Erie Indemnity (ERIE) Q4 2025 Earnings Transcript

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DATE

Tuesday, February 24, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Timothy NeCastro
• Chief Financial Officer — Julie Pelkowski

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TAKEAWAYS

• Direct Written Premiums -- Grew approximately 5% in the fourth quarter and almost 9% for the full year, primarily from prior rate actions.
• Average Premium Per Policy -- Increased 9.6% for the year, reflecting realized rate actions.
• Policies in Force -- Declined 1.1%, though remained above 7 million, amid competitive pressures.
• Policy Retention Rate -- Dropped to 88.4%, with management citing ongoing market headwinds.
• Fourth Quarter Combined Ratio -- Improved to 94.1%, down from 105.7% in the prior-year quarter, aided by lower catastrophe losses of only 0.7 points.
• Full-Year Combined Ratio -- Improved to 104.9% from 110.4% in 2024, despite catastrophe losses rising to 10.6 points from 9.6 points due to significant first-half events.
• Policyholder Surplus -- Rose to approximately $10.1 billion at year-end from $9.3 billion at the year's start, demonstrating capital strength.
• Net Income (Q4) -- Over $63 million, or $1.21 per diluted share, compared to $152 million, or $2.91 per diluted share, in the prior-year quarter, impacted by a $100 million charitable foundation contribution.
• Net Income (Full Year) -- Over $559 million, or $10.69 per diluted share, versus over $600 million, or $11.48 per diluted share, in 2024, with results affected by the foundation contribution.
• Operating Income (Q4) -- Decreased nearly $10 million, or 5.7%, compared to last year.
• Operating Income (Full Year) -- Increased nearly $41 million, or 6%, compared to 2024.
• Management Fee Revenue (Full Year) -- Increased approximately $238 million, or 8.2%.
• Policy Issuance and Renewal Service Expenses (Full Year) -- Grew approximately $201 million, or 8.7%.
• Agent Compensation (Q4) -- Increased $30 million, or 7.8%, driven by base commission growth and higher incentive compensation linked to profitability.
• Agent Compensation (Full Year) -- Rose nearly $176 million, or about 11%, with increases in both base commissions and incentive pay.
• Noncommission Expenses (Full Year) -- Increased 3.6% to about $736 million, led by higher personnel and IT costs.
• Total Investment Income (Q4) -- Just over $24 million compared to $21 million in the year-ago quarter, attributed to greater balances and yields.
• Total Investment Income (Full Year) -- Almost $85 million, up from approximately $69 million in 2024.
• Charitable Foundation Contribution -- $100 million donation made in the fourth quarter, reducing diluted EPS by $1.54 for both the quarter and the year.
• Dividends Paid -- Over $254 million distributed to shareholders in 2025.
• Dividend Increase -- Board approved a 7.1% rise in the quarterly dividend for 2026.
• Product Expansion -- Erie Secure Auto deployed in West Virginia and Virginia, with further rollout planned in additional states in early 2026.
• BusinessAuto 2.0 -- Released to North Carolina, now available in nine states, with more planned before the first quarter's end.
• Venture Capital Activity -- Erie Strategic Ventures invested in Atomic and Feathery, pursuing financial technology and operational innovations.
• Customer Satisfaction Rankings -- Achieved top rankings in J.D. Power 2025 U.S. Auto Claims Satisfaction and Small Business Insurance Satisfaction studies, plus inclusion in Newsweek's America's Best Customer Service 2026.
• CEO Succession -- Timothy NeCastro announced intention to retire at end of 2026.

SUMMARY

Management emphasized improved underwriting results and capital strength following the realization of prior rate actions, with notable gains in combined ratio and surplus. The fourth quarter and full year saw total investment income climb due to higher balances and yields, offsetting rising expenses and significant charitable giving that weighed on net income figures. Innovation and expansion efforts included new product launches, technology investments, and venture capital activity aimed at streamlining processes and supporting agent productivity. Strategic focus remains on responding to competitive pressures with targeted pricing and product development, facilitated by executive continuity during the planned CEO transition.

• The charitable foundation established in 2025 produced a one-time impact on GAAP net income and diluted earnings per share, with management clarifying, "While this contribution reduced net income, it did not impact operating income."
• Initial deployment of Erie Secure Auto in Ohio led to "impressive impacts on submitted applications and direct written premium," according to management, hinting at possible positive effects in broader rollouts.
• Recent investments by Erie Strategic Ventures target technology firms "operating at the intersection of technology and financial services," suggesting a proactive approach to diversifying revenue streams and enhancing core offerings.
• The Board's 7.1% quarterly dividend boost for 2026 demonstrates ongoing commitment to shareholder returns despite strategic investments and expense growth in other areas.

INDUSTRY GLOSSARY

• Direct Written Premium: Total premiums on insurance policies written and recorded during the period, before deductions for reinsurance.
• Combined Ratio: A key measure of underwriting profitability calculated as the sum of loss and expense ratios; values below 100% indicate underwriting profit.
• Policyholder Surplus: Excess of an insurer’s assets over its liabilities, measuring financial strength and capacity to pay claims.
• Agent Compensation: Payment to insurance agents, including base commission and incentive bonuses, for acquiring and servicing policies.
• Catastrophe Losses: Large insurance claims arising from significant events such as storms or natural disasters.
• Diluted EPS: Earnings per share calculated assuming all convertible securities are exercised, reflecting full potential share dilution.

Full Conference Call Transcript

Timothy NeCastro: Thanks, Scott, and good morning, everyone. Now that 2025, our 100th year in business, is behind us, I wanted to take a minute to reflect on that full year before we walk through our fourth quarter and year-end financial results. When we entered 2025, we were celebrating a remarkable milestone, a century of service. At the same time, we were navigating one of the more challenging underwriting environments in our history, shaped by elevated weather activity, higher claim severity, and competitive market dynamics. Throughout the year, our focus remained consistent: restoring sustainable profitability to the Exchange, maintaining our financial strength, and positioning the company for long-term growth, without compromising the service that defines Erie Indemnity Company.

The first half of the year brought continued weather volatility and economic pressure, including the costliest weather event in our history. As the year progressed, we saw clear evidence that the rate actions implemented over the past several years were taking hold and that our disciplined focus on profitability and financial strength was making a measurable difference. So while we still have a challenging landscape in front of us, I am confident that our consistent long-term strategy—one that has sustained us for 100 years—positions us well for a strong year ahead. With that, I will turn it over to our Chief Financial Officer, and my good friend, Julie Pelkowski, to share more details on our fourth quarter and full-year results.

Julie Pelkowski: Thank you, Tim, and good morning, everyone. As Tim just mentioned, in 2025, we have seen continued progress in our long-term plan to restore profitability of the Erie Insurance Exchange, the insurance operations we manage, despite increased severity and weather events experienced in the first half of the year. Starting with the results of the Exchange, direct written premiums grew approximately 5% in the fourth quarter compared to the prior year and almost 9% for the full year compared to 2024, driven primarily by the realization of prior rate actions. Average premium per policy for the total year grew 9.6% compared to 2024.

As our more significant rate actions have been realized, more moderate rate increases were taken in 2025, reflecting alignment between pricing and loss cost trends. The competitive market conditions contributed to a continued slowdown in growth; policies in force, while still above the 7 million mark, declined 1.1%, and retention declined to 88.4%. As these headwinds continue this year, we will respond through targeted pricing adjustments and product enhancements such as Erie Secure Auto. From a profitability perspective, the fourth quarter combined ratio improved significantly to 94.1% compared to 105.7% in the same quarter last year. With catastrophe losses contributing only 0.7 points to the fourth quarter combined ratio, the 94.1% reflects the improved rate adequacy.

From a full-year perspective, the combined ratio improved from 110.4% in 2024 to 104.9% in 2025. The significant catastrophe losses experienced in the first half of the year were offset with lower-than-expected catastrophe losses in the second half of the year. This resulted in catastrophe losses contributing 10.6 points to the combined ratio on a reported basis compared to 9.6 points in 2024. Together, the lower underwriting losses and strong investment earnings in 2025 resulted in an increase to policyholder surplus from approximately $9.3 billion at the beginning of the year to approximately $10.1 billion at year-end.

This growth demonstrates the strength of our capital position and our ability to withstand volatility while continuing to deliver long-term value to our policyholders. Now let us turn to the results of the Indemnity. Net income was over $63 million, or $1.21 per diluted share, in 2025 compared to $152 million, or $2.91 per diluted share, in 2024. For the full year, net income totaled over $559 million, or $10.69 per diluted share, compared to over $600 million, or $11.48 per diluted share, in 2024. Net income for both the fourth quarter and full year was impacted by a $100 million contribution to our charitable foundation in the fourth quarter.

While this contribution reduced net income, it did not impact operating income. Operating income decreased nearly $10 million, or 5.7%, in the fourth quarter compared to the same period last year. Expense growth for policy issuance and renewal services of approximately $40 million, or 7.3%, outpaced management fee revenue growth for policy issuance and renewal services of $29 million, or 4.2%, in the fourth quarter. Our revenue growth was in line with the growth in direct written premiums of the Exchange. Agent compensation, our largest cost of operations, grew $30 million, or 7.8%, in the fourth quarter, driven by higher base commissions in line with direct written premium growth, as well as higher agent incentive compensation due to improved profitability.

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

Total investment income was just over $24 million in the fourth quarter compared to $21 million in 2024. For the full year, total investment income was almost $85 million, compared to approximately $69 million in 2024. Both the fourth quarter and full-year results were primarily driven by higher net investment income due to higher balances and yields. In 2025, we established a tax-exempt private charitable foundation to support our long-term charitable giving and grant-making efforts. As I mentioned, we made a $100 million contribution to the foundation, which reduced diluted earnings per share for the fourth quarter and full year by $1.54.

Finally, in 2025, we paid our shareholders over $254 million in dividends, and in December, our Board of Directors approved a 7.1% increase in the quarterly dividend for 2026. With that, I will turn the call back over to Timothy NeCastro.

Timothy NeCastro: Thanks, Julie. As we move into 2026, our focus remains clear: continuing to strengthen profitability, supporting disciplined growth, and investing in product offerings and capabilities that will position Erie Indemnity Company for long-term success. On the personal lines side, we continue to make meaningful progress with Erie Secure Auto, which offers more flexible and competitive rates. It was successfully deployed in West Virginia in late December and Virginia in February. We are planning to roll it out in additional states in the first half of this year.

During the initial Erie Secure Auto pilot in Ohio last fall, we saw it make impressive impacts on submitted applications and direct written premium in that state, and we expect it to further enhance our competitive position across our footprint. In commercial lines, we are continuing the expansion of BusinessAuto 2.0 across our footprint. The product was released to North Carolina in late January, bringing the total to nine states, with more expected before the end of the first quarter. These enhancements improve the quoting and servicing experience for our agents and customers while also supporting more consistent underwriting and operational efficiency. We are also advancing innovation beyond our core platforms.

Through Erie Strategic Ventures, our venture capital arm launched in 2022, we recently announced investments in two new portfolio companies, Atomic and Feathery. Atomic delivers embedded brokerage and wealth management solutions designed for financial institutions, while Feathery provides an AI-powered data intake platform that helps streamline traditionally manual processes. The Erie Strategic Ventures fund focuses on investing in the personal and commercial insurance value chain, as well as adjacencies that offer potential to deliver value to Erie Indemnity Company, its agents, and our policyholders. We believe these latest investments with startups operating at the intersection of technology and financial services provide numerous opportunities for mutual benefit.

We focus on the future with new products, technology, and noncore sources of revenue, and our 100-year commitment to service is always at the forefront. Recent recognitions affirm the strength of that commitment. In November, Erie Indemnity Company earned the highest ranking in customer claim satisfaction among auto insurers in the J.D. Power 2025 U.S. Auto Claims Satisfaction Study, leading in overall satisfaction and in key areas such as trust. This followed another first-place ranking from J.D. Power last September in Small Business Insurance Customer Satisfaction. Erie Indemnity Company was also named to Newsweek's list of America's Best Customer Service 2026 based on independent consumer feedback across multiple service factors. Altogether, 2025 was a year of meaningful progress.

We strengthened the core of our business, preserved our financial resilience, and positioned Erie Indemnity Company to begin its second century with clarity and confidence. As many of you know, I recently shared my intention to retire from Erie Indemnity Company at the end of 2026. Having the opportunity to lead this company, especially during its 100th year, has been the greatest privilege of my professional life. Erie Indemnity Company is a special organization built on strong values, deep relationships, and an unwavering commitment to service. Over the next year, my focus remains exactly where it has always been: continuing to execute our strategy and supporting our employees and agents while ensuring a thoughtful and seamless leadership transition.

We have an exceptional team in place, and I am confident the culture and discipline that have carried Erie Indemnity Company through the past century will continue to guide it forward. Thank you, shareholders, for your continued trust and support, and thank you all for your interest in Erie Indemnity Company.

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