Erie Insurance Group Downgraded by AM Best Amidst Surplus Decline and Underwriting Losses

AM Best has downgraded the financial strength ratings of Erie Insurance Group's property/casualty members from A+ to A (Excellent) due to a deterioration in their balance sheet strength, driven by surplus declines over the past five years. The group's risk-adjusted capitalization has been impacted by large underwriting losses and rising underwriting leverage. However, Erie has taken proactive steps to stabilize its financial position, including rate and non-rate actions, and restructuring its catastrophe reinsurance program. The outlook of these ratings has been revised to stable from negative.

AM Best has downgraded the Financial Strength Rating (FSR) and Long-Term Issuer Credit Ratings (Long-Term ICR) of Erie Insurance Group's property/casualty (P/C) members from A+ to A (Excellent) and from “aa-” to “a+” (Excellent), respectively. The outlook for these ratings has been revised to stable from negative. This downgrade is a result of a deterioration in Erie’s overall balance sheet strength, driven by multi-year surplus declines over the past five years [2].

The downgrade reflects significant impacts on Erie's risk-adjusted capitalization, which has been affected by large underwriting losses, particularly due to elevated weather-related events and increased severity in the auto and homeowners' segments. Additionally, rising underwriting leverage, mixed reserve development, and declining liquidity metrics have contributed to this deterioration [2].

Despite these challenges, Erie has implemented proactive measures to stabilize its financial position. These include rate and non-rate actions, restructuring its catastrophe reinsurance program with significantly higher limits, and focusing on surplus stabilization strategies. While these corrective measures are showing initial results, AM Best notes that the impact has been slower compared to Erie's peers. This lag is partly due to Erie's use of 12-month auto policies and its "rate lock" feature, which delays the recognition of premium rate increases and thus prolongs the beneficial impact on the balance sheet [2].

The downgrade does not affect Erie Family Life Insurance Company (EFL), which maintains a stable FSR of A (Excellent) and Long-Term ICR of “a” (Excellent) [2].

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References:
[1] https://www.investing.com/news/company-news/erie-indemnity-stock-hits-52week-low-at-33152-93CH-4222083
[2] https://www.businesswire.com/news/home/20250905895724/en/AM-Best-Downgrades-Credit-Ratings-of-Erie-Insurance-Groups-Members-Affirms-Credit-Ratings-of-Erie-Family-Life-Insurance-Company