Erie Indemnity (ERIE)

Insurance management company Erie Indemnity (NASDAQ:ERIE) fell short of the market’s revenue expectations in Q4 CY2025 as sales rose 2.9% year on year to $951 million. Its GAAP profit of $1.21 per share was 23.9% below analysts’ consensus estimates.

Company Overview

Operating under a unique business model dating back to 1925, Erie Indemnity (NASDAQ:ERIE) serves as the attorney-in-fact for Erie Insurance Exchange, managing policy issuance, claims handling, and investment services for this reciprocal insurer.

Property & Casualty (P&C) insurers protect individuals and businesses against financial loss from damage to property or from legal liability. This is a cyclical industry, and the sector benefits when there is 'hard market', characterized by strong premium rate increases that outpace loss and cost inflation, resulting in robust underwriting margins. The opposite is true in a 'soft market'. Interest rates also matter, as they determine the yields earned on fixed-income portfolios. On the other hand, P&C insurers face a major secular headwind from the increasing frequency and severity of catastrophe losses due to climate change. Furthermore, the liability side of the business is pressured by 'social inflation'—the trend of rising litigation costs and larger jury awards.

While Erie Indemnity has no direct competitors for its management services to Erie Insurance Exchange, the Exchange itself competes with major property and casualty insurers such as State Farm, Allstate (NYSE:ALL), Progressive (NYSE:PGR), and Travelers (NYSE:TRV) in its regional markets.

In general, insurance companies earn revenue from three primary sources. The first is the core insurance business itself, often called underwriting and represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from various sources such as policy administration, annuities, or other value-added services. Luckily, Erie Indemnity’s revenue grew at a solid 9.9% compounded annual growth rate over the last five years. Its growth surpassed the average insurance company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Erie Indemnity’s annualized revenue growth of 11.5% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, Erie Indemnity’s revenue grew by 2.9% year on year to $951 million, falling short of Wall Street’s estimates.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

This is because insurers are balance sheet businesses, where assets and liabilities define the core economics. This means that interest income and expense should be factored into the definition of profit but taxes - which are largely out of a company’s control - should not.

Over the last five years, Erie Indemnity’s pre-tax profit margin has fallen by 2.9 percentage points, going from 14.3% to 17.5%. However, fixed cost leverage was muted more recently as the company’s pre-tax profit margin was flat on a two-year basis.

Erie Indemnity’s pre-tax profit margin came in at 8.7% this quarter. This result was 12.1 percentage points worse than the same quarter last year.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Erie Indemnity’s EPS grew at a solid 13.8% compounded annual growth rate over the last five years, higher than its 9.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Erie Indemnity, its two-year annual EPS growth of 12% was lower than its five-year trend. This wasn’t great, but at least the company was successful in other measures of financial health.

In Q4, Erie Indemnity reported EPS of $1.21, down from $2.91 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Erie Indemnity’s full-year EPS of $10.70 to grow 30.9%.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Erie Indemnity has no debt, so leverage is not an issue here.

Return on equity (ROE) serves as a comprehensive measure of an insurer's performance, showing how efficiently it converts shareholder capital into profits. Strong ROE performance typically translates to better returns for investors through a combination of earnings retention, share repurchases, and dividend distributions.

Over the last five years, Erie Indemnity has averaged an ROE of 27.5%, exceptional for a company operating in a sector where the average shakes out around 12.5% and those putting up 20%+ are greatly admired. This shows Erie Indemnity has a strong competitive moat.

We struggled to find many positives in these results. Its EPS missed and its revenue fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 1.6% to $259.50 immediately after reporting.

Updated: February 24, 2026 at 12:04 AM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Erie Indemnity.

Erie Indemnity is an amazing business ranking highly on our list. First of all, the company’s revenue growth was solid over the last five years. On top of that, its stellar ROE suggests it has been a well-run company historically, and its remarkable EPS growth over the last five years shows its profits are trickling down to shareholders.

Erie Indemnity’s P/E ratio based on the next 12 months is 19.5x. This multiple isn’t necessarily cheap, but we’ll happily own Erie Indemnity as its fundamentals shine bright. We’re in the camp that investments like this should be held for at least three to five years to negate the short-term price volatility that can come with relatively high valuations.