Erie Indemnity Stock

Erie Indemnity Company (Indemnity) serves as the attorney-in-fact for the subscribers (policyholders) at the Erie Insurance Exchange ('Exchange'). The Exchange is a Pennsylvania-domiciled reciprocal insurer that writes property and casualty insurance.

The Exchange has wholly owned property and casualty subsidiaries, including Erie Insurance Company, Erie Insurance Company of New York, Erie Insurance Property & Casualty Company, and Flagship City Insurance Company; and a wholly owned life insurance company, Erie Family Life Insurance Company ('EFL'). The Exchange markets and sells its insurance products through independent, non-exclusive insurance agencies.

The company's primary function as attorney-in-fact is to perform policy issuance and renewal services on behalf of the subscribers at the Exchange. The company also acts as attorney-in-fact on behalf of the subscribers at the Exchange with respect to all claims handling and investment management services, as well as the service provider for all claims handling, life insurance, and investment management services for the Exchange's insurance subsidiaries, collectively referred to as 'administrative services'. Acting as attorney-in-fact in these two capacities is done in accordance with a subscriber's agreement (a limited power of attorney) executed individually by each subscriber (policyholder), which appoints Indemnity as each subscriber's attorney-in-fact to transact certain business on their behalf.

Services

The policy issuance and renewal services the company provides on behalf of the subscribers at the Exchange are related to the sales, underwriting and issuance of policies. The sales related services the company provides include agent compensation and certain sales and advertising support services. Agent compensation includes scheduled commissions to agents based upon premiums written as well as incentive compensation, which is earned by achieving targeted measures. Agent compensation comprised approximately 67% of the company's 2023 policy issuance and renewal expenses. The underwriting services the company provides include underwriting and policy processing and comprised approximately 9% of the company's 2023 policy issuance and renewal expenses. The remaining services the company provides include customer service and administrative support. The company also provides information technology services that support all the functions listed above that comprised approximately 11% of the company's 2023 policy issuance and renewal expenses. Included in these expenses are allocations of costs for departments that support these policy issuance and renewal functions.

Consistent with its legal structure as a reciprocal insurer, the Exchange does not have any employees or officers. Therefore, it enters into contractual relationships by and through the subscribers' attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the subscribers at the Exchange with respect to its administrative services as enumerated in the subscriber's agreement. The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. Claims handling services include costs incurred in the claims process, including the adjustment, investigation, defense, recording and payment functions. Life insurance management services include costs incurred in the management and processing of life insurance business. Investment management services are related to investment trading activity, accounting and all other functions attributable to the investment of funds. Included in these expenses are allocations of costs for departments that support these administrative functions. The subscriber's agreement and service agreements provide for reimbursement of amounts incurred for these services to Indemnity. Reimbursements are settled at cost. State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department.

Erie Insurance Exchange

As the company's primary purpose is to manage the affairs at the Exchange for the benefit of the subscribers (policyholders) through the policy issuance and renewal services and administrative services, the Exchange is the company's sole customer. The company's earnings are largely generated from management fees based on the direct and affiliated assumed premiums written by the Exchange. The company has no direct competition in providing these services to the Exchange.

The Exchange generates revenue by insuring preferred and standard risks, with personal lines comprising 70% of the 2023 direct and affiliated assumed written premiums and commercial lines comprising the remaining 30%. The principal personal lines products are private passenger automobile and homeowners. The principal commercial lines products are commercial multi-peril, commercial automobile and workers compensation. Historically, due to policy renewal and sales patterns, the Exchange's direct and affiliated assumed written premiums tend to be greater in the second and third quarters than in the first and fourth quarters of the calendar year.

The Exchange is represented by independent agencies that serve as its sole distribution channel. In addition to their principal role as salespersons, the independent agents play a significant role as underwriting and service providers and are an integral part of the Exchange's success.

The company's results of operations are tied to the growth and financial condition of the Exchange. If any events occurred that impaired the Exchange's ability to grow or sustain its financial condition, including but not limited to reduced financial strength ratings, disruption in the independent agency relationships, significant catastrophe losses, or products not meeting customer demands, the Exchange could find it more difficult to retain its existing business and attract new business. A decline in the business of the Exchange almost certainly could have as a consequence a decline in the total premiums paid and a correspondingly adverse effect on the amount of the management fees the company receives. The company also has an exposure to a concentration of credit risk related to the unsecured receivables due from the Exchange for net management fee and other reimbursements.

History

Erie Indemnity Company was founded in 1925. The company was incorporated in Pennsylvania in 1925.