Note 15. Indemnity Supplemental Information

Consolidating Statement of Financial Position



	Erie Insurance Group
	At March 31, 2015
(in millions)	Indemnity shareholder interest		Exchange noncontrolling interest		Reclassifications and eliminations			Erie Insurance Group
Assets
Investments
Available-for-sale securities, at fair value:
Fixed maturities	$	556	$	9,499	$	—		$	10,055
Equity securities	25		837		—			862
Trading securities, at fair value	—		3,096		—			3,096
Limited partnerships	100		815		—			915
Other invested assets	1		21		—			22
Total investments	682		14,268		—			14,950
Cash and cash equivalents	58		362		—			420
Premiums receivable from policyholders	—		1,304		—			1,304
Reinsurance recoverable	—		162		—			162
Deferred income tax asset	40		0		—			40
Deferred acquisition costs	—		589		—			589
Other assets	125		403		—			528
Receivables from the Exchange and other affiliates	337		—		(337		)	—
Note receivable from EFL	25		—		(25		)	—
Total assets	$	1,267	$	17,088	$	(362	)	$	17,993
Liabilities
Losses and loss expense reserves	$	—	$	3,966	$	—		$	3,966
Life policy and deposit contract reserves	—		1,827		—			1,827
Unearned premiums	—		2,845		—			2,845
Deferred income tax liability	0		494		—			494
Other liabilities	557		529		(362		)	724
Total liabilities	557		9,661		(362		)	9,856
Shareholders’ equity and noncontrolling interest
Total Indemnity shareholders’ equity	710		—		—			710
Noncontrolling interest in consolidated entity – Exchange	—		7,427		—			7,427
Total equity	710		7,427		—			8,137
Total liabilities, shareholders’ equity, and noncontrolling interest	$	1,267	$	17,088	$	(362	)	$	17,993

Consolidating Statement of Financial Position



	Erie Insurance Group
	At December 31, 2014
(in millions)	Indemnity shareholder interest		Exchange noncontrolling interest		Reclassifications and eliminations			Erie Insurance Group
Assets
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	0		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

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 $332 million and $331 million at March 31, 2015 and December 31, 2014, respectively. The receivable from EFL for expense allocations and interest on the surplus note totaled $5 million and $4 million at March 31, 2015 and December 31, 2014, respectively.

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. For each of the three months ended March 31, 2015 and 2014, Indemnity recognized interest income on the note of $0.4 million.

Income attributable to Indemnity shareholder interest



	Indemnity Shareholder Interest
(in millions)	Three months ended March 31,
	2015		2014
Management operations:
Management fee revenue, net	$	343	$	319
Service agreement revenue	8		7
Total revenue from management operations	351		326
Cost of management operations	298		268
Income from management operations before taxes	53		58
Investment operations:
Net investment income	4		4
Net realized gains on investments	0		1
Net impairment losses recognized in earnings	0		0
Equity in earnings of limited partnerships	2		6
Income from investment operations before taxes	6		11
Income from operations before income taxes	59		69
Provision for income taxes	20		23
Net income attributable to Indemnity	$	39	$	46

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



	Indemnity Shareholder Interest
(in millions)	Three months ended March 31,
	2015			2014
Management fee received	$	342		$	317
Service agreement fee received	8			8
Net investment income received	6			6
Limited partnership distributions	5			3
Increase in reimbursements collected from affiliates	0			1
Commissions and bonuses paid to agents	(249		)	(225		)
Salaries and wages paid	(42		)	(47		)
Pension contribution and employee benefits paid	(22		)	(23		)
General operating expenses paid	(63		)	(50		)
Income taxes paid	0			1
Net cash used in operating activities	(15		)	(9		)
Net cash provided by investing activities	13			44
Net cash used in financing activities	(32		)	(40		)
Net decrease in cash and cash equivalents	(34		)	(5		)
Cash and cash equivalents at beginning of period	92			49
Cash and cash equivalents at end of period	$	58		$	44