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DATE

Friday, Oct. 31, 2025, at 10 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Timothy Gerard NeCastro
• Executive Vice President and Chief Financial Officer — Julie Marie Pelkowski

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RISKS

• AM Best reduced the financial strength rating of the property casualty members of Erie Indemnity (NASDAQ:ERIE) Insurance Group from A+ Superior to A Excellent, citing “profitability challenges” related to “large underwriting losses driven by more frequent and severe weather events and increased claim severity in both auto and home.”
• Severe weather-related events in 2023 and 2024 nearly doubled historical levels, continuing into 2025 with a single hailstorm causing $370 million in insured losses, described as “the single largest weather event in our company’s history.”
• Claim severity in the auto and homeowners segments “grew faster than our rate increases,” according to Timothy Gerard NeCastro—a trend that continued into 2025 and could pressure future profitability if it persists.

TAKEAWAYS

• Direct Written Premium Growth — Direct written premium for the Exchange grew 7.6% in Q3 2025 and 10.1% year to date, driven by cumulative rate increases.
• Average Premium Per Policy — Average premium per policy rose 10.7% in Q3 2025, reflecting ongoing pricing actions.
• Policy Growth and Retention — Policy count increased 0.2% and retention reached 89.1% at the end of Q3 2025
• Combined Ratio — Improved to 100.6% from 113.7% in the prior-year quarter, showing a substantial reduction in underwriting losses.
• Year-to-Date Combined Ratio — The year-to-date combined ratio was 108.6%, down from 113.4% in the same period of 2024, reflecting progress toward sustainable profitability.
• Policyholder Surplus — Surplus increased by over $300 million year to date, totaling $9.6 billion for the first nine months of 2025, supporting capital strength.
• Net Income — Net income was $183 million ($3.50 per diluted share) for Q3 2025, up 14% from $160 million ($3.60 per share) in the third quarter of 2024.
• Year-to-Date Net Income — Year-to-date net income was $496 million ($9.48 per share), up 11% from $448 million ($8.57 per share) in the first nine months of 2024.
• Operating Income — Operating income rose 16% to $209 million for the third quarter of 2025, and increased almost 10% to $559 million for the year, primarily due to higher management fee revenue.
• Management Fee Revenue — Management fee revenue rose 7.3% to $825 million for the third quarter of 2025, and increased 9.5% to $2.4 billion for the year.
• Commissions Expense — Commissions expense increased 9.7% for the third quarter of 2025 ($462 million) and 12% year to date ($1.4 billion), due to higher premiums and agent incentives.
• Non-Commission Expenses — Non-commission expenses fell 6.2% to $181 million for Q3 2025 due to reduced administrative and sales costs; increased 2.8% for the year to $556 million, mainly reflecting technology and underwriting investments.
• Investment Income — Investment income was $22 million for the third quarter of 2025, up 10% from the same quarter last year, and $61 million year to date, up 25.2% from the same period last year, driven by higher yields and balances.
• Dividend Payments — Over $190 million was paid to shareholders in dividends during the first nine months of 2025.
• New Product Launch — The “Erie Secure Auto” product was piloted in Ohio in August, demonstrating “impressive impacts on submitted applications and direct written premium” according to Timothy Gerard NeCastro in the state, with expansion planned for three additional states in December and others to follow through mid-next year.
• Industry Recognition — Achieved first place in J.D. Power’s 2025 U.S. Small Commercial Insurance Study, Forbes’ 2026 Best Insurance Companies (across multiple lines), and Newsweek’s America’s Greatest Companies 2025, reflecting acknowledged service, innovation, and employer quality.

SUMMARY

Erie Indemnity’s management reported that rate increases have yet to outpace claim severity in the auto and home segments, despite year-over-year improvement in the combined ratio, which was 100.6% for Q3 2025. Since its pilot launch in Ohio in August 2025, the enhanced Erie Secure Auto product has had impressive impacts on submitted applications and direct written premium in that state.

• Non-commission expense reduction in Q3 2025 signals early benefits from cost discipline, though offset by higher technology and underwriting investments year to date.
• Management’s measured approach to capital management facilitated $190 million in dividend payments during the first nine months of 2025, reflecting continued shareholder return priorities amid industry headwinds.

INDUSTRY GLOSSARY

• Combined Ratio: A key insurance metric calculated as (claims + expenses) divided by earned premiums; below 100% indicates underwriting profit, above 100% indicates underwriting loss.
• Policyholder Surplus: The excess of an insurer’s assets over its liabilities, serving as a cushion for absorbing unexpected losses.
• Direct Written Premium: The total premium written by an insurer before deductions for reinsurance and cancellations, serving as a growth indicator.
• Management Fee Revenue: Income earned by Erie Indemnity Company for providing operational services (sales, underwriting, policy issuance) to the Erie Insurance Exchange.

Full Conference Call Transcript

Timothy Gerard NeCastro: Thanks, Scott, and good morning, everyone. As we start today’s call, I want to share an important update regarding our financial strength rating. In September, AM Best adjusted the financial strength rating of the property casualty members of Erie Insurance Group from A+ Superior to A Excellent. While that change was disappointing, it’s important to note that an A Excellent rating is still one of the strongest in the industry. AM Best pointed to Erie’s solid balance sheet, adequate operating performance, a favorable business profile, and strong risk management practices. This feedback from AM Best is reflected in our financial position, particularly our surplus, which remains extremely robust at $9.6 billion.

The rating change primarily reflects profitability challenges we’ve discussed in past calls related to large underwriting losses driven by more frequent and severe weather events and increased claim severity in both auto and home. To provide a bit of background, severe weather-related events in 2023 and 2024 were nearly double historical levels, contributing to Erie’s elevated underwriting losses. That trend has continued into 2025, where a fast-moving hailstorm earlier this year cost $370 million in insured losses, the single largest weather event in our company’s history. At the same time, claim severity in both auto and homeowners grew faster than our rate increases, even as we work to keep pricing competitive for our mutual customers.

We continue to take a measured, steady approach to rate adjustments. That means it takes a bit longer to fully see the benefits of these changes. The bottom line is that the past few years, marked by inflation and weather volatility, have been some of the most challenging in our history. I’m confident in the actions we’ve been taking to bring our profitability back to more stable levels, which are already taking hold, reflected in our third quarter results. With that, I’ll turn it over to our Chief Financial Officer, Julie Marie Pelkowski, to share more on those results. Julie?

Julie Marie Pelkowski: Thank you, Tim, and good morning, everyone. This quarter marks a meaningful step forward in Erie’s return to profitability. As Tim touched on, our consistent focus on underwriting discipline and pricing is beginning to deliver the results we’ve been working toward. After a first half impacted by elevated catastrophe activity, the more typical lower weather events of the third quarter provided a clearer view of our core performance from a profitability perspective. Starting with the results of the Exchange, the insurance operations we manage, the Exchange’s direct written premiums grew 7.6% in the quarter and 10.1% year to date. The average premium per policy increased 10.7%, reflecting the cumulative impact of rate increases over the past two years.

Policy growth remained flat year over year, increasing 0.2%, while retention was 89.1% at the end of the third quarter. While policy growth has moderated, consistent with broader industry trends, we’re confident the balance of rate adequacy and retention positions us well for long-term profitable growth. Also, we’re introducing an enhanced auto product with more competitive rates and growth potential that Tim will expand on in a few minutes. From a profitability perspective, the third quarter combined ratio was 100.6%, compared to 113.7% in the same quarter last year. On a year-to-date basis, the combined ratio was 108.6% compared to 113.4% in the same period of 2024. These results reflect steady, measurable progress toward restoring sustainable profitability.

As a reminder, catastrophe events in the first half of the year significantly affected our reported loss ratios. The low level of weather events in this quarter highlights the adequacy of our rate levels and the improvement in profitability of our core book. Policyholder surplus is up over $300 million for the year, bringing total surplus to $9.6 billion, as Tim mentioned. 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. Shifting to the results for Indemnity, net income for the third quarter was $183 million or $3.50 per diluted share compared to $160 million or $3.60 per share in 2024, a 14% increase.

For the year, net income was $496 million or $9.48 per diluted share compared to $448 million or $8.57 per diluted share in the first nine months of 2024, an 11% increase. Operating income grew to $209 million, up 16% from the same quarter last year, primarily driven by higher management fee revenue. Operating income grew to $559 million, up almost 10% for the year, primarily driven by management fee revenue as well. Management fee revenue from policy issuance and renewal services increased 7.3% to $825 million for the quarter and 9.5% to $2.4 billion for the year, in line with the Exchange’s premium growth.

On the expense side, commissions increased 9.7% to $462 million in the third quarter and up 12% to almost $1.4 billion year to date, driven by higher base commission expense in line with premium increases as well as increased agent incentive compensation. Non-commission expenses decreased 6.2% in the third quarter to $181 million, reflecting lower administrative and other expenses, as well as lower sales and advertising expenses, all of which were partially offset by investments in information technology and underwriting costs. Non-commission expenses increased 2.8% for the year to $556 million, reflecting increased investments in information technology, increased underwriting costs, as well as customer service costs, partially offset by administrative and other expenses primarily due to decreased personnel costs.

Investment income for the quarter totaled $22 million, up 10% from last year, reflecting higher yields and higher average balance. Investment income for the year totaled $61 million, up 25.2% from last year, primarily from net investment income. As always, we take a measured approach to capital management, maintaining a strong balance sheet. And for the first nine months of 2025, our financial performance has enabled us to pay our shareholders over $190 million in dividends. With that, I’ll turn the call back over to Tim.

Timothy Gerard NeCastro: Thank you, Julie. As Julie mentioned, we’re excited to introduce an enhanced auto product that we’re confident will have a positive impact on our competitive position. Erie Secure Auto has the pricing sophistication of our rate lock product, without the lock. That means more competitive rates and greater opportunity for growth. Since launching the pilot in Ohio in August, we’ve seen this product have impressive impacts on submitted applications and direct written premium in that state. We plan to deploy the product in December to agents in Pennsylvania, West Virginia, and Virginia, with additional states to follow through mid-next year. Secure Auto is just one of the actions we’re taking to bring profitability back to more normal levels.

It’s also just one of the product enhancements and rollouts on the horizon. We continue to modernize our technology platforms and respond to changing agent and customer needs. As we focus on the future with new products and technology, our one hundred-year commitment to service is, as always, at the forefront. And the ongoing strength of that commitment has been recognized by several industry accolades this year, including several in this past quarter. Erie Insurance was ranked first in small business insurance customer satisfaction in J.D. Power’s 2025 U.S. Small Commercial Insurance Study, 25 points above the industry average and best in class for price, coverage, ease of doing business, and people.

We were also named to Forbes’ list of America’s Best Insurance Companies 2026, earning recognition across multiple product categories: auto, homeowners, renters, term life, and permanent life. Additionally, Newsweek and Plant-A Insights Group named Erie one of America’s Greatest Companies 2025, recognizing our financial strength, innovation, sustainability, and ethics. Finally, Erie was again recognized among the top employers in Pennsylvania on Forbes’ list of America’s Best In-State Employers 2025 for the sixth consecutive year, building on earlier recognition as one of America’s Best Large Employers and Best Employers for College Grads.

As we near the end of our hundredth year in business and look ahead to 2026, our focus remains clear: strengthening profitability, delivering exceptional service, and investing in the technology and products that will shape Erie’s next century. We have faced difficult cycles before, and each time, we’ve emerged stronger. Thanks to our dedicated employees and trusted agents, our commitment to delivering superior service and protection this time will be no different. Thank you for listening in today and for your interest in Erie.

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool’s insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

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