ERIE INDEMNITY CO

RESULTS OF OPERATIONS

Management fee revenue

We have two performance obligations in the subscriber’s agreement, providing policy issuance and renewal services and acting as attorney-in-fact for the subscribers at the Exchange, as well as the service provider for the Exchange's insurance subsidiaries with respect to all administrative services. We retain management fees for acting as the attorney-in-fact for the subscribers at the Exchange in these two capacities and allocate our revenues between our performance obligations.

The management fee is calculated by multiplying all direct and affiliated assumed premiums written by the Exchange by the management fee rate, which is set by our Board of Directors at least annually. The management fee rate was set at 25% for both 2026 and 2025. Changes in the management fee rate can affect our revenue and net income significantly. The transaction price, including management fee revenue and administrative services reimbursement revenue, includes variable consideration and is allocated based on the estimated standalone selling prices developed using industry information and other available information for similar services. We update the transaction price and the related allocation at least annually based upon the most recent information available or more frequently if there have been significant changes in any components considered in the transaction price. Our current transaction price allocation review resulted in a minor change in the allocation between the two performance obligations in 2026 compared to 2025, which did not have a material impact on our consolidated financial statements.

The following table presents the allocation and disaggregation of revenue for our two performance obligations:

(1)A constraining estimate of variable consideration exists related to the potential for management fees to be returned if a policy were to be cancelled mid-term. See Part I, Item 1. "Financial Statements - Note 3, Revenue, of Notes to Consolidated Financial Statements" contained within this report.

(2)Management fee revenue - administrative services is recognized over time as the services are provided. See Part I, Item 1. "Financial Statements - Note 3, Revenue, of Notes to Consolidated Financial Statements" contained within this report.

Direct and affiliated assumed premiums written by the Exchange

Direct and affiliated assumed premiums include premiums written directly by the Exchange and premiums assumed from its wholly owned property and casualty subsidiaries. Direct and affiliated assumed premiums written by the Exchange increased 1.8% to $3.5 billion in the third quarter of 2026 compared to the third quarter of 2025, primarily driven by increased commercial lines and homeowners premiums written, partially offset by decreased private passenger auto premiums written. The year-over-year average premium per policy for all lines of business increased 5.4% at September 30, 2026 compared to 10.7% at September 30, 2025. Year-over-year policies in force for all lines of business decreased 1.9% in the third quarter of 2026 compared to an increase of 0.2% in the third quarter of 2025.

Premiums generated from new business increased 10.2% to $386 million in the third quarter of 2026 compared to the same period in 2025, primarily driven by increased premiums written in the private passenger auto line. Contributing to this change was a 11.1% increase in new business policies written and a 1.3% increase in year-over-year average premium per policy on new business at September 30, 2026.

Premiums generated from renewal business increased 0.8% to $3.1 billion in the third quarter of 2026 compared to the third quarter of 2025 resulting from an increase of 5.9% in year-over-year average premium per policy at September 30, 2026, partially offset by a decrease in year-over-year policies in force of 2.0% in the third quarter of 2026.

Personal lines – Total personal lines premiums written increased 0.4% to $2.5 billion in the third quarter of 2026, compared to the third quarter of 2025, driven by a 4.2% increase in total personal lines year-over-year average premium per policy, partially offset by a 2.4% decrease in total personal lines policies in force.

Commercial lines – Total commercial lines premiums written increased 5.5% to $952 million in the third quarter of 2026, compared to the third quarter of 2025, driven by a 5.7% increase in total commercial lines year-over-year average premium per policy and a 1.6% increase in total commercial lines policies in force.

Future trends-premium revenue – The Exchange plans to continue its efforts to grow premiums and improve its competitive position in the marketplace. Expanding the size of its agency force through a careful agency selection and monitoring process and increased market penetration in our existing operating territories is expected to contribute to future growth .

Premium levels impacted by changes in policies in force and rate actions affect the profitability of the Exchange and have a direct bearing on our management fee revenue. Future rate actions could be impacted by potential changes in regulation, inflationary trends, geopolitical factors, and tariff policies, among others. As the Exchange writes policies almost exclusively with annual terms, premium rate actions take 12 months to be fully recognized in written premiums, or longer for policies with a rate locking feature. See also Part I. Item 1A. "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 as filed with the Securities and Exchange Commission on February 23, 2026.

Policy issuance and renewal services

Policy issuance and renewal services

The management fee revenue allocated for providing policy issuance and renewal services was 24.41% of the direct and affiliated assumed premiums written by the Exchange for the three and nine month periods ended September 30, 2026 and 24.37% for the same periods in 2025. This portion of the management fee is recognized as revenue when the policy is issued or renewed because it is at that time that the services we provide are substantially complete and the executed insurance policy is transferred to the customer. The increase in management fee revenue for policy issuance and renewal services was primarily driven by the increase in the direct and affiliated assumed premiums written by the Exchange discussed previously.

Service agreement revenue

Service agreement revenue primarily consists of service charges we collect from subscribers (policyholders) for providing multiple payment plans on policies written by the Exchange and its property and casualty subsidiaries and also includes late payment and policy reinstatement fees. The service charges are fixed dollar amounts per billed installment. Service agreement revenue also includes fees received from the Exchange for the use of shared office space.

Cost of policy issuance and renewal services

(1)2025 amounts have been recast to conform to the current presentation. See Part I, Item 1. "Financial Statements - Note 4, Segment Information, of Notes to Consolidated Financial Statements" contained within this report for additional information on the revised expense categories.

Commissions – Commissions increased $24.0 million in the third quarter of 2026 and $96.6 million for the nine months ended September 30, 2026, compared to the same periods in 2025, primarily driven by an increase in agent incentive compensation. The estimated agent incentive payouts at September 30, 2026 are based on actual underwriting results for the two prior years and current year-to-date actual results and forecasted results for the remainder of 2026. The profitability component of agent incentive compensation increased due to improved actual and forecasted loss ratios for the three-year period ended 2026 compared to the three-year period ended 2025. Commission expense is also impacted by the growth in direct and affiliated assumed written premium.

Non-commission expense – Non-commission expense decreased $1.1 million in the third quarter of 2026 compared to the third quarter of 2025. Personnel costs increased $1.6 million primarily due to higher healthcare costs. Sales and advertising increased $1.8 million primarily due to an increase in agent-related costs. Acquisition and underwriting support costs decreased $5.8 million primarily due to lower postage and underwriting report costs. Technology and infrastructure costs increased $6.9 million primarily due to higher costs associated with technology initiatives, including internal-use software impairments, depreciation and amortization expense, and cloud usage costs. Administrative and other costs decreased $5.5 million primarily due to lower credit card processing fees.

Non-commission expense decreased $20.7 million for the nine months ended September 30, 2026 compared to the same period in 2025. Personnel costs increased $6.7 million primarily due to increased incentive compensation driven by stronger performance metrics, and higher base compensation. The increase is partially offset by bonuses awarded to all employees in 2025 in recognition of our 100th anniversary. Acquisition and underwriting support costs decreased $11.5 million primarily due to lower underwriting report and postage costs. Technology and infrastructure costs increased $7.4 million primarily due to higher depreciation and amortization expense from technology initiatives. Professional fees decreased $12.1 million primarily due to reduced use of third-party services related to technology initiatives. Administrative and other costs decreased $9.2 million primarily due to lower credit card processing fees and charitable contributions related to the transition of charitable giving through the Erie Insurance Foundation.

Administrative services

Administrative services

The management fee revenue allocated for providing administrative services was 0.59% of the direct and affiliated assumed premiums written by the Exchange for the three and nine month periods ended September 30, 2026 and 0.63% for the same periods in 2025. This portion of the management fee is recognized as revenue over a four-year period representing the time over which the services are provided. We also report reimbursed costs as revenues, which are recognized monthly as services are provided. The administrative services expenses we incur and the related reimbursements we receive are recorded gross in the Consolidated Statements of Operations.

Cost of administrative services

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. The subscriber's agreement and service agreements provide for reimbursement of amounts incurred for these services to Indemnity. Reimbursements due from the Exchange and its insurance subsidiaries are recorded as a receivable and settled at cost.

Total investment income

A summary of the results of our investment operations is as follows:

Net investment income

Net investment income includes interest and dividends on our fixed maturity and equity security portfolios and the results of our limited partnership investments, net of investment expenses. Net investment income increased $4.4 million in the third quarter of 2026 and $10.5 million for the nine months ended September 30, 2026 compared to the same periods in 2025. The increase in both periods was primarily due to an increase in bond and exchange-traded fund income driven by higher average holdings, and an increase in agent loan interest income, partially offset by decreased cash and cash equivalent income due to lower yields and average holdings.

Net realized and unrealized investment gains (losses)

A breakdown of our net realized and unrealized investment gains (losses) is as follows:

Net impairment recoveries (losses) recognized in earnings

Net impairment losses recognized in earnings were lower during both the three and nine months ended September 30, 2026 compared to the same periods in 2025. The improvement was primarily driven by lower available-for-sale security impairments, reflecting reduced credit-related impairments, as well as lower current expected credit losses on agent loans and other loans receivable during the three and nine month periods.

Financial Condition of Erie Insurance Exchange

Serving in the capacity of attorney-in-fact for the subscribers at the Exchange, we are dependent on the growth and financial condition of the Exchange, who is our sole customer. The strength of the Exchange and its wholly owned subsidiaries is rated annually by AM Best through assessing its financial stability and ability to pay claims. The ratings are generally based upon factors relevant to policyholders and are not directed toward return to investors. The Exchange and each of its property and casualty insurance subsidiaries are rated A "Excellent". On September 11, 2026, the outlook for the financial strength rating was affirmed as stable. See Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 as filed with the Securities and Exchange Commission on February 23, 2026 for a discussion of the Exchange's financial strength rating.

The financial statements of the Exchange are prepared in accordance with statutory accounting principles prescribed by the Commonwealth of Pennsylvania. Financial statements prepared under statutory accounting principles focus on the solvency of the insurer and generally provide a more conservative approach than under U.S. generally accepted accounting principles. Statutory direct written premiums of the Exchange and its wholly owned property and casualty insurance subsidiaries grew 2.9% to $10.2 billion in the first nine months of 2026 compared to the same period in 2025. These premiums, along with investment income, are the major sources of cash that support the operations of the Exchange. Policyholders’ surplus determined under statutory accounting principles was $10.7 billion and $10.1 billion at September 30, 2026 and December 31, 2025, respectively. The Exchange and its wholly owned property and casualty insurance subsidiaries' year-over-year policy retention ratio was 87.2% at September 30, 2026 and 88.4% at December 31, 2025.

We have prepared our consolidated financial statements considering the financial strength of the Exchange based on its AM Best rating and strong level of surplus. See Part I, Item 1A. "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 as filed with the Securities and Exchange Commission on February 23, 2026 for possible outcomes that could impact that determination.