Fair Value (Tables)

3 Months Ended

Mar. 31, 2013

Schedule of consolidated fair value measurements on a recurring basis by asset class and level of input

The following table represents our consolidated fair value measurements on a recurring basis by asset class and level of input at December 31, 2012:



	Erie Insurance Group
	December 31, 2012
	Fair value measurements using:
(in millions)	Total		Quoted prices in active markets for identical assets Level 1		Observable inputs Level 2		Unobservable inputs Level 3
Indemnity
Available-for-sale securities:
States & political subdivisions	$	185	$	0	$	185	$	0
Corporate debt securities	261		0		260		1
Commercial mortgage-backed securities	3		0		3		0
Collateralized debt obligations	3		0		0		3
Total fixed maturities	452		0		448		4
Nonredeemable preferred stock	29		4		25		0
Common stock	26		26		0		0
Total available-for-sale securities	507		30		473		4
Other investments ⁽¹⁾	19		0		0		19
Total – Indemnity	$	526	$	30	$	473	$	23
Exchange
Available-for-sale securities:
U.S. government & agencies	$	191	$	0	$	191	$	0
States & political subdivisions	1,321		0		1,321		0
Foreign government securities	16		0		16		0
Corporate debt securities	5,777		0		5,734		43
Residential mortgage-backed securities	231		0		231		0
Commercial mortgage-backed securities	67		0		67		0
Collateralized debt obligations	49		0		33		16
Other debt securities	55		0		55		0
Total fixed maturities	7,707		0		7,648		59
Nonredeemable preferred stock	631		199		432		0
Common stock	314		314		0		0
Total available-for-sale securities	8,652		513		8,080		59
Trading securities:
Common stock	2,417		2,402		0		15
Total trading securities	2,417		2,402		0		15
Other investments ⁽¹⁾	109		0		0		109
Total – Exchange	$	11,178	$	2,915	$	8,080	$	183
Total – Erie Insurance Group	$	11,704	$	2,945	$	8,553	$	206

(1) Other investments measured at fair value represent four real estate funds included on the balance sheet as limited partnership investments that are reported under the fair value option. These investments can never be redeemed with the funds. Instead, distributions are received when liquidation of the underlying assets of the funds occur. It is estimated that the underlying assets will generally be liquidated between 5 and 10 years from the inception of the funds. The fair value of these investments is based on the net asset value (NAV) information provided by the general partner. Fair value is based on our proportionate share of the NAV based on the most recent partners' capital statements received from the general partners, which is generally one quarter prior to our balance sheet date. These values are then analyzed to determine if they represent the NAV at our balance sheet date, with adjustment being made where appropriate. We consider observable market data and perform a review validating the appropriateness of the NAV at each balance sheet date. It is likely that all of the investments will be redeemed at a future date for an amount different than the NAV of our ownership interest in partners' capital as of December 31, 2012. During the year ended December 31, 2012, Indemnity made contributions totaling $0.2 million and received distributions totaling $0.3 million, and the Exchange made contributions totaling $0.7 million and received distributions totaling $4.7 million for these investments. As of December 31, 2012, the amount of unfunded commitments related to the investments was $1.5 million for Indemnity and $4.5 million for the Exchange.

The following table represents our consolidated fair value measurements on a recurring basis by asset class and level of input at March 31, 2013:



	Erie Insurance Group
	March 31, 2013
	Fair value measurements using:
(in millions)	Total		Quoted prices in active markets for identical assets Level 1		Observable inputs Level 2		Unobservable inputs Level 3
Indemnity
Available-for-sale securities:
States & political subdivisions	$	176	$	0	$	176	$	0
Corporate debt securities	243		0		242		1
Collateralized debt obligations	2		0		0		2
Total fixed maturities	421		0		418		3
Nonredeemable preferred stock	23		2		21		0
Common stock	26		26		0		0
Total available-for-sale securities	470		28		439		3
Other investments ⁽¹⁾	20		0		0		20
Total – Indemnity	$	490	$	28	$	439	$	23
Exchange
Available-for-sale securities:
U.S. government & agencies	$	185	$	0	$	185	$	0
States & political subdivisions	1,299		0		1,299		0
Foreign government securities	29		0		29		0
Corporate debt securities	5,974		0		5,916		58
Residential mortgage-backed securities	234		0		234		0
Commercial mortgage-backed securities	56		0		51		5
Collateralized debt obligations	46		0		32		14
Other debt securities	68		0		68		0
Total fixed maturities	7,891		0		7,814		77
Nonredeemable preferred stock	631		236		383		12
Common stock	312		312		0		0
Total available-for-sale securities	8,834		548		8,197		89
Trading securities:
Common stock	2,662		2,655		0		7
Total trading securities	2,662		2,655		0		7
Other investments ⁽¹⁾	112		0		0		112
Total – Exchange	$	11,608	$	3,203	$	8,197	$	208
Total – Erie Insurance Group	$	12,098	$	3,231	$	8,636	$	231

(1) Other investments measured at fair value represent four real estate funds included on the balance sheet as limited partnership investments that are reported under the fair value option. These investments can never be redeemed with the funds. Instead, distributions are received when liquidation of the underlying assets of the funds occur. It is estimated that the underlying assets will generally be liquidated between 5 and 10 years from the inception of the funds. The fair value of these investments is based on the net asset value (NAV) information provided by the general partner. Fair value is based on our proportionate share of the NAV based on the most recent partners' capital statements received from the general partners, which is generally one quarter prior to our balance sheet date. These values are then analyzed to determine if they represent the NAV at our balance sheet date, with adjustment being made where appropriate. We consider observable market data and perform a review validating the appropriateness of the NAV at each balance sheet date. It is likely that all of the investments will be redeemed at a future date for an amount different than the NAV of our ownership interest in partners' capital as of March 31, 2013. During the quarter ended March 31, 2013, Indemnity made no contributions and received no distributions, and the Exchange made no contributions and received distributions totaling $0.8 million for these investments. As of March 31, 2013, the amount of unfunded commitments related to the investments was $1.5 million for Indemnity and $4.5 million for the Exchange.

Schedule of roll forward of consolidated Level 3 fair value measurements on a recurring basis

Level 3 Assets – Quarterly Change:



	Erie Insurance Group
(in millions)	Beginning balance at December 31, 2012		Included in earnings ⁽¹⁾			Included in other comprehensive income		Purchases		Sales			Transfers in and (out) of Level 3 ⁽²⁾		Ending balance at March 31, 2013
Indemnity
Available-for-sale securities:
Corporate debt securities	$	1	$	0		$	0	$	0	$	0		$	0	$	1
Collateralized debt obligations	3		0			0		0		(1		)	0		2
Total fixed maturities	4		0			0		0		(1		)	0		3
Total available-for-sale securities	4		0			0		0		(1		)	0		3
Other investments	19		1			0		0		0			0		20
Total Level 3 assets – Indemnity	$	23	$	1		$	0	$	0	$	(1	)	$	0	$	23
Exchange
Available-for-sale securities:
Corporate debt securities	$	43	$	0		$	1	$	0	$	(1	)	$	15	$	58
Commercial mortgage-backed securities	0		0			0		0		0			5		5
Collateralized debt obligations	16		1			1		0		(5		)	1		14
Total fixed maturities	59		1			2		0		(6		)	21		77
Nonredeemable preferred stock	0		0			3		4		0			5		12
Total available-for-sale securities	59		1			5		4		(6		)	26		89
Trading securities:
Common stock	15		(3		)	0		0		(5		)	0		7
Total trading securities	15		(3		)	0		0		(5		)	0		7
Other investments	109		4			0		0		(1		)	0		112
Total Level 3 assets – Exchange	$	183	$	2		$	5	$	4	$	(12	)	$	26	$	208
Total Level 3 assets – Erie Insurance Group	$	206	$	3		$	5	$	4	$	(13	)	$	26	$	231


(1)	These amounts are reported in the Consolidated Statement of Operations. There is $2 million of losses included in net realized investment gains (losses) and $5 million of earnings included in equity in earnings of limited partnerships for the three months ended March 31, 2013 on Level 3 securities.


(2)	Transfers in and out of Level 3 are attributable to changes in the availability of market observable information for individual securities within the respective categories. Transfers in and out of levels are recognized at the start of the period.

Level 3 Assets – Quarterly Change:



	Erie Insurance Group
(in millions)	Beginning balance at December 31, 2011		Included in earnings ⁽¹⁾		Included in other comprehensive income		Purchases		Sales			Transfers in and (out) of Level 3 ⁽²⁾		Ending balance at March 31, 2012
Indemnity
Available-for-sale securities:
Corporate debt securities	$	0	$	0	$	0	$	0	$	0		$	1	$	1
Collateralized debt obligations	4		0		0		0		0			0		4
Total fixed maturities	4		0		0		0		0			1		5
Total available-for-sale securities	4		0		0		0		0			1		5
Other investments ⁽³⁾	17		0		0		0		0			0		17
Total Level 3 assets – Indemnity	$	21	$	0	$	0	$	0	$	0		$	1	$	22
Exchange
Available-for-sale securities:
States & political subdivisions	$	4	$	0	$	1	$	0	$	0		$	0	$	5
Corporate debt securities	12		0		0		0		0			14		26
Collateralized debt obligations	29		0		0		0		(4		)	2		27
Other debt securities	5		0		0		0		0			0		5
Total fixed maturities	50		0		1		0		(4		)	16		63
Nonredeemable preferred stock	5		0		1		0		0			0		6
Total available-for-sale securities	55		0		2		0		(4		)	16		69
Trading securities:
Common stock	12		2		0		0		0			0		14
Total trading securities	12		2		0		0		0			0		14
Other investments ⁽³⁾	102		1		0		1		(1		)	0		103
Total Level 3 assets – Exchange	$	169	$	3	$	2	$	1	$	(5	)	$	16	$	186
Total Level 3 assets – Erie Insurance Group	$	190	$	3	$	2	$	1	$	(5	)	$	17	$	208


(1)	These amounts are reported in the Consolidated Statement of Operations. There is $2 million of earnings included in net realized investment gains (losses) and $1 million of earnings included in equity in earnings of limited partnerships for the three months ended March 31, 2012 on Level 3 securities.


(2)	Transfers in and out of Level 3 are attributable to changes in the availability of market observable information for individual securities within the respective categories. Transfers in and out of levels are recognized at the start of the period.


(3)	The other investments reported as Level 3 assets represent four real estate funds which were previously presented with our limited partnerships reported under the equity method of accounting and therefore were not included in our fair value measurements table. This table has been adjusted to reflect the appropriate fair value of these assets during the first quarter of 2012.

Schedule of Quantitative and Qualitative Disclosures about Unobservable Inputs

Quantitative and Qualitative Disclosures about Unobservable Inputs



	Erie Insurance Group
	March 31, 2013
(dollars in millions)	Fair value		No. of holdings	Valuation techniques	Unobservable input	Range	Weighted average
Indemnity
Corporate debt securities	$	1	1	Market approach	Non-binding broker quote	114.84
Collateralized debt obligations	2		2	Income approach	Projected maturity date	Sep 2014
					Repayment at maturity	42 - 100%	81.7%
					Discount rate	7.5 - 15.0%	9.9%
					Projected LIBOR rate	0.29%
Total Level 3 assets – Indemnity	$	3	3

Exchange
Corporate debt securities	58		11	Market approach	Non-binding broker quote	101.5 - 115.50	108.62
					Comparable transaction EBITDA multiples	6.7 - 17.1x	8.0x
					Comparable security yield	6.00%
Commercial mortgage-backed securities	5		1	Market approach	Non-binding broker quote	102.63
Collateralized debt obligations	11		4	Income approach	Projected maturity date	Sep 2014 - Oct 2035
					Repayment at maturity	42 - 100%	88.1%
					Discount rate	7.0 - 15.0%	8.9%
					Projected LIBOR rate	0.29%

	3		3	Market approach	Non-binding broker quote	15 - 64	51.6
Nonredeemable preferred stock	12		2	Market approach	Non-binding broker quote	104.00
					Comparable transaction EBITDA multiples	6.7 - 17.1x	8.0x
Common stock	7		3	Market approach	Comparable transaction EBITDA multiples	6.7 - 17.1x	8.0x
					Discount for lack of marketability	5 - 30%	30%
Total Level 3 assets – Exchange	$	96	24
Total Level 3 assets – Erie Insurance Group	$	99	27

Schedule of consolidated fair value measurements on a recurring basis by pricing source

The following table sets forth our consolidated fair value measurements on a recurring basis by pricing source at March 31, 2013:



	Erie Insurance Group
(in millions)	March 31, 2013
	Total		Level 1		Level 2		Level 3
Indemnity
Fixed maturities:
Priced via pricing services	$	404	$	0	$	404	$	0
Priced via market comparables/non-binding broker quotes ⁽¹⁾	15		0		14		1
Priced via unobservable inputs	2		0		0		2
Total fixed maturities	421		0		418		3
Nonredeemable preferred stock:
Priced via pricing services	21		2		19		0
Priced via market comparables/non-binding broker quotes ⁽¹⁾	2		0		2		0
Priced via unobservable inputs	0		0		0		0
Total nonredeemable preferred stock	23		2		21		0
Common stock:
Priced via pricing services	26		26		0		0
Priced via market comparables/non-binding broker quotes ⁽¹⁾	0		0		0		0
Priced via unobservable inputs	0		0		0		0
Total common stock	26		26		0		0
Other investments:
Priced via unobservable inputs ⁽²⁾	20		0		0		20
Total other investments	20		0		0		20
Total – Indemnity	$	490	$	28	$	439	$	23
Exchange
Fixed maturities:
Priced via pricing services	$	7,724	$	0	$	7,724	$	0
Priced via market comparables/non-binding broker quotes ⁽¹⁾	147		0		90		57
Priced via unobservable inputs	20		0		0		20
Total fixed maturities	7,891		0		7,814		77
Nonredeemable preferred stock:
Priced via pricing services	604		236		368		0
Priced via market comparables/non-binding broker quotes ⁽¹⁾	20		0		15		5
Priced via unobservable inputs	7		0		0		7
Total nonredeemable preferred stock	631		236		383		12
Common stock:
Priced via pricing services	2,967		2,967		0		0
Priced via market comparables/non-binding broker quotes ⁽¹⁾	0		0		0		0
Priced via unobservable inputs	7		0		0		7
Total common stock	2,974		2,967		0		7
Other investments:
Priced via unobservable inputs ⁽²⁾	112		0		0		112
Total other investments	112		0		0		112
Total – Exchange	$	11,608	$	3,203	$	8,197	$	208
Total – Erie Insurance Group	$	12,098	$	3,231	$	8,636	$	231


(1)	All broker quotes obtained for securities were non-binding. When a non-binding broker quote was the only price available, the security was classified as Level 3.


(2)	Other investments measured at fair value represent four real estate funds included on the balance sheet as limited partnership investments that are reported under the fair value option. The fair value of these investments is based on the net asset value (NAV) information provided by the general partner.

- Definition

Tabular disclosure of assets, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, by class that are measured at fair value on a recurring basis. The disclosures contemplated herein include the fair value measurements at the reporting date by the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3).

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- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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