Direct and affiliated assumed premiums written by the Exchange increased 9.2% to $3.4 billion in Q2 2025, driven by a 12.4% increase in average premium per policy and a 5.2% increase in renewal policies in force. However, new business premiums decreased 24.2% to $360 million, partly attributed to disruptions from the information security incident.

The Exchange plans to continue efforts to utilize its agency force to increase market penetration in existing operating territories, indicating an organic growth strategy. This approach aims to leverage existing channels to drive future premium revenue, as stated in the 'Future trends-premium revenue' section.

The management fee rate, a key driver of Indemnity's revenue, was maintained at 25% for both 2025 and 2024. This consistency provides stability in revenue calculation, even as the underlying premiums written by the Exchange continue to grow.

Following an information security incident on June 7, 2025, management activated response protocols, collaborated with law enforcement, and restored full business operations by July 7, 2025. A thorough forensic investigation found no evidence of sensitive data breaches, and cybersecurity insurance is expected to cover a portion of related expenses and lost income.

Cost of operations for policy issuance and renewal services increased 9.1% to $648.3 million in Q2 2025, driven by higher scheduled commissions, agent incentive compensation, and personnel costs. Information technology costs also increased $7.1 million in Q2 2025 due to personnel, hardware, and software, reflecting ongoing operational investments.

On May 1, 2025, management announced the formation of the Erie Insurance Foundation, a private charitable foundation, with a planned $100 million donation. This initiative demonstrates a commitment to long-term social responsibility and strategic capital deployment for community benefit.

On August 8, 2024, A.M. Best reaffirmed the A+ 'Superior' rating for the Exchange but revised the outlook from stable to negative. This revision was driven by profitability challenges stemming from rising loss cost pressures and increased weather-related activity, which could impact the Exchange's ability to retain business and, consequently, Indemnity's management fee revenue.

An information security incident on June 7, 2025, resulted in several class action complaints alleging failure to protect customer and employee data. While 11 of 14 suits have been voluntarily dismissed and no sensitive data breach was found, the remaining litigation represents an ongoing risk of potential financial and reputational impact.

The company faces significant risks from complex and evolving federal and state laws, including those related to cybersecurity, data privacy, artificial intelligence, diversity, equity, and inclusion (DEI), and ESG matters. Failure to comply with these regulations could lead to litigation, fines, penalties, and damage to reputation, as highlighted in the risk factors.

The Exchange and its wholly owned property and casualty insurance subsidiaries maintained a high year-over-year policy retention ratio of 89.7% at June 30, 2025. This indicates strong customer loyalty and a solid foundation for recurring management fee revenue for Indemnity.

The year-over-year average premium per policy for all lines of business increased 11.9% at June 30, 2025, with the Exchange's pricing actions in 2024 contributing to this increase. This demonstrates some pricing power in the market, crucial for maintaining profitability in a competitive insurance industry.

Indemnity's business model is highly dependent on the growth and financial condition of the Erie Insurance Exchange, its sole customer. This concentration of credit risk, with receivables from the Exchange totaling $769.1 million at June 30, 2025, represents a significant competitive disadvantage if the Exchange's performance falters.

While management fee revenue for policy issuance and renewal services increased 8.3% in Q2 2025, the corresponding cost of operations increased at a higher rate of 9.1% to $648.3 million. This suggests a slight erosion of operational efficiency within the core service segment, driven by higher commissions, agent incentives, and personnel costs.

Non-commission information technology costs increased $7.1 million in Q2 2025, primarily due to higher personnel costs and hardware/software expenses. This indicates ongoing investment in IT infrastructure and staffing, which is critical for supporting operations but contributes to overall expense growth.

Despite overall cost increases, the 'Administrative and other' non-commission expense category decreased by 3.3% in Q2 2025 compared to the prior year. Additionally, Life management services expenses saw a significant decrease of 48.3% for the quarter, suggesting targeted efficiency improvements in certain administrative functions.

Information technology costs increased $7.1 million in the second quarter of 2025, primarily due to higher personnel costs and hardware and software costs. This indicates a continued commitment to strengthening technological capabilities, which is vital for supporting policy issuance, administrative services, and overall business functions.

The increase in information technology costs was partially offset by a decrease in capitalized professional fees related to technology initiatives. This suggests a potential shift in the nature of IT investments, possibly towards more operational or maintenance-related spending rather than large-scale, capital-intensive projects.

The information security incident on June 7, 2025, prompted the activation of incident response protocols and collaboration with cybersecurity experts. The successful restoration of operations by July 7, 2025, and the finding of no sensitive data breach, demonstrate the company's existing technological capabilities and its ability to respond to cyber threats.

Dividends declared per Class A common share increased by 7.1% to $1.365 for the three months ended June 30, 2025, compared to $1.275 in the prior year. This increase signals management's confidence in the company's sustained profitability and cash flow generation.

The company's investment strategy prioritizes a high-quality, well-diversified available-for-sale portfolio, primarily in investment-grade fixed maturities, to maximize after-tax returns while limiting risk. Total investments increased to $1,346.2 million at June 30, 2025, from $1,251.8 million at December 31, 2024.

While no shares were repurchased under the $150 million publicly announced program during the six months ended June 30, 2025, the company did purchase 139 Class A shares in May 2025 at an average price of $359.85 to satisfy stock-based compensation awards. This indicates a targeted use of capital for employee incentives rather than open-market buybacks.

On May 1, 2025, Erie Indemnity announced the formation of the Erie Insurance Foundation, a private charitable foundation, with a planned endowment of $100 million. This significant investment aims to create long-term sustainability for charitable contributions and grantmaking, demonstrating a strong commitment to social responsibility.

The company acknowledges that new and evolving regulations regarding diversity, equity, and inclusion (DEI) and ESG matters have increased scrutiny of corporate practices. Failure to effectively manage these developments could expose the business to litigation, fines, and reputational damage, highlighting the growing importance of robust governance practices in this area.

The company's disclosure controls and procedures, including participation by the CEO and CFO, were evaluated and deemed effective as of June 30, 2025. This commitment to strong internal controls and governance is crucial for managing financial reporting, operational risks, and ensuring compliance with evolving regulatory landscapes, including ESG-related requirements.

Management highlights that unfavorable economic conditions, including declining consumer confidence, inflation, high unemployment, and the threat of recession, could adversely affect the Exchange's premium revenue and Indemnity's management fees. Elevated inflation, specifically medical, building material, and auto repair costs, may also impact loss reserves and future premium rates.

The company's available-for-sale and equity security investments are subject to market volatility, which could lead to considerable fluctuations in fair value and reported total investment income. Ongoing geopolitical events, uncertain tariffs, and the interest rate environment are cited as factors that could significantly impact the global financial markets and the investment portfolio.

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, includes changes to the timing of tax deductions for depreciation and software development expenditures. While not expected to materially impact the effective tax rate, it will require recognition of impacts on deferred tax balances in the period of enactment, adding a new regulatory consideration.