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Investments (Tables)

12 Months Ended

Dec. 31, 2014

Schedule of reconciliation of cost to fair value of available-for-sale securities

The following table summarizes the cost and fair value of our available-for-sale securities at December 31, 2013:



	Erie Insurance Group
	December 31, 2013
(in millions)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Indemnity
Available-for-sale securities:
States & political subdivisions	$	237	$	7	$	1	$	243
Corporate debt securities	280		2		0		282
Collateralized debt obligations	1		0		0		1
Total fixed maturities	518		9		1		526
Nonredeemable preferred stock	24		2		1		25
Common stock	26		0		1		25
Total available-for-sale securities – Indemnity	$	568	$	11	$	3	$	576
Exchange
Available-for-sale securities:
U.S. government & agencies	$	171	$	1	$	0	$	172
States & political subdivisions	1,430		55		15		1,470
Foreign government securities	15		0		0		15
Corporate debt securities	5,902		354		45		6,211
Residential mortgage-backed securities	157		3		4		156
Commercial mortgage-backed securities	45		2		0		47
Collateralized debt obligations	8		8		0		16
Other debt securities	73		3		1		75
Total fixed maturities	7,801		426		65		8,162
Nonredeemable preferred stock	577		55		11		621
Common stock	201		0		3		198
Total available-for-sale securities – Exchange	$	8,579	$	481	$	79	$	8,981
Total available-for-sale securities – Erie Insurance Group	$	9,147	$	492	$	82	$	9,557

Available-for-sale securities

The following table summarizes the cost and fair value of our available-for-sale securities at December 31, 2014:



	Erie Insurance Group
	December 31, 2014
(in millions)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
Indemnity
Available-for-sale securities:
States & political subdivisions	$	219	$	12	$	0	$	231
Corporate debt securities	236		1		3		234
Residential mortgage-backed securities	8		0		0		8
Commercial mortgage-backed securities	52		0		1		51
Collateralized debt obligations	33		0		0		33
Other debt securities	7		0		0		7
Total fixed maturities	555		13		4		564
Nonredeemable preferred stock	11		1		0		12
Common stock	13		0		0		13
Total available-for-sale securities – Indemnity	$	579	$	14	$	4	$	589
Exchange
Available-for-sale securities:
U.S. treasury	$	6	$	0	$	0	$	6
Government sponsored enterprises	3		1		0		4
States & political subdivisions	1,394		84		1		1,477
Foreign government securities	10		0		0		10
Corporate debt securities	6,918		405		34		7,289
Residential mortgage-backed securities	109		3		1		111
Commercial mortgage-backed securities	28		2		0		30
Collateralized debt obligations	6		5		0		11
Other debt securities	66		3		0		69
Total fixed maturities	8,540		503		36		9,007
Nonredeemable preferred stock	650		64		4		710
Common stock	138		3		1		140
Total available-for-sale securities – Exchange	$	9,328	$	570	$	41	$	9,857
Total available-for-sale securities – Erie Insurance Group	$	9,907	$	584	$	45	$	10,446

Schedule of amortized cost and estimated fair value of fixed maturities by remaining contractual term to maturity

The amortized cost and estimated fair value of fixed maturities at December 31, 2014, are shown below by remaining contractual term to maturity. Mortgage-backed securities are allocated based upon stated maturity dates. 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.



	Erie Insurance Group
	December 31, 2014
(in millions)	Amortized		Estimated
	cost		fair value
Indemnity
Due in one year or less	$	63	$	63
Due after one year through five years	241		241
Due after five years through ten years	144		148
Due after ten years	107		112
Total fixed maturities – Indemnity	$	555	$	564
Exchange
Due in one year or less	$	450	$	457
Due after one year through five years	3,240		3,409
Due after five years through ten years	3,327		3,482
Due after ten years	1,523		1,659
Total fixed maturities – Exchange	$	8,540	$	9,007
Total fixed maturities – Erie Insurance Group	$	9,095	$	9,571

Schedule of available-for-sale securities in a gross unrealized loss position by length of time securities were in a gross unrealized loss position

Available-for-sale securities in a gross unrealized loss position at December 31, 2014 are as follows. Data is provided by length of time for securities in a gross unrealized loss position.



	Erie Insurance Group
	December 31, 2014
(dollars in millions)	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		No. of
Indemnity	value		losses		value		losses		value		losses		holdings
Available-for-sale securities:
States & political subdivisions	$	6	$	0	$	2	$	0	$	8	$	0	4
Corporate debt securities	121		3		0		0		121		3		250
Residential mortgage-backed securities	6		0		0		0		6		0		4
Commercial mortgage-backed securities	41		1		0		0		41		1		24
Collateralized debt obligations	21		0		0		0		21		0		9
Other debt securities	7		0		0		0		7		0		3
Total fixed maturities – Indemnity	202		4		2		0		204		4		294
Common stock	0		0		13		0		13		0		1
Total available-for-sale securities – Indemnity	$	202	$	4	$	15	$	0	$	217	$	4	295
Quality breakdown of fixed maturities:
Investment grade	$	146	$	1	$	2	$	0	$	148	$	1	58
Non-investment grade	56		3		0		0		56		3		236
Total fixed maturities – Indemnity	$	202	$	4	$	2	$	0	$	204	$	4	294
Exchange
Available-for-sale securities:
U.S. treasury	$	1	$	0	$	0	$	0	$	1	$	0	2
States & political subdivisions	47		0		47		1		94		1		24
Corporate debt securities	980		29		181		5		1,161		34		656
Residential mortgage-backed securities	6		0		27		1		33		1		8
Commercial mortgage-backed securities	1		0		0		0		1		0		1
Other debt securities	13		0		7		0		20		0		4
Total fixed maturities – Exchange	1,048		29		262		7		1,310		36		695
Nonredeemable preferred stock	86		3		25		1		111		4		16
Common stock	0		0		73		1		73		1		2
Total available-for-sale securities – Exchange	$	1,134	$	32	$	360	$	9	$	1,494	$	41	713
Quality breakdown of fixed maturities:
Investment grade	$	606	$	10	$	253	$	5	$	859	$	15	172
Non-investment grade	442		19		9		2		451		21		523
Total fixed maturities – Exchange	$	1,048	$	29	$	262	$	7	$	1,310	$	36	695

Available-for-sale securities in a gross unrealized loss position at December 31, 2013 are as follows. Data is provided by length of time for securities in a gross unrealized loss position.



	Erie Insurance Group
	December 31, 2013
(dollars in millions)	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		No. of
Indemnity	value		losses		value		losses		value		losses		holdings
Available-for-sale securities:
States & political subdivisions	$	58	$	1	$	0	$	0	$	58	$	1	21
Corporate debt securities	54		0		10		0		64		0		11
Total fixed maturities – Indemnity	112		1		10		0		122		1		32
Nonredeemable preferred stock	5		1		3		0		8		1		4
Common stock	12		1		13		0		25		1		2
Total available-for-sale securities – Indemnity	$	129	$	3	$	26	$	0	$	155	$	3	38
Quality breakdown of fixed maturities:
Investment grade	$	112	$	1	$	10	$	0	$	122	$	1	32
Non-investment grade	0		0		0		0		0		0		0
Total fixed maturities – Indemnity	$	112	$	1	$	10	$	0	$	122	$	1	32
Exchange
Available-for-sale securities:
U.S. government & agencies	$	1	$	0	$	0	$	0	$	1	$	0	2
States & political subdivisions	408		13		18		2		426		15		100
Foreign government securities	5		0		0		0		5		0		1
Corporate debt securities	1,251		43		36		2		1,287		45		237
Residential mortgage-backed securities	71		4		8		0		79		4		12
Commercial mortgage-backed securities	5		0		0		0		5		0		1
Other debt securities	30		1		0		0		30		1		5
Total fixed maturities – Exchange	1,771		61		62		4		1,833		65		358
Nonredeemable preferred stock	182		10		13		1		195		11		27
Common stock	97		3		101		0		198		3		3
Total available-for-sale securities – Exchange	$	2,050	$	74	$	176	$	5	$	2,226	$	79	388
Quality breakdown of fixed maturities:
Investment grade	$	1,707	$	57	$	62	$	4	$	1,769	$	61	344
Non-investment grade	64		4		0		0		64		4		14
Total fixed maturities – Exchange	$	1,771	$	61	$	62	$	4	$	1,833	$	65	358

Schedule of investment income, net of expenses, from portfolios

Net investment income

Interest and dividend income are recognized as earned and recorded to net investment income. Investment income, net of expenses, was generated from the following portfolios:



	Erie Insurance Group
(in millions)	Years ended December 31,
	2014		2013		2012
Indemnity
Fixed maturities	$	14	$	12	$	13
Equity securities	2		2		3
Cash equivalents and other	1		2		1
Total investment income	17		16		17
Less: investment expenses	1		1		1
Investment income, net of expenses – Indemnity	$	16	$	15	$	16
Exchange
Fixed maturities	$	354	$	334	$	350
Equity securities	115		105		102
Cash equivalents and other	1		2		2
Total investment income	470		441		454
Less: investment expenses	40		34		32
Investment income, net of expenses – Exchange	$	430	$	407	$	422
Investment income, net of expenses – Erie Insurance Group	$	446	$	422	$	438

Schedule of realized gains and losses on sales of securities recognized in income based upon the specific identification method

Realized investment gains (losses)

Realized gains and losses on sales of securities are recognized in income based upon the specific identification method. Realized gains (losses) on investments were as follows:



(in millions)	Erie Insurance Group
	Years ended December 31,
Indemnity	2014			2013			2012
Available-for-sale securities:
Fixed maturities:
Gross realized gains	$	0		$	1		$	0
Gross realized losses	0			0			0
Net realized gains	0			1			0
Equity securities:
Gross realized gains	1			0			0
Gross realized losses	0			0			0
Net realized gains	1			0			0
Trading securities:
Common stock:
Gross realized gains	0			0			9
Gross realized losses	0			0			(1		)
Increases (decreases) in fair value ⁽¹⁾	0			0			(3		)
Net realized gains	0			0			5
Net realized investment gains – Indemnity	$	1		$	1		$	5
Exchange
Available-for-sale securities:
Fixed maturities:
Gross realized gains	$	25		$	37		$	78
Gross realized losses	(8		)	(31		)	(20		)
Net realized gains	17			6			58
Equity securities:
Gross realized gains	17			7			17
Gross realized losses	(3		)	(11		)	(8		)
Net realized gains (losses)	14			(4		)	9
Trading securities:
Common stock:
Gross realized gains	291			307			213
Gross realized losses	(60		)	(36		)	(88		)
(Decreases) increases in fair value ⁽¹⁾	(70		)	497			221
Net realized gains	161			768			346
Net realized investment gains – Exchange	$	192		$	770		$	413
Net realized investment gains – Erie Insurance Group	$	193		$	771		$	418


(1)	The fair value on our common stock portfolio is based upon exchange traded prices provided by a nationally recognized pricing service.

Schedule of components of other-than-temporary impairments on investments

Net impairment losses

The components of other-than-temporary impairments on investments are included below:



(in millions)	Erie Insurance Group
	Years ended December 31
	2014			2013			2012
Indemnity
Fixed maturities	$	0		$	0		$	0
Equity securities	0			0			0
Total other-than-temporary impairments	0			0			0
Portion recognized in other comprehensive income	0			0			0
Net impairment losses recognized in earnings – Indemnity	$	0		$	0		$	0
Exchange
Fixed maturities	$	(4	)	$	(5	)	$	0
Equity securities	0			(8		)	0
Total other-than-temporary impairments	(4		)	(13		)	0
Portion recognized in other comprehensive income	0			0			0
Net impairment losses recognized in earnings – Exchange	$	(4	)	$	(13	)	$	0
Net impairment losses recognized in earnings – Erie Insurance Group	$	(4	)	$	(13	)	$	0

Schedule of limited partnership results

We have provided summarized financial information in the following tables for the years ended December 31, 2014 and 2013. Amounts provided in the tables are presented using the latest available financial statements received from the partnerships for the respective periods. Limited partnership financial information has been presented based upon the investment percentage in the partnerships for the Erie Insurance Group consistent with how we evaluate these investments.

As these investments are generally reported on a one-quarter lag, our limited partnership results through December 31, 2014 include partnership financial results for the fourth quarter of 2013 and the first three quarters of 2014.



	Erie Insurance Group
	As of and for the year ended December 31, 2014
(dollars in millions) Investment percentage in limited partnerships	Number of partnerships	Asset recorded		Income (loss) recognized due to valuation adjustments by the partnerships			Income (1oss) recorded
Indemnity
Private equity:
Less than 10%	24	$	34	$	(7	)	$	7
Greater than or equal to 10% but less than 50%	3	18		3			1
Greater than 50%	0	0		0			0
Total private equity	27	52		(4		)	8
Mezzanine debt:
Less than 10%	11	10		0			2
Greater than or equal to 10% but less than 50%	3	4		0			0
Greater than 50%	1	0		0			0
Total mezzanine debt	15	14		0			2
Real estate:
Less than 10%	11	36		5			(2		)
Greater than or equal to 10% but less than 50%	3	4		1			0
Greater than 50%	2	7		0			1
Total real estate	16	47		6			(1		)
Total limited partnerships – Indemnity	58	$	113	$	2		$	9
Exchange
Private equity:
Less than 10%	42	$	344	$	(12	)	$	43
Greater than or equal to 10% but less than 50%	3	74		13			3
Greater than 50%	0	0		0			0
Total private equity	45	418		1			46
Mezzanine debt:
Less than 10%	21	120		0			16
Greater than or equal to 10% but less than 50%	4	23		(3		)	3
Greater than 50%	3	27		0			3
Total mezzanine debt	28	170		(3		)	22
Real estate:
Less than 10%	22	207		18			7
Greater than or equal to 10% but less than 50%	5	44		6			2
Greater than 50%	2	27		(17		)	20
Total real estate	29	278		7			29
Total limited partnerships – Exchange	102	$	866	$	5		$	97
Total limited partnerships – Erie Insurance Group		$	979	$	7		$	106

Amounts included in equity in earnings of limited partnerships by method of accounting are included below:



(in millions)	Erie Insurance Group
	Years ended December 31
	2014		2013		2012
Indemnity
Equity in earnings of limited partnerships accounted for under the equity method	$	9	$	21	$	13
Change in fair value of limited partnerships accounted for under the fair value option	2		1		2
Equity in earnings of limited partnerships – Indemnity	$	11	$	22	$	15
Exchange
Equity in earnings of limited partnerships accounted for under the equity method	$	88	$	128	$	105
Change in fair value of limited partnerships accounted for under the fair value option	14		11		11
Equity in earnings of limited partnerships – Exchange	$	102	$	139	$	116
Equity in earnings of limited partnerships – Erie Insurance Group	$	113	$	161	$	131

As these investments are generally reported on a one-quarter lag, our limited partnership results through December 31, 2013 include partnership financial results for the fourth quarter of 2012 and the first three quarters of 2013.



	Erie Insurance Group
	As of and for the year ended December 31, 2013
(dollars in millions) Investment percentage in limited partnerships	Number of partnerships	Asset recorded		Income (loss) recognized due to valuation adjustments by the partnerships			Income (1oss) recorded
Indemnity
Private equity:
Less than 10%	26	$	46	$	(6	)	$	9
Greater than or equal to 10% but less than 50%	3	16		3			0
Greater than 50%	0	0		0			0
Total private equity	29	62		(3		)	9
Mezzanine debt:
Less than 10%	11	14		0			1
Greater than or equal to 10% but less than 50%	3	6		0			2
Greater than 50%	1	0		0			0
Total mezzanine debt	15	20		0			3
Real estate:
Less than 10%	12	44		0			5
Greater than or equal to 10% but less than 50%	3	14		(1		)	4
Greater than 50%	2	6		1			4
Total real estate	17	64		0			13
Total limited partnerships – Indemnity	61	$	146	$	(3	)	$	25
Exchange
Private equity:
Less than 10%	44	$	396	$	(24	)	$	79
Greater than or equal to 10% but less than 50%	3	67		13			2
Greater than 50%	0	0		0			0
Total private equity	47	463		(11		)	81
Mezzanine debt:
Less than 10%	19	117		1			13
Greater than or equal to 10% but less than 50%	4	23		(3		)	7
Greater than 50%	3	32		1			3
Total mezzanine debt	26	172		(1		)	23
Real estate:
Less than 10%	22	211		(10		)	34
Greater than or equal to 10% but less than 50%	6	71		(2		)	10
Greater than 50%	2	23		(1		)	16
Total real estate	30	305		(13		)	60
Total limited partnerships – Exchange	103	$	940	$	(25	)	$	164
Total limited partnerships – Erie Insurance Group		$	1,086	$	(28	)	$	189

- Definition

Tabular disclosure of investment income, including, but not limited to, interest and dividend income and amortization of discount (premium) derived from debt and equity securities. Excludes realized and unrealized gain (loss) on investments.

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- Definition

Tabular disclosure of the amount of other than temporary impairment (OTTI) related to credit losses recognized in earnings including: (a) the beginning balance of the amount related to credit losses on debt securities held by the investor at the beginning of the period for which a portion of an OTTI was recognized in other comprehensive income; (b) additions for the amount related to the credit loss for which an OTTI was not previously recognized; (c) reductions for securities sold during the period (realized); (d) reductions for securities for which the amount previously recognized in other comprehensive income was recognized in earnings because the investor intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis; (e) additional increases to the amount related to the credit loss for which an OTTI was previously recognized when the investor does not intend to sell the security and it is not more likely than not that the investor will be required to sell the security before recovery of its amortized cost basis; (f) reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security; and (g) the ending balance of the amount related to credit losses on debt securities held by the entity at the end of the period for which a portion of an OTTI was recognized in other comprehensive income.

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