Erie Indemnity (NASDAQ:ERIE) reported first-quarter financial results on Friday. The transcript from the company's first-quarter earnings call has been provided below.

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Summary

Tom Hagan stepped down as Chairman of the Board and was succeeded by Jonathan Herd Hagen, maintaining leadership continuity at Erie Indemnity.

The first quarter of 2026 saw a 3.6% growth in direct written premium, a slowdown compared to 13.9% in 2025, influenced by competitive pricing and market conditions.

The combined ratio improved to 99.4% from 108.1% in the previous year, driven by reduced catastrophe losses and improved non-catastrophe underwriting performance.

Net income for Erie Indemnity increased to $151 million, or $2.88 per diluted share, up from $138 million or $2.65 per diluted share in the first quarter of 2025.

Strategic initiatives include the rollout of Erie Secure Auto and Business Auto 2.0, with expansions planned across multiple states, aiming to enhance agent and customer experience.

The company is investing in technology modernization and AI, enhancing operational efficiency and supporting growth, while maintaining a focus on the human element of service.

Future outlook includes continued disciplined growth, profitability restoration, and expansion of new products, with a focus on leveraging AI to improve operational workflows.

Full Transcript

OPERATOR

Good morning and welcome to the Erie Indemnity Company first quarter 2026 earnings conference call. This call was pre recorded and there will be no question and answer session following the recording. Now I'd like to introduce our host for the call, Vice President of Investor Relations Scott Valhartz. Please proceed.

Scott Valhartz (Vice President of Investor Relations)

Thank you and welcome everyone. We appreciate you joining us for this recorded discussion about our first quarter results. This recording will include remarks from Tim Nicastro, President and Chief Executive Officer and Julie Pockowski, Executive Vice President and Chief Financial Officer. Our earning 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 10Q 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 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 Hagan recently informed the Board of his decision to step down as Chairman after serving in the role for more than 20 years. Following a special meeting of the Board of directors on April 19, Jonathan Herd Hagen was unanimously elected as Chairman of the Board. Jonathan is the son of Tom Hagan and the late Susan Hert Hagen and the grandson of our co founder Ho Hurd. 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. It also carries forward the legacy of those who helped build this company. Grounded in service, integrity and a long term perspective, Tom will continue to serve as a member of the Board as Chairman Emeritus and 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, Indiana where he practices employment law. He's also an alumnus and current board chair at Wittenberg University, which is the alma mater of Erie's co founder Ho Hurt. Finally, we are deeply saddened by the recent passing of one of our longtime board members and retired Erie executive George Lucor. George 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 he 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 costliest weather event in our company's history last March in 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 is Chief Financial Officer Julie Pelkowski. Julie

Julie Pelkowski (Executive Vice President and Chief Financial Officer)

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 exchanges 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, non catastrophe 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 151,000,000, or $2.88 per diluted share in the first quarter of 2026 compared to 138,000,000 or $2.65 per diluted share in the 1st quarter of 2025. Operating income increased approximately 10% to almost $167,000,000 from 151,000,000 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 three 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.

Tim Nicastro (President and Chief Executive Officer)

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 Erie Secure 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 Erie Secure Auto in four 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 eight states in 2025, the product expanded to North Carolina, Virginia, Maryland 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 will introduce it in Maryland, Pennsylvania, Virginia and West Virginia next month. This is a more streamlined, modern 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 Erie Secure Auto as they're 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 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. 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 Secure 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, not replace it. That will continue to be our focus as we leverage this powerful tool 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 toward restoring profitability and balancing it with healthy growth. Thank you all for your continued support and for your interest in Erie.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.