Note 22. Indemnity Supplemental Information

Consolidating Statement of Financial Position



	Erie Insurance Group
(in millions)	At December 31, 2014
Assets	Indemnity shareholder interest		Exchange noncontrolling interest		Reclassifications and eliminations			Erie Insurance Group
Investments
Available-for-sale securities, at fair value:
Fixed maturities	$	564	$	9,007	$	—		$	9,571
Equity securities	25		850		—			875
Trading securities, at fair value	—		3,223		—			3,223
Limited partnerships	113		866		—			979
Other invested assets	1		20		—			21
Total investments	703		13,966		—			14,669
Cash and cash equivalents	92		422		—			514
Premiums receivable from policyholders	—		1,281		—			1,281
Reinsurance recoverable	—		161		—			161
Deferred income tax asset	37		0		—			37
Deferred acquisition costs	—		595		—			595
Other assets	127		374		—			501
Receivables from the Exchange and other affiliates	335		—		(335		)	—
Note receivable from EFL	25		—		(25		)	—
Total assets	$	1,319	$	16,799	$	(360	)	$	17,758
Liabilities
Losses and loss expense reserves	$	—	$	3,853	$	—		$	3,853
Life policy and deposit contract reserves	—		1,812		—			1,812
Unearned premiums	—		2,834		—			2,834
Deferred income tax liability	—		490		—			490
Other liabilities	616		530		(360		)	786
Total liabilities	616		9,519		(360		)	9,775
Shareholders’ equity and noncontrolling interest
Total Indemnity shareholders’ equity	703		—		—			703
Noncontrolling interest in consolidated entity – Exchange	—		7,280		—			7,280
Total equity	703		7,280		—			7,983
Total liabilities, shareholders’ equity, and noncontrolling interest	$	1,319	$	16,799	$	(360	)	$	17,758

Consolidating Statement of Financial Position



	Erie Insurance Group
(in millions)	At December 31, 2013
Assets	Indemnity shareholder interest		Exchange noncontrolling interest		Reclassifications and eliminations			Erie Insurance Group
Investments
Available-for-sale securities, at fair value:
Fixed maturities	$	526	$	8,162	$	—		$	8,688
Equity securities	50		819		—			869
Trading securities, at fair value	—		3,202		—			3,202
Limited partnerships	146		940		—			1,086
Other invested assets	1		20		—			21
Total investments	723		13,143		—			13,866
Cash and cash equivalents	49		403		—			452
Premiums receivable from policyholders	—		1,167		—			1,167
Reinsurance recoverable	—		172		—			172
Deferred income tax asset	2		0		—			2
Deferred acquisition costs	—		566		—			566
Other assets	114		337		—			451
Receivables from the Exchange and other affiliates	300		—		(300		)	—
Note receivable from EFL	25		—		(25		)	—
Total assets	$	1,213	$	15,788	$	(325	)	$	16,676
Liabilities
Losses and loss expense reserves	$	—	$	3,747	$	—		$	3,747
Life policy and deposit contract reserves	—		1,758		—			1,758
Unearned premiums	—		2,598		—			2,598
Deferred income tax liability	—		450		—			450
Other liabilities	479		419		(325		)	573
Total liabilities	479		8,972		(325		)	9,126
Shareholders’ equity and noncontrolling interest
Total Indemnity shareholders’ equity	734		—		—			734
Noncontrolling interest in consolidated entity – Exchange	—		6,816		—			6,816
Total equity	734		6,816		—			7,550
Total liabilities, shareholders’ equity, and noncontrolling interest	$	1,213	$	15,788	$	(325	)	$	16,676

Receivables from the Exchange and EFL and concentrations of credit risk – Financial instruments could potentially expose Indemnity to concentrations of credit risk, including unsecured receivables from the Exchange. A majority of Indemnity’s revenue and receivables are from the Exchange and affiliates. See also Note 4, “Variable Interest Entity.”

Management fees and expense allocation amounts due from the Exchange were $331 million and $296 million at December 31, 2014 and 2013, respectively. The receivable from EFL for expense allocations and interest on the surplus note totaled

$4 million at December 31, 2014 and 2013.

Note receivable from EFL – Indemnity is due $25 million from EFL in the form of a surplus note that was issued in 2003. The note may be repaid only out of unassigned surplus of EFL. Both principal and interest payments are subject to prior approval by the Pennsylvania Insurance Commissioner. The note bears an annual interest rate of 6.7% and will be payable on demand on or after December 31, 2018, with interest scheduled to be paid semi-annually, subject to prior approval by the Pennsylvania Insurance Commissioner. Indemnity recognized interest income on the note of $2 million in 2014 and 2013.

Income attributable to Indemnity shareholder interest



	Indemnity Shareholder Interest
(in millions)	Years ended December 31,
	2014		2013		2012
Management operations:
Management fee revenue, net	$	1,376	$	1,266	$	1,157
Service agreement revenue	31		31		31
Total revenue from management operations	1,407		1,297		1,188
Cost of management operations	1,184		1,088		983
Income from management operations before taxes	223		209		205
Investment operations:
Net investment income	16		15		16
Net realized gains on investments	1		1		5
Net impairment losses recognized in earnings	0		0		0
Equity in earnings of limited partnerships	11		22		15
Income from investment operations before taxes	28		38		36
Income from operations before income taxes	251		247		241
Provision for income taxes	83		84		81
Net income attributable to Indemnity	$	168	$	163	$	160

Expense allocations – All claims handling services for the Exchange are performed by Indemnity employees who are entirely dedicated to claims related activities. All costs associated with these employees are reimbursed to Indemnity from the Exchange’s revenues in accordance with the subscriber’s agreement. Indemnity is reimbursed by EFL from its revenues for all costs associated with employees who perform life insurance related operating activities for EFL in accordance with its service agreement with Indemnity. Common overhead expenses included in the expenses paid by Indemnity are allocated based upon appropriate utilization statistics (employee count, square footage, vehicle count, project hours, etc.) specifically measured to accomplish proportional allocations. Executive compensation is allocated based upon each executive’s primary responsibilities (management services, property and casualty claims operations, EFL operations, and investment operations). We believe the methods used to allocate common overhead expenses among the affiliated entities are reasonable.

Cash settlements for payments on the account of the Exchange totaled $378 million, $351 million and $343 million in 2014, 2013 and 2012, respectively, and $37 million, $32 million and $30 million in 2014, 2013 and 2012, respectively, for EFL. These reimbursements are settled on a monthly basis.

Office leases – Indemnity leases certain office space from the Exchange, including the home office and three field office facilities. Rent expenses for the facilities totaled $8 million in 2014 and $6 million in 2013 and 2012. Indemnity also has a lease commitment with EFL for a branch office until 2018. Annual rentals paid to EFL under this lease totaled $0.4 million in 2014, 2013 and 2012.

Indemnity’s components of direct cash flows as included in the Consolidated Statements of Cash Flows



	Indemnity Shareholder Interest
(in millions)	Years ended December 31,
	2014			2013			2012
Management fee received	$	1,349		$	1,240		$	1,135
Service agreement fee received	31			31			31
Net investment income received	23			22			28
Limited partnership distributions	15			27			21
(Decrease) increase in reimbursements collected from affiliates	(7		)	6			(4		)
Commissions and bonuses paid to agents	(749		)	(681		)	(617		)
Salaries and wages paid	(153		)	(147		)	(130		)
Pension contribution and employee benefits paid	(49		)	(41		)	(38		)
General operating expenses paid	(179		)	(153		)	(139		)
Income taxes paid	(95		)	(86		)	(82		)
Net cash provided by operating activities	186			218			205
Net cash (used in) provided by investing activities	(4		)	(65		)	95
Net cash used in financing activities	(139		)	(116		)	(299		)
Net increase in cash and cash equivalents	43			37			1
Cash and cash equivalents, beginning of year	49			12			11
Cash and cash equivalents, end of year	$	92		$	49		$	12