Fair Value (Tables)

9 Months Ended

Sep. 30, 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 September 30, 2013:



	Erie Insurance Group
	September 30, 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	$	219	$	0	$	219	$	0
Corporate debt securities	279		0		278		1
Collateralized debt obligations	1		0		0		1
Total fixed maturities	499		0		497		2
Nonredeemable preferred stock	23		2		21		0
Common stock	25		25		0		0
Total available-for-sale securities	547		27		518		2
Other investments ⁽¹⁾	19		0		0		19
Total – Indemnity	$	566	$	27	$	518	$	21
Exchange
Available-for-sale securities:
U.S. government & agencies	$	173	$	0	$	173	$	0
States & political subdivisions	1,431		0		1,431		0
Foreign government securities	15		0		15		0
Corporate debt securities	5,969		0		5,943		26
Residential mortgage-backed securities	199		0		199		0
Commercial mortgage-backed securities	48		0		48		0
Collateralized debt obligations	20		0		11		9
Other debt securities	66		0		66		0
Total fixed maturities	7,921		0		7,886		35
Nonredeemable preferred stock	611		230		381		0
Common stock	238		238		0		0
Total available-for-sale securities	8,770		468		8,267		35
Trading securities:
Common stock	2,945		2,931		0		14
Total trading securities	2,945		2,931		0		14
Other investments ⁽¹⁾	100		0		0		100
Total – Exchange	$	11,815	$	3,399	$	8,267	$	149
Total – Erie Insurance Group	$	12,381	$	3,426	$	8,785	$	170

(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 September 30, 2013. During the nine months ended September 30, 2013, Indemnity made no contributions and received distributions totaling $1.4 million, and the Exchange made no contributions and received distributions totaling $18.3 million for these investments. As of September 30, 2013, 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 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.

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

Level 3 Assets – Year-to-Date 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 September 30, 2013
Indemnity
Available-for-sale securities:
Corporate debt securities	$	1	$	0	$	0		$	0	$	0		$	0		$	1
Collateralized debt obligations	3		0		0			0		(2		)	0			1
Total fixed maturities	4		0		0			0		(2		)	0			2
Total available-for-sale securities	4		0		0			0		(2		)	0			2
Other investments	19		1		0			0		(1		)	0			19
Total Level 3 assets – Indemnity	$	23	$	1	$	0		$	0	$	(3	)	$	0		$	21
Exchange
Available-for-sale securities:
Corporate debt securities	$	43	$	0	$	0		$	1	$	(3	)	$	(15	)	$	26
Commercial mortgage-backed securities	0		0		0			0		(1		)	1			0
Collateralized debt obligations	16		2		0			0		(10		)	1			9
Total fixed maturities	59		2		0			1		(14		)	(13		)	35
Nonredeemable preferred stock	0		2		(1		)	4		(10		)	5			0
Total available-for-sale securities	59		4		(1		)	5		(24		)	(8		)	35
Trading securities:
Common stock	15		0		0			4		(5		)	0			14
Total trading securities	15		0		0			4		(5		)	0			14
Other investments	109		9		0			0		(18		)	0			100
Total Level 3 assets – Exchange	$	183	$	13	$	(1	)	$	9	$	(47	)	$	(8	)	$	149
Total Level 3 assets – Erie Insurance Group	$	206	$	14	$	(1	)	$	9	$	(50	)	$	(8	)	$	170


(1)	These amounts are reported in the Consolidated Statement of Operations. There is $4 million included in net realized investment gains (losses) and $10 million included in equity in earnings of limited partnerships for the nine months ended September 30, 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 June 30, 2012		Included in earnings ⁽¹⁾			Included in other comprehensive income		Purchases		Sales			Transfers in and (out) of Level 3 ⁽²⁾		Ending balance at September 30, 2012
Indemnity
Available-for-sale securities:
Corporate debt securities	$	1	$	0		$	0	$	0	$	0		$	0	$	1
Collateralized debt obligations	4		0			0		0		(1		)	0		3
Total fixed maturities	5		0			0		0		(1		)	0		4
Total available-for-sale securities	5		0			0		0		(1		)	0		4
Other investments ⁽³⁾	18		0			0		0		0			0		18
Total Level 3 assets – Indemnity	$	23	$	0		$	0	$	0	$	(1	)	$	0	$	22
Exchange
Available-for-sale securities:
States & political subdivisions	$	4	$	0		$	0	$	0	$	0		$	0	$	4
Corporate debt securities	23		0			1		0		0			10		34
Collateralized debt obligations	27		0			0		0		(4		)	23		46
Other debt securities	5		0			0		0		0			0		5
Total fixed maturities	59		0			1		0		(4		)	33		89
Nonredeemable preferred stock	5		0			1		0		0			0		6
Total available-for-sale securities	64		0			2		0		(4		)	33		95
Trading securities:
Common stock	14		(1		)	0		0		0			0		13
Total trading securities	14		(1		)	0		0		0			0		13
Other investments ⁽³⁾	107		3			0		0		(2		)	0		108
Total Level 3 assets – Exchange	$	185	$	2		$	2	$	0	$	(6	)	$	33	$	216
Total Level 3 assets – Erie Insurance Group	$	208	$	2		$	2	$	0	$	(7	)	$	33	$	238


(1)	These amounts are reported in the Consolidated Statement of Operations. There is $(1) million included in net realized investment gains (losses) and $3 million included in equity in earnings of limited partnerships for the three months ended September 30, 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 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 for the three months ended September 30, 2012.

Level 3 Assets – Quarterly Change:



	Erie Insurance Group
(in millions)	Beginning balance at June 30, 2013		Included in earnings ⁽¹⁾		Included in other comprehensive income			Purchases		Sales			Transfers in and (out) of Level 3 ⁽²⁾			Ending balance at September 30, 2013
Indemnity
Available-for-sale securities:
Corporate debt securities	$	1	$	0	$	0		$	0	$	0		$	0		$	1
Collateralized debt obligations	1		0		0			0		0			0			1
Total fixed maturities	2		0		0			0		0			0			2
Total available-for-sale securities	2		0		0			0		0			0			2
Other investments	20		0		0			0		(1		)	0			19
Total Level 3 assets – Indemnity	$	22	$	0	$	0		$	0	$	(1	)	$	0		$	21
Exchange
Available-for-sale securities:
Corporate debt securities	$	33	$	0	$	0		$	0	$	0		$	(7	)	$	26
Commercial mortgage-backed securities	4		0		0			0		0			(4		)	0
Collateralized debt obligations	12		0		0			0		(3		)	0			9
Total fixed maturities	49		0		0			0		(3		)	(11		)	35
Nonredeemable preferred stock	7		0		(3		)	0		(4		)	0			0
Total available-for-sale securities	56		0		(3		)	0		(7		)	(11		)	35
Trading securities:
Common stock	7		3		0			4		0			0			14
Total trading securities	7		3		0			4		0			0			14
Other investments	113		3		0			0		(16		)	0			100
Total Level 3 assets – Exchange	$	176	$	6	$	(3	)	$	4	$	(23	)	$	(11	)	$	149
Total Level 3 assets – Erie Insurance Group	$	198	$	6	$	(3	)	$	4	$	(24	)	$	(11	)	$	170


(1)	These amounts are reported in the Consolidated Statement of Operations. There is $3 million included in net realized investment gains (losses) and $3 million included in equity in earnings of limited partnerships for the three months ended September 30, 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 – Year-to-Date 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 September 30, 2012
Indemnity
Corporate debt securities	$	0	$	0	$	0	$	0	$	0		$	1	$	1
Collateralized debt obligations	4		0		0		0		(1		)	0		3
Total fixed maturities	4		0		0		0		(1		)	1		4
Total available-for-sale securities	4		0		0		0		(1		)	1		4
Other investments ⁽³⁾	17		1		0		0		0			0		18
Total Level 3 assets – Indemnity	$	21	$	1	$	0	$	0	$	(1	)	$	1	$	22
Exchange
Available-for-sale securities:
States & political subdivisions	$	4	$	0	$	0	$	0	$	0		$	0	$	4
Corporate debt securities	12		0		1		1		(5		)	25		34
Collateralized debt obligations	29		1		3		0		(7		)	20		46
Other debt securities	5		0		0		0		0			0		5
Total fixed maturities	50		1		4		1		(12		)	45		89
Nonredeemable preferred stock	5		0		1		0		0			0		6
Total available-for-sale securities	55		1		5		1		(12		)	45		95
Trading securities:
Common stock	12		2		0		0		(1		)	0		13
Total trading securities	12		2		0		0		(1		)	0		13
Other investments ⁽³⁾	102		9		0		0		(3		)	0		108
Total Level 3 assets – Exchange	$	169	$	12	$	5	$	1	$	(16	)	$	45	$	216
Total Level 3 assets – Erie Insurance Group	$	190	$	13	$	5	$	1	$	(17	)	$	46	$	238


(1)	These amounts are reported in the Consolidated Statement of Operations. There is $3 million included in net realized investment gains (losses) and $10 million included in equity in earnings of limited partnerships for the nine months ended September 30, 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 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 for the nine months ended September 30, 2012.

Schedule of Quantitative and Qualitative Disclosures about Unobservable Inputs

Quantitative and Qualitative Disclosures about Unobservable Inputs



	Erie Insurance Group
	September 30, 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	112.32
Collateralized debt obligations	1		2	Income approach	Projected maturity date	Mar 2014 - Jul 2015
					Repayment at maturity	35 - 100%	70.0%
					Discount rate	7.5 - 15.0%	11.0%
Other investments	$	19	2	See (1) below
Total Level 3 assets – Indemnity	$	21	5

Exchange
Corporate debt securities	26		7	Market approach	Non-binding broker quote	107.40 - 115.50	110.00
					Comparable transaction EBITDA multiples	6.7 - 17.1x	8.0x
					Comparable security yield	6.00%
Collateralized debt obligations	6		4	Income approach	Projected maturity date	Mar 2014 - Oct 2035
					Repayment at maturity	35 - 100%	90.0%
					Discount rate	7.0 - 18.0%	9.0%
					Projected LIBOR rate	0.26%

	3		3	Market approach	Non-binding broker quote	21.00 - 64.00	51.00
Common stock	14		4	Market approach	Comparable transaction EBITDA multiples	6.7 - 17.1x	8.0x
					Discount for lack of marketability	5 - 30%	30%
Other investments	100		4	See (1) below
Total Level 3 assets – Exchange	$	149	22
Total Level 3 assets – Erie Insurance Group	$	170	27


(1)	Other investments representing certain limited partnerships are recorded at fair value and are based upon net asset value (NAV) provided by the general partner where the unobservable inputs are not reasonably available to us.

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 September 30, 2013:



	Erie Insurance Group
(in millions)	September 30, 2013
	Total		Level 1		Level 2		Level 3
Indemnity
Fixed maturities:
Priced via pricing services	$	497	$	0	$	497	$	0
Priced via market comparables/broker quotes ⁽¹⁾	1		0		0		1
Priced via internal modeling	1		0		0		1
Total fixed maturities	499		0		497		2
Nonredeemable preferred stock:
Priced via pricing services	21		2		19		0
Priced via market comparables/broker quotes ⁽¹⁾	2		0		2		0
Priced via internal modeling	0		0		0		0
Total nonredeemable preferred stock	23		2		21		0
Common stock:
Priced via pricing services	25		25		0		0
Priced via market comparables/broker quotes ⁽¹⁾	0		0		0		0
Priced via internal modeling	0		0		0		0
Total common stock	25		25		0		0
Other investments:
Priced via unobservable inputs ⁽²⁾	19		0		0		19
Total other investments	19		0		0		19
Total – Indemnity	$	566	$	27	$	518	$	21
Exchange
Fixed maturities:
Priced via pricing services	$	7,836	$	0	$	7,836	$	0
Priced via market comparables/broker quotes ⁽¹⁾	71		0		50		21
Priced via internal modeling	14		0		0		14
Total fixed maturities	7,921		0		7,886		35
Nonredeemable preferred stock:
Priced via pricing services	597		230		367		0
Priced via market comparables/broker quotes ⁽¹⁾	14		0		14		0
Priced via internal modeling	0		0		0		0
Total nonredeemable preferred stock	611		230		381		0
Common stock:
Priced via pricing services	3,169		3,169		0		0
Priced via market comparables/broker quotes ⁽¹⁾	0		0		0		0
Priced via internal modeling	14		0		0		14
Total common stock	3,183		3,169		0		14
Other investments:
Priced via unobservable inputs ⁽²⁾	100		0		0		100
Total other investments	100		0		0		100
Total – Exchange	$	11,815	$	3,399	$	8,267	$	149
Total – Erie Insurance Group	$	12,381	$	3,426	$	8,785	$	170


(1)	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 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 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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