operating and investing cash activities, future funding requirements could be met through: 1) unrestricted and unpledged cash and cash equivalents, which totaled approximately $315.0 million at December 31, 2025, 2) $100 million available bank revolving line of credit, and 3) liquidation of unrestricted and unpledged assets held in our investment portfolio, including equity securities and investment grade bonds, which totaled approximately $1.1 billion at December 31, 2025.
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 management fee rate was set at 25% for 2025 and 2024. Changes in the management fee rate can affect our revenue and net income significantly.
Available-for-sale securities are carried at fair value with unrealized gains and losses, net of deferred taxes, included in shareholders' equity. Net unrealized losses on available-for-sale securities, net of deferred taxes, totaled $17.6 million at December 31, 2024, compared to $24.7 million at December 31, 2023.
Available-for-sale securities are carried at fair value with unrealized gains and losses, net of deferred taxes, included in shareholders' equity. Net unrealized gains on available-for-sale securities, net of deferred taxes, totaled $1.3 million at December 31, 2025, compared to unrealized losses of $17.6 million at December 31, 2024.
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.
In 2025, approximately 71% of the administrative services expenses were entirely attributable to the respective administrative functions (claims handling, life insurance management, and investment management), while the remaining 29% of these expenses were allocations of costs for departments that support these administrative functions.
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.
Reimbursements due from the Exchange and its insurance subsidiaries are recorded as a receivable and settled at cost. 27 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) 2025 % Change 2024 % Change 2023 Net investment income $ 85,837 22.4 % $ 70,155 57.4 % $ 44,572 Net realized and unrealized investment gains (losses) 2,336 (27.6) 3,229 NM (5,838) Net impairment losses recognized in earnings (3,312) 19.7 (4,124) 57.8 (9,766) Total investment income $ 84,861 22.5 % $ 69,260 NM % $ 28,968 NM = not meaningful Net investment income Net investment income includes interest and dividends on our fixed maturity and equity security portfolios and the results of our limited partnership investments, net of investment expenses.
"Risk Factors" for possible outcomes that could impact that determination. 30 Table of Contents FINANCIAL CONDITION Investments Our investment portfolio is managed with the objective of maximizing after-tax returns on a risk-adjusted basis.
See Part I, Item 1A. "Risk Factors" for possible outcomes that could impact that determination. 29 Table of Contents FINANCIAL CONDITION Investments Our investment portfolio is managed with the objective of maximizing after-tax returns on a risk-adjusted basis.
At December 31, 2024, shareholders' equity amounts related to these postretirement plans decreased by $41.3 million, net of tax, of which $5.2 million primarily represents amortization of net actuarial gain and $36.1 million primarily represents the current period actuarial loss.
At December 31, 2025, shareholders' equity amounts related to these postretirement plans decreased by $23.3 million, net of tax, of which $1.1 million primarily represents amortization of net actuarial gain and $22.2 million primarily represents the current period actuarial loss.
The 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.
The market-related asset experience during 2025 that related to the actual investment return being different from that assumed during the prior year was a gain of $10.1 million. Recognition of this gain will be deferred and recognized over a four-year period, consistent with the market-related asset value methodology.
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.
Agent compensation comprised approximately 71% of our 2025 policy issuance and renewal expenses. The underwriting services we provide include underwriting and policy processing and comprised approximately 8% of our 2025 policy issuance and renewal expenses. The remaining services we provide include customer service and administrative support.
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.
Remaining commitments related to the underlying contracts total $77.5 million at December 31, 2025, of which the majority is due in the next 12 months. Additional contracts will be executed as we begin each new phase of the overall renovation projects and will be funded using our working capital. See Item 8.
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.
The following table presents the allocation and disaggregation of revenue for our two performance obligations: Years ended December 31, (dollars in thousands) 2025 % Change 2024 % Change 2023 Policy issuance and renewal services Direct and affiliated assumed premiums written by the Exchange $ 12,957,469 8.9 % $ 11,903,759 18.4 % $ 10,056,484 Management fee rate 24.37 % 24.40 % 24.30 % Management fee revenue 3,157,735 8.7 2,904,517 18.9 2,443,726 Change in estimate for management fee returned on cancelled policies (1) (25,929) NM (10,443) NM (1,653) Management fee revenue - policy issuance and renewal services $ 3,131,806 8.2 % $ 2,894,074 18.5 % $ 2,442,073 Administrative services Direct and affiliated assumed premiums written by the Exchange $ 12,957,469 8.9 % $ 11,903,759 18.4 % $ 10,056,484 Management fee rate 0.63 % 0.60 % 0.70 % Management fee revenue 81,632 14.3 71,423 1.5 70,395 Change in contract liability (2) (7,268) NM (2,985) 55.4 (6,690) Change in estimate for management fee returned on cancelled policies (1) (306) NM (83) NM (36) Management fee revenue - administrative services 74,058 8.3 68,355 7.4 63,669 Administrative services reimbursement revenue 836,639 3.8 806,336 9.4 737,139 Total revenue from administrative services $ 910,697 4.1 % $ 874,691 9.2 % $ 800,808 NM = not meaningful (1) A constraining estimate of variable consideration exists related to the potential for management fees to be returned if a policy were to be cancelled mid-term.
Key factors include assumptions about the discount rates and expected rates of return on plan assets. We review these assumptions annually and modify them considering historical experience, current market conditions, including changes in investment returns and interest rates, and expected future trends. Accumulated and projected benefit obligations are expressed as the present value of future cash payments.
We review these assumptions annually and modify them considering historical experience, current market conditions, including changes in investment returns and interest rates, and expected future trends. 22 Table of Contents Accumulated and projected benefit obligations are expressed as the present value of future cash payments.
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.
The following table presents an analysis of the fair value of our equity securities by sector as of December 31: (in thousands) 2025 2024 Financial services $ 74,614 $ 69,930 Utilities 3,696 5,629 Energy 2,713 4,117 Consumer 5,563 3,341 Technology 3,224 1,974 Communications 953 900 Total $ 90,763 $ 85,891 Shareholders' Equity Postretirement benefit plans The funded status of our postretirement benefit plans is recognized in the Consolidated Statements of Financial Position, with a corresponding adjustment to accumulated other comprehensive income (loss), net of tax.
Equity securities Equity securities primarily include nonredeemable preferred stocks and are carried at fair value in the Consolidated Statements of Financial Position with all changes in unrealized gains and losses reflected in the Consolidated Statements of Operations.
(2) Structured securities include residential and commercial mortgage-backed securities, collateralized debt obligations, and asset-backed securities. Equity securities Equity securities primarily include nonredeemable preferred stocks and are carried at fair value in the Consolidated Statements of Financial Position with all changes in unrealized gains and losses reflected in the Consolidated Statements of Operations.
Should an extreme risk event result in a cash requirement exceeding normal cash flows, we have the ability to meet our future funding requirements through various alternatives available to us.
Capital Outlook We regularly prepare forecasts evaluating the current and future cash requirements for both normal and extreme risk events. Should an extreme risk event result in a cash requirement exceeding normal cash flows, we have the ability to meet our future funding requirements through various alternatives available to us.
Cash flow activities The following table provides condensed cash flow information for the years ended December 31: (in thousands) 2024 2023 2022 Net cash provided by operating activities $ 611,249 $ 381,205 $ 366,152 Net cash used in investing activities (226,912) (157,565) (106,922) Net cash used in financing activities (229,995) (221,675) (300,842) Net increase (decrease) in cash, cash equivalents and restricted cash $ 154,342 $ 1,965 $ (41,612) Net cash provided by operating activities was $611.2 million in 2024, compared to $381.2 million in 2023 and $366.2 million in 2022.
Cash flow activities The following table provides condensed cash flow information for the years ended December 31: (in thousands) 2025 2024 2023 Net cash provided by operating activities $ 686,657 $ 611,249 $ 381,205 Net cash used in investing activities (439,328) (226,912) (157,565) Net cash used in financing activities (199,852) (229,995) (221,675) Net increase in cash, cash equivalents and restricted cash $ 47,477 $ 154,342 $ 1,965 Net cash provided by operating activities was $686.7 million in 2025, compared to $611.2 million in 2024.
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.
We expect our share of the net pension benefit expense to be approximately $7.0 million in 2026, of which expense of $14.5 million will be recorded in operating expense and income of $7.5 million will be recorded in other income.
Changes in premium levels attributable to the growth in policies in force directly affect the profitability of the Exchange and have a direct bearing on our management fee. Our continued focus on underwriting discipline and the maturing of pricing sophistication models have contributed to the Exchange's steady policy retention ratios.
Changes in premium levels attributable to the growth in policies in force directly affect the profitability of the Exchange and have a direct bearing on our management fee revenue. Our continued focus on underwriting discipline and the maturing of pricing sophistication models support risk selection and long-term rate adequacy.
Net investment income increased $25.6 million in 2024, compared to 2023, primarily due to improved results of limited partnership investments and an increase in bond and cash and cash equivalent income as a result of higher bond yields and average holdings.
Net investment income increased $15.7 million in 2025, compared to 2024, primarily due to an increase in bond and cash and cash equivalent income as a result of higher average holdings and bond yields.
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.
Commercial lines – Total commercial lines premiums written increased 10.1% to $3.8 billion in 2025, from $3.4 billion in 2024, driven by a 7.7% increase in the total commercial lines year-over-year average premium per policy and a 2.2% increase in total commercial lines policies in force.
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.
Administrative services Years ended December 31, (dollars in thousands) 2025 % Change 2024 % Change 2023 Management fee revenue - administrative services $ 74,058 8.3 % $ 68,355 7.4 % $ 63,669 Administrative services reimbursement revenue 836,639 3.8 806,336 9.4 737,139 Total revenue allocated to administrative services 910,697 4.1 874,691 9.2 800,808 Administrative services expenses Claims handling services 735,330 6.5 690,662 8.8 635,043 Investment management services 32,908 (5.7) 34,889 (0.2) 34,958 Life management services 68,401 (15.3) 80,785 20.3 67,138 Operating income - administrative services $ 74,058 8.3 % $ 68,355 7.4 % $ 63,669 Administrative services The management fee revenue allocated to administrative services was 0.63% and 0.60% of the direct and affiliated assumed premiums written by the Exchange in 2025 and 2024, respectively.
Non-commission expense – Non-commission expense increased $47.9 million in 2024 compared to 2023. Underwriting and policy processing expense increased $18.5 million primarily due to increased underwriting report and personnel costs. Information technology costs decreased $1.3 million primarily due to a decrease in professional fees and personnel costs, partially offset by an increase in hardware and software costs.
Non-commission expense – Non-commission expense increased $25.5 million in 2025 compared to 2024. Underwriting and policy processing expense increased $4.8 million primarily due to increased postage and personnel costs, partially offset by a decrease in underwriting report costs. Information technology costs increased $24.3 million primarily due to an increase in personnel costs and hardware and software costs.
The following table presents the carrying value of our investments as of December 31: (dollars in thousands) 2024 % to total 2023 % to total Available-for-sale securities (1) $ 1,043,615 83 % $ 961,241 85 % Equity securities 85,891 7 84,253 7 Agent loans (2) 92,731 7 67,787 6 Other investments (3) 29,610 3 23,026 2 Total investments $ 1,251,847 100 % $ 1,136,307 100 % (1) This includes $7.3 million of securities lent under a securities lending agreement.
The following table presents the carrying value of our investments as of December 31: (dollars in thousands) 2025 % to total 2024 % to total Available-for-sale securities (1) $ 1,364,828 85 % $ 1,043,615 83 % Equity securities (2) 90,763 6 85,891 7 Agent loans (3) 109,331 7 92,731 7 Other investments (4) 37,342 2 29,610 3 Total investments $ 1,602,264 100 % $ 1,251,847 100 % (1) This includes $44.4 million and $7.3 million of securities lent under a securities lending agreement as of December 31, 2025 and 2024, respectively.
Cost of policy issuance and renewal services Years ended December 31, (dollars in thousands) 2024 % Change 2023 % Change 2022 Commissions: Total commissions $ 1,601,401 18.8 % $ 1,348,530 14.3 % $ 1,179,569 Non-commission expense: Underwriting and policy processing $ 199,485 10.2 % $ 181,003 5.5 % $ 171,625 Information technology 215,488 (0.6) 216,746 9.4 198,157 Sales and advertising 66,480 12.9 58,905 (1.8) 60,000 Customer service 43,045 25.2 34,391 0.2 34,333 Administrative and other 186,425 8.4 171,970 13.2 151,958 Total non-commission expense 710,923 7.2 663,015 7.6 616,073 Total cost of operations - policy issuance and renewal services $ 2,312,324 15.0 % $ 2,011,545 12.0 % $ 1,795,642 Commissions – Commissions increased $252.9 million in 2024 compared to 2023, primarily driven by the growth in direct and affiliated assumed written premium.
Cost of policy issuance and renewal services Years ended December 31, (dollars in thousands) 2025 % Change 2024 % Change 2023 Commissions: Total commissions $ 1,777,043 11.0 % $ 1,601,401 18.8 % $ 1,348,530 Non-commission expense: Underwriting and policy processing $ 204,245 2.4 % $ 199,485 10.2 % $ 181,003 Information technology 239,789 11.3 215,488 (0.6) 216,746 Sales and advertising 66,475 0.0 66,480 12.9 58,905 Customer service 46,538 8.1 43,045 25.2 34,391 Administrative and other 179,345 (3.8) 186,425 8.4 171,970 Total non-commission expense 736,392 3.6 710,923 7.2 663,015 Total cost of operations - policy issuance and renewal services $ 2,513,435 8.7 % $ 2,312,324 15.0 % $ 2,011,545 Commissions – Commissions increased $175.6 million in 2025 compared to 2024, primarily driven by the growth in direct and affiliated assumed written premium and an increase in agent incentive compensation due to improved property and casualty underwriting profitability for the three-year period ended 2025 compared to the three-year period ended 2024.
We expect to recognize net pension benefit expense of $7.8 million in 2025 primarily driven by anticipated plan progression as well as demographic assumption updates from a 2024 experience study, partially offset by an increase in the discount rate. Our share of the net pension benefit income after reimbursements was $0.6 million in 2024.
We recognized net pension benefit expense of $9.6 million in 2025 primarily driven by plan progression as well as demographic assumption updates from a 2024 experience study, partially offset by a higher discount rate, compared to 2024. We expect to recognize net pension benefit expense of $18.0 million in 2026.
"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.
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.
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.
"Risk Factors" contained in this report for a list of risk factors. Our ERM program is founded on a governance framework that includes oversight at multiple levels of our organization, including our Board of Directors and executive management. Accountability to identify, manage, and mitigate risk is 33 Table of Contents embedded within all functions and areas of our business.
Commercial lines – Total commercial lines premiums written increased 14.5% to $3.4 billion in 2024, from $3.0 billion in 2023, driven by a 9.4% increase in the total commercial lines year-over-year average premium per policy and a 4.6% increase in total commercial lines policies in force.
Personal lines – Total personal lines premiums written increased 8.3% to $9.2 billion in 2025, from $8.5 billion in 2024, driven by a 9.4% increase in total personal lines year-over-year average premium per policy, partially offset by a 1.5% decrease in total personal lines policies in force.
The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $806.3 million in 2024 and $737.1 million in 2023, but had no net impact on operating income. 21 Table of Contents Total investment income increased $40.3 million in 2024 primarily due to an increase in net investment income and net realized and unrealized gains in 2024 compared to net realized and unrealized losses in 2023.
The administrative services reimbursement revenue and corresponding cost of operations increased both total operating revenue and total operating expenses by $836.6 million in 2025, but had no net impact on operating income. Total investment income increased $15.6 million in 2025 primarily due to an increase in net investment income.
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.
The A "Excellent" rating is the third highest financial strength rating assigned to companies that have achieved excellent overall performance when compared to the standards established by AM Best and have an excellent ability to meet obligations to policyholders over the long term.
This yield curve supported the selection of a 5.87% discount rate for the projected benefit obligation at December 31, 2024 and for the 2025 pension expense. The same methodology was used to develop the 5.34% and 5.67% discount rates used to determine the projected benefit obligation for 2023 and 2022, respectively, and the pension income for 2024 and 2023, respectively.
The same methodology was used to develop the 5.87% and 5.34% discount rates used to determine the projected benefit obligation for 2024 and 2023, respectively, and the pension cost (income) for 2025 and 2024, respectively.
Life insurance management services include 20 Table of Contents 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.
Investment management services are related to investment trading activity, accounting, and all other functions attributable to the investment of funds.
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.
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.
Direct and affiliated assumed premiums written by the Exchange increased 18.4% to $11.9 billion in 2024, from $10.1 billion in 2023, primarily driven by increased personal lines and commercial multi-peril premiums written. Year-over-year policies in force for all lines of business increased 4.8% in 2024 as a result of continued strong policyholder retention, compared to 6.9% in 2023.
Direct and affiliated assumed premiums written by the Exchange increased 8.9% to $13.0 billion in 2025, from $11.9 billion in 2024, primarily driven by increased personal lines and commercial multi-peril premiums written. The year-over-year average premium per policy for all lines of business increased 9.6% at December 31, 2025 compared to 13.4% at December 31, 2024.
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.
Net realized and unrealized investment gains (losses) A breakdown of our net realized and unrealized investment gains (losses) is as follows for the years ended December 31: (in thousands) 2025 2024 2023 Securities sold: Available-for-sale securities $ 53 $ (1,620) $ (6,719) Equity securities 341 1,213 (2,328) Change in fair value on remaining equity securities 1,937 3,635 3,199 Miscellaneous 5 1 10 Net realized and unrealized investment gains (losses) $ 2,336 $ 3,229 $ (5,838) Net impairment losses recognized in earnings Net impairment losses of $3.3 million in 2025 primarily included both credit-related and intent to sell impairments on available-for-sale securities and current expected credit losses on other loans receivable.
Net impairment losses recognized in earnings Net impairment losses of $4.1 million in 2024 primarily include current expected credit losses on held-to-maturity securities and other loans receivable. Impairment losses of $9.8 million in 2023 primarily include current expected credit losses on other loans receivable and intent to sell impairments on available-for-sale securities.
Impairment losses of $4.1 million in 2024 primarily included current expected credit losses on held-to-maturity securities and other loans receivable . See "Other assets" in Item 8.
(2) The current portion of agent loans is included in the line item "Prepaid expenses and other current assets, net" in the Consolidated Statements of Financial Position.
(2) This includes $20.1 million of securities lent under a securities lending agreement as of December 31, 2025. (3) The current portion of agent loans is included in the line item "Prepaid expenses and other current assets, net" in the Consolidated Statements of Financial Position.
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.
"Financial Statements and Supplementary Data - Note 16, Concentrations of Credit Risk, of Notes to Consolidated Financial Statements" for additional details. Other Loans Receivable In 2023, we issued two senior secured loans totaling $13.6 million to fund a real estate development project supporting revitalization efforts in our community. Ownership in the project includes related party and unrelated investors.
Increased cash provided by operating activities in 2024, compared to 2023, was primarily due to an increase in management fees received of $478.2 million driven by growth in direct and affiliated assumed premiums written by the Exchange, a decrease in pension and employee benefits paid of $59.0 million due to lower pension contributions, and a decrease in incentive compensation paid to agents of $25.3 million.
Increased cash provided by operating activities in 2025, compared to 2024, was primarily due to an increase in management fees received of $311.1 million driven by growth in direct and affiliated assumed premiums written by the Exchange and a decrease in income taxes paid of $55.9 million driven by lower taxable income compared to 2024, resulting from changes in tax legislation and increased charitable contributions.
The expected long-term rate of return is generally less susceptible to annual revisions as there are typically no significant changes in the asset mix. In 2024, we changed our target asset allocation to reduce investment risk by shifting portfolio assets from equity 23 Table of Contents securities to debt securities.
The expected long-term rate of return is generally less susceptible to annual revisions as there are typically no significant changes in the asset mix.
The continued growth of its policy base is dependent upon the Exchange's ability to retain existing and attract new subscribers (policyholders). A lack of new policy growth or the inability to retain existing customers could have an adverse effect on the Exchange's premium level growth, and consequently our management fee.
A lack of new policy growth or the inability to retain existing customers could have an adverse effect on the Exchange's premium level growth, and consequently our management fee revenue. Changes in premium levels attributable to rate changes also directly affect the profitability of the Exchange and have a direct bearing on our management fee revenue.

… 66 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+0 added−0 removed13 unchanged
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.
Biggest changeThe following tables show our fixed maturity investments by rating (1) : At December 31, 2025 (dollars in thousands) Amortized cost Fair value Percent of total AAA, AA, A $ 753,052 $ 747,952 55 % BBB 415,499 421,408 31 Total investment grade 1,168,551 1,169,360 86 BB 106,369 108,067 8 B 70,593 70,486 5 CCC, CC, C, and below 22,548 21,778 1 Total non-investment grade 199,510 200,331 14 Total $ 1,368,061 $ 1,369,691 100 % 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 % (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, 2024.
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, 2025.
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.
The table is based upon the lowest rating for each security. 36 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.
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.
Interest Rate Risk We invest primarily in fixed maturity investments, which comprised 85% of our invested assets at December 31, 2025. 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.
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. 37 Table of Contents
(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.
(dollars in thousands) 2025 2024 Fair value of fixed maturity portfolio $ 1,369,691 $ 1,048,549 Fair value assuming 100-basis point rise in interest rates $ 1,327,076 $ 1,018,957 Effective duration (as a percentage) 3.1 2.9 35 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, 2025.
(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.
(in thousands) Year ending December 31, Future Principal Cash Flows 2026 $ 37,516 2027 92,251 2028 140,182 2029 159,425 2030 160,742 Thereafter 786,143 Total $ 1,376,259 Fair value $ 1,369,691 Investment Credit Risk Our objective is to earn competitive returns by investing in a diversified portfolio of securities.

Other ERIE 10-K year-over-year comparisons