Note 5. Segment Information

Our reportable segments include management operations, property and casualty insurance operations, life insurance operations, and investment operations. Accounting policies for segments are the same as those described in the summary of significant accounting policies. See Item 8. “Financial Statements and Supplementary Data, Note 2. Significant Accounting Policies,” in our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission on February 26, 2015. Assets are not allocated to the segments, but rather, are reviewed in total for purposes of decision-making. No single customer or agent provides 10% or more of revenues.

Management operations

Our management operations segment consists of Indemnity serving as attorney-in-fact for the Exchange. Indemnity operates in this capacity solely for the Exchange. We evaluate profitability of our management operations segment principally on the gross margin from management operations. Indemnity earns a management fee from the Exchange for providing certain sales, underwriting, and policy issuance services. Management fee revenue, which is eliminated upon consolidation, is calculated as a percentage not to exceed 25% of all the direct premiums written by the Exchange and the other members of the Property and Casualty Group, which are assumed by the Exchange under an intercompany pooling arrangement. The Property and Casualty Group issues policies with annual terms only. Management fees are recorded upon policy issuance or renewal, as substantially all of the services required to be performed by Indemnity have been satisfied at that time. Certain activities are performed and related costs are incurred by us subsequent to policy issuance in connection with the services provided to the Exchange; however, these activities are inconsequential and perfunctory. Although these management fee revenues and expenses are eliminated upon consolidation, the amount of the fee directly impacts the allocation of our consolidated net income between the noncontrolling interest, which bears the management fee expense and represents the interests of the Exchange subscribers (policyholders), and Indemnity’s interest, which earns the management fee revenue and represents the Indemnity shareholder interest in net income.

Property and casualty insurance operations

Our property and casualty insurance operations segment includes personal and commercial lines. Personal lines consist primarily of private passenger auto and homeowners and are marketed to individuals. Commercial lines consist primarily of commercial multi-peril, commercial auto, and workers compensation and are marketed to small- and medium-sized businesses. Our property and casualty policies are sold by independent agents. Our property and casualty insurance underwriting operations are conducted through the Exchange and its subsidiaries and include assumed involuntary and ceded reinsurance business and run-off activity of the previously assumed voluntary reinsurance business. We evaluate profitability of the property and casualty insurance operations principally based upon net underwriting results represented by the combined ratio.

Life insurance operations

Our life insurance operations segment includes traditional and universal life insurance products and fixed annuities marketed to individuals using the same independent agency force utilized by our property and casualty insurance operations. We evaluate profitability of the life insurance segment principally based upon segment net income, including investments, which for segment purposes are reflected in the investment operations segment. At the same time, we recognize that investment-related income is integral to the evaluation of the life insurance segment because of the long duration of life products. For the second quarters of 2015 and 2014, investment activities on life insurance related assets generated revenues of $25 million and

$24 million, respectively, resulting in EFL reporting income before income taxes of $13 million and $10 million, respectively, before intercompany eliminations. For the six months ended June 30, 2015 and 2014, investment activities on life insurance related assets generated revenues of $50 million and $53 million, respectively, resulting in EFL reporting income before income taxes of $23 million for both periods, before intercompany eliminations.

Investment operations

The investment operations segment includes returns from our fixed maturity, equity security and limited partnership investment portfolios to support our underwriting business. The Indemnity and Exchange portfolios are managed with the objective of maximizing after-tax returns on a risk-adjusted basis, while the EFL portfolio is managed to be closely aligned to its liabilities and to maintain a sufficient yield to meet profitability targets. We actively evaluate the portfolios for impairments and record impairment writedowns on investments in instances where the fair value of the investment is substantially below cost, and it is concluded that the decline in fair value is other-than-temporary. Investment related income for the life operations is included in the investment segment results.

The following tables summarize the components of the Consolidated Statements of Operations by reportable business segment:



	Erie Insurance Group
(in millions)	Three months ended June 30, 2015
	Management operations		Property and casualty insurance operations		Life insurance operations			Investment operations			Eliminations			Consolidated
Premiums earned/life policy revenue			$	1,412	$	22					$	0		$	1,434
Net investment income								$	130		(3		)	127
Net realized investment losses								(7		)				(7		)
Net impairment losses recognized in earnings								(2		)				(2		)
Equity in earnings of limited partnerships								72						72
Management fee revenue	$	395									(395		)	—
Service agreement and other revenue	7				1									8
Total revenues	402		1,412		23			193			(398		)	1,632
Cost of management operations	332										(332		)	—
Insurance losses and loss expenses			952		25						(1		)	976
Policy acquisition and underwriting expenses			416		10						(65		)	361
Total benefits and expenses	332		1,368		35			—			(398		)	1,337
Income (loss) before income taxes	70		44		(12		)	193			—			295
Provision for income taxes	24		16		(4		)	62			—			98
Net income (loss)	$	46	$	28	$	(8	)	$	131		$	—		$	197



	Erie Insurance Group
(in millions)	Three months ended June 30, 2014
	Management operations		Property and casualty insurance operations			Life insurance operations			Investment operations		Eliminations			Consolidated
Premiums earned/life policy revenue			$	1,298		$	22				$	(1	)	$	1,319
Net investment income									$	116	(5		)	111
Net realized investment gains									133					133
Net impairment losses recognized in earnings									0					0
Equity in earnings of limited partnerships									27					27
Management fee revenue	$	366									(366		)	—
Service agreement and other revenue	8					0								8
Total revenues	374		1,298			22			276		(372		)	1,598
Cost of management operations	306										(306		)	—
Insurance losses and loss expenses			1,101			27					(2		)	1,126
Policy acquisition and underwriting expenses			380			9					(64		)	325
Total benefits and expenses	306		1,481			36			—		(372		)	1,451
Income (loss) before income taxes	68		(183		)	(14		)	276		—			147
Provision for income taxes	24		(64		)	(5		)	89		—			44
Net income (loss)	$	44	$	(119	)	$	(9	)	$	187	$	—		$	103




	Erie Insurance Group
(in millions)	Six months ended June 30, 2015
	Management operations		Property and casualty insurance operations		Life insurance operations			Investment operations			Eliminations			Consolidated
Premiums earned/life policy revenue			$	2,792	$	44					$	0		$	2,836
Net investment income								$	246		(6		)	240
Net realized investment gains								49						49
Net impairment losses recognized in earnings								(4		)				(4		)
Equity in earnings of limited partnerships								100						100
Management fee revenue	$	738									(738		)	—
Service agreement and other revenue	15				1									16
Total revenues	753		2,792		45			391			(744		)	3,237
Cost of management operations	630										(630		)	—
Insurance losses and loss expenses			1,985		53						(2		)	2,036
Policy acquisition and underwriting expenses			802		19						(112		)	709
Total benefits and expenses	630		2,787		72			—			(744		)	2,745
Income (loss) before income taxes	123		5		(27		)	391			—			492
Provision for income taxes	43		2		(9		)	123			—			159
Net income (loss)	$	80	$	3	$	(18	)	$	268		$	—		$	333




	Erie Insurance Group
(in millions)	Six months ended June 30, 2014
	Management operations		Property and casualty insurance operations			Life insurance operations			Investment operations		Eliminations			Consolidated
Premiums earned/life policy revenue			$	2,566		$	42				$	(1	)	$	2,607
Net investment income									$	228	(8		)	220
Net realized investment gains									189					189
Net impairment losses recognized in earnings									0					0
Equity in earnings of limited partnerships									77					77
Management fee revenue	$	685									(685		)	—
Service agreement and other revenue	15					1								16
Total revenues	700		2,566			43			494		(694		)	3,109
Cost of management operations	574										(574		)	—
Insurance losses and loss expenses			2,108			55					(3		)	2,160
Policy acquisition and underwriting expenses			745			18					(117		)	646
Total benefits and expenses	574		2,853			73			—		(694		)	2,806
Income (loss) before income taxes	126		(287		)	(30		)	494		—			303
Provision for income taxes	44		(100		)	(11		)	158		—			91
Net income (loss)	$	82	$	(187	)	$	(19	)	$	336	$	—		$	212