Erie's Q3 2025: Contradictions Emerge on Rating Adjustments, Catastrophe Losses, and Profitability Claims

Date of Call: None provided

Financials Results

• Revenue: Exchange direct written premiums grew 7.6% in the quarter and 10.1% year-to-date; management fee revenue $825M for the quarter, up 7.3% YoY and $2.4B year-to-date, up 9.5% YoY.
• EPS: $3.50 per diluted share in Q3, compared to $3.06 in Q3 2024 (up 14%); year-to-date $9.48 per diluted share vs $8.57 prior year (up 11%).

Business Commentary:

• Financial Strength Rating Adjustment:
• AM Best adjusted the financial strength rating of Erie Insurance Group's property casualty members from A-plus superior to A-excellent.

• The change was primarily due to large underwriting losses driven by more frequent and severe weather events and increased claim severity in auto and homeowners.

• Profitability Improvement:

• Erie's third-quarter combined ratio improved to 100.6% compared to 113.7% in the same quarter last year.

• This improvement was attributed to consistent underwriting discipline, pricing actions, and lower weather events in the quarter.

• Premium Growth and Rate Adequacy:

• The insurance operations' direct written premiums grew by 7.6% in the quarter and 10.1% year-to-date, with the average premium per policy increasing by 10.7%.

• The growth was driven by cumulative rate increases over the past two years and balanced with retention rates, positioning Erie for long-term profitable growth.

• Investment Income and Capital Management:

• Investment income totaled $22 million for the quarter, up 10% from last year, and $61 million for the year, up 25.2%.

• The increase was due to higher yields and average balances, enabling Erie to maintain a strong balance sheet and pay over $190 million in dividends to shareholders.

• Enhanced Auto Product Introduction:

• Erie is launching Erie Secure Auto, a new auto product with competitive rates and growth potential, following a successful pilot in Ohio.
• The introduction of this product aims to improve Erie's competitive position and contribute to returning profitability to more stable levels.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted improving profitability: Q3 combined ratio 100.6% vs 113.7% a year ago and YTD combined ratio 108.6% vs 113.4% prior year; Q3 net income $183M ($3.50/share), up 14% YoY; surplus $9.6B. They announced a new Erie Secure Auto rollout and emphasized progress from underwriting discipline and pricing.

Contradiction Point 1

Financial Strength Rating Adjustment

It reflects a change in the company's financial strength rating, which is crucial for investor confidence and insurance industry reputation.

No questions were asked during the call. - Not specified

2025Q3: AM Best adjusted the financial strength rating of the property casualty members of Erie Insurance Group from A-plus superior to A-excellent... This 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 homeowners. - Tim NeCastro(CEO)

Not specified (as the call does not contain questions from participants). - Not specified

2025Q2: We are very pleased our A plus rating has been reaffirmed. - Julie Pelkowski(CFO)

Contradiction Point 2

Impact of Catastrophe Losses

It involves the impact of catastrophe losses on the company's financial performance, which is critical for understanding the company's resilience against natural disasters.

Not specified (as the call does not contain questions from participants). - Not specified

2025Q3: Policyholder surplus is up over $300 million for the year, bringing total surplus to $9.6 billion... Our consistent focus on underwriting discipline and pricing actions is beginning to deliver the results we’ve been working toward. - Julie Pelkowski(CFO)

Not specified (as the call does not contain questions from participants). - Not specified

2025Q2: Another way to look at it is that the high combined ratio is primarily due to catastrophe losses, which I think has been a big theme of this year. - Julie Pelkowski(CFO)

Contradiction Point 3

Return to Profitability

It highlights the company's progress or setbacks in returning to profitability, which is crucial for maintaining investor confidence and company stability.

No questions were provided in the call transcript. - None

2025Q3: This quarter marks a meaningful step forward in Erie’s return to profitability... Our consistent focus on underwriting discipline and pricing actions is beginning to deliver the results we’ve been working toward... Policyholder surplus is up over $300 million for the year, bringing total surplus to $9.6 billion... - Julie Pelkowski(CFO)

Not specified (as the call does not contain questions from participants) - None

2025Q1: First quarter combined ratio was 108.1%. Erie Indemnity Company reported net income of $138.4 million or $2.65 per diluted share. - Julie Pelkowski(CFO)

Contradiction Point 4

Financial Strength Rating Change

It reflects changes in financial strength ratings, which can impact investor confidence and the company's ability to access capital.

N/A - N/A (Pre-recorded call)

2025Q3: AM Best adjusted the financial strength rating of the property casualty members of Erie Insurance Group from A-plus superior to A-excellent... This 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 homeowners. - Tim NeCastro(CEO)

What were the key contributors to the improvement in the combined ratio? - N/A

2024Q4: The combined ratio for the exchange ended at 110.4 in 2024, nearly 9 points better than 2023. The improvement was driven by stable frequency, moderating severity trends, and lower catastrophe losses, despite the impact of Hurricane Helene. - Julie Pelkowski(CFO)

Contradiction Point 5

Policyholder Surplus Growth

It highlights differences in reported policyholder surplus growth, which is crucial for understanding the company's financial health and stability.

Can you provide details on your revenue outlook for the next few quarters and the key factors driving these expectations? - N/A (Pre-recorded call)

2025Q3: Policyholder surplus is up over $300 million for the year, bringing total surplus to $9.6 billion... - Julie Pelkowski(CFO)

What were the Indemnity Company’s net income and operating income in 2024? - N/A

2024Q4: Policyholder surplus ended the quarter at over $9.3 billion, up 15% from year-end 2023. - Julie Pelkowski(CFO)