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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 March 31, 2024
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 filerAccelerated filerNon-accelerated filer
Smaller reporting companyEmerging 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 April 19, 2024.
 
The number of shares outstanding of the registrant’s Class B Common Stock as of the latest practicable date was 2,542 at April 19, 2024.


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 ended
March 31,
20242023
Operating revenue
Management fee revenue - policy issuance and renewal services
$665,686 $558,090 
Management fee revenue - administrative services16,934 15,189 
Administrative services reimbursement revenue191,567 172,827 
Service agreement revenue6,514 6,359 
Total operating revenue880,701 752,465 
Operating expenses
Cost of operations - policy issuance and renewal services550,322 469,095 
Cost of operations - administrative services191,567 172,827 
Total operating expenses741,889 641,922 
Operating income138,812 110,543 
Investment income
Net investment income15,903 2,183 
Net realized and unrealized investment gains (losses)1,853 (5,282)
Net impairment losses recognized in earnings(2,677)(1,633)
Total investment income (loss)15,079 (4,732)
Other income3,411 3,337 
Income before income taxes157,302 109,148 
Income tax expense32,750 22,907 
Net income$124,552 $86,241 
Net income per share
Class A common stock – basic$2.67 $1.85 
Class A common stock – diluted$2.38 $1.65 
Class B common stock – basic and diluted$401 $278 
Weighted average shares outstanding – Basic
Class A common stock46,189,014 46,188,819 
Class B common stock2,542 2,542 
Weighted average shares outstanding – Diluted
Class A common stock52,301,803 52,296,621 
Class B common stock2,542 2,542 
Dividends declared per share
Class A common stock$1.275 $1.19 
Class B common stock$191.25 $178.50 

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 ended
March 31,
20242023
Net income$124,552 $86,241 
Other comprehensive (loss) income, net of tax
Change in unrealized holding (losses) gains on available-for-sale securities(754)10,494 
Amortization of prior service costs and net actuarial gain on pension and other postretirement plans(1,076)(2,742)
Total other comprehensive (loss) income, net of tax(1,830)7,752 
Comprehensive income$122,722 $93,993 
 
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)
March 31,December 31,
20242023
Assets(Unaudited)
Current assets:
Cash and cash equivalents (includes restricted cash of $13,331 and $12,542, respectively)
$144,872 $144,055 
Available-for-sale securities76,693 82,017 
Receivables from Erie Insurance Exchange and affiliates, net641,691 625,338 
Prepaid expenses and other current assets69,050 69,321 
Accrued investment income9,465 9,458 
Total current assets941,771 930,189 
Available-for-sale securities, net892,952 879,224 
Equity securities86,578 84,253 
Fixed assets, net461,914 442,610 
Agent loans, net57,470 58,434 
Defined benefit pension plan66,270 34,320 
Other assets, net48,839 42,934 
Total assets$2,555,794 $2,471,964 
Liabilities and shareholders' equity
Current liabilities:
Commissions payable$384,613 $353,709 
Agent incentive compensation26,968 68,077 
Accounts payable and accrued liabilities213,062 175,622 
Dividends payable59,377 59,377 
Contract liability40,555 41,210 
Deferred executive compensation2,941 10,982 
Total current liabilities727,516 708,977 
Defined benefit pension plan23,792 26,260 
Contract liability20,000 19,910 
Deferred executive compensation23,216 20,936 
Deferred income taxes, net6,593 11,481 
Other long-term liabilities28,497 21,565 
Total liabilities829,614 809,129 
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 16,466 
Accumulated other comprehensive loss(15,230)(13,400)
Retained earnings2,868,864 2,803,689 
Total contributed capital and retained earnings2,872,270 2,808,925 
Treasury stock, at cost; 22,110,132 shares held
(1,169,317)(1,169,165)
Deferred compensation23,227 23,075 
Total shareholders’ equity1,726,180 1,662,835 
Total liabilities and shareholders’ equity$2,555,794 $2,471,964 

See accompanying notes to Financial Statements. 
5

ERIE INDEMNITY COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Three months ended March 31, 2024 and 2023
(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, 2023$1,992 $178 $16,466 $(13,400)$2,803,689 $(1,169,165)$23,075 $1,662,835 
Net income124,552 124,552 
Other comprehensive loss(1,830)(1,830)
Dividends declared:
Class A $1.275 per share
(58,891)(58,891)
Class B $191.25 per share
(486)(486)
Deferred compensation(861)861 0 
Rabbi trust distribution (1)
709 (709)0 
Balance, March 31, 2024$1,992 $178 $16,466 $(15,230)$2,868,864 $(1,169,317)$23,227 $1,726,180 


Class A common stockClass B common stockAdditional paid-in-capitalAccumulated other comprehensive income (loss)Retained 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 (2)
(15)0 (15)
Deferred compensation(822)822 0 
Rabbi trust distribution (1)
416 (416)0 
Balance, March 31, 2023$1,992 $178 $16,466 $338 $2,614,083 $(1,169,355)$23,265 $1,486,967 

(1)Distributions of our Class A shares were made from the rabbi trust to three incentive compensation deferral plan participants in 2024 and two in 2023.
(2)Net purchase of treasury stock in 2023 includes the repurchase of our Class A common stock in the open market that were subsequently distributed to satisfy stock-based compensation awards.

See accompanying notes to Financial Statements.
6

ERIE INDEMNITY COMPANY
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Three months ended
March 31,
20242023
Cash flows from operating activities
Management fee received$664,288 $557,905 
Administrative services reimbursements received209,846 197,632 
Service agreement revenue received6,514 6,359 
Net investment income received15,950 13,746 
Commissions paid to agents(315,059)(261,812)
Incentive compensation paid to agents(72,413)(98,925)
Salaries and wages paid(82,203)(75,938)
Pension contribution and employee benefits paid(54,376)(20,048)
General operating expenses paid(80,064)(80,779)
Administrative services expenses paid(208,432)(189,739)
Income taxes recovered (paid)3,142 (370)
Net cash provided by operating activities87,193 48,031 
Cash flows from investing activities
Purchase of investments:
Available-for-sale securities(77,530)(47,594)
Equity securities(7,137)(9,707)
Other investments0 (3)
Proceeds from investments:
Available-for-sale securities sales25,922 42,715 
Available-for-sale securities maturities/calls46,926 14,402 
Equity securities6,927 5,430 
Other investments0 151 
Purchase of fixed assets(22,446)(19,142)
Loans to agents(2,507)(903)
Collections on agent loans2,846 2,325 
Net cash used in investing activities(26,999)(12,326)
Cash flows from financing activities
Dividends paid to shareholders(59,377)(55,419)
Net cash used in financing activities(59,377)(55,419)
Net increase (decrease) in cash, cash equivalents, and restricted cash817 (19,714)
Cash, cash equivalents, and restricted cash beginning of period144,055 142,090 
Cash, cash equivalents, and restricted cash end of period$144,872 $122,376 
Supplemental disclosure of noncash transactions
Liability incurred to purchase fixed assets$16,382 $ 
Operating lease assets obtained in exchange for lease liabilities$2,872 $670 

See accompanying notes to Financial Statements.
7

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 subscribers at 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 the Exchange's 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 Indemnity as each subscriber's attorney-in-fact to transact certain business on their behalf.  In accordance with the subscriber's agreement for acting as attorney-in-fact in these two capacities, we retain 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 on behalf of the subscribers at 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 incentive compensation, which is 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.

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. 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 could 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 net management fee and other reimbursements. See Note 12, "Concentrations of Credit Risk".











8

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 three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. For further information, refer to the financial statements and footnotes included in our Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission ("SEC") on February 26, 2024.

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.

Recently issued accounting standards and disclosure rules
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which requires entities to disclose significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported period of profit or loss, and requires entities with a single reporting segment to provide all disclosures required by Topic 280. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The update is required to be applied retrospectively to prior periods presented in the financial statements, based on the significant segment expense categories identified and disclosed in the period of adoption. This will have no impact on our financial statements. We are currently evaluating the impact of adoption on our disclosures.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures", which requires entities to disclose specific categories in an effective tax rate reconciliation, additional information for reconciling items that meet a quantitative threshold, and certain information about income taxes paid. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments can be applied on either a prospective or retrospective basis. This will have no impact on our financial statements. We are currently evaluating the impact of adoption on our disclosures.

In March 2024, the SEC adopted final rules under SEC Release No. 33-11275, "The Enhancement and Standardization of Climate-Related Disclosures for Investors", requiring registrants to disclose certain climate-related information in registration statements and annual reports. The final rules include disclosure of climate-related risks that are reasonably likely to have a material impact on a registrant’s business, results of operations, or financial condition. Disclosures related to significant effects of severe weather events and other natural conditions and amounts related to carbon offsets and renewable energy credits or certificates, are required in the financial statements in certain circumstances. Disclosure requirements will phase in for fiscal years beginning in 2025 and be applied prospectively upon adoption. On April 4, 2024, the SEC determined to voluntarily stay the final rules pending ongoing litigation. We are currently evaluating the impact of adoption on our disclosures.

Other assets
Other assets primarily include limited partnership investments, other loans receivable, held-to-maturity securities, operating lease assets, and other long-term prepaid assets. Limited partnership investments are recorded using the equity method of accounting. Other loans receivable include loans issued to fund real estate development projects supporting revitalization efforts in our community. The loans are carried at unpaid principal balance, including any paid-in-kind interest capitalized as additional principal, if applicable, net of a current expected credit loss allowance. Any current portion of other loans receivable is recorded in prepaid expenses and other current assets. Held-to-maturity securities are carried at amortized cost, net of a current expected credit loss allowance. The allowances are calculated using the estimated value of, and priority rights to, collateral in the event of default or external loss rates based on comparable losses, and considers current market conditions and forecasted information. Changes to the allowances are recognized in earnings as adjustments to net impairment recoveries (losses) or other income (expense) depending on the nature of the asset. Interest on other loans receivable and held-to-maturity securities is recorded primarily in investment income as earned.
9

Note 3.  Revenue
 
The majority of our revenue is derived from the subscriber’s agreement between us and the subscribers (policyholders) at the Exchange. In accordance with the subscriber’s agreement, we retain 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 subscribers at the Exchange, as well as the service provider for the Exchange's 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.

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. 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 months ended March 31, 2024, we recognized revenue of $15.0 million that was included in the contract liability balance as of December 31, 2023. During the three months ended March 31, 2023, we recognized revenue of $13.3 million that was included in the contract liability balance as of December 31, 2022. 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 for the three months ended March 31:
(in thousands)20242023
Management fee revenue - policy issuance and renewal services$665,686 $558,090 
Management fee revenue - administrative services16,934 15,189 
Administrative services reimbursement revenue191,567 172,827 
Total revenue from administrative services$208,501 $188,016 
10

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 for the three months ended March 31: 
20242023
(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$123,532 46,189,014 $2.67 $85,535 46,188,819 $1.85 
Dilutive effect of stock-based awards0 11,989 — 0 7,002 — 
Assumed conversion of Class B shares1,020 6,100,800 — 706 6,100,800 — 
Class A – Diluted EPS:
Income available to Class A stockholders on Class A equivalent shares
$124,552 52,301,803 $2.38 $86,241 52,296,621 $1.65 
Class B – Basic and diluted EPS:
Income available to Class B stockholders$1,020 2,542 $401 $706 2,542 $278 

11

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 March 31, 2024, nearly all of our available-for-sale and equity securities were priced using a third party pricing service.


12

The following tables present our fair value measurements on a recurring basis by asset class and level of input as of: 
March 31, 2024
(in thousands)TotalLevel 1Level 2Level 3
Available-for-sale securities:
Corporate debt securities$595,295 $0 $591,387 $3,908 
Collateralized debt obligations113,088 0 113,088 0 
Commercial mortgage-backed securities110,880 0 96,303 14,577 
Residential mortgage-backed securities132,787 0 132,787 0 
Other debt securities16,556 0 16,556 0 
U.S. Treasury1,039 0 1,039 0 
Total available-for-sale securities969,645 0 951,160 18,485 
Equity securities:
Financial services sector70,834 500 65,390 4,944 
Utilities sector5,876 0 5,876 0 
Energy sector3,698 0 3,698 0 
Consumer sector4,425 0 2,925 1,500 
Technology sector1,500 0 0 1,500 
Industrial sector221 0 197 24 
Communications sector24 24 0 0 
Total equity securities86,578 524 78,086 7,968 
Total$1,056,223 $524 $1,029,246 $26,453 


December 31, 2023
(in thousands)TotalLevel 1Level 2Level 3
Available-for-sale securities:
Corporate debt securities$588,688 $0 $584,182 $4,506 
Collateralized debt obligations112,468 0 112,468 0 
Commercial mortgage-backed securities102,720 0 91,726 10,994 
Residential mortgage-backed securities140,055 0 138,521 1,534 
Other debt securities17,310 0 17,310 0 
Total available-for-sale securities961,241 0 944,207 17,034 
Equity securities:
Financial services sector69,900 816 63,750 5,334 
Utilities sector5,810 0 5,810 0 
Energy sector3,901 0 3,901 0 
Consumer sector3,915 0 2,415 1,500 
Technology sector500 0 0 500 
Industrial sector180 0 180 0 
Communications sector47 47 0 0 
Total equity securities84,253 863 76,056 7,334 
Total$1,045,494 $863 $1,020,263 $24,368 


13

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 – 2024 Year-to-Date Change:
(in thousands)Beginning balance at December 31, 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 March 31, 2024
Available-for-sale securities:
Corporate debt securities$4,506 $3 $41 $343 $(302)$1,622 $(2,305)$3,908 
Commercial mortgage-backed securities10,994 (254)94 1,595 0 6,005 (3,857)14,577 
Residential mortgage- backed securities1,534 (5)(24)0 (40)0 (1,465)0 
Total available-for-sale securities17,034 (256)111 1,938 (342)7,627 (7,627)18,485 
Equity securities7,334 86  1,000 0 24 (476)7,968 
Total Level 3 securities$24,368 $(170)$111 $2,938 $(342)$7,651 $(8,103)$26,453 

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 March 31, 2023
Available-for-sale securities:
Corporate debt securities$3,686 $(28)$85 $753 $(645)$1,498 $(846)$4,503 
Commercial mortgage-backed securities10,910 (191)217 589 0 137 (5,247)6,415 
Residential mortgage-backed securities4,184 (5)96 0 (87)33 (4,188)33 
Total available-for-sale securities18,780 (224)398 1,342 (732)1,668 (10,281)10,951 
Equity securities3,779 (38) 958 0 0 0 4,699 
Total Level 3 securities$22,559 $(262)$398 $2,300 $(732)$1,668 $(10,281)$15,650 
(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:
March 31, 2024December 31, 2023
(in thousands)Carrying valueFair valueCarrying valueFair value
Agent loans, net $67,448 $63,281 $67,787 $66,445 
Other loans receivable, net (1)
10,713 10,713 10,713 10,713 
Held-to-maturity securities, net (2)
4,833 4,833   
(1)    The current and long-term portions of other loans receivable are included in the line items "Prepaid expenses and other current assets" and "Other assets, net", respectively, in the Statements of Financial Position.
(2)    Held-to-maturity securities are included in the line item "Other assets, net" in the Statement of Financial Position.

14

Note 6.  Investments
 
Fixed maturity 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 fixed maturity securities as of:
March 31, 2024
(in thousands)Amortized costGross unrealized gainsGross unrealized lossesEstimated fair value
Available-for-sale securities:
Corporate debt securities $606,788 $3,872 $15,365 $595,295 
Collateralized debt obligations114,223 244 1,379 113,088 
Commercial mortgage-backed securities113,857 1,329 4,306 110,880 
Residential mortgage-backed securities148,917 53 16,183 132,787 
Other debt securities17,077 115 636 16,556 
U.S. Treasury1,044 0 5 1,039 
Total available-for-sale securities, net1,001,906 5,613 37,874 969,645 
Held-to-maturity securities - states & political subdivisions4,833 0 0 4,833 
Total fixed maturity securities, net$1,006,739 $5,613 $37,874 $974,478 


December 31, 2023
(in thousands)Amortized costGross unrealized gainsGross unrealized lossesEstimated fair value
Available-for-sale securities:
Corporate debt securities$600,639 $4,594 $16,545 $588,688 
Collateralized debt obligations114,400 156 2,088 112,468 
Commercial mortgage-backed securities106,019 1,410 4,709 102,720 
Residential mortgage-backed securities153,633 69 13,647 140,055 
Other debt securities17,862 136 688 17,310 
Total available-for-sale securities, net$992,553 $6,365 $37,677 $961,241 


The amortized cost and estimated fair value of available-for-sale and held-to-maturity securities at March 31, 2024 are shown below by remaining contractual term to maturity.  Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

March 31, 2024
AmortizedEstimated
(in thousands)costfair value
Available-for-sale securities:
Due in one year or less$72,252 $71,072 
Due after one year through five years418,035 408,886 
Due after five years through ten years194,162 192,549 
Due after ten years317,457 297,138 
Total available-for-sale securities, net (1)
1,001,906 969,645 
Held-to-maturity securities - due after ten years4,833 4,833 
Total fixed maturity securities, net$1,006,739 $974,478 
(1)The contractual maturities of our available-for-sale securities are included in the table. However, given our intent to sell certain impaired securities, these securities are classified as current assets in our Statement of Financial Position at March 31, 2024.
15

The below securities have been evaluated for credit impairment using criteria described within Note 2, "Significant Accounting Policies, of Notes to Financial Statements" included in our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on February 26, 2024. The gross unrealized losses are primarily attributable to changes in interest rates and are not deemed to be credit-related. We do not have the intent to sell these securities and it is more likely than not that we would not be required to sell these securities before the anticipated recovery of the amortized cost basis.

The following tables present available-for-sale securities based on length of time in a gross unrealized loss position as of:
March 31, 2024
Less than 12 months12 months or longerTotal
(dollars in thousands)Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
No. of
holdings
Corporate debt securities$72,273 $728 $318,640 $14,637 $390,913 $15,365 615 
Collateralized debt obligations25,013 52 52,090 1,327 77,103 1,379 136 
Commercial mortgage-backed securities16,051 167 28,294 4,139 44,345 4,306 121 
Residential mortgage-backed securities29,413 754 100,997 15,429 130,410 16,183 169 
Other debt securities3,732 57 7,051 579 10,783 636 36 
U.S. Treasury1,039 5 0 0 1,039 5 1 
Total available-for-sale securities$147,521 $1,763 $507,072 $36,111 $654,593 $37,874 1,078 
Quality breakdown of available-for-sale securities:
Investment grade$132,559 $1,507 $465,791 $32,547 $598,350 $34,054 671 
Non-investment grade14,962 256 41,281 3,564 56,243 3,820 407 
Total available-for-sale securities$147,521 $1,763 $507,072 $36,111 $654,593 $37,874 1,078 


December 31, 2023
Less than 12 months12 months or longerTotal
(dollars in thousands)Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
No. of
holdings
Corporate debt securities$50,853 $546 $338,322 $15,999 $389,175 $16,545 590 
Collateralized debt obligations3,911 15 87,005 2,073 90,916 2,088 142 
Commercial mortgage-backed securities9,148 157 30,145 4,552 39,293 4,709 108 
Residential mortgage-backed securities30,271 297 101,761 13,350 132,032 13,647 164 
Other debt securities2,084 62 7,475 626 9,559 688 32 
Total available-for-sale securities$96,267 $1,077 $564,708 $36,600 $660,975 $37,677 1,036 
Quality breakdown of available-for-sale securities:
Investment grade$87,774 $807 $517,090 $32,511 $604,864 $33,318 651 
Non-investment grade8,493 270 47,618 4,089 56,111 4,359 385 
Total available-for-sale securities$96,267 $1,077 $564,708 $36,600 $660,975 $37,677 1,036 




















16

Credit loss allowances
The following tables present a roll-forward of the allowances for credit losses on fixed maturity securities and financing receivables for the three months ended March 31:
2024
(in thousands)Available-for-sale securitiesHeld-to-maturity securitiesOther loans receivableAgent loans
Balance, beginning of period$597 $0 $11,081 $957 
Provision and recoveries164 2,167 172 0 
Sales/collections and write-offs(186)0 0 0 
Balance, end of period$575 $2,167 $11,253 $957 

2023
(in thousands)Available-for-sale securitiesHeld-to-maturity securitiesOther loans receivableAgent loans
Balance, beginning of period$249 $ $3,775 $957 
Provision and recoveries201  32 0 
Sales/collections and write-offs(102) (98)0 
Balance, end of period$348 $ $3,709 $957 


Net investment income
Investment income (loss), net of expenses, was generated from the following portfolios for the three months ended March 31:
(in thousands)20242023
Available-for-sale securities$11,613 $9,833 
Equity securities1,218 1,015 
Limited partnerships (1)
525 (10,752)
Cash equivalents and other2,948 2,105 
Total investment income16,304 2,201 
Less: investment expenses401 18 
Net investment income$15,903 $2,183 
(1)Limited partnership income (losses) include both realized gains (losses) and unrealized valuation changes. Our limited partnership investments are included in the line item "Other assets" in the Statements of Financial Position. We have made no new significant limited partnership commitments since 2006, and the balance of limited partnership investments is expected to decline over time as additional distributions are received.

Net realized and unrealized investment gains (losses)
Realized and unrealized gains (losses) on investments were as follows for the three months ended March 31:
(in thousands)20242023
Available-for-sale securities:  
Gross realized gains$270 $206 
Gross realized losses(532)(1,825)
Net realized losses on available-for-sale securities(262)(1,619)
Equity securities2,115 (3,663)
Net realized and unrealized investment gains (losses)$1,853 $(5,282)


The portion of net unrealized gains (losses) recognized during the reporting period related to equity securities held at the reporting date is calculated as follows for the three months ended March 31:
(in thousands)20242023
Equity securities:
Net gains (losses) recognized during the period$2,115 $(3,663)
Less: net gains (losses) recognized on securities sold67 (2,504)
Net unrealized gains (losses) recognized on securities held at reporting date$2,048 $(1,159)

17

Net impairment losses recognized in earnings
Impairments on investments were as follows for the three months ended March 31:
(in thousands)20242023
Available-for-sale securities:
Intent to sell$(174)$(1,432)
Credit impaired(164)(201)