Erie Indemnity (ERIE)

Insurance management company Erie Indemnity (NASDAQ:ERIE) fell short of the markets revenue expectations in Q3 CY2025, but sales rose 6.7% year on year to $1.07 billion. Its GAAP profit of $3.50 per share was 3.9% above 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.

Big picture, insurers generate revenue from three key sources. The first is the core business of underwriting policies. The second source is 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. Thankfully, Erie Indemnity’s 10.1% annualized revenue growth over the last five years was solid. Its growth surpassed the average insurance company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Erie Indemnity’s annualized revenue growth of 13.2% 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 6.7% year on year to $1.07 billion, missing 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.

The economics of insurers are driven by their balance sheets, where assets (investing the float + premiums receivable) and liabilities (claims to pay) define the fundamentals. Interest income and expense should therefore be factored into the definition of profit but taxes - which are largely out of a company’s control - should not.

Over the last four years, Erie Indemnity’s pre-tax profit margin has fallen by 5.5 percentage points, going from 14.8% to 20.3%. It has also expanded by 4.3 percentage points on a two-year basis, showing its expenses have consistently grown at a slower rate than revenue. This typically signals prudent management.

Erie Indemnity’s pre-tax profit margin came in at 21.8% this quarter. This result was 1.7 percentage points better than the same quarter last year.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Erie Indemnity’s EPS grew at a remarkable 17.4% compounded annual growth rate over the last five years, higher than its 10.1% 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 shorter period to see if we are missing a change in the business.

For Erie Indemnity, its two-year annual EPS growth of 27.2% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Erie Indemnity reported EPS of $3.50, up from $3.06 in the same quarter last year. This print beat analysts’ estimates by 3.9%. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data. This signals Erie Indemnity could be a hidden gem because it doesn’t have much coverage among professional brokers.

Insurance companies are balance sheet businesses, collecting premiums upfront and paying out claims over time. The float – premiums collected but not yet paid out – are invested, creating an asset base supported by a liability structure. Book value captures this dynamic by measuring:

• Assets (investment portfolio, cash, reinsurance recoverables) - liabilities (claim reserves, debt, future policy benefits)

BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality. While other (and more commonly known) per-share metrics like EPS can sometimes be lumpy due to reserve releases or one-time items and can be managed or skewed while still following accounting rules, BVPS reflects long-term capital growth and is harder to manipulate.

Erie Indemnity’s BVPS grew at an incredible 15.9% annual clip over the last five years. BVPS growth has also accelerated recently, growing by 27.3% annually over the last two years from $30.83 to $49.99 per share.

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) is a crucial yardstick for insurance companies, measuring their ability to generate returns on the capital provided by shareholders. Insurers that consistently deliver superior ROE tend to create more value for their investors over time through strategic capital allocation and shareholder-friendly policies.

Over the last five years, Erie Indemnity has averaged an ROE of 26.9%, 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.

Revenue missed, but EPS managed to exceed expectations. Overall, this quarter was mixed. The stock remained flat at $309.64 immediately following the results.

Updated: December 4, 2025 at 11:29 PM EST

Before investing in or passing on Erie Indemnity, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

There are multiple reasons why we think Erie Indemnity is an elite insurance company. For starters, its 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 BVPS growth was impressive over the last five years.

Erie Indemnity’s P/E ratio based on the next 12 months is 21.7x. Looking across the spectrum of insurance businesses, Erie Indemnity’s fundamentals clearly illustrate it’s a special business. We like the stock at this price.