Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS


			Page Number
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)			39
Statements of Operations for the Years Ended December 31, 202 3 , 202 2 and 202 1			41
Statements of Comprehensive Income for the Years Ended December 31, 202 3 , 202 2 and 202 1			42
Statements of Financial Position - December 31, 202 3 and 202 2			43
Statements of Shareholders' Equity for the Years ended December 31, 202 3 , 202 2 and 202 1			44
Statements of Cash Flows for the Years ended December 31, 202 3 , 202 2 and 202 1			45
Notes to Financial Statements - December 31, 202 3			46

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Erie Indemnity Company

Opinion on the Financial Statements

We have audited the accompanying statements of financial position of Erie Indemnity Company (the Company) as of December 31, 2023 and 2022, the related statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 26, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.


						Proportional Cost Allocation
Description of the Matter						For the year ended December 31, 2023, the Company’s administrative services reimbursement revenue totaled $737.1 million. The Company’s primary function, as attorney-in-fact, is to perform certain services on behalf of the subscribers at the Erie Insurance Exchange (Exchange) and its insurance subsidiaries, in accordance with the subscriber’s agreement and the service agreements with each of the Exchange’s insurance subsidiaries. As explained in Note 2 of the financial statements, in accordance with the approved subscriber’s agreement and service agreements, administrative services, which include costs associated with claims handling services, life insurance related operating activities, investment management, and operating overhead incurred by the Company on behalf of the Exchange and its insurance subsidiaries, are reimbursed to the Company at cost and recorded as administrative services reimbursement revenue, based on the nature of the cost or relevant utilization statistic. Auditing management’s proportional cost allocations was complex due to the multiple costs that are allocated, the extensiveness of the allocation process, and the degree of auditor judgement needed to design the nature and extent of audit procedures required to address the matter.
How We Addressed the Matter in Our Audit						We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s proportional cost allocations process. This included, among others, testing management’s review controls over the determination of the utilization statistics and ultimate allocation of costs to the Exchange and its insurance subsidiaries. To test the Company’s proportional cost allocations, our procedures included, among others, evaluating that the costs included in the allocations are in accordance with the subscriber’s agreement and the service agreements with each of the Exchange’s insurance subsidiaries. We tested the completeness and accuracy of the costs subjected to allocation through testing the reconciliation of the costs recorded in the source systems to the costs that are allocated, testing a sample of cost allocations, and testing the reconciliation of the cost allocation output to the general ledger. We evaluated the allocation of costs to the Exchange and its insurance subsidiaries with the costs allocated in prior periods.

/s/ Ernst & Young LLP

We have served as the Company's auditor since 2003.

Indianapolis, Indiana

February 26, 2024

ERIE INDEMNITY COMPANY

STATEMENTS OF OPERATIONS

Years ended December 31, 2023, 2022 and 2021

(dollars in thousands, except per share data)


	2023		2022		2021
Operating revenue
Management fee revenue - policy issuance and renewal services	$	2,442,073	$	2,087,846	$	1,913,166
Management fee revenue - administrative services	63,669		58,323		58,286
Administrative services reimbursement revenue	737,139		668,268		638,483
Service agreement revenue	26,059		25,687		24,042
Total operating revenue	3,268,940		2,840,124		2,633,977

Operating expenses
Cost of operations - policy issuance and renewal services	2,011,545		1,795,642		1,677,397
Cost of operations - administrative services	737,139		668,268		638,483
Total operating expenses	2,748,684		2,463,910		2,315,880
Operating income	520,256		376,214		318,097

Investment income
Net investment income	44,572		28,585		62,177
Net realized and unrealized investment (losses) gains	(5,838)		(27,286)		4,946
Net impairment (losses) recoveries recognized in earnings	(9,766)		(667)		209

Total investment income	28,968		632		67,332

Interest expense, net	—		2,009		4,132
Other income (expense)	12,712		1,615		(4,893)
Income before income taxes	561,936		376,452		376,404
Income tax expense	115,875		77,883		78,544
Net income	$	446,061	$	298,569	$	297,860


Earnings Per Share
Net income per share
Class A common stock – basic	$	9.58	$	6.41	$	6.40
Class A common stock – diluted	$	8.53	$	5.71	$	5.69
Class B common stock – basic and diluted	$	1,437	$	962	$	959


Weighted average shares outstanding – Basic
Class A common stock	46,188,981		46,188,916		46,188,806
Class B common stock	2,542		2,542		2,542

Weighted average shares outstanding – Diluted
Class A common stock	52,299,411		52,297,990		52,307,302
Class B common stock	2,542		2,542		2,542

See accompanying notes to Financial Statements. See Note 13, "Accumulated Other Comprehensive Income (Loss)", for amounts reclassified out of accumulated other comprehensive income (loss) into the Statements of Operations.

ERIE INDEMNITY COMPANY

STATEMENTS OF COMPREHENSIVE INCOME

Years ended December 31, 2023, 2022 and 2021

(in thousands)


	2023		2022		2021
Net income	$	446,061	$	298,569	$	297,860

Other comprehensive (loss) income, net of tax
Change in unrealized holding gains (losses) on available-for-sale securities	27,784		(58,692)		(17,112)
Pension and other postretirement plans	(33,770)		76,566		69,967
Total other comprehensive (loss) income, net of tax	(5,986)		17,874		52,855

Comprehensive income	$	440,075	$	316,443	$	350,715

ERIE INDEMNITY COMPANY

STATEMENTS OF FINANCIAL POSITION

At December 31, 2023 and 2022

(dollars in thousands, except per share data)


	2023		2022
Assets
Current assets:
Cash and cash equivalents (includes restricted cash of $12,542 and $11,932, respectively)	$	144,055	$	142,090
Available-for-sale securities	82,017		24,267

Receivables from Erie Insurance Exchange and affiliates, net	625,338		524,937
Prepaid expenses and other current assets	69,321		79,201



Accrued investment income	9,458		8,301
Total current assets	930,189		778,796

Available-for-sale securities, net	879,224		870,394
Equity securities	84,253		72,560

Fixed assets, net	442,610		413,874
Agent loans, net	58,434		60,537

Defined benefit pension plan	34,320		0
Other assets, net	42,934		43,295
Total assets	$	2,471,964	$	2,239,456

Liabilities and shareholders' equity
Current liabilities:
Commissions payable	$	353,709	$	300,028
Agent incentive compensation	68,077		95,166
Accounts payable and accrued liabilities	175,622		165,915
Dividends payable	59,377		55,419
Contract liability	41,210		36,547
Deferred executive compensation	10,982		12,036

Total current liabilities	708,977		665,111

Defined benefit pension plans	26,260		51,224

Contract liability	19,910		17,895
Deferred executive compensation	20,936		13,724
Deferred income taxes, net	11,481		14,075
Other long-term liabilities	21,565		29,019
Total liabilities	809,129		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-capital	16,466		16,481
Accumulated other comprehensive loss	(13,400)		(7,414)
Retained earnings	2,803,689		2,583,261
Total contributed capital and retained earnings	2,808,925		2,594,498
Treasury stock, at cost; 22,110,132 shares held	(1,169,165)		(1,168,949)
Deferred compensation	23,075		22,859
Total shareholders' equity	1,662,835		1,448,408
Total liabilities and shareholders' equity	$	2,471,964	$	2,239,456

See accompanying notes to Financial Statements.

ERIE INDEMNITY COMPANY

STATEMENTS OF SHAREHOLDERS' EQUITY

Years ended December 31, 2023, 2022 and 2021

(dollars in thousands, except per share data)


	Class A common stock		Class B common stock		Additional paid-in-capital		Accumulated other comprehensive (loss) income		Retained earnings		Treasury stock		Deferred compensation		Total shareholders' equity
Balance, December 31, 2020	$	1,992	$	178	$	16,487	$	(78,143)	$	2,393,624	$	(1,163,670)	$	17,580	$	1,188,048

Net income									297,860						297,860
Other comprehensive income							52,855								52,855
Dividends declared:
Class A $4.215 per share									(194,687)						(194,687)
Class B $632.25 per share									(1,607)						(1,607)
Net purchase of treasury stock (1)					9						0				9
Deferred compensation											(5,131)		5,131		0
Rabbi trust distribution (2)											973		(973)		0


Balance, December 31, 2021	$	1,992	$	178	$	16,496	$	(25,288)	$	2,495,190	$	(1,167,828)	$	21,738	$	1,342,478

Net income									298,569						298,569
Other comprehensive income							17,874								17,874
Dividends declared:
Class A $4.52 per share									(208,775)						(208,775)
Class B $678.00 per share									(1,723)						(1,723)
Net purchase of treasury stock (1)					(15)						0				(15)
Deferred compensation											(2,975)		2,975		0
Rabbi trust distribution (2)											1,854		(1,854)		0
Balance, December 31, 2022	$	1,992	$	178	$	16,481	$	(7,414)	$	2,583,261	$	(1,168,949)	$	22,859	$	1,448,408
Net income									446,061						446,061
Other comprehensive loss							(5,986)								(5,986)
Dividends declared:
Class A $4.845 per share									(223,786)						(223,786)
Class B $726.75 per share									(1,847)						(1,847)
Net purchase of treasury stock (1)					(15)						0				(15)
Deferred compensation											(2,228)		2,228		0
Rabbi trust distribution (2)											2,012		(2,012)		0

Balance, December 31, 2023	$	1,992	$	178	$	16,466	$	(13,400)	$	2,803,689	$	(1,169,165)	$	23,075	$	1,662,835

(1) Net purchases of treasury stock in 2021, 2022 and 2023 include the repurchase of our Class A common stock in the open market that were subsequently distributed to satisfy stock-based compensation awards. See Note 10, "Incentive and Deferred Compensation Plans".

(2) Distributions of our Class A shares were made from the rabbi trust to a retired director and an incentive compensation deferral plan participant in 2021, four incentive compensation deferral plan participants in 2022, and five incentive compensation plan deferral plan participants in 2023 . See Note 10, "Incentive and Deferred Compensation Plans".

See accompanying notes to Financial Statements.

ERIE INDEMNITY COMPANY

STATEMENTS OF CASH FLOWS

Years ended December 31, 2023, 2022 and 2021

(in thousands)


	2023		2022		2021
Cash flows from operating activities
Management fee received	$	2,420,192	$	2,100,989	$	1,982,092
Administrative services reimbursements received	721,928		668,857		634,300
Service agreement revenue received	26,018		25,515		24,014
Net investment income received	57,448		40,161		45,830


Commissions paid to agents	(1,200,014)		(1,042,158)		(966,285)
Incentive compensation paid to agents	(120,211)		(136,403)		(123,583)
Salaries and wages paid	(226,036)		(208,575)		(204,279)
Pension contribution and employee benefits paid	(169,762)		(68,433)		(32,836)
General operating expenses paid	(293,857)		(263,524)		(235,294)
Administrative services expenses paid	(730,129)		(667,524)		(632,530)
Income taxes paid	(104,372)		(80,619)		(84,494)
Interest paid	—		(2,134)		(4,141)
Net cash provided by operating activities	381,205		366,152		402,794

Cash flows from investing activities
Purchase of investments:
Available-for-sale securities	(279,999)		(465,071)		(380,017)
Equity securities	(35,480)		(18,929)		(58,191)

Other investments	(88)		(157)		(1,646)
Proceeds from investments:
Available-for-sale securities sales	160,614		295,996		150,153
Available-for-sale securities maturities/calls	76,617		130,401		184,820
Equity securities	24,458		20,456		64,118

Other investments	871		429		1,076
Purchase of fixed assets	(92,647)		(67,204)		(148,800)
Proceeds from disposal of fixed assets	—		265		—
Loans to agents and other	(20,525)		(11,631)		(6,382)
Collections on agent and other loans	8,614		8,523		9,379

Net cash used in investing activities	(157,565)		(106,922)		(185,490)

Cash flows from financing activities

Dividends paid to shareholders	(221,675)		(206,772)		(192,801)

Proceeds from short-term borrowings	—		55,000		—
Payments on short-term borrowings	—		(55,000)		—
Payments on long-term borrowings	—		(94,070)		(2,041)
Net cash used in financing activities	(221,675)		(300,842)		(194,842)

Net increase (decrease) in cash, cash equivalents, and restricted cash	1,965		(41,612)		22,462
Cash, cash equivalents, and restricted cash, beginning of year	142,090		183,702		161,240
Cash, cash equivalents, and restricted cash, end of year	$	144,055	$	142,090	$	183,702

Supplemental disclosure of noncash transactions
Liability incurred to purchase fixed assets	$	—	$	26,386	$	12,802
Operating lease assets obtained in exchange for lease liabilities	$	5,866	$	7,650	$	3,447

See accompanying notes to Financial Statements. See Note 17, "Supplementary Data on Cash Flows", for additional supplemental cash flow information.

ERIE INDEMNITY COMPANY

NOTES TO FINANCIAL STATEMENTS

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. Agent compensation comprised approximately 67% of our 2023 policy issuance and renewal expenses. The underwriting services we provide include underwriting and policy processing and comprised approximately 9% of our 2023 policy issuance and renewal expenses. The remaining services we provide include customer service and administrative support. We also provide information technology services that support all the functions listed above that comprised approximately 11% of our 2023 policy issuance and renewal expenses. Included in these expenses are allocations of costs for departments that support these policy issuance and renewal functions.

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 15, "Concentrations of Credit Risk".

Note 2. Significant Accounting Policies

Basis of presentation

The accompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP").

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

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.

Cash and cash equivalents – Cash, money market accounts and other short-term, highly liquid investments with a maturity of three months or less at the date of purchase, are considered cash and cash equivalents.

Restricted cash – Restricted cash represents deposits held for the benefit of third parties related primarily to our agent loan participation program. These restricted funds are invested in bank deposits, contractually restricted as to withdrawal or usage, and included with "Cash and cash equivalents" in our Statements of Financial Position.

Investments

Available-for-sale securities – Fixed maturity debt securities and redeemable preferred stock are classified as available-for-sale and reported at fair value with unrealized investment gains and losses, net of income taxes, recognized in other comprehensive income. Available-for-sale securities with a remaining maturity of 12 months or less and any security that we intend to sell as of the reporting date are classified as current assets.

Available-for-sale securities in an unrealized loss position are evaluated to determine whether the impairment is a result of credit loss or other factors. If we have the intent to sell or it's more likely than not that we would be required to sell the security before recovery of the amortized cost basis, the entire impairment is recognized in earnings. Securities that have experienced a decline in fair value that we do not intend to sell, and that we will not be required to sell before recovery, are evaluated to determine if the decline in fair value is credit related. Impairment resulting from a credit loss is recognized in earnings with a corresponding allowance on the Statement of Financial Position. Future recoveries of credit loss result in an adjustment to the allowance and earnings in the period the credit conditions improve. Factors considered in the evaluation of credit loss include the extent to which fair value is less than cost and fundamental factors specific to the issuer such as financial condition, changes in credit ratings, near and long-term business prospects and other factors, as well as the likelihood of recovery of the amortized cost of the security. If the qualitative review indicates credit impairment, the allowance for credit loss is measured as the amount that the security’s amortized cost exceeds the present value of cash flows expected to be collected and is limited to the amount that fair value is below amortized cost.

Equity securities – Equity securities primarily include non-redeemable preferred stocks that are reported at fair value with changes in the fair value recognized in net realized and unrealized investment gains (losses). Securities that we intend to sell as of the reporting date are classified as current assets.

Realized gains and losses and investment income – Realized gains and losses on sales of available-for-sale and equity securities are recognized in income based upon the specific identification method and reported in net realized and unrealized investment gains (losses). Interest income is recognized as earned and includes amortization of premium and accretion of discount. Income is recognized based on the constant effective yield method, which includes periodically updated prepayment assumptions obtained from third party data sources on our prepaying securities. The effective yield for prepaying securities is recalculated on a retrospective basis. Dividend income is recognized at the ex-dividend date. Interest and dividend income and the results of our limited partnership investments are reported as net investment income. We do not record an allowance for credit losses on accrued investment income on our available-for-sale securities as any amount deemed uncollectible is reversed from interest income in the period the expected payment defaults.

Deferred taxes

Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and the reported amounts in the financial statements, using the statutory tax rates in effect for the year in which the differences are expected to settle or be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date under the law. The need for valuation allowances on deferred tax assets are estimated based upon our assessment of the realizability of such amounts.

Fixed assets

Fixed assets are stated at cost less accumulated depreciation and amortization. Fixed assets are primarily comprised of software, which includes internally used capitalized software and development costs, as well as building and building improvements, equipment, furniture and fixtures, and leasehold improvements. Assets in use are depreciated using the straight-line method over the estimated useful life except for leasehold improvements, which are depreciated over the shorter of their economic useful life or the lease term. Software is depreciated over periods ranging from 3-7 years, buildings and building improvements are depreciated over 20-45 years, equipment is depreciated over 3-10 years, and furniture and fixtures are depreciated over 7 years. We review long-lived assets for impairment whenever events or changes indicate that the carrying value may not be recoverable. Under these circumstances, if the fair value were less than the carrying amount of the asset, we would recognize a loss for the difference.

Agent loans

Agent loans, the majority of which are senior secured, are carried at unpaid principal balance net of a current expected credit loss allowance with interest recorded in investment income as earned. The allowance is estimated using available loss history and/or external loss rates based on comparable loan losses and considers current market conditions and forecasted information. Changes to the allowance are recognized in earnings as adjustments to net impairment recoveries (losses). Any current portion of agent loans is recorded in prepaid expenses and other current assets.

Other assets

Other assets primarily include limited partnership investments, other loans receivable, 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. 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 loan 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 loan. Interest on these loans is recorded primarily in investment income as earned. Any current portion of other loans receivable is recorded in prepaid expenses and other current assets.

Agent incentive compensation liability

Our more significant agent incentive compensation plan is based upon an individual agency's property and casualty underwriting profitability and also includes a component for growth in agency property and casualty premiums if the agency's underwriting profitability targets for the book of business are met. The estimated liability for this agent incentive compensation plan is based upon the performance over 36 months, and is modeled on a monthly basis using actual underwriting results for the two prior years and current year-to-date actual results and forecasted results for the remainder of the year. Our second agent incentive compensation plan is based on an agency's one-year underwriting profitability and uses a similar model but considers actual and forecasted results for a calendar year only. At December 31 of each year, we use actual data available and record an accrual based upon the expected payment amount. These costs are included in cost of operations - policy issuance and renewal services.

Recognition of management fee revenue

We retain management fees from the Exchange under the subscriber’s agreement for services provided. In accordance with the subscriber’s agreement, we may retain up to 25% of all direct and affiliated assumed premiums written by the Exchange. The management fee rate is set at least annually by our Board of Directors. The management fee revenue is calculated by multiplying the management fee rate by the direct and affiliated assumed premiums written by the Exchange and is allocated between the two performance obligations we have under the subscriber's agreement. The first performance obligation is to provide policy issuance and renewal services. The second performance obligation is acting as the attorney-in-fact with respect to various administrative services as enumerated in the subscriber's agreement.

Management fee revenue allocated to the policy issuance and renewal services is recognized at the time of policy issuance or renewal, because it is at the time of policy issuance or renewal when the economic benefit of the service we provide (the substantially completed policy issuance or renewal service) and the control of the promised asset (the executed insurance policy) transfers to the customer.

Management fee revenue allocated to the second performance obligation relates to us acting as the 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 the administrative services and is recognized over a four-year period representing the time over which the economic benefit of the services provided (i.e. management of the administrative services) transfers to the customer.

Administrative services

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. Common overhead expenses and certain service department costs incurred by us on behalf of the subscribers at the Exchange and its insurance subsidiaries are reimbursed by the proper entity based upon relevant utilization statistics specifically measured to accomplish proportional allocations, which we believe are reasonable. In 2023, approximately 71% of the administrative services expenses were entirely attributable to the respective administrative functions (claims handling, life insurance management and investment management), while the remaining 29% of these expenses were allocations of costs for departments that support these administrative functions. The expenses we incur and related reimbursements we receive for administrative services are presented gross in our Statements of Operations. The subscriber's agreement and service agreements provide for reimbursement of amounts incurred for these services to Indemnity. Reimbursements are settled at cost on a monthly basis. State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department.

Recognition of service agreement revenue

Service agreement revenue primarily consists of service charges we collect from policyholders for providing multiple payment plans on policies written by the Exchange and its property and casualty subsidiaries. Service charges, which are fixed dollar charges for each installment billed beyond the first installment, are recognized as revenue when bills are rendered to the policyholder. Service agreement revenue also includes late payment and policy reinstatement fees, which are also recognized as revenue when bills are rendered to the policyholder. We also have a service agreement with the Exchange for the use of shared office space. Revenue related to this agreement is recognized at the time the space is used based on relevant utilization statistics.

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.

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 years ended December 31:


(in thousands)	2023		2022		2021
Management fee revenue - policy issuance and renewal services	$	2,442,073	$	2,087,846	$	1,913,166

Management fee revenue - administrative services	63,669		58,323		58,286
Administrative services reimbursement revenue	737,139		668,268		638,483
Total revenue from administrative services	$	800,808	$	726,591	$	696,769

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 12, "Capital Stock".

Class A diluted earnings per share are 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. See Note 10, "Incentive and Deferred Compensation Plans".

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:



(dollars in thousands, except per share data)						For the years ended December 31,
	2023					2022					2021
	Allocated net income (numerator)		Weighted shares (denominator)	Per- share amount		Allocated net income (numerator)		Weighted shares (denominator)	Per- share amount		Allocated net income (numerator)		Weighted shares (denominator)	Per- share amount
Class A – Basic EPS:
Income available to Class A stockholders	$	442,409	46,188,981	$	9.58	$	296,125	46,188,916	$	6.41	$	295,421	46,188,806	$	6.40
Dilutive effect of stock-based awards	0		9,630	—		0		8,274	—		0		17,696	—
Assumed conversion of Class B shares	3,652		6,100,800	—		2,444		6,100,800	—		2,439		6,100,800	—
Class A – Diluted EPS:
Income available to Class A stockholders on Class A equivalent shares	$	446,061	52,299,411	$	8.53	$	298,569	52,297,990	$	5.71	$	297,860	52,307,302	$	5.69
Class B – Basic EPS:
Income available to Class B stockholders	$	3,652	2,542	$	1,437	$	2,444	2,542	$	962	$	2,439	2,542	$	959
Class B – Diluted EPS:
Income available to Class B stockholders	$	3,652	2,542	$	1,437	$	2,444	2,542	$	962	$	2,438	2,542	$	959

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 December 31, 2023, nearly all of our available-for-sale and equity securities were priced using a third party pricing service.

The following tables present our fair value measurements on a recurring basis by asset class and level of input as of:



	December 31, 2023

(in thousands)	Total		Level 1		Level 2		Level 3

Available-for-sale securities:



Corporate debt securities	$	588,688	$	0	$	584,182	$	4,506
Collateralized debt obligations	112,468		0		112,468		0
Commercial mortgage-backed securities	102,720		0		91,726		10,994
Residential mortgage-backed securities	140,055		0		138,521		1,534
Other debt securities	17,310		0		17,310		0

Total available-for-sale securities	961,241		0		944,207		17,034
Equity securities:
Financial services sector	69,900		816		63,750		5,334
Utilities sector	5,810		0		5,810		0
Energy sector	3,901		0		3,901		0
Consumer sector	3,915		0		2,415		1,500
Technology sector	500		0		0		500
Industrial sector	180		0		180		0
Communications sector	47		47		0		0
Total equity securities	84,253		863		76,056		7,334
Total	$	1,045,494	$	863	$	1,020,263	$	24,368



	December 31, 2022

(in thousands)	Total		Level 1		Level 2		Level 3

Available-for-sale securities:



Corporate debt securities	$	553,382	$	0	$	549,696	$	3,686
Collateralized debt obligations	102,537		0		102,537		0
Commercial mortgage-backed securities	66,054		0		55,144		10,910
Residential mortgage-backed securities	150,415		0		146,231		4,184
Other debt securities	22,273		0		22,273		0

Total available-for-sale securities	894,661		0		875,881		18,780
Equity securities:
Financial services sector	61,084		0		57,305		3,779
Utilities sector	5,708		0		5,708		0
Energy sector	3,576		0		3,576		0
Consumer sector	1,854		0		1,854		0
Communications sector	338		0		338		0

Total equity securities	72,560		0		68,781		3,779
Total	$	967,221	$	0	$	944,662	$	22,559

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 Year-to-Date Change:



(in thousands)	Beginning balance at December 31, 2022		Included in earnings(1)		Included in other comprehensive income (loss)		Purchases		Sales		Transfers into Level 3(2)		Transfers out of Level 3(2)		Ending balance at December 31, 2023
Available-for-sale securities:



Corporate debt securities	$	3,686	$	4	$	314	$	4,316	$	(1,536)	$	5,611	$	(7,889)	$	4,506

Commercial mortgage-backed securities	10,910		(778)		311		2,575		(621)		5,373		(6,776)		10,994
Residential mortgage-backed securities	4,184		(5)		96		0		(120)		1,567		(4,188)		1,534

Total available-for-sale securities	18,780		(779)		721		6,891		(2,277)		12,551		(18,853)		17,034
Equity securities	3,779		47		—		3,458		0		1,857		(1,807)		7,334
Total Level 3 securities	$	22,559	$	(732)	$	721	$	10,349	$	(2,277)	$	14,408	$	(20,660)	$	24,368

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)		Purchases		Sales		Transfers into Level 3(2)		Transfers out of Level 3(2)		Ending balance at December 31, 2022
Available-for-sale securities:



Corporate debt securities	$	5,256	$	2	$	(437)	$	6,290	$	(4,810)	$	9,689	$	(12,304)	$	3,686

Commercial mortgage-backed securities	15,728		(1,060)		(1,132)		0		(3,825)		11,494		(10,295)		10,910
Residential mortgage-backed securities	8,814		(693)		(1,951)		4,887		(10,229)		39,452		(36,096)		4,184

Total available-for-sale securities	29,798		(1,751)		(3,520)		11,177		(18,864)		60,635		(58,695)		18,780
Equity securities	2,083		(304)		—		2,000		0		0		0		3,779
Total Level 3 securities	$	31,881	$	(2,055)	$	(3,520)	$	13,177	$	(18,864)	$	60,635	$	(58,695)	$	22,559

(1) These amounts are reported as net investment income and net realized and unrealized investment (losses) gains 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:



	December 31, 2023				December 31, 2022
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value

Agent loans, net (1)	$	67,787	$	66,445	$	69,476	$	62,954
Other loans receivable, net (2)	10,713		10,713		5,199		5,199

(1) The discount rate used to calculate fair value at December 31, 2023 is reflective of a decrease in the BB+ financial yield curve from December 31, 2022.

(2) 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.

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:



	December 31, 2023
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value



Corporate debt securities	$	600,639	$	4,594	$	16,545	$	588,688
Collateralized debt obligations	114,400		156		2,088		112,468
Commercial mortgage-backed securities	106,019		1,410		4,709		102,720
Residential mortgage-backed securities	153,633		69		13,647		140,055
Other debt securities	17,862		136		688		17,310

Total available-for-sale securities, net	$	992,553	$	6,365	$	37,677	$	961,241



	December 31, 2022
(in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value



Corporate debt securities	$	588,536	$	657	$	35,811	$	553,382
Collateralized debt obligations	107,730		11		5,204		102,537
Commercial mortgage-backed securities	73,855		157		7,958		66,054
Residential mortgage-backed securities	166,412		72		16,069		150,415
Other debt securities	24,602		0		2,329		22,273

Total available-for-sale securities, net	$	961,135	$	897	$	67,371	$	894,661

The amortized cost and estimated fair value of available-for-sale securities at December 31, 2023 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.



	December 31, 2023
	Amortized		Estimated
(in thousands)	cost		fair value

Due in one year or less	$	81,196	$	80,030
Due after one year through five years	426,547		417,509
Due after five years through ten years	175,670		173,800
Due after ten years	309,140		289,902
Total available-for-sale securities, net (1)	$	992,553	$	961,241

(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 December 31, 2023.

The below securities have been evaluated and determined to be temporary declines in fair value for which we expect to recover our entire principal plus interest. The following tables present available-for-sale securities based on length of time in a gross unrealized loss position as of:



	December 31, 2023
	Less than 12 months				12 months or longer				Total
(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 obligations	3,911		15		87,005		2,073		90,916		2,088		142
Commercial mortgage-backed securities	9,148		157		30,145		4,552		39,293		4,709		108
Residential mortgage-backed securities	30,271		297		101,761		13,350		132,032		13,647		164
Other debt securities	2,084		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 grade	8,493		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



	December 31, 2022
	Less than 12 months				12 months or longer				Total
(dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses		No. of holdings


Corporate debt securities	$	397,511	$	21,371	$	121,094	$	14,440	$	518,605	$	35,811	916
Collateralized debt obligations	44,823		2,529		55,335		2,675		100,158		5,204		159
Commercial mortgage-backed securities	41,139		5,124		15,864		2,834		57,003		7,958		131
Residential mortgage-backed securities	109,499		9,131		31,465		6,938		140,964		16,069		161
Other debt securities	15,682		1,323		6,591		1,006		22,273		2,329		46

Total available-for-sale securities	$	608,654	$	39,478	$	230,349	$	27,893	$	839,003	$	67,371	1,413
Quality breakdown of available-for-sale securities:
Investment grade	$	525,805	$	31,904	$	215,742	$	25,205	$	741,547	$	57,109	761
Non-investment grade	82,849		7,574		14,607		2,688		97,456		10,262		652
Total available-for-sale securities	$	608,654	$	39,478	$	230,349	$	27,893	$	839,003	$	67,371	1,413

Credit loss allowances

The following table presents a roll-forward of the allowances for credit losses on available-for-sale securities and financing receivables for the years ended December 31:


(in thousands)	2023		2022
Available-for-sale securities:
Allowance for credit losses, beginning of year	$	249	$	21
Provision and recoveries	670		500
Sales/collections and write-offs	(322)		(272)
Allowance for credit losses, end of year	$	597	$	249
Other loans receivable:
Allowance for credit losses, beginning of year	$	3,775	$	3,564
Provision and recoveries	7,404		211
Sales/collections and write-offs	(98)		0
Allowance for credit losses, end of year	$	11,081	$	3,775
Agent loans:
Allowance for credit losses, beginning of year	$	957	$	957
Provision and recoveries	0		0
Sales/collections and write-offs	0		0
Allowance for credit losses, end of year	$	957	$	957

Net investment income

Investment income (loss), net of expenses, was generated from the following portfolios for the years ended December 31:




(in thousands)	2023		2022		2021

Available-for-sale securities	$	42,563	$	31,913	$	23,795
Equity securities	4,493		3,904		4,321
Limited partnerships (1)	(11,308)		(10,446)		31,701
Cash equivalents and other	9,179		4,510		3,609
Total investment income	44,927		29,881		63,426
Less: investment expenses	355		1,296		1,249
Net investment income	$	44,572	$	28,585	$	62,177

(1) Limited partnership 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 (losses) gains

Realized and unrealized gains (losses) on investments were as follows for the years ended December 31:




(in thousands)	2023		2022		2021
Available-for-sale securities:

Gross realized gains	$	804	$	1,169	$	6,884
Gross realized losses	(7,523)		(15,219)		(1,753)
Net realized (losses) gains on available-for-sale securities	(6,719)		(14,050)		5,131



Equity securities	871		(13,238)		(186)









Miscellaneous	10		2		1




Net realized and unrealized investment (losses) gains	$	(5,838)	$	(27,286)	$	4,946

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 years ended December 31:



(in thousands)	2023		2022		2021
Equity securities:
Net gains (losses) recognized during the period	$	871	$	(13,238)	$	(186)
Less: net losses recognized on securities sold	(2,328)		(1,866)		(76)
Net unrealized gains (losses) recognized on securities held at reporting date	$	3,199	$	(11,372)	$	(110)

Net impairment (losses) recoveries recognized in earnings

Impairment (losses) recoveries on investments were as follows for the years ended December 31:



(in thousands)	2023		2022		2021
Available-for-sale securities:
Intent to sell	$	(1,759)	$	(167)	$	(10)
Credit (impaired) recovered	(670)		(500)		67
Total available-for-sale securities	(2,429)		(667)		57

Agent loans - expected credit recoveries	0		0		152
Other loans receivable - expected credit losses	(7,337)		0		0
Net impairment (losses) recoveries recognized in earnings	$	(9,766)	$	(667)	$	209

Note 7. Fixed Assets

The following table summarizes our fixed assets by category as of December 31:


(in thousands)	2023		2022
Software	$	304,452	$	312,126
Land, buildings, and building improvements	216,578		213,263
Equipment	46,588		43,430
Furniture and fixtures	21,800		21,794
Leasehold improvements	1,378		1,393
Construction in progress (1)	22,683		7,266
Projects in progress (1)	64,585		56,051
Total fixed assets, gross	678,064		655,323
Less: Accumulated depreciation and amortization	(235,454)		(241,449)
Fixed assets, net	$	442,610	$	413,874

(1) 2022 amounts have been reclassified to conform to the current period presentation.

Construction in progress includes ongoing renovations to an office building that is part of our principal headquarters and not yet subject to depreciation. The building renovation is expected to be completed in phases, starting in 2025, with full completion expected in 2027.

Projects in progress include certain computer software and software development costs for internal use that are not yet subject to amortization.

Depreciation and amortization expense totaled $47.4 million, $45.9 million and $37.2 million for the years ended December 31, 2023, 2022 and 2021, respectively, and is included in cost of operations - policy issuance and renewal services. Accumulated depreciation and amortization decreased due to disposals of fully depreciated assets, primarily software, partially offset by current year depreciation and amortization expense.

Note 8. Bank Line of Credit

We have access to a $100 million bank revolving line of credit with a $25 million letter of credit sublimit that expires on October 29, 2026. As of December 31, 2023, a total of $99.1 million remains available under the facility due to $0.9 million outstanding letters of credit, which reduce the availability for letters of credit to $24.1 million. We had no borrowings outstanding on our line of credit as of December 31, 2023. Investments with a fair value of $117.6 million were pledged as collateral on the line of credit at December 31, 2023. These investments have no trading restrictions and are reported as available-for-sale securities and cash and cash equivalents on our Statement of Financial Position as of December 31, 2023. The bank requires compliance with certain covenants, which include leverage ratios and debt restrictions. We are in compliance with all covenants at December 31, 2023.

Note 9. Postretirement Benefits

Pension plans

Our pension plans consist of a noncontributory defined benefit pension plan covering substantially all employees and an unfunded supplemental employee retirement plan ("SERP") for certain members of executive and senior management. The pension plan provides benefits to covered individuals satisfying certain age and service requirements. The defined benefit pension plan and SERP each provide benefits through a final average earnings formula.

Although we are the sponsor of these postretirement plans and record the funded status of these plans, there are reimbursements between us and the Exchange and its subsidiaries for their allocated share of pension income or cost. These reimbursements represent pension benefits for employees performing administrative services and an allocated share of plan (income) cost for employees in departments that support the administrative functions. In 2023, we reimbursed the Exchange and its subsidiaries for approximately 60% of the annual defined benefit pension income, and the Exchange and its subsidiaries reimbursed us for approximately 36% of the annual SERP cost. For our funded pension plan, amounts are settled in cash for the portion of pension (income) cost allocated to the Exchange and its subsidiaries. For our unfunded SERP, we pay the obligations when due and amounts are settled in cash between entities when there is a payout.

Pension plan (income) cost

Pension plan (income) cost includes the following components for the years ended December 31:


(in thousands)
	2023		2022		2021
Service cost for benefits earned	$	28,763	$	50,242	$	53,041
Interest cost on benefit obligation	50,193		39,764		36,824
Expected return on plan assets	(68,869)		(54,557)		(50,275)
Prior service cost amortization	1,446		1,443		1,428
Net actuarial (gain) loss amortization	(15,331)		7,320		16,106

Pension plan (income) cost (1)	$	(3,798)	$	44,212	$	57,124

(1) Pension plan (income) cost represents total plan (income) cost before reimbursements between Indemnity and the Exchange and its subsidiaries. The components of pension plan (income) cost other than the service cost components are included in the line item "Other income (expense)" in the Statements of Operations, net of reimbursements between Indemnity and the Exchange and its subsidiaries.

Actuarial assumptions

The following table describes the weighted-average assumptions used to measure benefit obligations at December 31:


	2023		2022

Employee pension plan:
Discount rate	5.34	%	5.67	%
Expected return on assets	6.50		5.50
Rate of compensation increase (1)	3.25		3.21

SERP:
Discount rate	5.11	%	5.46	%
Rate of compensation increase	5.00		5.00

(1) The rate of compensation increase for the employee plan is age-graded. An equivalent single compensation increase rate of 3.25% in 2023 and 3.21% in 2022 would produce similar results.

The following table describes the weighted-average assumptions used to measure net periodic benefit costs for the years ended December 31:


	2023		2022		2021

Employee pension plan:
Discount rate	5.67	%	3.16	%	2.96	%
Expected return on assets	6.50		5.50		5.50
Rate of compensation increase (1)	3.30		3.21		3.21

SERP:
Discount rate	5.46	%	3.11	%	2.86	%
Rate of compensation increase	5.00		5.00		5.00

(1) The rate of compensation increase for the employee plan is age-graded. An equivalent single compensation increase rate of 3.30% in 2023 and 3.21% in 2022 and 2021 would produce similar results.

The economic assumptions that have the most impact on the postretirement benefits expense are the discount rate and the long-term rate of return on plan assets. The discount rate assumption used to determine the benefit obligation for all periods presented was based upon a yield curve developed from corporate bond yield information.

The pension plan's expected long-term rate of return represents the average rate of return to be earned on plan assets over the period the benefits included in the benefit obligation are to be paid. To determine the expected long-term rate of return assumption, we utilized models based upon historical analysis and forward-looking views of the financial markets based upon key factors such as historical returns for the asset class' applicable indices, the correlations of the asset classes under various market conditions and consensus views on future real economic growth and inflation. The expected future return for each asset class is then combined by considering correlations between asset classes and the volatilities of each asset class to produce a reasonable range of asset return results within which our expected long-term rate of return assumption falls.

Funding policy/funded status

Our defined benefit pension plan funding policy is generally to contribute an amount equal to the greater of the target normal cost for the plan year, or the amount necessary to fund the plan to 100%. Accordingly, we made a $25 million contribution during 2022 and a $95 million contribution during 2023. We also made a contribution of $33 million in January 2024. The 2023 contribution generated a net benefit asset of $34.3 million and is presented separately from the unfunded plan as a non-current asset on the Statement of Financial Position at December 31, 2023. The following table sets forth the funded status of the pension plans and the amounts recognized in the Statements of Financial Position at December 31:


(in thousands)
	2023		2022

Funded status at end of year	$	3,325	$	(53,948)

Pension asset	$	34,320	$	0
Pension liabilities – due within one year (1)	(4,735)		(2,724)
Pension liabilities – due after one year	(26,260)		(51,224)
Net amount recognized	$	3,325	$	(53,948)

(1) The current portion of pension liabilities for the unfunded plan is included in accounts payable and accrued liabilities.

Benefit obligations

Benefit obligations are described in the following tables. Accumulated and projected benefit obligations represent the obligations of a pension plan for past service as of the measurement date. The accumulated benefit obligation is the present value of pension benefits earned as of the measurement date based on employee service and compensation prior to that date. It differs from the projected benefit obligation in that the accumulated benefit obligation includes no assumptions to reflect expected future compensation. The following table sets forth a reconciliation of beginning and ending balances of the projected benefit obligation, as well as the accumulated benefit obligation at December 31:


(in thousands)
	2023		2022
Projected benefit obligation, beginning of year	$	883,814	$	1,272,654
Service cost for benefits earned	28,763		50,242
Interest cost on benefit obligation	50,193		39,764
Plan amendments	583		1,620
Actuarial loss (gain)	65,041		(448,330)
Benefits paid	(34,840)		(32,136)

Projected benefit obligation, end of year	$	993,554	$	883,814

Accumulated benefit obligation, end of year	$	847,143	$	762,180

Projected benefit obligations increased $109.7 million at December 31, 2023 compared to December 31, 2022 primarily due to the lower discount rate used to measure the future benefit obligations. The discount rate for the employee pension plan decreased to 5.34% in 2023 from 5.67% in 2022.

The following table describes plans with projected benefit obligations in excess of plan assets at December 31:


(in thousands)
	2023		2022
Projected benefit obligation	$	30,995	$	883,814

Plan assets	—		829,866

At December 31, 2023, the SERP had a projected benefit obligation in excess of plan assets. At December 31, 2022, both the defined benefit pension plan and the SERP had projected benefit obligations in excess of plan assets.

The SERP had accumulated benefit obligations in excess of plan assets at December 31:


(in thousands)
	2023		2022

Accumulated benefit obligation	$	22,698	$	21,577
Plan assets	—		—

Plan assets

The following table sets forth a reconciliation of beginning and ending balances of the fair value of plan assets at December 31:


(in thousands)
	2023		2022
Fair value of plan assets, beginning of year	$	829,866	$	1,140,243
Actual return on plan assets	105,631		(304,005)
Employer contributions	96,222		25,764
Benefits paid	(34,840)		(32,136)

Fair value of plan assets, end of year	$	996,879	$	829,866

Accumulated other comprehensive income

Net actuarial gain and prior service cost included in accumulated other comprehensive income that were not yet recognized as components of net benefit costs were as follows at December 31:


(in thousands)
	2023		2022
Net actuarial gain	$	(25,954)	$	(69,564)
Prior service cost	11,515		12,378
Net amount not yet recognized	$	(14,439)	$	(57,186)

Other comprehensive loss (income)

Amounts recognized in other comprehensive loss (income) for pension plans were as follows for the years ended December 31:


(in thousands)
	2023		2022		2021
Net actuarial loss (gain) arising during the year	$	28,279	$	(89,768)	$	(75,091)
Amortization of net actuarial gain (loss)	15,331		(7,320)		(16,106)
Amortization of prior service cost	(1,446)		(1,443)		(1,428)
Plan amendments (1)	583		1,620		4,059

Total recognized in other comprehensive loss (income)	$	42,747	$	(96,911)	$	(88,566)

(1) Plan amendments relate to new SERP participants.

Asset allocation

The employee pension plan utilizes a return seeking and a liability asset matching allocation strategy. It is based upon the understanding that 1) equity investments are expected to outperform debt investments over the long-term, 2) the potential volatility of short-term returns from equities is acceptable in exchange for the larger expected long-term returns, and 3) a portfolio structured across investment styles and markets (both domestic and foreign) reduces volatility. As a result, the employee pension plan's investment portfolio utilizes a broadly diversified asset allocation across domestic and foreign equity and debt markets. The investment portfolio is composed of commingled pools, an exchange traded fund, and a separate account that are dedicated exclusively to the management of employee benefit plan assets.

The target and actual asset allocations for the portfolio are as follows for the years ended December 31:



	Target asset allocation		Target asset allocation		Actual asset allocation			Actual asset allocation
Asset allocation:	2023		2022		2023			2022
Equity securities:
U.S. equity securities	27	%	27	%	26	%	(1)	27	%
Non-U.S. equity securities	18		18		19		(2)	19
Total equity securities	45		45		45			46
Debt securities	54		54		54		(3)	53
Other	1		1		1		(4)	1
Total	100	%	100	%	100	%		100	%

(1) U.S. equity securities – 100% seek to achieve excess returns relative to the Russell 3000 Index.

(2) Non-U.S. equity securities – 11% are allocated to international small cap investments, while another 19% are allocated to international emerging market investments. The remaining 70% of the Non-U.S. equity securities are allocated to investments seeking to achieve excess returns relative to an international market index.

(3) Debt securities – 60% are allocated to long U.S. Treasury Strips, 40% are allocated to U.S. corporate bonds with an emphasis on long duration bonds rated A or better.

(4) Institutional money market fund.

The following tables present fair value measurements for the pension plan assets by major category and level of input as of:



	December 31, 2023

(in thousands)	Total		Level 1 Fair Value		Level 2 Fair Value		Level 3 Fair Value		Net Asset Value (NAV)
Equity securities:
U.S. equity securities	$	261,400	$	244,979	$	0	$	0	$	16,421
Non-U.S. equity securities	183,007		127,143		0		0		55,864
Total equity securities	444,407		372,122		0		0		72,285
Debt securities	540,762		0		0		0		540,762
Other	11,710		11,710		0		0		0
Total	$	996,879	$	383,832	$	0	$	0	$	613,047



	December 31, 2022

(in thousands)	Total		Level 1 Fair Value		Level 2 Fair Value		Level 3 Fair Value		Net Asset Value (NAV)
Equity securities:
U.S. equity securities	$	219,410	$	204,838	$	0	$	0	$	14,572
Non-U.S. equity securities	160,009		110,799		0		0		49,210
Total equity securities	379,419		315,637		0		0		63,782
Debt securities	439,004		0		0		0		439,004
Other	11,443		11,443		0		0		0
Total	$	829,866	$	327,080	$	0	$	0	$	502,786

Estimates of fair values of the pension plan assets are obtained primarily from the trustee and custodian of our pension plan. Our Level 1 category includes a money market mutual fund, an exchange traded fund, and a separate account for which the fair value is determined using an exchange traded price provided by the trustee and custodian. Commingled pools are valued based on NAV per share or unit as a practical expedient as reported by the fund manager, multiplied by the number of shares or units held as of the measurement date. Accordingly, these NAV-based investments have been excluded from the fair value hierarchy. These investments have minimal redemption notice periods and are redeemable daily at the NAV, less transaction fees, without significant restrictions. There are no significant unfunded commitments related to these investments.

Estimated future benefit payments

The following table sets forth amounts of benefits expected to be paid over the next 10 years from our pension plans as of:


(in thousands)
Year ending December 31,		Expected future benefit payments
2024	$	39,778
2025		39,645
2026		42,098
2027		45,087
2028		48,800
2029 - 2033		294,614

Employee savings plan

All full-time and regular part-time employees are eligible to participate in a qualified 401(k) savings plan. We match 100% of the participant contributions up to 3% of compensation and 50% of participant contributions over 3% and up to 5% of compensation. Matching contributions paid to the plan were $18.4 million in 2023, $16.7 million in 2022, and $16.1 million in 2021. The Exchange and its subsidiaries reimbursed us for approximately 59% of the matching contributions. Employees are permitted to invest the employer-matching contributions in our Class A common stock. Employees, other than executive and senior officers, may sell the shares at any time without restriction, provided they are in compliance with applicable insider trading laws; sales by executive and senior officers are subject to additional pre-clearance restrictions imposed by our insider trading policies. The plan acquires shares in the open market necessary to meet the obligations of the plan. Plan participants held 0.1 million shares of our Class A common stock at December 31, 2023 and 2022.

Note 10. Incentive and Deferred Compensation Plans

We have two incentive plans and two deferred compensation plans for our executives, senior vice presidents and other selected officers, and two deferred compensation plans for our outside directors. Executives, senior vice presidents and other selected officers and key employees are also eligible to receive awards under an equity compensation plan, subject to the discretion of the Executive Compensation and Development Committee of our Board of Directors ("ECDC") or the chief executive officer.

Annual incentive plan

Our annual incentive plan ("AIP") is a bonus plan that pays cash to our executives, senior vice presidents and other selected officers annually. Participants can elect to defer up to 100% of the award under either the deferred compensation plan or the incentive compensation deferral plan. If the funding qualifier is met, plan participants are eligible to receive the incentive based upon attainment of corporate and individual performance measures, which can include various financial measures. The measures are established at the beginning of each year by the ECDC, with ultimate approval by the full Board of Directors. The corporate performance measures included the reported growth in direct written premium and policies in force, and statutory combined ratio of the Exchange and its property and casualty subsidiaries for all periods presented.

Long-term incentive plan

Our long-term incentive plan ("LTIP") is a performance based incentive plan designed to reward executives, senior vice presidents and other selected officers who can have a significant impact on our long-term performance, and to further align the interests of such employees with those of our shareholders. The LTIP permits grants of performance shares or units, or phantom shares, to be satisfied with shares of our Class A common stock or cash payment as determined by the ECDC. Participants can elect to defer up to 100% of the award under the incentive compensation deferral plan. The ECDC determines the form of the award to be granted at the beginning of each performance period, which is generally a three-year period. The number of shares of our common stock authorized for grant under the LTIP is 1.5 million shares. We repurchase our Class A common stock on the open market to settle stock awards under the plan. We do not issue new shares of common stock to settle stock awards. LTIP awards are considered vested at the end of each applicable performance period.

The LTIP provides the recipient the right to earn performance shares or units, or phantom stock, based on the level of achievement of performance goals as defined by us. Performance measures and a peer group of property and casualty companies to be used for comparison are determined by the ECDC. The performance measures for all periods presented were the reported growth in direct written premium and statutory combined ratio of the Exchange and its property and casualty subsidiaries and return on invested assets over a three-year performance period as compared to the results of the peer group over the same period. Because the award is based upon a comparison to results of a peer group over a three-year period, the award accrual is based upon estimates of probable results for the remaining performance period. This estimate is subject to variability if our results or the results of the peer group are substantially different than the results we project.

The fair value of LTIP awards is measured at each reporting date at the current share price of our Class A common stock. A liability is recorded and compensation expense is recognized ratably over the performance period.

At December 31, 2023, the plan awards for the 2021-2023 performance period, which will be granted as a cash award, were fully vested. Distributions will be made in 2024 once peer group financial information becomes available. The total estimated plan award based upon the peer group information as of September 30, 2023 is $1.9 million. At December 31, 2022, the fully vested plan awards for the 2020-2022 performance period totaled $3.8 million and were awarded to participants in June 2023. At December 31, 2021, the fully vested plan awards for the 2019-2021 performance period totaled $3.8 million and were awarded to participants in June 2022. At December 31, 2020, the fully vested plan awards for the 2018-2020 performance period totaled $10.9 million and were awarded to participants in June 2021. The ECDC has determined that the plan awards for the 2022-2024 and 2023-2025 performance periods will be paid in cash.

The Exchange and its subsidiaries reimburse us for compensation costs of employees performing administrative services. Earned compensation costs are allocated to these entities and reimbursed to us in cash once the payout is made. The total compensation cost charged to operations related to these LTIP awards, net of forfeitures, was $7.3 million in 2023, $3.4 million in 2022, and $3.0 million in 2021. The related tax benefits recognized in income were $1.5 million in 2023, $0.7 million in 2022, and $0.6 million in 2021. In 2023, the Exchange and its subsidiaries reimbursed us for approximately 35% of the annual compensation cost of these plans. At December 31, 2023, there was $12.0 million of total unrecognized compensation cost for non-vested LTIP awards related to open performance periods. Unrecognized compensation is expected to be recognized over a period of two years.

Deferred compensation plan

Our deferred compensation plan allows executives, senior vice presidents and other selected officers to elect to defer receipt of a portion of their compensation and AIP cash awards until a later date. Employer 401(k) matching contributions that are in excess of the annual contribution or compensation limits are also credited to the participant accounts for those who elected to defer receipt of some portion of their base salary. Participants select hypothetical investment funds for their deferrals, which are credited with the hypothetical returns generated.

Incentive compensation deferral plan

We have an unfunded, non-qualified incentive compensation deferral plan for participants of the AIP and LTIP. Participants can elect to defer up to 100% of their annual AIP award and/or up to 100% of their LTIP award for each performance period. Deferred awards will be credited to a deferred stock account as credits denominated in shares of our Class A common stock until retirement or other separation from service. Participants are 100% vested at date of deferral. The shares are then held in a rabbi trust, which was established to hold the shares earned under both the incentive compensation deferral plan and the deferred stock compensation plan for outside directors. The rabbi trust is classified and accounted for as equity in a manner consistent with the accounting for treasury stock. Dividends received on the shares in the rabbi trust are used to purchase additional shares. Vested share credits will be paid to participants from the rabbi trust upon separation from service in approximate equal annual installments of Class A shares for a period of three years. In 2023, the rabbi trust purchased 1,608 shares of our common stock in the open market at an average price of $230.71 for $0.4 million to satisfy the liability for the 2022 AIP and 2020-2022 LTIP performance period awards deferred under the incentive compensation deferral plan, and dividend equivalent credits on rabbi trust shares. In 2022, the rabbi trust purchased 7,046 shares of our common stock in the open market at an average price of $176.44 for $1.2 million to satisfy the liability for the 2021 AIP and 2019-2021 LTIP performance period awards deferred under the incentive compensation deferral plan, and dividend equivalent credits on rabbi trust shares. In 2021, the rabbi trust purchased 20,451 shares of our common stock in the open market at an average price of $196.48 for $4.0 million to satisfy the liability for the 2020 AIP and 2018-2020 LTIP performance period awards deferred under the incentive compensation deferral plan, and dividend equivalent credits on rabbi trust shares.

Deferred compensation plans for outside directors

We have a deferred compensation plan for our outside directors that allows participants to defer receipt of a portion of their annual compensation until a later date. Participants select hypothetical investment funds for their deferrals, which are credited with the hypothetical returns generated.

We also have a deferred stock compensation plan for our outside directors to further align the interests of directors with those of our shareholders that provides for payment of a portion of the directors' annual compensation in shares of our Class A common stock. Each director vests in the grant 25% every three months over the course of a year. Dividends paid by us are credited to each director's account and vest immediately. We do not issue new shares of common stock to directors. We repurchase shares of our Class A common stock in the open market to satisfy these awards, which are then held in the rabbi trust. Effective April 25, 2023, the plan was amended to include a maximum of 250,000 shares that may be issued under the plan, and to stipulate that no shares may be credited later than ten years from the date our shareholders last approved the plan.

The rabbi trust purchased 5,894 shares of our common stock on the open market at an average price of $238.73 for $1.4 million in 2023, 6,048 shares at an average price of $201.93 for $1.2 million in 2022, and 5,238 shares at an average price of $212.41

for $1.1 million in 2021 to satisfy the liability of the stock compensation plan for outside directors, and dividend equivalent credits on rabbi trust shares. The shares are distributed to the outside director from the rabbi trust upon ending board service. Director compensation charged to operations related to these awards totaled $0.9 million in 2023 and $0.8 million in both 2022 and 2021.

The following table sets forth a reconciliation of beginning and ending balances of our deferred executive compensation liability as of December 31:


(in thousands)
	2023		2022		2021

Deferred executive compensation, beginning of the year	$	25,760	$	27,208	$	32,223
Annual incentive plan awards	7,401		6,305		6,768
Long-term incentive plan awards	7,332		3,417		3,471

Employer match and hypothetical earnings on deferred compensation	2,828		404		3,043
Total plan awards and earnings	17,561		10,126		13,282
Total plan awards paid	(10,211)		(10,413)		(16,647)
Compensation deferred	1,809		2,528		4,765
Distributions from the deferred compensation plans	(313)		(742)		(811)
Forfeitures (1)	—		—		(473)
Funding of rabbi trust for deferred stock compensation plan for outside directors	(1,407)		(1,221)		(1,113)
Funding of rabbi trust for incentive compensation deferral plan (2)	(1,281)		(1,726)		(4,018)
Deferred executive compensation, end of the year	$	31,918	$	25,760	$	27,208

(1) Forfeitures are the result of plan participants who separated from service and are recognized in the year they occur.

(2) In 2023 and 2022, funding includes $0.9 million and $0.5 million, respectively, representing shares held back to satisfy tax withholding on rabbi trust distributions that reduced funding requirements for performance award deferrals.

Equity compensation plan

Our equity compensation plan ("ECP") is designed to reward executives, senior vice presidents and other selected officers and key employees who can have a significant impact on our long-term performance, and to further align the interests of such employees with those of our shareholders. The ECP permits grants of restricted shares, restricted share units and other share based awards, to be satisfied with shares of our Class A common stock or cash. The ECDC determines the form of the award to be granted at the beginning of each performance period. The number of shares of our Class A common stock authorized for grant under the ECP is 100,000 shares, with no one person able to receive more than 10,000 shares in a calendar year. We do not issue new shares of common stock to satisfy plan awards. Share awards are settled through the repurchase of our Class A common stock on the open market. Restricted share awards may be entitled to receive dividends payable during the performance period, or, if subject to performance goals, to receive dividend equivalents payable upon vesting. Dividend equivalents may provide for the crediting of interest or hypothetical investment experience, payable after expiration of the performance period. Vesting conditions are determined at the time the award is granted and may include continuation of employment for a specific period, satisfaction of performance goals within a defined performance period, and the satisfaction of any other terms and conditions as determined to be appropriate. The ECP expires December 31, 2031, unless earlier amended or terminated by our Board of Directors.

To date, all awards have been satisfied with shares of our Class A common stock. In 2023, we purchased 1,610 Class A shares with an average share price of $252.32 and a market value of $0.4 million to satisfy the liability for the 2020 plan year. In 2022, we purchased 1,786 Class A shares with an average share price of $190.68 and a market value of $0.3 million to satisfy the liability for the 2019 plan year. In 2021, we purchased 978 shares with an average share price of $242.01 and a market value of $0.2 million to satisfy the liability for the 2018 plan year. The total compensation charged to operations related to ECP awards was $4.0 million in 2023, $0.8 million in 2022, and $0.2 million in 2021. The increases in 2023 and 2022 compared to the respective prior periods resulted from increases in plan participants and our stock price. The Exchange and its subsidiaries reimburse us for earned compensation costs of employees performing administrative services, which can fluctuate each year based on the plan participants. The Exchange and its subsidiaries reimbursed us for approximately 35%, 3%, and 33% of the awards paid in 2023, 2022, and 2021 respectively. Unearned compensation expense of $2.9 million is expected to be recognized over a period of two years.

Note 11. Income Taxes

The provision for income taxes consists of the following for the years ended December 31:


(in thousands)
	2023		2022		2021

Current income tax expense	$	116,877	$	68,415	$	80,398
Deferred income tax (benefit) expense	(1,002)		9,468		(1,854)

Income tax expense	$	115,875	$	77,883	$	78,544

A reconciliation of the provision for income taxes, with amounts determined by applying the statutory federal income tax rate to pre-tax income, is as follows for the years ended December 31:


(in thousands)
	2023		2022		2021
Income tax at statutory rate	$	118,007	$	79,055	$	79,045



Other, net	(2,132)		(1,172)		(501)
Income tax expense	$	115,875	$	77,883	$	78,544

Temporary differences and carry-forwards, which give rise to deferred tax assets and liabilities, are as follows as of December 31:


(in thousands)
	2023		2022
Deferred tax assets:
Other employee benefits	$	17,781	$	16,358
Unrealized losses on investments	7,164		15,403
Deferred revenue	3,756		3,710
Allowance for management fee returned on cancelled policies	3,571		3,405


Current expected credit loss allowance (1)	2,661		1,112
Other (1)	3,709		2,790
Total deferred tax assets	38,642		42,778
Deferred tax liabilities:
Depreciation	31,126		37,682
Pension and other postretirement benefits	14,738		15,473
Prepaid expenses	2,001		1,731







Other	2,258		1,967
Total deferred tax liabilities	50,123		56,853
Net deferred tax liability	$	(11,481)	$	(14,075)

(1) 2022 amounts have been reclassified to conform to the current period presentation.

If we determine that any of our deferred tax assets will not result in future tax benefits, a valuation allowance must be established for the portion of the assets that are not expected to be realized. We had no valuation allowance recorded at December 31, 2023 or 2022.

We do not have any unrecognized tax benefit that, if recognized, would affect our effective tax rate as of December 31, 2023 and 2022. Any interest expense related to uncertain tax positions would be recognized in income tax expense.

Tax years ending December 31, 2022, 2021 and 2020 remain open to IRS examination. We are not currently under IRS audit, nor have we been notified of an upcoming IRS audit.

We are the attorney-in-fact for the subscribers (policyholders) at the Exchange, a reciprocal insurance exchange. In that capacity, we provide all services and facilities necessary to conduct the Exchange's insurance business. Indemnity and the Exchange together constitute a single insurance business. Consequently, we are not subject to state corporate income or franchise taxes in states where the Exchange conducts its business and the states collect premium tax in lieu of corporate income or franchise tax, as a result of the Exchange's remittance of premium taxes in those states.

Note 12. Capital Stock

Class A and B common stock

We have two classes of common stock: Class A, which has a dividend preference, and Class B, which has voting power and a conversion right. Each share of Class A common stock outstanding at the time of the declaration of any dividend upon shares of Class B common stock shall be entitled to a dividend payable at the same time, at the same record date, and in an amount at least equal to 2/3 of 1.0% of any dividend declared on each share of Class B common stock. We may declare and pay a dividend in respect to Class A common stock without any requirement that any dividend be declared and paid in respect to Class B common stock. Sole shareholder voting power is vested in Class B common stock except insofar as any applicable law shall permit Class A common shareholders to vote as a class in regards to any changes in the rights, preferences, and privileges attaching to Class A common stock. Holders of Class B shares may, at their option, convert their shares into Class A shares at the rate of 2,400 Class A shares per Class B share. There were no shares of Class B common stock converted into Class A common stock in 2023, 2022 or 2021.

Stock repurchases

Our Board of Directors authorized a stock repurchase program effective January 1, 1999 allowing the repurchase of our outstanding Class A nonvoting common stock. In 2011, our Board of Directors approved a continuation of the current stock repurchase program for a total of $150 million, with no time limitation. Treasury shares are recorded in the Statements of Financial Position at total cost based upon trade date. There were no shares repurchased under this program during 2023, 2022 or 2021. We had approximately $17.8 million of repurchase authority remaining under this program at December 31, 2023, based upon trade date.

We made stock repurchases in 2023, 2022, and 2021 outside of our publicly announced share repurchase program related to stock-based awards. See Note 10, "Incentive and Deferred Compensation Plans" for additional information.

Note 13. Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income ("AOCI") (loss) by component, including amounts reclassified to other comprehensive income ("OCI") (loss) and the related line item in the Statements of Operations where net income is presented, are as follows for the year ended December 31:


(in thousands)	2023						2022						2021
	Before Tax		Income Tax		Net		Before Tax		Income Tax		Net		Before Tax		Income Tax		Net
Investment securities:
AOCI (loss), beginning of year	$	(66,571)	$	(13,980)	$	(52,591)	$	7,722	$	1,621	$	6,101	$	29,384	$	6,171	$	23,213
OCI (loss) before reclassifications	26,021		5,464		20,557		(89,010)		(18,692)		(70,318)		(16,474)		(3,460)		(13,014)
Realized investment losses (gains)	6,719		1,411		5,308		14,050		2,951		11,099		(5,131)		(1,078)		(4,053)
Impairment losses (recoveries)	2,429		510		1,919		667		140		527		(57)		(12)		(45)

OCI (loss)	35,169		7,385		27,784		(74,293)		(15,601)		(58,692)		(21,662)		(4,550)		(17,112)
AOCI (loss), end of year	$	(31,402)	$	(6,595)	$	(24,807)	$	(66,571)	$	(13,980)	$	(52,591)	$	7,722	$	1,621	$	6,101

Pension and other postretirement plans:
AOCI (loss), beginning of year	$	57,186	$	12,009	$	45,177	$	(39,734)	$	(8,345)	$	(31,389)	$	(128,300)	$	(26,944)	$	(101,356)
OCI (loss) before reclassifications	(28,862)		(6,061)		(22,801)		88,148		18,511		69,637		71,032		14,917		56,115
Amortization of prior service costs (1)	1,446		304		1,142		1,443		303		1,140		1,428		300		1,128
Amortization of net actuarial (gain) loss (1)	(15,331)		(3,220)		(12,111)		7,329		1,540		5,789		16,106		3,382		12,724
OCI (loss)	(42,747)		(8,977)		(33,770)		96,920		20,354		76,566		88,566		18,599		69,967
AOCI (loss), end of year	$	14,439	$	3,032	$	11,407	$	57,186	$	12,009	$	45,177	$	(39,734)	$	(8,345)	$	(31,389)

Total
AOCI (loss), beginning of year	$	(9,385)	$	(1,971)	$	(7,414)	$	(32,012)	$	(6,724)	$	(25,288)	$	(98,916)	$	(20,773)	$	(78,143)
Investment securities	35,169		7,385		27,784		(74,293)		(15,601)		(58,692)		(21,662)		(4,550)		(17,112)
Pension and other postretirement plans	(42,747)		(8,977)		(33,770)		96,920		20,354		76,566		88,566		18,599		69,967
OCI (loss)	(7,578)		(1,592)		(5,986)		22,627		4,753		17,874		66,904		14,049		52,855
AOCI (loss), end of year	$	(16,963)	$	(3,563)	$	(13,400)	$	(9,385)	$	(1,971)	$	(7,414)	$	(32,012)	$	(6,724)	$	(25,288)

*(1)*These components of AOCI (loss) are included in the computation of net periodic pension (income) cost. See Note 9, "Postretirement Benefits", for additional information.

Note 14. Related Party

Management fee

A management fee is retained for services we provide under the subscriber's agreement with subscribers at the Exchange. The fee is a percentage of direct and affiliated assumed premiums written by the Exchange. This percentage rate is determined at least annually by our Board of Directors but cannot exceed 25%. The management fee rate charged the Exchange was 25% in 2023, 2022 and 2021. The Board of Directors elected to maintain the fee at 25% beginning January 1, 2024.

There is no provision in the subscriber's agreement for termination of our appointment as attorney-in-fact by the subscribers at the Exchange and the appointment is not affected by a policyholder's disability or incapacity.

Insurance holding company system

Most states have enacted legislation that regulates insurance holding company systems, defined as two or more affiliated persons, one or more of which is an insurer. The Exchange has the following wholly owned property and casualty subsidiaries: Erie Insurance Company, Erie Insurance Company of New York, Erie Insurance Property & Casualty Company and Flagship City Insurance Company, and a wholly owned life insurance company, Erie Family Life Insurance Company. Indemnity and the Exchange, and its wholly owned subsidiaries, meet the definition of an insurance holding company system.

Transactions within a holding company system affecting the member insurers of the holding company system must be fair and reasonable and any charges or fees for services performed must be reasonable. Approval by the applicable insurance commissioner is required prior to the consummation of certain transactions affecting the members within a holding company system.

Shared facilities

We leased the home office from the Exchange until December 31, 2021, at which time we purchased the home office properties from the Exchange at the appraised value of $97.5 million to align the ownership interest of these facilities with the functions being performed at the home office campus, which are mainly Indemnity's management operations. Lease expense totaled $6.1 million in 2021. Operating expenses, including utilities, cleaning, repairs, real estate taxes, property insurance, and leasehold improvements totaled $15.7 million in 2021. The Exchange and its subsidiaries reimbursed us for rent costs and related operating expenses of shared facilities used to perform administrative services, which are allocated based upon square footage occupied. Reimbursements related to the use of this space totaled $4.8 million in 2021.

Effective July 1, 2021, the Exchange and its subsidiaries entered into a service agreement with Indemnity to use space in Indemnity-owned properties. The home office was added to this agreement effective January 1, 2022. The amount charged is based on rental rates of like property in Erie, Pennsylvania and the square footage occupied. Income earned from the Exchange and its subsidiaries for the use of space totaled $2.6 million, $2.2 million and $0.2 million in 2023, 2022, and 2021, respectively. Operating expenses for Indemnity-owned properties under this service agreement include utilities, cleaning, repairs, real estate taxes, property insurance, and leasehold improvements. These expenses totaled $20.0 million, $19.5 million, and $0.8 million in 2023, 2022, and 2021, respectively. The Exchange and its subsidiaries reimbursed us for operating expenses of shared facilities used to perform administrative services, which are allocated based upon square footage occupied. Reimbursements related to the use of this space totaled $5.2 million, $4.1 million, and $0.1 million in 2023, 2022, and 2021, respectively.

Other loans receivable

In December 2023, we issued two senior secured loans totaling $13.6 million to fund a real estate development project supporting revitalization efforts in our community. Ownership in the project consists of related party investors, including affiliate entities and two Indemnity directors, as well as other unrelated investors. The loans, net of current expected credit loss allowances, are reported in "Other assets" in our Statement of Financial Position, with changes in credit loss allowances totaling $7.3 million reported in "Net impairment (losses) recoveries recognized in earnings" in our Statement of Operations.

The first loan issued for $4.6 million accrues paid-in-kind interest at a fixed rate of 5% and matures December 15, 2027, with both principal and accrued interest due at maturity. The second loan issued for $9.0 million accrues paid-in-kind interest at a fixed rate of 5% and matures December 15, 2033, with both principal and accrued interest due at maturity.

Note 15. Concentrations of Credit Risk

Financial instruments could potentially expose us to concentrations of credit risk, including our unsecured receivables from the Exchange. The majority of our revenue and receivables are from the Exchange and its affiliates. See also Note 1, "Nature of Operations". Net management fee amounts and other reimbursements due from the Exchange and its affiliates were $625.3 million and $524.9 million at December 31, 2023 and 2022, respectively, which includes a current expected credit loss allowance of $0.6 million in both periods.

Note 16. Commitments and Contingencies

We have an agreement with a bank for an agent loan participation program. The maximum amount of loans to be funded through this program is $100 million. We have committed to fund a minimum of 30% of each loan executed through this program. As of December 31, 2023, loans executed under this agreement totaled $59.1 million, of which our portion of the loans is $20.6 million. Additionally, we have agreed to guarantee a portion of the funding provided by the other participants in the program in the event of default. As of December 31, 2023, our maximum potential amount of future payments on the guaranteed portion is $6.7 million. All loan payments under the participation program are current as of December 31, 2023.

We also have contingent obligations for guarantees related to certain real estate development projects supporting revitalization efforts in our community. As of December 31, 2023, our maximum potential obligation related to the guarantees is $7.0 million.

We are involved in litigation arising in the ordinary course of conducting business. In accordance with current accounting standards for loss contingencies and based upon information currently known to us, we establish reserves for litigation when it is probable that a loss associated with a claim or proceeding has been incurred and the amount of the loss or range of loss can be reasonably estimated. When no amount within the range of loss is a better estimate than any other amount, we accrue the minimum amount of the estimable loss. To the extent that such litigation against us may have an exposure to a loss in excess of the amount we have accrued, we believe that such excess would not be material to our financial condition, results of operations, or cash flows. Legal fees are expensed as incurred. We believe that our accruals for legal proceedings are appropriate and, individually and in the aggregate, are not expected to be material to our financial condition, results of operations, or cash flows.

We review all litigation on an ongoing basis when making accrual and disclosure decisions. For certain legal proceedings, we cannot reasonably estimate losses or a range of loss, if any, particularly for proceedings that are in their early stages of development or where the plaintiffs seek indeterminate damages. Various factors, including, but not limited to, the outcome of potentially lengthy discovery and the resolution of important factual questions, may need to be determined before probability can be established or before a loss or range of loss can be reasonably estimated. If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. In the event that a legal proceeding results in a substantial judgment against, or settlement by, us, there can be no assurance that any resulting liability or financial commitment would not have a material adverse effect on our financial condition, results of operations, or cash flows.

Note 17. Supplementary Data on Cash Flows

A reconciliation of net income to net cash provided by operating activities as presented in the Statements of Cash Flows is as follows for the years ended December 31:


(in thousands)	2023		2022		2021

Cash flows from operating activities:
Net income	$	446,061	$	298,569	$	297,860
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	47,415		46,166		37,210
Deferred income tax (benefit) expense	(1,002)		9,468		(1,854)

Lease amortization expense	6,177		5,554		11,887
Losses (gains) and impairment losses (recoveries) on investments	15,604		27,953		(2,307)

Loss (gain) on disposal of fixed assets	1,607		172		(13)
Net investment loss (income)	13,772		12,916		(25,944)
Increase (decrease) in deferred compensation	6,143		(1,463)		(5,006)

(Increase) decrease in receivables from affiliates	(100,401)		(45,814)		15,514
Increase in accrued investment income	(1,157)		(1,998)		(157)

Increase in pension asset	(101,250)		—		—
Increase in pension liability	—		15,647		52,755
Decrease (increase) in prepaid expenses and other assets	7,729		(25,843)		12,161
Increase (decrease) in accounts payable and accrued expenses	7,237		18,993		(4,823)
Increase in commissions payable	53,681		29,282		8,408
(Decrease) increase in accrued agent incentive compensation	(27,089)		(25,271)		10,279
Increase (decrease) in contract liability	6,678		1,821		(3,176)
Net cash provided by operating activities	$	381,205	$	366,152	$	402,794

Note 18. Subsequent Events

No items were identified in this period subsequent to the financial statement date that required adjustment or additional disclosure, other than the disclosure made in Note 9, "Postretirement Benefits" regarding the January 2024 pension contribution.

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