Q1 2026 Pre-Recorded Earnings Call Transcript

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'd 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 a 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 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 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 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 Hagen 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 Hirt Hagen was unanimously elected as Chairman of the Board.

Jonathan is the son of Tom Hagen and the late Susan Hirt Hagen and the grandson of our Co-Founder, H.O. Hirt. 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.

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, H.O.

Hirt. Finally, we are deeply saddened by the recent passing of one of our long-time Board members and retired Erie executive, George Lucore. 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 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 is 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, 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 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.

Noncommission 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 lines 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 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 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 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 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 and 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.