Fair Value (Tables)

6 Months Ended

Jun. 30, 2015

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 June 30, 2015:



	Erie Insurance Group
	June 30, 2015
	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	$	225		$	0		$	225		$	0
Corporate debt securities	235			0			235			0
Residential mortgage-backed securities	9			0			9			0
Commercial mortgage-backed securities	49			0			49			0
Collateralized debt obligations	38			0			37			1
Other debt securities	5			0			5			0
Total fixed maturities	561			0			560			1
Nonredeemable preferred stock	10			1			9			0
Common stock	12			12			0			0
Total available-for-sale securities	583			13			569			1
Other investments ⁽¹⁾	6			0			0			6
Total – Indemnity	$	589		$	13		$	569		$	7
Exchange
Available-for-sale securities:
U.S. treasury	$	7		$	0		$	7		$	0
Government sponsored enterprises	4			0			4			0
States & political subdivisions	1,492			0			1,492			0
Foreign government securities	83			0			83			0
Corporate debt securities	7,622			0			7,548			74
Residential mortgage-backed securities	34			0			34			0
Commercial mortgage-backed securities	29			0			29			0
Collateralized debt obligations	11			0			11			0
Other debt securities	90			0			79			11
Total fixed maturities	9,372			0			9,287			85
Nonredeemable preferred stock	721			359			361			1
Common stock	96			96			0			0
Total available-for-sale securities	10,189			455			9,648			86
Trading securities:
Common stock	3,144			3,131			0			13
Total trading securities	3,144			3,131			0			13
Other investments ⁽¹⁾	53			0			0			53
Total – Exchange	$	13,386		$	3,586		$	9,648		$	152
Total – Erie Insurance Group	$	13,975		$	3,599		$	10,217		$	159

% of total assets at fair value	100.0		%	25.8		%	73.1		%	1.1		%

(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 the NAV represents fair value 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 June 30, 2015. During the six months ended June 30, 2015, Indemnity made no contributions and received distributions totaling $0.9 million, and the Exchange made no contributions and received distributions totaling $21.2 million for these investments. As of June 30, 2015, the amount of unfunded commitments related to the investments was $0.6 million for Indemnity and $1.7 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, 2014:



	Erie Insurance Group
	December 31, 2014
	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	$	231		$	0		$	231		$	0
Corporate debt securities	234			0			234			0
Residential mortgage-backed securities	8			0			8			0
Commercial mortgage-backed securities	51			0			51			0
Collateralized debt obligations	33			0			33			0
Other debt securities	7			0			7			0
Total fixed maturities	564			0			564			0
Nonredeemable preferred stock	12			2			10			0
Common stock	13			13			0			0
Total available-for-sale securities	589			15			574			0
Other investments ⁽¹⁾	8			0			0			8
Total – Indemnity	$	597		$	15		$	574		$	8
Exchange
Available-for-sale securities:
U.S. treasury	$	6		$	0		$	6		$	0
Government sponsored enterprises	4			0			4			0
States & political subdivisions	1,477			0			1,477			0
Foreign government securities	10			0			10			0
Corporate debt securities	7,289			0			7,202			87
Residential mortgage-backed securities	111			0			111			0
Commercial mortgage-backed securities	30			0			30			0
Collateralized debt obligations	11			0			11			0
Other debt securities	69			0			57			12
Total fixed maturities	9,007			0			8,908			99
Nonredeemable preferred stock	710			328			381			1
Common stock	140			140			0			0
Total available-for-sale securities	9,857			468			9,289			100
Trading securities:
Common stock	3,223			3,208			0			15
Total trading securities	3,223			3,208			0			15
Other investments ⁽¹⁾	71			0			0			71
Total – Exchange	$	13,151		$	3,676		$	9,289		$	186
Total – Erie Insurance Group	$	13,748		$	3,691		$	9,863		$	194

% of total assets at fair value	100.0		%	26.9		%	71.7		%	1.4		%

(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 the NAV represents fair value 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, 2014. During the year ended December 31, 2014, Indemnity made no contributions and received distributions totaling $12.9 million, and the Exchange made no contributions and received distributions totaling $41.5 million for these investments. As of December 31, 2014, the amount of unfunded commitments related to the investments was $0.6 million for Indemnity and $1.7 million for the Exchange.

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

Level 3 Assets – Quarterly Change:




	Erie Insurance Group
(in millions)	Beginning balance at March 31, 2014		Included in earnings ⁽¹⁾		Included in other comprehensive income		Purchases		Sales			Transfers in and (out) of Level 3		Ending balance at June 30, 2014
Indemnity
Available-for-sale securities:
Corporate debt securities	$	1	$	0	$	0	$	0	$	0		$	0	$	1
Collateralized debt obligations	0		0		0		0		0			0		0
Total fixed maturities	1		0		0		0		0			0		1
Total available-for-sale securities	1		0		0		0		0			0		1
Other investments	18		1		0		0		(1		)	0		18
Total Level 3 assets – Indemnity	$	19	$	1	$	0	$	0	$	(1	)	$	0	$	19
Exchange
Available-for-sale securities:
Corporate debt securities	$	26	$	0	$	0	$	0	$	(1	)	$	0	$	25
Collateralized debt obligations	0		0		0		0		0			0		0
Total fixed maturities	26		0		0		0		(1		)	0		25
Nonredeemable preferred stock	1		0		0		0		0			0		1
Total available-for-sale securities	27		0		0		0		(1		)	0		26
Trading securities:
Common stock	15		0		0		0		0			0		15
Total trading securities	15		0		0		0		0			0		15
Other investments	98		6		0		0		(2		)	0		102
Total Level 3 assets – Exchange	$	140	$	6	$	0	$	0	$	(3	)	$	0	$	143
Total Level 3 assets – Erie Insurance Group	$	159	$	7	$	0	$	0	$	(4	)	$	0	$	162


(1)	These amounts are reported in the Consolidated Statement of Operations. There is $7 million included in equity in earnings of limited partnerships for the three months ended June 30, 2014 on Level 3 securities.

Level 3 Assets – Quarterly Change:




	Erie Insurance Group
(in millions)	Beginning balance at March 31, 2015		Included in earnings ⁽¹⁾			Included in other comprehensive income			Purchases		Sales		Transfers in and (out) of Level 3			Ending balance at June 30, 2015
Indemnity
Available-for-sale securities:
Corporate debt securities	$	0	$	0		$	0		$	0	$	0	$	0		$	0
Collateralized debt obligations	0		0			0			1		0		0			1
Total fixed maturities	0		0			0			1		0		0			1
Total available-for-sale securities	0		0			0			1		0		0			1
Other investments	7		(1		)	0			0		0		0			6
Total Level 3 assets – Indemnity	$	7	$	(1	)	$	0		$	1	$	0	$	0		$	7
Exchange
Available-for-sale securities:
Corporate debt securities	$	80	$	0		$	(6	)	$	24	$	0	$	(24	)	$	74
Other debt securities	9		0			0			0		0		2			11
Total fixed maturities	89		0			(6		)	24		0		(22		)	85
Nonredeemable preferred stock	1		0			0			0		0		0			1
Total available-for-sale securities	90		0			(6		)	24		0		(22		)	86
Trading securities:
Common stock	15		(2		)	0			0		0		0			13
Total trading securities	15		(2		)	0			0		0		0			13
Other investments	51		2			0			0		0		0			53
Total Level 3 assets – Exchange	$	156	$	0		$	(6	)	$	24	$	0	$	(22	)	$	152
Total Level 3 assets – Erie Insurance Group	$	163	$	(1	)	$	(6	)	$	25	$	0	$	(22	)	$	159


(1)	These amounts are reported in the Consolidated Statement of Operations. There is $2 million of net realized losses included in net realized investment (losses) gains and $1 million included in equity in earnings of limited partnerships for the three months ended June 30, 2015 on Level 3 securities.

Level 3 Assets – Year-to-Date Change:




	Erie Insurance Group
(in millions)	Beginning balance at December 31, 2014		Included in earnings ⁽¹⁾			Included in other comprehensive income			Purchases		Sales			Transfers in and (out) of Level 3			Ending balance at June 30, 2015
Indemnity
Available-for-sale securities:
Corporate debt securities	$	0	$	0		$	0		$	0	$	0		$	0		$	0
Collateralized debt obligations	0		0			0			1		0			0			1
Total fixed maturities	0		0			0			1		0			0			1
Total available-for-sale securities	0		0			0			1		0			0			1
Other investments	8		(1		)	0			0		(1		)	0			6
Total Level 3 assets – Indemnity	$	8	$	(1	)	$	0		$	1	$	(1	)	$	0		$	7
Exchange
Available-for-sale securities:
Corporate debt securities	$	87	$	0		$	(5	)	$	27	$	(2	)	$	(33	)	$	74
Other debt securities	12		0			0			0		0			(1		)	11
Total fixed maturities	99		0			(5		)	27		(2		)	(34		)	85
Nonredeemable preferred stock	1		0			0			0		0			0			1
Total available-for-sale securities	100		0			(5		)	27		(2		)	(34		)	86
Trading securities:
Common stock	15		(2		)	0			0		0			0			13
Total trading securities	15		(2		)	0			0		0			0			13
Other investments	71		3			0			0		(21		)	0			53
Total Level 3 assets – Exchange	$	186	$	1		$	(5	)	$	27	$	(23	)	$	(34	)	$	152
Total Level 3 assets – Erie Insurance Group	$	194	$	0		$	(5	)	$	28	$	(24	)	$	(34	)	$	159


(1)	These amounts are reported in the Consolidated Statement of Operations. There is $2 million of losses included in net realized investment (losses) gains and $2 million included in equity in earnings of limited partnerships for the six months ended June 30, 2015 on Level 3 securities.

Level 3 Assets – Year-to-Date Change:




	Erie Insurance Group
(in millions)	Beginning balance at December 31, 2013		Included in earnings ⁽¹⁾		Included in other comprehensive income			Purchases		Sales			Transfers in and (out) of Level 3			Ending balance at June 30, 2014
Indemnity
Available-for-sale securities:
Corporate debt securities	$	1	$	0	$	0		$	0	$	0		$	0		$	1
Collateralized debt obligations	1		0		0			0		(1		)	0			0
Total fixed maturities	2		0		0			0		(1		)	0			1
Total available-for-sale securities	2		0		0			0		(1		)	0			1
Other investments	18		2		0			0		(2		)	0			18
Total Level 3 assets – Indemnity	$	20	$	2	$	0		$	0	$	(3	)	$	0		$	19
Exchange
Available-for-sale securities:
Corporate debt securities	$	26	$	0	$	0		$	0	$	(1	)	$	0		$	25
Collateralized debt obligations	5		1		(1		)	0		(3		)	(2		)	0
Total fixed maturities	31		1		(1		)	0		(4		)	(2		)	25
Nonredeemable preferred stock	0		0		0			1		0			0			1
Total available-for-sale securities	31		1		(1		)	1		(4		)	(2		)	26
Trading securities:
Common stock	15		0		0			0		0			0			15
Total trading securities	15		0		0			0		0			0			15
Other investments	98		11		0			0		(7		)	0			102
Total Level 3 assets – Exchange	$	144	$	12	$	(1	)	$	1	$	(11	)	$	(2	)	$	143
Total Level 3 assets – Erie Insurance Group	$	164	$	14	$	(1	)	$	1	$	(14	)	$	(2	)	$	162


(1)	These amounts are reported in the Consolidated Statement of Operations. There is $1 million included in net realized investment gains (losses) and $13 million included in equity in earnings of limited partnerships for the six months ended June 30, 2014 on Level 3 securities.

Schedule of Quantitative and Qualitative Disclosures about Unobservable Inputs

Quantitative and Qualitative Disclosures about Unobservable Inputs

Erie Insurance Group

June 30, 2015

(dollars in millions)

Fair

value

Valuation techniques

Unobservable input

Range

Weighted

average

Exchange

Corporate debt securities⁽¹⁾

Market approach

Comparable transaction EBITDA multiples

8.0x

Comparable security yield

Nonredeemable preferred stock⁽²⁾

Market approach

Held at cost

Common stock⁽¹⁾

Market approach

Comparable transaction EBITDA multiples

8.0x

Discount for lack of marketability

10%

December 31, 2014

(dollars in millions)

Fair

value

Valuation techniques

Unobservable input

Range

Weighted

average

Exchange

Corporate debt securities⁽¹⁾

Market approach

Comparable transaction EBITDA multiples

8.0x

Comparable security yield

Nonredeemable preferred stock⁽²⁾

Market approach

Held at cost

Common stock⁽¹⁾

Market approach

Comparable transaction EBITDA multiples

8.0x

Discount for lack of marketability

10%

(1)

Common stock investments and Corporate debt securities – The unobservable inputs used in the fair value measurement of direct private equity common stock investments and certain corporate debt securities are comparable private transaction earnings before interest, taxes, depreciation, and amortization (“EBITDA”) multiples, the average EBITDA multiple for comparable publicly traded companies and the amount of discount applied to the price due to the illiquidity of the securities being valued. Significant changes in any of those inputs in isolation could result in a significantly higher or lower fair value measurement.


(2)	Nonredeemable preferred stock - Represents a private security where cost was determined to be the best estimate of fair value.

Schedule of consolidated fair value measurements on a recurring basis by pricing source

The following table presents our consolidated fair value measurements on a recurring basis by pricing source at June 30, 2015:



	Erie Insurance Group
(in millions)	June 30, 2015
	Total		Level 1		Level 2		Level 3
Indemnity
Fixed maturities:
Priced via pricing services	$	560	$	0	$	560	$	0
Priced via market comparables/broker quotes ⁽¹⁾	1		0		0		1
Total fixed maturities	561		0		560		1
Nonredeemable preferred stock:
Priced via pricing services	8		1		7		0
Priced via market comparables/broker quotes ⁽¹⁾	2		0		2		0
Total nonredeemable preferred stock	10		1		9		0
Common stock:
Priced via pricing services	12		12		0		0
Total common stock	12		12		0		0
Other investments:
Priced via unobservable inputs ⁽²⁾	6		0		0		6
Total other investments	6		0		0		6
Total – Indemnity	$	589	$	13	$	569	$	7
Exchange
Fixed maturities:
Priced via pricing services	$	9,273	$	0	$	9,262	$	11
Priced via market comparables/broker quotes ⁽¹⁾	92		0		25		67
Priced via internal modeling	7		0		0		7
Total fixed maturities	9,372		0		9,287		85
Nonredeemable preferred stock:
Priced via pricing services	711		359		352		0
Priced via market comparables/broker quotes ⁽¹⁾	9		0		9		0
Priced via internal modeling	1		0		0		1
Total nonredeemable preferred stock	721		359		361		1
Common stock:
Priced via pricing services	3,227		3,227		0		0
Priced via internal modeling	13		0		0		13
Total common stock	3,240		3,227		0		13
Other investments:
Priced via unobservable inputs ⁽²⁾	53		0		0		53
Total other investments	53		0		0		53
Total – Exchange	$	13,386	$	3,586	$	9,648	$	152
Total – Erie Insurance Group	$	13,975	$	3,599	$	10,217	$	159


(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.