AM Best Downgrades Erie Insurance Group Property/Casualty Ratings, Affirms Erie Family Life

AM Best has lowered the Financial Strength Rating (FSR) and Long-Term Issuer Credit Ratings (Long-Term ICR) of the property/casualty (P/C) insurance members of Erie Insurance Group from an A+ (Superior) to an A (Excellent) and from aa- (Superior) to a+ (Excellent), respectively. The rating outlook has shifted from negative to stable. This downgrade reflects a weakening in Erie's balance sheet strength due to multi-year declines in surplus over five years.

The Erie's P/C group includes Erie Insurance Exchange as the lead company, along with Erie Insurance Company, Erie Insurance Company of New York, Erie Insurance Property & Casualty Company, and Flagship City Insurance Company. The ratings acknowledge Erie’s strongest balance sheet strength, but note a deterioration driven by underwriting losses largely impacted by elevated weather-related events and increased claim severity in auto and homeowners segments.

Risk-adjusted capitalization measured by Best's Capital Adequacy Ratio (BCAR) has trended downward, alongside increased underwriting leverage, mixed reserve development, and declining liquidity metrics. In response, Erie initiated multiple corrective actions, including rate adjustments, catastrophe reinsurance restructuring with higher limits, and surplus stabilization strategies to restore financial health.

Despite these actions starting to impact positively, the pace of improvement lags peer companies, attributed to Erie’s 12-month auto policies featuring a "rate lock" that delays premium recognition, thereby postponing the financial benefits to the balance sheet. Furthermore, sustained elevated weather activity through early 2025 has obscured underlying improvements.

Meanwhile, AM Best affirmed the Financial Strength Rating of A (Excellent) and Long-Term ICR of a (Excellent) for Erie Family Life Insurance Company (EFL), with a stable outlook. EFL’s ratings consider very strong balance sheet strength, adequate operating performance, and a neutral business profile. The company benefits from strategic ties to Erie Insurance Group, which supports EFL’s life and annuity product sales to the group’s P/C client base.

EFL maintains the strongest risk-adjusted capitalization as measured by BCAR and follows a conservative investment approach. However, EFL reported a net loss of $9 million in 2024 related to writing off a policy administration system, although it posted pre-tax operating gains for two consecutive years and strong earnings into 2025.

All companies involved are domiciled in Erie, Pennsylvania, except Erie Insurance Company of New York. AM Best emphasizes the broader risk management and enterprise risk management frameworks in place, which remain appropriate despite rating changes.

This rating action underscores the impact of severe weather-related losses on regional insurers, alongside the importance of rate and reinsurance actions in managing financial strength. The delayed recognition of rate changes in insurance products can slow recovery in financial metrics, an important consideration for underwriting and actuarial strategies.

For further details and disclosures, AM Best directs market participants to their rating activity and credit rating guides available on their website. This information is critical for insurance professionals monitoring insurer financial strength, regulatory compliance, and risk management amidst evolving market conditions.