AM Best Revises Outlooks to Negative for Erie Insurance Group’s Members; Affirms Credit Ratings of Erie Family Life Insurance Company

AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” (Superior) of the property/casualty (P/C) members of Erie Insurance Group (Erie). Additionally, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a” (Excellent) of Erie Family Life Insurance Company (EFL). The outlook of these Credit Ratings (ratings) is stable. All companies are domiciled in Erie, PA, unless otherwise specified.

Erie Insurance Exchange is the lead company of Erie; the remainder of the P/C group is composed of inter-company pooling members, Erie Insurance Company and Erie Insurance Company of New York (Rochester, NY), and reinsured subsidiaries, Erie Insurance Property & Casualty Company and Flagship City Insurance Company.

The ratings of Erie reflect its balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management (ERM). The revised outlooks to negative from stable reflect the group’s declining balance sheet strength metrics driven by substantial surplus losses in recent years. Erie’s operating results have been impacted over the recent five-year period by increased weather-related activity. More recently, inflation-driven severity increases and higher claim frequency in the auto and homeowners segments have contributed to the significant underwriting losses in 2023.

These challenges have led to a reduction in the strength of the group’s balance sheet, diminishing its previously robust financial position. Furthermore, despite historical trends of favorable reserve development, Erie has reported two consecutive years of prior year adverse reserve development. Nonetheless, the group maintains the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), and a solid liquidity profile to support operations.

AM Best acknowledges numerous remediation efforts have been implemented and are currently in progress to correct performance, the most substantial being significant rate increases. However, there is a timing lag to earn through these rate adjustments, which will prolong the beneficial impact to Erie’s balance sheet. Furthermore, management has focused on enhancing the group’s underwriting discipline, targeted growth slowdowns, purchasing additional reinsurance coverage, and long-term expense reduction initiatives. As a result, AM Best notes modest improvement in underlying results through the first half of 2024. Nonetheless, the negative outlooks also reflect the potential for interim capital erosion as management’s remedial efforts take hold and the group navigates through the elevated catastrophe environment.

The ratings of EFL reflect its balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. These ratings also consider the lift from Erie, based on its strategic importance in supporting the overall strategy of EFL in selling life and annuity products to the group’s P/C client base. EFL’s ratings and stable outlooks are supported further by the strongest level of risk-adjusted capitalization, as measured by BCAR, as well as its conservative investment portfolio, which consists predominately of investment grade bonds that are well diversified. Additionally, AM Best notes earnings have improved in recent years with the company reporting a modest net income gain in 2023.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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