Erie Indemnity Company Class A Aktie

Good morning, and welcome to the Erie Indemnity Company Second Quarter 2026 Earnings Conference Call. This call was prerecorded, and there will be no question-and-answer session following the recording.

And now I'd like to introduce your host for this call, Vice President of Investor Relations, Scott Beilharz. Please go ahead.

Thank you, and welcome, everyone. We appreciate you joining us for this recorded discussion about our second quarter results. This recording will include remarks from Tim NeCastro, President and Chief Executive Officer; and Julie Pelkowski, Executive Vice President and Chief Financial Officer. Our earnings release and financial supplement were issued yesterday afternoon after the market closed and are available within the Investor Relations section of our website, erieinsurance.com.

Before we begin, I would like to remind everyone that today's discussion may contain forward-looking remarks that reflect the company's current views about future events. These remarks are based on assumptions subject to known and unexpected risks and uncertainties. These risks and uncertainties may cause results to differ materially from those described in these remarks. For information on important factors that may cause such differences, please see the safe harbor statements in our Form 10-Q filing with the SEC filed yesterday and in the related press release.

This prerecorded call is the property of Erie Indemnity Company. It may not be reproduced or rebroadcast by any other party without the prior written consent of Erie Indemnity Company.

With that, we will move on to Tim's remarks. Tim?

Thanks, Scott, and good morning, everyone. Before we get into our second quarter results, I'd like to take a moment to recognize two recent affirmations of the strength of Erie's business and the trust our customers continue to place in us.

First, Erie Insurance ranked highest in customer satisfaction among large auto insurers in the J.D. Power 2026 U.S. Insurance Shopping Study. This marks the third consecutive year Erie has earned the top ranking. The study looks at insurance shopping experience across several important factors, including the quote process, price, distribution channel and policy offerings. To be recognized by customers in this way, particularly in a highly competitive market is meaningful. It speaks to the value of our independent agency model and the care our agents and employees bring to helping customers make confident, informed decisions.

We were also pleased to recently be ranked #308 on the 2026 Fortune 500 list of America's largest corporations, moving up 15 spots from last year's ranking of 323. This year marks 23 years since Erie first appeared on the list.

These affirmations of our service quality and financial strength are especially important in the context of today's market. As we shared in previous calls, 2025 was a challenging year for the industry and for Erie, particularly from a profitability perspective. We faced elevated weather activity, including the costliest weather event in our company's history, along with a complex and competitive market environment. In the first 2 quarters of this year, we've been pleased to see improvement and a more balanced picture emerging in our results.

Here to share more details of Erie's performance is Chief Financial Officer, Julie Pelkowski. Julie?

Thank you, Tim, and good morning, everyone. Starting with the Erie Insurance Exchange, the insurance operations we manage. The second quarter of 2026 reflected continued progress in our underlying underwriting performance with the combined ratio improving 13 points in the second quarter compared to the same period in 2025.

As is typical in the second quarter, catastrophe losses increased due to the seasonality in our book of business. While catastrophe losses impacted the combined ratio by 15 points, the losses were much more in line with historical experience and well below the 22-point impact we experienced in the second quarter of last year. And as we anticipated, direct written premium growth continues to moderate as pricing has become more adequate and competitive pressures continue.

While growth remains our primary challenge, we are committed to profitable growth. We continued the rollout of ErieSecure Auto, which was effective in our largest state of Pennsylvania in May. Other growth initiatives include targeted savings opportunities for eligible customers through programs such as teenSMART, both of which Tim will discuss shortly. We remain focused on pricing discipline, implementing targeted rate reductions where indicated, but we aren't broadly lowering rates to drive growth.

Now getting into the details, starting with growth, direct written premium grew 3.3% in the second quarter of 2026 compared to 9.2% in the second quarter of 2025. For the first 6 months of 2026, direct written premium grew 3.4% compared to 11.4% in the same period last year. While our average premium per policy increased 6.8% from this time last year, growth in policies in force have continued to decrease slightly, down 2%. Our retention ratio also dropped slightly to 87.5%.

From a profitability perspective, the Exchange's combined ratio was 103.9% in the second quarter of 2026, compared to 116.9% in the second quarter of 2025. For the first 6 months of 2026, the combined ratio improved to 101.6% compared to 112.6% during the same period last year. As previously mentioned, catastrophe losses have improved. Year-to-date, our catastrophe losses are 7 points better than the comparable prior-year period, and our non-catastrophe losses improved almost 3 points from last year.

Improved underwriting results and strong investment performance contributed to an increase in policyholder surplus at the end of June to approximately $10.7 billion from approximately $10.1 billion at year-end 2025, reflecting the continued financial strength of the Exchange.

Shifting to the results for Indemnity. Net income was $180 million or $3.45 per diluted share in the second quarter of 2026, compared to $175 million or $3.34 per diluted share in the second quarter of 2025. Year-to-date, net income was $331 million or $6.32 per diluted share compared to $313 million or $5.99 per diluted share during the first 6 months of 2025.

Operating income increased approximately 2.5% to $204 million from $199 million in the second quarter of 2025. For the first 6 months of 2026, operating income increased 5.8% to $371 million from $351 million during the same period last year. Management fee revenue for policy issuance and renewal services grew approximately $39 million quarter-to-date or 4.7%. Year-to-date, management fee revenue increased approximately $70 million or 4.5% compared to the first 6 months of 2025.

Commission expense, our largest cost of operations, increased almost $45 million or 9.6% compared to the second quarter of 2025 and increased approximately $73 million or 8.1% compared to the first half of 2025. Increases in both periods were primarily driven by higher agent incentive compensation resulting from improved underwriting profitability as well as the growth in direct and affiliated assumed written premium.

Non-commission expenses decreased approximately $9 million or 4.8% during the second quarter. Although personnel costs increased approximately $3 million due to higher incentive compensation driven by stronger performance metrics, it was partially offset by lower bonuses awarded to all employees. In 2025, we had a special all-employee bonus in recognition of our 100th anniversary. While personnel costs increased, the overall decrease in expenses for the quarter was driven by lower expenses in other categories, including sales and advertising, acquisition and underwriting support, professional fees and administrative costs.

For the first 6 months of 2026, non-commission expenses decreased approximately $20 million or 5% compared to the first half of 2025. Personnel costs increased approximately $5 million, primarily due to higher incentive and base compensation, partially offset by the 2025 anniversary bonuses, as mentioned before. Similar to the second quarter, we also experienced lower expenses in all other categories of sales and advertising, acquisition and underwriting support, professional fees and administrative costs during the first 6 months of the year.

Our investment income in the second quarter was $23 million compared to $20 million during the same period of 2025. For the first 6 months of 2026, investment income totaled $45 million compared to $39 million in the first half of last year. As always, we take a measured approach to capital management and maintain a strong balance sheet. For the first 6 months of 2026, our financial performance enabled us to pay our shareholders approximately $136 million in dividends.

With that, I'll turn the call back over to Tim.

Thank you, Julie. As we look ahead, our focus remains on building on the progress we've made, continuing to restore profitability, support disciplined growth and invest in the capabilities to help our agents and employees serve customers well.

As Julie mentioned, one important area of progress is ErieSecure Auto. We continue to move forward with the rollout across our footprint with the product now active in 10 states. ErieSecure Auto is an important part of our broader effort to modernize our personal auto product and strengthen our competitive position over time. It gives us more flexibility, supports greater pricing sophistication and helps us better meet the needs of customers and agents in a changing market.

We're also seeing encouraging results from our new online quoting platform. As we shared last quarter, the platform was introduced to Ohio agents in February. Since then, it has continued to roll out across Erie's footprint. And as of the end of June, the rollout is complete. The early results are positive. We're seeing a significant improvement in the quality of leads being sent to agents and conversions are nearly double compared to our historical online quoting platform. This is an important capability for Erie. It creates a more streamlined experience for prospective customers, helps connect those customers with independent agents more efficiently, supports our long-term growth strategy.

At the same time, we're being thoughtful about how we compete, focusing on targeted opportunities that provide value to customers while supporting sustainable underwriting performance. Our teenSMART program is one example. Offered through our partnership with ADEPT Driver, the program combines video learning, realistic driving simulations and in-car driving activities to help young drivers build safer habits. Eligible drivers up to age 20 who complete the program may qualify for a discount of up to 20%. Most importantly, young drivers enrolled in the program are showing improvement in claim frequency and severity. We're excited by the potential this program has to support safer driving, provide a legitimate savings opportunity for customers and help Erie and our agents grow more profitably.

Across these initiatives, ErieSecure Auto, online quoting and teenSMART, the common thread is that we are investing in capabilities that improve the customer and agent experience while supporting more disciplined, sustainable growth. We also continue to explore practical applications of artificial intelligence to help our employees work more efficiently and consistently with recent AI assistants being introduced in support of claims and underwriting.

The claim subrogation AI assistant helps claims professionals evaluate opportunities, prepare referrals, summarize complex claim information and support negotiations. And the commercial underwriting assistant helps underwriters assess prospective new business by identifying missing information and highlighting key risk characteristics. Both tools allow our employees to spend less time gathering information and more time applying their expertise.

As we move into the second half of 2026, we know the environment remains competitive, but we're encouraged by the progress we're making across products, services and technology and the improvements we're seeing in our financial performance as we remain focused on supporting our employees and agents, serving our customers and continuing to strengthen the business for the long term. Thank you all for your continued support and for your interest in Erie.

Thank you, ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Good morning, and welcome to the Erie Indemnity Company First Quarter 2026 Earnings Conference Call. This call was prerecorded, and there will be no question-and-answer session following the recording.

Now I would like to introduce your host for the call, Vice President of Investor Relations, Scott Beilharz. Please proceed

Thank you, and welcome, everyone. We appreciate you joining us this reported discussion about our first quarter results. This recording will include remarks from Tim NeCastro, President and Chief Executive Officer; and Julie Pelkowski, Executive Vice President and Chief Financial Officer. Our earnings release and financial supplement were issued yesterday afternoon after the market close and are available within the Investor Relations section of our website, erieinsurance.com.

Before we begin, I would like to remind everyone that today's discussion may contain forward-looking remarks that reflect the company's current views about future events. These remarks are based on assumptions subject to known and unexpected risks and uncertainties. These risks and uncertainties may cause results to differ materially from those described in these remarks.

For information on important factors that may cause these differences, please see the safe harbor statements in our Form 10-Q filing with the SEC filed yesterday and in the related press release. This prerecorded call is the property of Erie Indemnity Company. It may not be reproduced or rebroadcast by any other party without the prior ring consent of Erie Indemnity Company. With that, we move on to Tim's remarks. Tim?

Thanks, Scott, and good morning, everyone. Before we get into our first quarter results, I'd like to share some recent changes to the Erie Indemnity Company Board of Directors. First, Tom Hagen recently informed the Board of his decision to step down as Chairman after serving in the role for more than 20 years. Following the special meeting of the Board of Directors on April 19, Jonathan Hurhagen was unanimously elected as Chairman of the Board.

Jonathan is a son of Tom Hagen and the late Susan Hurthagen; and the grandson of our Co-Founder, [indiscernible]. He has served on our Board since 2005 and as Vice Chairman since 2013. Jonathan brings a thoughtful steady approach to leadership, along with a strong understanding of our business and of our culture. He also carries forward the legacy of those who helped build this company, grounded in service, integrity and a long-term perspective. Jon will continue to serve as a member of the Board as Chairman Emeritus and the Chair of the Executive Committee. His experience and guidance will remain an important part of our leadership as we move forward. The Board of Directors also recently welcomed a new member William Edwards is an attorney and partner at Taft in Indianapolis and Indiana repractices employment law.

He's also an alumnus and current board share at Wittenberg University, which is the Amador of Erie's Co-Founder, H.O. Hirt. Finally, we are deeply saddened by the recent passing of one of our longtime board members and retired Erie executive [indiscernible] Lucore. Gorge spent 38 years as an employee retiring in 2010 as Executive Vice President of Field Operations. He continued his service to the company by joining the Board of Directors in 2016, where we remained an engaged and thoughtful contributor. He often said he was honored to continue his association with Erie in this capacity, and we were equally honored to benefit from his experience and his perspectives.

Let's now turn to the first quarter results. As we shared in previous calls, 2025 was one of the more challenging periods we faced in terms of profitability, marked by elevated weather activity, including the cost of this weather event in our company's history last March and a complex market. But by the end of 2025 and now in the first quarter of 2026, we started to see a more balanced picture. -- and early signs that we're beginning to turn a corner. We're still operating in a competitive market, and there's more work ahead, but the steady measured progress is encouraging. Here to share more details of our first quarter results as Chief Financial Officer, Julie Pelkowski. Julie?

Thank you, Tim, and good morning, everyone. Starting with the results of the Erie Insurance Exchange, the insurance operations we manage. With significantly lower catastrophe and weather-related losses in the first quarter of 2026, the underwriting performance of the core business of the exchange continued to be more evident. In contrast to the elevated weather activity we experienced a year ago.

Following the period of significant rate increases across the industry, growth continues to be challenging. Higher premiums are impacting customer behavior and measures like policies in force and retention reflect a more competitive landscape. Now getting into the details of the first quarter performance of the exchange, starting with growth, direct written premium grew 3.6% in the first quarter of 2026 compared to 13.9% in the first quarter of 2025. Given our pricing has reached more adequate levels, this has increased our competitive position challenge. While our average premium per policy grew 8.1% in the first quarter, policies in force were down 1.7% from this time last year and retention declined to 88%.

Shifting to profitability. The Exchange's combined ratio was 99.4% in the first quarter of 2026 compared to 108.1% in the first quarter of 2025. The primary drivers of the combined ratio improvements are twofold. First, noncatastrophe losses improved about 3 points compared to the prior year, reflective of stronger rate adequacy. From a catastrophe loss perspective, we saw an almost 7-point improvement from the first quarter of 2025.

As Tim mentioned, the first quarter of 2025 included the most expensive weather event in our history, which drove the much higher combined ratio last year. In 2026, the catastrophe losses we experienced were more in line with historical trends. Our policyholder surplus at the end of March was $10.1 billion, consistent with the December 2025 surplus level, reflecting essentially breakeven underwriting and investment results.

Shifting to the results for indemnity. Net income was nearly $151 million or $2.88 per diluted share in the first quarter of 2026 compared to $138 million or $2.65 per diluted share in the first quarter of 2025. Operating income increased approximately 10% to almost $167 million from $151 million in the first quarter of 2025.

Management fee revenue for policy issuance and renewal services grew approximately $31 million or 4.2%, in line with the increase in the direct written premiums of the Exchange while we had more modest expense growth of 2.8% in the first quarter of 2026. Commission expense, our largest cost of operations increased 6.4% to $465 million, driven largely by agent incentive compensation due to the underwriting profitability improvement as well as higher base commissions driven by premium growth.

Non-commission expenses decreased approximately 5.6% to $180 million, primarily driven by lower professional fees and expenses across most other categories except for personnel costs, which were impacted by higher pension costs and increased compensation. Our investment income in the first quarter was $22 million compared to $20 million in the same period of 2025, reflecting higher net investment income, driven by higher yields and higher invested balances.

As always, we take a measured approach to capital management and maintain a strong balance sheet. For the first 3 months of 2026, our financial performance enabled us to pay our shareholders approximately $68 million in dividends.

With that, I'll turn the call back over to Tim.

Thank you, Julie. As we look ahead, our focus is on building on this momentum, continuing to move forward with discipline and staying grounded in the long-term approach that's guided us through this past year. On the personal line side, we're excited for the continued rollout of ErieSecure Auto. Following a successful pilot in Ohio, we expanded into Virginia and West Virginia. We're already seeing a positive impact on submissions and premium in those states. .

We expect to introduce ErieSecure Auto and 4 additional states this quarter with continued expansion planned throughout the remainder of the year. In Commercial Lines, we're continuing to introduce Business Auto 2.0 across our footprint. After rolling out to in 2025, the product expanded to North Carolina, Virginia, Maryland and the District of Columbia in the first quarter of this year. We now have one remaining state New York to complete the rollout. This product is improving the quoting and servicing experience for agents and customers while also supporting greater consistency and efficiency in our underwriting.

Another rollout that will help connect our independent agents with customer leads is our new online quote platform. It was launched in Ohio in February, and we'll introduce it in Maryland, Pennsylvania, Virginia and West Virginia next month. This is a more streamlined, modern and quoting experience designed to move prospects through the process more efficiently. It's the result of several years of testing and refinement and over time, it will replace our existing online quoting tools.

Importantly, it supports growth, improving lead conversion and reducing connection time to our agents, while integrating with products like ErieSecure Auto as are introduced across our footprint. Modernization of our technology platforms is key to our ability to introduce these new capabilities, and we're making meaningful progress. Today, more than half of our systems have been migrated to contemporary platforms, enhancing both the capabilities we deliver and the speed at which we bring new solutions to market.

The modernization is only part of the story. We're also focused on how artificial intelligence can help us improve how work gets done across the organization. Over the past year, we've moved from early experimentation, scaled deployment of secured tools, including chatGPT Enterprise, now available across our employee population. And we're embedding AI into real workflows with strong governance in place.

In claims, AI is helping teams prepare subrogation cases more quickly and more consistently. In other areas, teams are reducing backlogs, accelerating analysis and improving response times. Many of our most impactful use cases are practical, saving time, improving quality and reducing risk. And to be clear, this isn't about replacing people. It's about helping our employees do their best work.

Our advantage has always been the judgment, care and experience of our employees and agents bring to what they do. We believe AI should strengthen that human touch and not replace it. That will continue to be our focus as we leverage this powerful goal across the organization. As we move through 2026, we remain focused on supporting our employees and agents, serving our customers and continuing to build on the progress we've made towards restoring profitability and balancing it with healthy growth.

Thank you all for your continued support and for your interest in Erie.

Good morning, and welcome to the Erie Indemnity Company Fourth Quarter and Year-End 2025 Earnings Conference Call. This call was prerecorded, and there will be no question-and-answer session following the recording. Now I'd like to introduce your host for the call, Vice President of Investor Relations, Scott Beilharz.

Thank you, and welcome, everyone. We appreciate you joining us for this recorded discussion about our fourth quarter results. This recording will include remarks from Tim NeCastro, President and Chief Executive Officer; and Julie Pelkowski, Executive Vice President and Chief Financial Officer. Our earnings release and financial supplement were issued yesterday afternoon after the market closed and are available within the Investor Relations section of our website, erieinsurance.com.

Before we begin, I would like to remind everyone that today's discussion may contain forward-looking remarks that reflect the company's current views about future events. These remarks are based on assumptions subject to known and unexpected risks and uncertainties. These risks and uncertainties may cause results to differ materially from those described in these remarks.

For information on important factors that may cause such differences, please see the safe harbor statements in our Form 10-K filing with the SEC filed yesterday and in the related press release. This prerecorded call is a property of Erie Indemnity Company. It may not be reproduced or rebroadcast by any other party without the prior written consent of Erie Indemnity Company.

With that, we will move on to Tim's remarks. Tim?

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 the elevated weather activity, higher claims 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.

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'm 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'll 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.

Thank you, Tim, and good morning, everyone. As Tim just mentioned, in 2025, we've 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's turn to the results of the indemnity. Net income was over $63 million or $1.21 per diluted share in the fourth quarter of 2025 compared to $152 million or $2.91 per diluted share in the fourth quarter of 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 the fourth quarter of 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 of dividends. And in December, our Board of Directors approved a 7.1% increase in the quarterly dividend for 2026.

With that, I'll turn the call back over to Tim.

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 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 with plans 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're continuing the expansion of Business Auto 2.0 across our footprint. The product was released to North Carolina in late January, bringing the total to 9 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're also advancing innovation beyond our core platforms. Through Erie Strategic Ventures, our venture capital arm launched in 2022, we recently announced investments in 2 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, its agents and our policyholders. We believe these latest investments with start-ups operating at the intersection of technology and financial services provide numerous opportunities for mutual benefit.

As we focus on the future with new products, technology and noncore sources of revenue, our 100-year commitment to service is always at the forefront. Recent recognitions affirm the strength of that commitment. In November, Erie earned the highest ranking in customer claim satisfaction among auto insurers in 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 for small business insurance customer satisfaction. Erie 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 to begin its second century with clarity and confidence.

As many of you know, I recently shared my intention to retire from Erie 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 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'm confident the culture and discipline that have carried Erie 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.

Good morning, and welcome to the Erie Indemnity Company Third Quarter 2025 Earnings Conference Call. This call was prerecorded, and there will be no question-and-answer session following the recording.

Now I would like to introduce your host for the call, Vice President of Investor Relations, Scott Beilharz. Please proceed.

Thank you, and welcome, everyone. We appreciate you joining us for this recorded discussion about our third quarter results. This recording will include remarks from Tim NeCastro, President and Chief Executive Officer; and Julie Pelkowski, Executive Vice President and Chief Financial Officer.

Our earnings release and financial supplement were issued yesterday afternoon after the market closed and are available within the Investor Relations section of our website, erieinsurance.com.

Before we begin, I would like to remind everyone that today's discussion may contain forward-looking remarks that reflect the company's current views about future events. These remarks are based on assumptions subject to known and unexpected risks and uncertainties. These risks and uncertainties may cause results to differ materially from those described in these remarks.

For information on important factors that may cause such differences, please see the safe harbor statement in our Form 10-Q filing with the SEC filed yesterday and in the related press release. This prerecorded call is the property of Erie Indemnity Company. It may not be reproduced or rebroadcast by any other party without the prior written consent of Erie Indemnity Company.

With that, we will move on to Tim's remarks. Tim?

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, A.M. 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. A.M. Best pointed to Erie's solid balance sheet, [ good ] operating performance, a favorable business profile and strong risk management practices. This feedback from A.M. 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 claims severity in both auto and homeowners. 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 caused $370 million in insured losses, the single largest weather event in our company's history.

At the same time, claims 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, and 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 Pelkowski, to share more on those results. Julie?

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 actions 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.

So starting with the results of the Exchange and 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 2 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 highlight 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 strengths 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 $3.06 per share in the third quarter of 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 9 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 balances. 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 9 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.

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. ErieSecure 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, additional states to follow through the 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 as 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 100-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.

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 the best-in-class for price, for 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, including auto, homeowners, renters, term life and permanent life.

In addition, 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 100th year in business and look ahead to 2026, our focus remains clear: strengthening profitability, delivering an exceptional service and investing in the technology and products that will shape Erie's next century. We faced difficult cycles before, and each time we've emerged stronger.

Thanks to our dedicated employees and trusted agents who are committed to delivering superior service and protection, this time will be no different. Thank you for listening in today and for your interest in Erie.