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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
 
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from___to___
Commission file number 0-24000

ERIE INDEMNITY COMPANY
(Exact name of registrant as specified in its charter)

Pennsylvania
25-0466020
(State or other jurisdiction of(IRS Employer
incorporation or organization)Identification No.)

100 Erie Insurance Place,Erie,Pennsylvania16530
(Address of principal executive offices)(Zip Code)

814870-2000
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act:
Class A common stock,stated value $0.0292 per shareERIENASDAQ Stock Market, LLC
(Title of each class)(Trading Symbol)(Name of each exchange on which registered)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☒Accelerated filer☐Non-accelerated filer☐
Smaller reporting company☐Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ 

The number of shares outstanding of the registrant’s Class A Common Stock as of the latest practicable date was 46,189,068 at October 20, 2023.
 
The number of shares outstanding of the registrant’s Class B Common Stock as of the latest practicable date was 2,542 at October 20, 2023.

2
PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

ERIE INDEMNITY COMPANY
STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars in thousands, except per share data)
Three months endedNine months ended
September 30,September 30,
2023202220232022
Operating revenue  
Management fee revenue - policy issuance and renewal services
$649,049 $551,666 $1,840,478 $1,584,213 
Management fee revenue - administrative services16,151 14,657 46,976 43,446 
Administrative services reimbursement revenue187,118 168,653 544,411 492,655 
Service agreement revenue6,620 6,260 19,408 19,175 
Total operating revenue858,938 741,236 2,451,273 2,139,489 
Operating expenses
Cost of operations - policy issuance and renewal services523,349 466,111 1,513,690 1,352,050 
Cost of operations - administrative services187,118 168,653 544,411 492,655 
Total operating expenses710,467 634,764 2,058,101 1,844,705 
Operating income148,471 106,472 393,172 294,784 
Investment income
Net investment income14,642 5,834 30,360 24,606 
Net realized and unrealized investment losses(2,227)(6,230)(9,246)(23,833)
Net impairment losses recognized in earnings(113)(175)(1,917)(429)
Total investment income (loss)12,302 (571)19,197 344 
Interest expense— 115 — 2,009 
Other income3,001 562 9,643 1,372 
Income before income taxes163,774 106,348 422,012 294,491 
Income tax expense32,734 22,035 86,879 61,412 
Net income$131,040 $84,313 $335,133 $233,079 
Net income per share  
Class A common stock – basic$2.81 $1.81 $7.20 $5.00 
Class A common stock – diluted$2.51 $1.61 $6.41 $4.46 
Class B common stock – basic and diluted$422 $272 $1,079 $751 
Weighted average shares outstanding – Basic
  
Class A common stock46,189,037 46,189,025 46,188,962 46,188,878 
Class B common stock2,542 2,542 2,542 2,542 
Weighted average shares outstanding – Diluted
  
Class A common stock52,299,369 52,296,411 52,298,655 52,297,685 
Class B common stock2,542 2,542 2,542 2,542 
Dividends declared per share  
Class A common stock$1.19 $1.11 $3.57 $3.33 
Class B common stock$178.50 $166.50 $535.50 $499.50 

See accompanying notes to Financial Statements. See Note 11, "Accumulated Other Comprehensive Income (Loss)", for amounts reclassified out of accumulated other comprehensive income (loss) into the Statements of Operations. 
3
ERIE INDEMNITY COMPANY
STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
Three months endedNine months ended
September 30,September 30,
2023202220232022
Net income$131,040 $84,313 $335,133 $233,079 
Other comprehensive loss, net of tax  
Change in unrealized holding (losses) gains on available-for-sale securities(5,902)(17,178)2,846 (69,082)
Amortization of prior service costs and net actuarial (gain) loss on pension and other postretirement plans(2,742)1,731 (8,226)5,198 
Total other comprehensive loss, net of tax(8,644)(15,447)(5,380)(63,884)
Comprehensive income$122,396 $68,866 $329,753 $169,195 
 
See accompanying notes to Financial Statements. See Note 11, "Accumulated Other Comprehensive Income (Loss)", for amounts reclassified out of accumulated other comprehensive income (loss) into the Statements of Operations.
4
ERIE INDEMNITY COMPANY
STATEMENTS OF FINANCIAL POSITION
(dollars in thousands, except per share data)
September 30,December 31,
20232022
Assets(Unaudited)
Current assets:
Cash and cash equivalents$102,873 $142,090 
Available-for-sale securities69,822 24,267 
Receivables from Erie Insurance Exchange and affiliates, net620,683 524,937 
Prepaid expenses and other current assets71,480 79,201 
Accrued investment income8,968 8,301 
Total current assets873,826 778,796 
Available-for-sale securities, net845,415 870,394 
Equity securities79,516 72,560 
Fixed assets, net434,975 413,874 
Agent loans, net59,544 60,537 
Defined benefit pension plan65,163 0 
Other assets36,110 43,295 
Total assets$2,394,549 $2,239,456 
Liabilities and shareholders' equity
Current liabilities:
Commissions payable$357,614 $300,028 
Agent bonuses50,252 95,166 
Accounts payable and accrued liabilities165,797 165,915 
Dividends payable55,419 55,419 
Contract liability40,831 36,547 
Deferred executive compensation11,000 12,036 
Total current liabilities680,913 665,111 
Defined benefit pension plans27,744 51,224 
Contract liability19,653 17,895 
Deferred executive compensation18,547 13,724 
Deferred income taxes, net11,045 14,075 
Other long-term liabilities24,758 29,019 
Total liabilities782,660 791,048 
Shareholders’ equity
Class A common stock, stated value $0.0292 per share; 74,996,930 shares authorized; 68,299,200 shares issued; 46,189,068 shares outstanding
1,992 1,992 
Class B common stock, convertible at a rate of 2,400 Class A shares for one Class B share, stated value $70 per share; 3,070 shares authorized; 2,542 shares issued and outstanding
178 178 
Additional paid-in-capital16,466 16,481 
Accumulated other comprehensive loss(12,794)(7,414)
Retained earnings2,752,137 2,583,261 
Total contributed capital and retained earnings2,757,979 2,594,498 
Treasury stock, at cost; 22,110,132 shares held
(1,168,761)(1,168,949)
Deferred compensation22,671 22,859 
Total shareholders’ equity1,611,889 1,448,408 
Total liabilities and shareholders’ equity$2,394,549 $2,239,456 

See accompanying notes to Financial Statements. 
5
ERIE INDEMNITY COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Three and nine months ended September 30, 2023
(dollars in thousands, except per share data)
Class A common stockClass B common stockAdditional paid-in-capitalAccumulated other comprehensive (loss) incomeRetained earningsTreasury stockDeferred compensationTotal shareholders' equity
Balance, December 31, 2022$1,992 $178 $16,481 $(7,414)$2,583,261 $(1,168,949)$22,859 $1,448,408 
Net income86,241 86,241 
Other comprehensive income7,752 7,752 
Dividends declared:
Class A $1.19 per share
(54,965)(54,965)
Class B $178.50 per share
(454)(454)
Net purchase of treasury stock (1)
(15)0 (15)
Deferred compensation(822)822 0 
Rabbi trust distribution (2)
416 (416)0 
Balance, March 31, 2023$1,992 $178 $16,466 $338 $2,614,083 $(1,169,355)$23,265 $1,486,967 
Net income117,852 117,852 
Other comprehensive loss(4,488)(4,488)
Dividends declared:
Class A $1.19 per share
(54,965)(54,965)
Class B $178.50 per share
(454)(454)
Net purchase of treasury stock (1)
0 0 0 
Deferred compensation(621)621 0 
Rabbi trust distribution (2)
1,596 (1,596)0 
Balance, June 30, 2023$1,992 $178 $16,466 $(4,150)$2,676,516 $(1,168,380)$22,290 $1,544,912 
Net income131,040 131,040 
Other comprehensive loss(8,644)(8,644)
Dividends declared:
Class A $1.19 per share
(54,965)(54,965)
Class B $178.50 per share
(454)(454)
Net purchase of treasury stock (1)
0 0 0 
Deferred compensation(381)381 0 
Balance, September 30, 2023$1,992 $178 $16,466 $(12,794)$2,752,137 $(1,168,761)$22,671 $1,611,889 

(1)     Net purchases of treasury stock in 2023 include the repurchase of our Class A common stock in the open market that were subsequently distributed to satisfy stock-based compensation awards.
(2)    Distributions of our Class A shares were made from the rabbi trust to five incentive compensation deferral plan participants in 2023.




















6
ERIE INDEMNITY COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Three and nine months ended September 30, 2022
(dollars in thousands, except per share data)
Class A common stockClass B common stockAdditional paid-in-capitalAccumulated other comprehensive lossRetained earningsTreasury stockDeferred compensationTotal shareholders' equity
Balance, December 31, 2021$1,992 $178 $16,496 $(25,288)$2,495,190 $(1,167,828)$21,738 $1,342,478 
Net income68,619 68,619 
Other comprehensive loss(25,189)(25,189)
Dividends declared:
Class A $1.11 per share
(51,270)(51,270)
Class B $166.50 per share
(423)(423)
Net purchase of treasury stock (1)
(15)0 (15)
Deferred compensation(802)802 0 
Rabbi trust distribution (2)
298 (298)0 
Balance, March 31, 2022$1,992 $178 $16,481 $(50,477)$2,512,116 $(1,168,332)$22,242 $1,334,200 
Net income80,147 80,147 
Other comprehensive loss(23,248)(23,248)
Dividends declared:
Class A $1.11 per share
(51,270)(51,270)
Class B $166.50 per share
(423)(423)
Net purchase of treasury stock (1)
0 0 0 
Deferred compensation(907)907 0 
Rabbi trust distribution (2)
99 (99)0 
Balance, June 30, 2022$1,992 $178 $16,481 $(73,725)$2,540,570 $(1,169,140)$23,050 $1,339,406 
Net income84,313 84,313 
Other comprehensive loss(15,447)(15,447)
Dividends declared:
Class A $1.11 per share
(51,270)(51,270)
Class B $166.50 per share
(423)(423)
Net purchase of treasury stock (1)
0 0 0 
Deferred compensation(799)799 0 
Rabbi trust distribution (2)
1,457 (1,457)0 
Balance, September 30, 2022$1,992 $178 $16,481 $(89,172)$2,573,190 $(1,168,482)$22,392 $1,356,579 

(1)Net purchases of treasury stock in 2022 include the repurchase of our Class A common stock in the open market that were subsequently distributed to satisfy stock-based compensation awards.
(2)Distributions of our Class A shares were made from the rabbi trust to four incentive compensation deferral plan participants in 2022.

See accompanying notes to Financial Statements.
7
ERIE INDEMNITY COMPANY
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Nine months ended
September 30,
20232022
Cash flows from operating activities
Management fee received$1,799,681 $1,574,694 
Administrative services reimbursements received538,943 487,081 
Service agreement revenue received19,367 19,025 
Net investment income received42,579 28,901 
Commissions paid to agents(889,510)(771,664)
Agents bonuses paid(112,968)(131,699)
Salaries and wages paid(178,176)(164,726)
Pension contribution and employee benefits paid(150,992)(57,222)
General operating expenses paid(226,949)(187,152)
Administrative services expenses paid(540,834)(497,007)
Income taxes paid(68,372)(59,989)
Interest paid— (2,134)
Net cash provided by operating activities232,769 238,108 
Cash flows from investing activities
Purchase of investments:
Available-for-sale securities(206,616)(375,466)
Equity securities(26,195)(12,956)
Other investments(7)(157)
Proceeds from investments:
Available-for-sale securities sales126,361 238,732 
Available-for-sale securities maturities/calls55,772 111,419 
Equity securities14,919 16,679 
Other investments853 429 
Purchase of fixed assets(72,101)(50,885)
Proceeds from disposal of fixed assets— 265 
Loans to agents(5,473)(9,570)
Collections on agent loans6,757 6,513 
Net cash used in investing activities(105,730)(74,997)
Cash flows from financing activities
Dividends paid to shareholders(166,256)(155,079)
Proceeds from short-term borrowings— 55,000 
Payments on short-term borrowings— (55,000)
Payments on long-term borrowings— (94,070)
Net cash used in financing activities(166,256)(249,149)
Net decrease in cash and cash equivalents(39,217)(86,038)
Cash and cash equivalents, beginning of period142,090 183,702 
Cash and cash equivalents, end of period$102,873 $97,664 
Supplemental disclosure of noncash transactions
Liability incurred to purchase fixed assets$— $26,386 
Operating lease assets obtained in exchange for lease liabilities$7,674 $3,176 

See accompanying notes to Financial Statements.
8
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
 
Note 1.  Nature of Operations
 
Erie Indemnity Company ("Indemnity", "we", "us", "our") is a publicly held Pennsylvania business corporation that has since its incorporation in 1925 served as the attorney-in-fact for the subscribers (policyholders) at the Erie Insurance Exchange ("Exchange").  The Exchange, which also commenced business in 1925, is a Pennsylvania-domiciled reciprocal insurer that writes property and casualty insurance.

Our primary function as attorney-in-fact is to perform policy issuance and renewal services on behalf of the subscribers at the Exchange. We also act as attorney-in-fact on behalf of the Exchange with respect to all claims handling and investment management services, as well as the service provider for all claims handling, life insurance, and investment management services for its insurance subsidiaries, collectively referred to as "administrative services". Acting as attorney-in-fact in these two capacities is done in accordance with a subscriber's agreement (a limited power of attorney) executed individually by each subscriber (policyholder), which appoints us as their common attorney-in-fact to transact certain business on their behalf.  Pursuant to the subscriber's agreement for acting as attorney-in-fact in these two capacities, we earn a management fee calculated as a percentage of the direct and affiliated assumed premiums written by the Exchange.

The policy issuance and renewal services we provide to the Exchange are related to the sales, underwriting and issuance of policies. The sales related services we provide include agent compensation and certain sales and advertising support services. Agent compensation includes scheduled commissions to agents based upon premiums written as well as additional commissions and bonuses to agents, which are earned by achieving targeted measures. The underwriting services we provide include underwriting and policy processing. The remaining services we provide include customer service and administrative support. We also provide information technology services that support all the functions listed above. Included in these expenses are allocations of costs for departments that support these policy issuance and renewal functions.

The Exchange, by virtue of its legal structure as a reciprocal insurer, does not have any employees or officers. Therefore, it enters into contractual relationships by and through an attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the Exchange with respect to its administrative services in accordance with 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. Claims handling services include costs incurred in the claims process, including the adjustment, investigation, defense, recording and payment functions. Life insurance management services include costs incurred in the management and processing of life insurance business. Investment management services are related to investment trading activity, accounting and all other functions attributable to the investment of funds. Included in these expenses are allocations of costs for departments that support these administrative functions. The subscriber's agreement and service agreements provide for reimbursement of amounts incurred for these services to Indemnity. Reimbursements are settled at cost. State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department.

Our results of operations are tied to the growth and financial condition of the Exchange. If any events occurred that impaired the Exchange’s ability to grow or sustain its financial condition, including but not limited to reduced financial strength ratings, disruption in the independent agency relationships, significant catastrophe losses, or products not meeting customer demands, the Exchange could find it more difficult to retain its existing business and attract new business. A decline in the business of the Exchange almost certainly would have as a consequence a decline in the total premiums paid and a correspondingly adverse effect on the amount of the management fees we receive. We also have an exposure to a concentration of credit risk related to the unsecured receivables due from the Exchange for its management fee and cost reimbursements. See Note 12, "Concentrations of Credit Risk".












9
Note 2.  Significant Accounting Policies
 
Basis of presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, refer to the financial statements and footnotes included in our Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission on March 1, 2023.

Use of estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

10
Note 3.  Revenue
 
The majority of our revenue is derived from the subscriber’s agreement between us and the subscribers (policyholders) at the Exchange. Pursuant to the subscriber’s agreement, we earn a management fee calculated as a percentage, not to exceed 25%, of all direct and affiliated assumed written premiums of the Exchange. We allocate a portion of our management fee revenue, currently 25% of the direct and affiliated assumed written premiums of the Exchange, between the two performance obligations we have under the subscriber’s agreement. The first performance obligation is to provide policy issuance and renewal services to the subscribers (policyholders) at the Exchange, and the second is to act as attorney-in-fact on behalf of the Exchange, as well as the service provider for its insurance subsidiaries, with respect to all administrative services.

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. 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. Management fees are returned to the Exchange when policyholders cancel their insurance coverage mid-term and premiums are refunded to them. The constraining estimate is determined using the expected value method, based on both historical and current information. The estimated transaction price, as reduced by the constraint, reflects consideration expected for performance of our 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.

The first performance obligation is to provide policy issuance and renewal services that result in executed insurance policies between the Exchange or one of its insurance subsidiaries and the subscriber (policyholder). The subscriber (policyholder) receives economic benefits when substantially all the policy issuance or renewal services are complete and an insurance policy is issued or renewed by the Exchange or one of its insurance subsidiaries. It is at the time of policy issuance or renewal that the allocated portion of revenue is recognized.

The Exchange, by virtue of its legal structure as a reciprocal insurer, does not have any employees or officers. Therefore, it enters into contractual relationships by and through an attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the Exchange with respect to its administrative services in accordance with 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. Collectively, these services represent a second performance obligation under the subscriber’s agreement and the service agreements. The revenue allocated to this performance obligation is recognized over a four-year period representing the time over which these services are provided. The portion of revenue not yet earned is recorded as a contract liability in the Statements of Financial Position. During the three and nine months ended September 30, 2023, we recognized revenue of $7.7 million and $31.5 million, respectively, that was included in the contract liability balance as of December 31, 2022. During the three and nine months ended September 30, 2022, we recognized revenue of $7.4 million and $30.1 million, respectively, that was included in the contract liability balance as of December 31, 2021. The administrative services expenses we incur and the related reimbursements we receive are recorded gross in the Statements of Operations.

Indemnity records a receivable from the Exchange for management fee revenue when the premium is written or assumed from affiliates by the Exchange. Indemnity collects the management fee from the Exchange when the Exchange collects the premiums from the subscribers (policyholders). As the Exchange issues policies with annual terms only, cash collections generally occur within one year.


The following table disaggregates revenue by our two performance obligations:
Three months ended September 30,Nine months ended September 30,
(in thousands)2023202220232022
Management fee revenue - policy issuance and renewal services$649,049 $551,666 $1,840,478 $1,584,213 
Management fee revenue - administrative services16,151 14,657 46,976 43,446 
Administrative services reimbursement revenue187,118 168,653 544,411 492,655 
Total revenue from administrative services$203,269 $183,310 $591,387 $536,101 
11
Note 4.  Earnings Per Share
 
Class A and Class B basic earnings per share and Class B diluted earnings per share are calculated under the two-class method. The two-class method allocates earnings to each class of stock based upon its dividend rights.  Class B shares are convertible into Class A shares at a conversion ratio of 2,400 to 1. See Note 10, "Capital Stock".

Class A diluted earnings per share is calculated under the if-converted method, which reflects the conversion of Class B shares to Class A shares. Diluted earnings per share calculations include the dilutive effect of assumed issuance of stock-based awards under compensation plans that have the option to be paid in stock using the treasury stock method.

A reconciliation of the numerators and denominators used in the basic and diluted per-share computations is presented as follows for each class of common stock: 
Three months ended September 30,
20232022
(dollars in thousands, except per share data)Allocated net income (numerator)Weighted shares (denominator)Per-share amountAllocated net income (numerator)Weighted shares (denominator)Per-share amount
Class A – Basic EPS:
Income available to Class A stockholders$129,967 46,189,037 $2.81 $83,623 46,189,025 $1.81 
Dilutive effect of stock-based awards0 9,532 — 0 6,586 — 
Assumed conversion of Class B shares1,073 6,100,800 — 690 6,100,800 — 
Class A – Diluted EPS:
Income available to Class A stockholders on Class A equivalent shares
$131,040 52,299,369 $2.51 $84,313 52,296,411 $1.61 
Class B – Basic and diluted EPS:
Income available to Class B stockholders$1,073 2,542 $422 $690 2,542 $272 
Nine months ended September 30,
20232022
(dollars in thousands, except per share data)Allocated net income (numerator)Weighted shares (denominator)Per-share amountAllocated net income (numerator)Weighted shares (denominator)Per-share amount
Class A – Basic EPS:
Income available to Class A stockholders$332,389 46,188,962 $7.20 $231,171 46,188,878 $5.00 
Dilutive effect of stock-based awards0 8,893 — 0 8,007 — 
Assumed conversion of Class B shares2,744 6,100,800 — 1,908 6,100,800 — 
Class A – Diluted EPS:
Income available to Class A stockholders on Class A equivalent shares
$335,133 52,298,655 $6.41 $233,079 52,297,685 $4.46 
Class B – Basic and diluted EPS:
Income available to Class B stockholders$2,744 2,542 $1,079 $1,908 2,542 $751 

12
Note 5. Fair Value
 
Financial instruments carried at fair value
Our available-for-sale and equity securities are recorded at fair value, which is the price that would be received to sell the asset in an orderly transaction between willing market participants as of the measurement date.
 
Valuation techniques used to derive the fair value of our available-for-sale and equity securities are based upon observable and unobservable inputs.  Observable inputs reflect market data obtained from independent sources.  Unobservable inputs reflect our own assumptions regarding fair market value for these securities.  Financial instruments are categorized based upon the following characteristics or inputs to the valuation techniques:

•Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

•Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

•Level 3 – Unobservable inputs for the asset or liability.
 
Estimates of fair values for our investment portfolio are obtained primarily from a nationally recognized pricing service.  Our Level 1 securities are valued using an exchange traded price provided by the pricing service. Pricing service valuations for Level 2 securities include multiple verifiable, observable inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data.  Pricing service valuations for Level 3 securities are based upon proprietary models and are used when observable inputs are not available or in illiquid markets.
 
Although virtually all of our prices are obtained from third party sources, we also perform internal pricing reviews, including evaluating the methodology and inputs used to ensure that we determine the proper classification level of the financial instrument and reviewing securities with price changes that vary significantly from current market conditions or independent price sources.  Price variances are investigated and corroborated by market data and transaction volumes. We have reviewed the pricing methodologies of our pricing service as well as other observable inputs and believe that the prices adequately consider market activity in determining fair value. 

In limited circumstances we adjust the price received from the pricing service when, in our judgment, a better reflection of fair value is available based upon corroborating information and our knowledge and monitoring of market conditions such as a disparity in price of comparable securities and/or non-binding broker quotes.  In other circumstances, certain securities are internally priced because prices are not provided by the pricing service.
 
When a price from the pricing service is not available, values are determined by obtaining broker/dealer quotes and/or market comparables. When available, we obtain multiple quotes for the same security. The ultimate value for these securities is determined based upon our best estimate of fair value using corroborating market information. As of September 30, 2023, nearly all of our available-for-sale and equity securities were priced using a third party pricing service.


13
The following tables present our fair value measurements on a recurring basis by asset class and level of input as of: 
September 30, 2023
(in thousands)TotalLevel 1Level 2Level 3
Available-for-sale securities:
Corporate debt securities$566,967 $0 $562,862 $4,105 
Collateralized debt obligations110,488 0 110,488 0 
Commercial mortgage-backed securities72,032 0 64,625 7,407 
Residential mortgage-backed securities150,394 0 150,389 5 
Other debt securities15,356 0 15,356 0 
Total available-for-sale securities915,237 0 903,720 11,517 
Equity securities:
Financial services sector65,071 796 60,819 3,456 
Utilities sector7,291 0 7,291 0 
Energy sector4,131 0 4,131 0 
Consumer sector2,288 0 2,288 0 
Technology sector500 0 0 500 
Industrial sector177 0 177 0 
Communications sector58 58 0 0 
Total equity securities79,516 854 74,706 3,956 
Total$994,753 $854 $978,426 $15,473 


December 31, 2022
(in thousands)TotalLevel 1Level 2Level 3
Available-for-sale securities:
Corporate debt securities$553,382 $0 $549,696 $3,686 
Collateralized debt obligations102,537 0 102,537 0 
Commercial mortgage-backed securities66,054 0 55,144 10,910 
Residential mortgage-backed securities150,415 0 146,231 4,184 
Other debt securities22,273 0 22,273 0 
Total available-for-sale securities894,661 0 875,881 18,780 
Equity securities:
Financial services sector61,084 0 57,305 3,779 
Utilities sector5,708 0 5,708 0 
Energy sector3,576 0 3,576 0 
Consumer sector1,854 0 1,854 0 
Communications sector338 0 338 0 
Total equity securities72,560 0 68,781 3,779 
Total$967,221 $0 $944,662 $22,559 


14
We review the fair value hierarchy classifications each reporting period. Transfers between hierarchy levels may occur due to changes in available market observable inputs.

Level 3 Assets – 2023 Quarterly Change:

(in thousands) 		Beginning balance at June 30, 2023
Included in earnings(1)
Included
in other
comprehensive
income (loss)		PurchasesSales
Transfers into
Level 3(2)
Transfers out of Level 3(2)
Ending balance at September 30, 2023
Available-for-sale securities:        
Corporate debt securities$5,123 $10 $123 $1,661 $(511)$730 $(3,031)$4,105 
Commercial mortgage-backed securities 6,533 (182)(56)0 (366)1,478 0 7,407 
Residential mortgage- backed securities12 0 0 0 (7)0 0 5 
Total available-for-sale securities11,668 (172)67 1,661 (884)2,208 (3,031)11,517 
Equity securities4,730 33 — 1,000 0 0 (1,807)3,956 
Total Level 3 securities$16,398 $(139)$67 $2,661 $(884)$2,208 $(4,838)$15,473 

Level 3 Assets – 2023 Year-to-Date Change:
(in thousands)Beginning balance at December 31, 2022
Included in earnings(1)
Included
in other
comprehensive
income (loss)		PurchasesSales
Transfers into
Level 3(2)
Transfers out of Level 3(2)
Ending balance at September 30, 2023
Available-for-sale securities:
Corporate debt securities$3,686 $(4)$245 $3,193 $(1,256)$3,883 $(5,642)$4,105 
Commercial mortgage-backed securities10,910 (542)44 1,455 (551)1,944 (5,853)7,407 
Residential mortgage- backed securities4,184 (5)96 0 (115)33 (4,188)5 
Total available-for-sale securities18,780 (551)385 4,648 (1,922)5,860 (15,683)11,517 
Equity securities3,779 26 — 1,958 0 0 (1,807)3,956 
Total Level 3 securities$22,559 $(525)$385 $6,606 $(1,922)$5,860 $(17,490)$15,473 

Level 3 Assets – 2022 Quarterly Change:
(in thousands)Beginning balance at June 30, 2022
Included in earnings(1)
Included
in other
comprehensive
income (loss)		PurchasesSales
Transfers into
Level 3(2)
Transfers out of Level 3(2)
Ending balance at September 30, 2022
Available-for-sale securities:
Corporate debt securities$6,109 $(7)$(28)$753 $(495)$2,899 $(1,956)$7,275 
Commercial mortgage-backed securities8,871 (188)(413)0 (660)1,174 (3,417)5,367 
Residential mortgage- backed securities42,549 (667)(1,708)0 (6,626)674 (30,560)3,662 
Total available-for-sale securities57,529 (862)(2,149)753 (7,781)4,747 (35,933)16,304 
Equity securities1,866 (18)— 0 0 0 0 1,848 
Total Level 3 securities$59,395 $(880)$(2,149)$753 $(7,781)$4,747 $(35,933)$18,152 







15
Level 3 Assets – 2022 Year-to-Date Change:
(in thousands)Beginning balance at December 31, 2021
Included in earnings(1)
Included
in other
comprehensive
income (loss)		PurchasesSales
Transfers into
Level 3(2)
Transfers out of Level 3(2)
Ending balance at September 30, 2022
Available-for-sale securities:
Corporate debt securities$5,256 $(2)$(417)$5,687 $(3,614)$8,673 $(8,308)$7,275 
Commercial mortgage-backed securities15,728 (892)(1,071)0 (3,825)5,509 (10,082)5,367 
Residential mortgage-backed securities8,814 (643)(2,042)4,887 (9,472)38,214 (36,096)3,662 
Total available-for-sale securities29,798 (1,537)(3,530)10,574 (16,911)52,396 (54,486)16,304 
Equity securities2,083 (235)— 0 0 0 0 1,848 
Total Level 3 securities$31,881 $(1,772)$(3,530)$10,574 $(16,911)$52,396 $(54,486)$18,152 
(1)These amounts are reported as net investment income and net realized and unrealized investment gains (losses) for each of the periods presented above.
(2)Transfers into and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs.


Financial instruments not carried at fair value
The following table presents the carrying values and fair values of financial instruments categorized as Level 3 in the fair value hierarchy that are recorded at carrying value as of:
September 30, 2023December 31, 2022
(in thousands)Carrying valueFair valueCarrying valueFair value
Agent loans$68,192 $58,955 $69,476 $62,954 



16
Note 6.  Investments
 
Available-for-sale securities
See Note 5, "Fair Value" for additional fair value disclosures. The following tables summarize the amortized cost and estimated fair value, net of credit loss allowance, of our available-for-sale securities as of:
September 30, 2023
(in thousands)Amortized costGross unrealized gainsGross unrealized lossesEstimated fair 
value
Corporate debt securities $596,538 $776 $30,347