Item 1. FINANCIAL STATEMENTS

ERIE INDEMNITY COMPANY

STATEMENTS OF OPERATIONS (UNAUDITED)

(dollars in thousands, except per share data)

			Three months ended
			March 31,
			2022						2021
Operating revenue
Management fee revenue - policy issuance and renewal services			$	487,992					$	455,718
Management fee revenue - administrative services			14,313						14,847
Administrative services reimbursement revenue			163,327						153,533
Service agreement revenue			6,478						6,079
Total operating revenue			672,110						630,177
Operating expenses
Cost of operations - policy issuance and renewal services			424,471						400,549
Cost of operations - administrative services			163,327						153,533
Total operating expenses			587,798						554,082
Operating income			84,312						76,095
Investment income
Net investment income			10,504						17,097
Net realized and unrealized investment (losses) gains			(7,279)						804
Net impairment (losses) recoveries recognized in earnings			(216)						87
Total investment income			3,009						17,988
Interest expense			999						1,009
Other income (expense)			473						(519)
Income before income taxes			86,795						92,555
Income tax expense			18,176						18,989
Net income			$	68,619					$	73,566
Net income per share
Class A common stock – basic			$	1.47					$	1.58
Class A common stock – diluted			$	1.31					$	1.41
Class B common stock – basic and diluted			$	221					$	237
Weighted average shares outstanding – Basic
Class A common stock			46,188,761						46,188,860
Class B common stock			2,542						2,542
Weighted average shares outstanding – Diluted
Class A common stock			52,300,501						52,315,958
Class B common stock			2,542						2,542
Dividends declared per share
Class A common stock			$	1.110					$	1.035
Class B common stock			$	166.50					$	155.25

See accompanying notes to Financial Statements. See Note 11, "Accumulated Other Comprehensive Income (Loss)", for amounts reclassified out of accumulated other comprehensive income (loss) into the Statements of Operations.

ERIE INDEMNITY COMPANY

STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

			Three months ended
			March 31,
			2022						2021
Net income			$	68,619					$	73,566
Other comprehensive loss, net of tax
Change in unrealized holding losses on available-for-sale securities			(26,919)						(8,752)
Amortization of prior service costs and net actuarial loss on pension and other postretirement plans			1,730						3,463
Total other comprehensive loss, net of tax			(25,189)						(5,289)
Comprehensive income			$	43,430					$	68,277

See accompanying notes to Financial Statements. See Note 11, "Accumulated Other Comprehensive Income (Loss)", for amounts reclassified out of accumulated other comprehensive income (loss) into the Statements of Operations.

ERIE INDEMNITY COMPANY

STATEMENTS OF FINANCIAL POSITION

(dollars in thousands, except per share data)

						March 31,						December 31,
						2022						2021
Assets						(Unaudited)
Current assets:
Cash and cash equivalents						$	141,305					$	183,702
Available-for-sale securities						46,155						38,396
Receivables from Erie Insurance Exchange and affiliates, net						478,754						479,123
Prepaid expenses and other current assets						78,877						56,206
Accrued investment income						6,255						6,303
Total current assets						751,346						763,730
Available-for-sale securities, net						877,165						907,689
Equity securities						78,069						87,743
Fixed assets, net						396,072						374,802
Agent loans, net						61,579						58,683
Deferred income taxes, net						9,818						145
Other assets						49,804						49,265
Total assets						$	2,223,853					$	2,242,057
Liabilities and shareholders' equity
Current liabilities:
Commissions payable						$	287,989					$	270,746
Agent bonuses						31,507						120,437
Accounts payable and accrued liabilities						186,386						138,317
Dividends payable						51,693						51,693
Contract liability						34,872						34,935
Deferred executive compensation						6,752						12,637
Current portion of long-term borrowings						2,132						2,098
Total current liabilities						601,331						630,863
Defined benefit pension plans						139,231						130,383
Long-term borrowings						91,177						91,734
Contract liability						17,493						17,686
Deferred executive compensation						13,821						14,571
Other long-term liabilities						26,600						14,342
Total liabilities						889,653						899,579
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						16,481						16,496
Accumulated other comprehensive loss						(50,477)						(25,288)
Retained earnings						2,512,116						2,495,190
Total contributed capital and retained earnings						2,480,290						2,488,568
Treasury stock, at cost; 22,110,132 shares held						(1,168,332)						(1,167,828)
Deferred compensation						22,242						21,738
Total shareholders’ equity						1,334,200						1,342,478
Total liabilities and shareholders’ equity						$	2,223,853					$	2,242,057

See accompanying notes to Financial Statements.

ERIE INDEMNITY COMPANY

STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

Three months ended March 31, 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			Retained earnings			Treasury stock			Deferred compensation			Total shareholders' equity
Balance, December 31, 2021			$	1,992		$	178		$	16,496		$	(25,288)		$	2,495,190		$	(1,167,828)		$	21,738		$	1,342,478
Net income															68,619									68,619
Other comprehensive loss												(25,189)												(25,189)
Dividends declared:
Class A $1.11 per share															(51,270)									(51,270)
Class B $166.50 per share															(423)									(423)
Net purchase of treasury stock (1)									(15)									0						(15)
Deferred compensation																		(802)			802			0
Rabbi trust distribution (2)																		298			(298)			0
Balance, March 31, 2022			$	1,992		$	178		$	16,481		$	(50,477)		$	2,512,116		$	(1,168,332)		$	22,242		$	1,334,200

			Class A common stock			Class B common stock			Additional paid-in-capital			Accumulated other comprehensive loss			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															73,566									73,566
Other comprehensive loss												(5,289)												(5,289)
Dividends declared:
Class A $1.035 per share															(47,806)									(47,806)
Class B $155.25 per share															(395)									(395)
Net purchase of treasury stock (1)									9									0						9
Deferred compensation																		(846)			846			0
Rabbi trust distribution (2)																		876			(876)			0
Balance, March 31, 2021			$	1,992		$	178		$	16,496		$	(83,432)		$	2,418,989		$	(1,163,640)		$	17,550		$	1,208,133

*(1)*Net purchases of treasury stock in 2022 and 2021 include the repurchase of our Class A common stock in the open market that were subsequently distributed to satisfy stock based compensation awards.

*(2)*Distributions of our Class A shares were made from the rabbi trust to an incentive compensation deferral plan participant in 2022 and a retired director in 2021.

See accompanying notes to Financial Statements.

ERIE INDEMNITY COMPANY

STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

						Three months ended
						March 31,
						2022						2021
Cash flows from operating activities
Management fee received						$	490,360					$	486,040
Administrative services reimbursements received						193,919						157,692
Service agreement fee received						6,304						6,079
Net investment income received						9,510						9,873
Commissions paid to agents						(230,831)						(219,346)
Agents bonuses paid						(122,093)						(111,099)
Salaries and wages paid						(71,228)						(68,373)
Employee benefits paid						(11,470)						(8,152)
General operating expenses paid						(57,477)						(56,456)
Administrative services expenses paid						(182,437)						(161,731)
Income taxes recovered (paid)						17						(1)
Interest paid						(1,021)						(1,044)
Net cash provided by operating activities						23,553						33,482
Cash flows from investing activities
Purchase of investments:
Available-for-sale securities						(91,055)						(75,183)
Equity securities						(4,619)						(18,819)
Other investments						—						(349)
Proceeds from investments:
Available-for-sale securities sales						48,291						31,238
Available-for-sale securities maturities/calls						42,699						45,145
Equity securities						8,984						16,326
Other investments						371						819
Purchase of fixed assets						(15,458)						(11,146)
Proceeds from disposal of fixed assets						30						0
Loans to agents						(5,195)						(997)
Collections on agent loans						2,220						2,138
Net cash used in investing activities						(13,732)						(10,828)
Cash flows from financing activities
Dividends paid to shareholders						(51,693)						(48,200)
Net payments on long-term borrowings						(525)						(502)
Net cash used in financing activities						(52,218)						(48,702)
Net decrease in cash and cash equivalents						(42,397)						(26,048)
Cash and cash equivalents, beginning of period						183,702						161,240
Cash and cash equivalents, end of period						$	141,305					$	135,192
Supplemental disclosure of noncash transactions
Liability incurred to purchase fixed assets						$	17,673					$	17,098
Operating lease assets obtained in exchange for new operating lease liabilities						$	1,008					$	68

See accompanying notes to Financial Statements.

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Nature of Operations

Erie Indemnity Company ("Indemnity", "we", "us", "our") is a publicly held Pennsylvania business corporation that has since its incorporation in 1925 served as the attorney-in-fact for the subscribers (policyholders) at the Erie Insurance Exchange ("Exchange"). The Exchange, which also commenced business in 1925, is a Pennsylvania-domiciled reciprocal insurer that writes property and casualty insurance.

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

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

By virtue of 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 an attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the Exchange with respect to its administrative services. The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. Claims handling services include costs incurred in the claims process, including the adjustment, investigation, defense, recording and payment functions. Life insurance management services include costs incurred in the management and processing of life insurance business. Investment management services are related to investment trading activity, accounting and all other functions attributable to the investment of funds. Included in these expenses are allocations of costs for departments that support these administrative functions. The amounts incurred for these services are reimbursed to Indemnity at cost in accordance with the subscriber's agreement and the service agreements. State insurance regulations require that intercompany service agreements and any material amendments be approved in advance by the state insurance department.

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

Coronavirus ("COVID-19") pandemic

In March 2020, the outbreak of the coronavirus ("COVID-19") was declared a global pandemic and pandemic conditions have created an inflationary environment which may impact estimated loss reserves and future premium rates of the Exchange. The uncertainty resulting from COVID-19 and subsequent resulting conditions continues to evolve and the ultimate impact and duration remains uncertain at this time. We are unable to predict the duration or extent of the business disruption or the financial impact given the ongoing development of the pandemic and its impact on the economy and financial markets.

Note 2. Significant Accounting Policies

Basis of presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. For further information, refer to the financial statements and footnotes included in our Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission on February 24, 2022.

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.

Note 3. Revenue

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

The transaction price, including management fee revenue and administrative service reimbursement revenue, includes variable consideration and is allocated based on the estimated standalone selling prices developed using industry information and other available information for similar services. A constraining estimate of variable consideration exists related to the potential for management fees to be returned if a policy were to be cancelled mid-term. Management fees are returned to the Exchange when policyholders cancel their insurance coverage mid-term and premiums are refunded to them. The constraining estimate is determined using the expected value method, based on both historical and current information. The estimated transaction price, as reduced by the constraint, reflects consideration expected for performance of our services. We update the transaction price and the related allocation at least annually based upon the most recent information available or more frequently if there have been significant changes in any components considered in the transaction price.

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

The Exchange, by virtue of its legal structure as a reciprocal insurer, does not have any employees or officers. Therefore, it enters into contractual relationships by and through an attorney-in-fact. Indemnity serves as the attorney-in-fact on behalf of the Exchange with respect to its administrative services in accordance with the subscriber's agreement. The Exchange's insurance subsidiaries also utilize Indemnity for these services in accordance with the service agreements between each of the subsidiaries and Indemnity. Collectively, these services represent a second performance obligation under the subscriber’s agreement and the service agreements. The revenue allocated to this performance obligation is recognized over a four-year period representing the time over which these services are provided. The portion of revenue not yet earned is recorded as a contract liability in the Statements of Financial Position. During the three months ending March 31, 2022, we recognized revenue of $12.7 million that was included in the contract liabilities balance as of December 31, 2021. During the three months ended March 31, 2021, we recognized revenue of $13.3 million that was included in the contract liabilities balance as of December 31, 2020. The administrative services expenses we incur and the related reimbursements we receive are recorded gross in the Statements of Operations.

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

The following table disaggregates revenue by our two performance obligations:

			Three months ended March 31,
(in thousands)			2022			2021
Management fee revenue - policy issuance and renewal services			$	487,992		$	455,718
Management fee revenue - administrative services			14,313			14,847
Administrative services reimbursement revenue			163,327			153,533
Total administrative services revenue			$	177,640		$	168,380

Note 4. Earnings Per Share

Class A and Class B basic earnings per share and Class B diluted earnings per share are calculated under the two-class method. The two-class method allocates earnings to each class of stock based upon its dividend rights. Class B shares are convertible into Class A shares at a conversion ratio of 2,400 to 1. See Note 10, "Capital Stock".

Class A diluted earnings per share 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.

A reconciliation of the numerators and denominators used in the basic and diluted per-share computations is presented as follows for each class of common stock:

						Three months ended March 31,
						2022																		2021
(dollars in thousands, except per share data)						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						$	68,057					46,188,761						$	1.47					$	72,964					46,188,860						$	1.58
Dilutive effect of stock-based awards						0						10,940						—						0						26,298						—
Assumed conversion of Class B shares						562						6,100,800						—						602						6,100,800						—
Class A – Diluted EPS:
Income available to Class A stockholders on Class A equivalent shares						$	68,619					52,300,501						$	1.31					$	73,566					52,315,958						$	1.41
Class B – Basic and diluted EPS:
Income available to Class B stockholders						$	562					2,542						$	221					$	602					2,542						$	237

Note 5. Fair Value

Financial instruments carried at fair value

Our available-for-sale and equity securities are recorded at fair value, which is the price that would be received to sell the asset in an orderly transaction between willing market participants as of the measurement date.

Valuation techniques used to derive the fair value of our available-for-sale and equity securities are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources. Unobservable inputs reflect our own assumptions regarding fair market value for these securities. Financial instruments are categorized based upon the following characteristics or inputs to the valuation techniques:

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

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

• Level 3 – Unobservable inputs for the asset or liability.

Estimates of fair values for our investment portfolio are obtained primarily from a nationally recognized pricing service. Our Level 1 securities are valued using an exchange traded price provided by the pricing service. Pricing service valuations for Level 2 securities include multiple verifiable, observable inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data. Pricing service valuations for Level 3 securities are based upon proprietary models and are used when observable inputs are not available or in illiquid markets.

Although virtually all of our prices are obtained from third party sources, we also perform internal pricing reviews, including evaluating the methodology and inputs used to ensure that we determine the proper classification level of the financial instrument and reviewing securities with price changes that vary significantly from current market conditions or independent price sources. Price variances are investigated and corroborated by market data and transaction volumes. We have reviewed the pricing methodologies of our pricing service as well as other observable inputs and believe that the prices adequately consider market activity in determining fair value.

In limited circumstances we adjust the price received from the pricing service when, in our judgment, a better reflection of fair value is available based upon corroborating information and our knowledge and monitoring of market conditions such as a disparity in price of comparable securities and/or non-binding broker quotes. In other circumstances, certain securities are internally priced because prices are not provided by the pricing service.

When a price from the pricing service is not available, values are determined by obtaining broker/dealer quotes and/or market comparables. When available, we obtain multiple quotes for the same security. The ultimate value for these securities is determined based upon our best estimate of fair value using corroborating market information. As of March 31, 2022, 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:

						March 31, 2022
(in thousands)						Total						Level 1						Level 2						Level 3
Available-for-sale securities:
Corporate debt securities						$	577,724					$	0					$	566,797					$	10,927
Collateralized debt obligations						101,297						0						101,297						0
Commercial mortgage-backed securities						81,101						0						70,504						10,597
Residential mortgage-backed securities						143,815						0						143,603						212
Other debt securities						18,444						0						18,444						0
U.S. Treasury						939						0						939						0
Total available-for-sale securities						923,320						0						901,584						21,736
Equity securities:
Financial services sector						61,917						632						59,268						2,017
Utilities sector						6,886						0						6,886						0
Energy sector						6,177						12						6,165						0
Consumer sector						3,089						0						3,089						0
Total equity securities						78,069						644						75,408						2,017
Total						$	1,001,389					$	644					$	976,992					$	23,753

						December 31, 2021
(in thousands)						Total						Level 1						Level 2						Level 3
Available-for-sale securities:
Corporate debt securities						$	573,165					$	0					$	567,909					$	5,256
Collateralized debt obligations						115,462						0						115,462						0
Commercial mortgage-backed securities						89,324						0						73,596						15,728
Residential mortgage-backed securities						139,922						0						131,108						8,814
Other debt securities						23,920						0						23,920						0
U.S. Treasury						4,292						0						4,292						0
Total available-for-sale securities						946,085						0						916,287						29,798
Equity securities:
Financial services sector						71,722						1,624						68,015						2,083
Utilities sector						6,259						0						6,259						0
Energy sector						6,448						10						6,438						0
Consumer sector						3,314						0						3,314						0
Total equity securities						87,743						1,634						84,026						2,083
Total						$	1,033,828					$	1,634					$	1,000,313					$	31,881

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 – Year-to-Date Change:

(in thousands)						Beginning balance at December 31, 2021						Included in earnings(1)						Included in other comprehensive income						Purchases						Sales						Transfers into Level 3(2)						Transfers out of Level 3(2)						Ending balance at March 31, 2022
Available-for-sale securities:
Corporate debt securities						$	5,256					$	13					$	(55)					$	3,984					$	(508)					$	3,549					$	(1,312)					$	10,927
Commercial mortgage-backed securities						15,728						(116)						(839)						0						(500)						1,460						(5,136)						10,597
Residential mortgage-backed securities						8,814						25						(336)						0						(2,755)						0						(5,536)						212
Total available-for-sale securities						29,798						(78)						(1,230)						3,984						(3,763)						5,009						(11,984)						21,736
Equity securities						2,083						(66)						0						0						0						0						0						2,017
Total Level 3 securities						$	31,881					$	(144)					$	(1,230)					$	3,984					$	(3,763)					$	5,009					$	(11,984)					$	23,753

Level 3 Assets – Year-to-Date Change:

(in thousands)						Beginning balance at December 31, 2020						Included in earnings(1)						Included in other comprehensive income						Purchases						Sales						Transfers into Level 3(2)						Transfers out of Level 3(2)						Ending balance at March 31, 2021
Available-for-sale securities:
Corporate debt securities						$	5,825					$	6					$	42					$	782					$	(370)					$	1,202					$	(2,027)					$	5,460
Commercial mortgage-backed securities						19,462						(95)						(437)						2,265						(5)						1,230						(6,179)						16,241
Residential mortgage-backed securities						937						(3)						(1)						0						(252)						0						(208)						473
Other debt securities						0						0						2						528						(9)						0						0						521
Total available-for-sale securities						26,224						(92)						(394)						3,575						(636)						2,432						(8,414)						22,695
Equity securities						0						0						0						0						0						1,090						0						1,090
Total Level 3 securities						$	26,224					$	(92)					$	(394)					$	3,575					$	(636)					$	3,522					$	(8,414)					$	23,785

*(1)*These amounts are reported as net investment income and net realized and unrealized investment gains (losses) for each of the periods presented above.

*(2)*Transfers into and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs.

Financial instruments not carried at fair value

The following table presents the carrying values and fair values of financial instruments categorized as Level 3 in the fair value hierarchy that are recorded at carrying value as of:

						March 31, 2022												December 31, 2021
(in thousands)						Carrying value						Fair value						Carrying value						Fair value
Agent loans (1)						$	69,342					$	64,826					$	66,368					$	68,957
Long-term borrowings (2)						93,546						93,294						94,070						103,981

*(1)*The discount rate used to calculate fair value at March 31, 2022 is reflective of an increase in the BB+ financial yield curve.

*(2)*The discount rate used to calculate fair value at March 31, 2022 is reflective of an increase in U.S. Treasury bond yields.

Note 6. Investments

Available-for-sale securities

See Note 5, "Fair Value" for additional fair value disclosures. The following tables summarize the cost and fair value, net of credit loss allowance, of our available-for-sale securities as of:

						March 31, 2022
(in thousands)						Amortized cost						Gross unrealized gains						Gross unrealized losses						Estimated fair value
Corporate debt securities						$	591,772					$	1,304					$	15,352					$	577,724
Collateralized debt obligations						102,058						218						979						101,297
Commercial mortgage-backed securities						84,624						104						3,627						81,101
Residential mortgage-backed securities						150,841						24						7,050						143,815
Other debt securities						19,292						45						893						18,444
U.S. Treasury						997						0						58						939
Total available-for-sale securities, net						$	949,584					$	1,695					$	27,959					$	923,320

						December 31, 2021
(in thousands)						Amortized cost						Gross unrealized gains						Gross unrealized losses						Estimated fair value
Corporate debt securities						$	565,997					$	9,663					$	2,495					$	573,165
Collateralized debt obligations						115,344						456						338						115,462
Commercial mortgage-backed securities						88,636						1,465						777						89,324
Residential mortgage-backed securities						140,217						1,007						1,302						139,922
Other debt securities						23,859						197						136						23,920
U.S. Treasury						4,226						73						7						4,292
Total available-for-sale securities, net						$	938,279					$	12,861					$	5,055					$	946,085

The amortized cost and estimated fair value of available-for-sale securities at March 31, 2022 are shown below by remaining contractual term to maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

						March 31, 2022
						Amortized						Estimated
(in thousands)						cost						fair value
Due in one year or less						$	46,013					$	46,104
Due after one year through five years						401,680						392,696
Due after five years through ten years						204,733						200,244
Due after ten years						297,158						284,276
Total available-for-sale securities (1)						$	949,584					$	923,320

*(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 Statements of Financial Position at March 31, 2022.

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:

						March 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						$	421,303					$	13,257					$	30,331					$	2,095					$	451,634					$	15,352					892
Collateralized debt obligations						74,277						771						14,477						208						88,754						979						135
Commercial mortgage-backed securities						67,202						3,027						2,894						600						70,096						3,627						125
Residential mortgage-backed securities						129,659						6,348						6,539						702						136,198						7,050						137
Other debt securities						16,382						893						0						0						16,382						893						35
U.S. Treasury						939						58						0						0						939						58						2
Total available-for-sale securities						$	709,762					$	24,354					$	54,241					$	3,605					$	764,003					$	27,959					1,326
Quality breakdown of available-for-sale securities:
Investment grade						$	614,243					$	21,202					$	45,917					$	3,275					$	660,160					$	24,477					634
Non-investment grade						95,519						3,152						8,324						330						103,843						3,482						692
Total available-for-sale securities						$	709,762					$	24,354					$	54,241					$	3,605					$	764,003					$	27,959					1,326

						December 31, 2021
						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						$	179,281					$	1,912					$	12,494					$	583					$	191,775					$	2,495					441
Collateralized debt obligations						64,270						278						9,370						60						73,640						338						104
Commercial mortgage-backed securities						28,001						595						917						182						28,918						777						61
Residential mortgage-backed securities						89,460						1,278						441						24						89,901						1,302						98
Other debt securities						14,576						136						0						0						14,576						136						24
U.S. Treasury						388						7						0						0						388						7						1
Total available-for-sale securities						$	375,976					$	4,206					$	23,222					$	849					$	399,198					$	5,055					729
Quality breakdown of available-for-sale securities:
Investment grade						$	330,697					$	3,801					$	17,112					$	434					$	347,809					$	4,235					366
Non-investment grade						45,279						405						6,110						415						51,389						820						363
Total available-for-sale securities						$	375,976					$	4,206					$	23,222					$	849					$	399,198					$	5,055					729

Credit loss allowance on investments

The current expected credit loss allowance on agent loans was $1.0 million at both March 31, 2022 and December 31, 2021. The current expected credit loss allowance on available-for-sale securities was $0.2 million at March 31, 2022 and less than $0.1 million at December 31, 2021.

Net investment income

Investment income, net of expenses, was generated from the following portfolios for the three months ended March 31:

(in thousands)																		2022						2021
Available-for-sale securities																		$	6,358					$	6,197
Equity securities																		988						1,202
Limited partnerships (1)																		2,775						9,046
Cash equivalents and other																		785						977
Total investment income																		10,906						17,422
Less: investment expenses																		402						325
Investment income, net of expenses																		$	10,504					$	17,097

*(1)*Equity in earnings (losses) of limited partnerships includes 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.

Realized and unrealized investment gains (losses)

Realized and unrealized gains (losses) on investments were as follows for the three months ended March 31:

(in thousands)																		2022						2021
Available-for-sale securities:
Gross realized gains																		$	491					$	1,923
Gross realized losses																		(2,571)						(440)
Net realized (losses) gains on available-for-sale securities																		(2,080)						1,483
Equity securities																		(5,201)						(679)
Miscellaneous																		2						0
Net realized and unrealized investment (losses) gains																		$	(7,279)					$	804

The portion of net unrealized gains and losses recognized during the reporting period related to equity securities held at the reporting date is calculated as follows for the three months ended March 31:

(in thousands)																		2022						2021
Equity securities:
Net losses recognized during the period																		$	(5,201)					$	(679)
Less: net losses recognized on securities sold																		(280)						(289)
Net unrealized losses recognized on securities held at reporting date																		$	(4,921)					$	(390)

Net impairment (losses) recoveries recognized in earnings

Impairments on available-for-sale securities were as follows for the three months ended March 31:

(in thousands)																		2022						2021
Available-for-sale securities:
Intent to sell																		$	(70)					$	—
Credit (impaired) recovered																		(146)						87
Net impairment (losses) recoveries recognized in earnings																		$	(216)					$	87

Note 7. Borrowing Arrangements

Bank line of credit

As of March 31, 2022, 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 March 31, 2022, a total of $99.1 million remains available under the facility due to $0.9 million outstanding letters of credit, which reduces the availability for letters of credit to $24.1 million. We had no borrowings outstanding on our line of credit as of March 31, 2022. Investments with a fair value of $110.9 million were pledged as collateral on the line at March 31, 2022. The investments pledged as collateral 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 March 31, 2022. The bank requires compliance with certain covenants, which include leverage ratios and debt restrictions, for our line of credit. We are in compliance with all covenants at March 31, 2022.

Term loan credit facility

In 2016, we entered into a credit agreement for a $100 million senior secured draw term loan credit facility ("Credit Facility") for the acquisition of real property and construction of an office building that now serves as part of our principal headquarters. On January 1, 2019, the Credit Facility converted to a fully-amortized term loan with monthly payments of principal and interest at a fixed rate of 4.35% over a period of 28 years. Investments with a fair value of $110.0 million were pledged as collateral for the facility and are reported as available-for-sale securities and cash and cash equivalents on our Statement of Financial Position as of March 31, 2022. The bank requires compliance with certain covenants, which include leverage ratios, debt restrictions and minimum net worth, for our Credit Facility. We are in compliance with all covenants at March 31, 2022.

The remaining unpaid balance from the Credit Facility is reported at carrying value, net of unamortized loan origination and commitment fees, as long-term borrowings on our Statements of Financial Position. See Note 5, "Fair Value" for the estimated fair value of these borrowings.

Annual principal and interest payments

The following table sets forth future principal and interest payments:

(in thousands)
Year						Principal payments			Interest payments			Total
2022			$			1,574			$	3,063		$	4,637
2023						2,226			3,957			6,183
2024						2,302			3,881			6,183
2025						2,448			3,735			6,183
2026						2,556			3,627			6,183
Thereafter						82,440			41,108			123,548

Note 8. 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 for certain members of executive and senior management. Although we are the sponsor of these postretirement plans and record the funded status of these plans, the Exchange and its subsidiaries reimburse us for approximately 58% of the annual benefit expense of these plans, which represents pension benefits for employees performing administrative services and their allocated share of costs for employees in departments that support the administrative functions.

The cost of our pension plans are as follows:

						Three months ended March 31,
(in thousands)						2022						2021
Service cost for benefits earned						$	12,560					$	13,260
Interest cost on benefits obligation						9,941						9,206
Expected return on plan assets						(13,639)						(12,569)
Prior service cost amortization						361						357
Net actuarial loss amortization						1,830						4,027
Pension plan cost (1)						$	11,053					$	14,281

*(1)*The components of pension plan costs other than the service cost component are included in the line item "Other income (expense)" in the Statements of Operations after reimbursements from the Exchange and its subsidiaries.

Note 9. Income Taxes

Income tax expense is provided on an interim basis based upon our estimate of the annual effective income tax rate, adjusted each quarter for discrete items. For the three months ended March 31, 2022 and 2021, our effective tax rate was 20.9% and 20.5%, respectively.

Note 10. Capital Stock

Class A and B 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 during the three months ended March 31, 2022 and the year ended December 31, 2021. There is no provision for conversion of Class A shares to Class B shares, and Class B shares surrendered for conversion cannot be reissued.

Stock repurchases

In 2011, our Board of Directors approved a continuation of the current stock repurchase program of $150 million, with no time limitation. There were no shares repurchased under this program during the three months ended March 31, 2022 and the year ended December 31, 2021. We had approximately $17.8 million of repurchase authority remaining under this program at March 31, 2022.

Note 11. 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:

						Three months ended												Three months ended
						March 31, 2022												March 31, 2021
(in thousands)						Before Tax			Income Tax			Net						Before Tax			Income Tax			Net
Investment securities:
AOCI, beginning of period						$	7,722		$	1,621		$	6,101					$	29,384		$	6,171		$	23,213
OCI (loss) before reclassifications						(36,371)			(7,638)			(28,733)						(9,508)			(1,997)			(7,511)
Realized investment losses (gains)						2,080			437			1,643						(1,483)			(311)			(1,172)
Impairment losses (recoveries)						216			45			171						(87)			(18)			(69)
OCI (loss)						(34,075)			(7,156)			(26,919)						(11,078)			(2,326)			(8,752)
AOCI (loss), end of period						$	(26,353)		$	(5,535)		$	(20,818)					$	18,306		$	3,845		$	14,461
Pension and other postretirement plans:
AOCI (loss), beginning of period						$	(39,734)		$	(8,345)		$	(31,389)					$	(128,300)		$	(26,944)		$	(101,356)
Amortization of prior service costs						361			76			285						357			75			282
Amortization of net actuarial loss						1,830			385			1,445						4,026			845			3,181
OCI						2,191			461			1,730						4,383			920			3,463
AOCI (loss), end of period						$	(37,543)		$	(7,884)		$	(29,659)					$	(123,917)		$	(26,024)		$	(97,893)
Total
AOCI (loss), beginning of period						$	(32,012)		$	(6,724)		$	(25,288)					$	(98,916)		$	(20,773)		$	(78,143)
Investment securities						(34,075)			(7,156)			(26,919)						(11,078)			(2,326)			(8,752)
Pension and other postretirement plans						2,191			461			1,730						4,383			920			3,463
OCI (loss)						(31,884)			(6,695)			(25,189)						(6,695)			(1,406)			(5,289)
AOCI (loss), end of period						$	(63,896)		$	(13,419)		$	(50,477)					$	(105,611)		$	(22,179)		$	(83,432)

Note 12. Concentrations of Credit Risk

Financial instruments could potentially expose us to concentrations of credit risk, including unsecured receivables from the Exchange. A large 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 $478.8 million and $479.1 million at March 31, 2022 and December 31, 2021, respectively, which includes a current expected credit loss allowance of $0.5 million in both periods.

Note 13. Commitments and Contingencies

In 2020, we entered into an agreement with a bank for the establishment of a loan participation program for agent loans. 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 March 31, 2022, loans executed under this agreement totaled $38.2 million, of which our portion of the loans is $13.4 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 March 31, 2022, our maximum potential amount of future payments on the guaranteed portion is $4.7 million. All loan payments under the participation program are current as of March 31, 2022.

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 the financial condition, results of operations, or cash flows.

Note 14. Subsequent Events

No items were identified in this period subsequent to the financial statement date that required adjustment or additional disclosure.