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 third quarters of 2015 and 2014, investment activities on life insurance related assets generated revenues of $24 million and

$26 million, respectively, resulting in EFL reporting income before income taxes of $11 million and $10 million, respectively, before intercompany eliminations. For the nine months ended September 30, 2015 and 2014, investment activities on life insurance related assets generated revenues of $74 million and $79 million, respectively, resulting in EFL reporting income before income taxes of $34 million and $33 million, respectively, 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 September 30, 2015
	Management operations		Property and casualty insurance operations		Life insurance operations			Investment operations			Eliminations			Consolidated
Premiums earned/life policy revenue			$	1,447	$	25					$	0		$	1,472
Net investment income								$	123		(3		)	120
Net realized investment losses								(292		)				(292		)
Net impairment losses recognized in earnings								(4		)				(4		)
Equity in earnings of limited partnerships								43						43
Management fee revenue	$	389									(389		)	—
Service agreement and other revenue	7				0									7
Total revenues	396		1,447		25			(130		)	(392		)	1,346
Cost of management operations	328										(328		)	—
Insurance losses and loss expenses			912		28						(1		)	939
Policy acquisition and underwriting expenses			420		10						(63		)	367
Total benefits and expenses	328		1,332		38			—			(392		)	1,306
Income (loss) before income taxes	68		115		(13		)	(130		)	—			40
Provision for income taxes	24		40		(5		)	(52		)	—			7
Net income (loss)	$	44	$	75	$	(8	)	$	(78	)	$	—		$	33



	Erie Insurance Group
(in millions)	Three months ended September 30, 2014
	Management operations		Property and casualty insurance operations		Life insurance operations			Investment operations			Eliminations			Consolidated
Premiums earned/life policy revenue			$	1,333	$	22					$	0		$	1,355
Net investment income								$	118		(3		)	115
Net realized investment losses								(85		)				(85		)
Net impairment losses recognized in earnings								(1		)				(1		)
Equity in earnings of limited partnerships								34						34
Management fee revenue	$	362									(362		)	—
Service agreement and other revenue	8				0									8
Total revenues	370		1,333		22			66			(365		)	1,426
Cost of management operations	308										(308		)	—
Insurance losses and loss expenses			908		28						(1		)	935
Policy acquisition and underwriting expenses			387		10						(56		)	341
Total benefits and expenses	308		1,295		38			—			(365		)	1,276
Income (loss) before income taxes	62		38		(16		)	66			—			150
Provision for income taxes	22		13		(5		)	12			—			42
Net income (loss)	$	40	$	25	$	(11	)	$	54		$	—		$	108




	Erie Insurance Group
(in millions)	Nine months ended September 30, 2015
	Management operations		Property and casualty insurance operations		Life insurance operations			Investment operations			Eliminations			Consolidated
Premiums earned/life policy revenue			$	4,239	$	69					$	0		$	4,308
Net investment income								$	369		(9		)	360
Net realized investment losses								(243		)				(243		)
Net impairment losses recognized in earnings								(8		)				(8		)
Equity in earnings of limited partnerships								143						143
Management fee revenue	$	1,127									(1,127		)	—
Service agreement and other revenue	22				1									23
Total revenues	1,149		4,239		70			261			(1,136		)	4,583
Cost of management operations	958										(958		)	—
Insurance losses and loss expenses			2,897		81						(3		)	2,975
Policy acquisition and underwriting expenses			1,222		29						(175		)	1,076
Total benefits and expenses	958		4,119		110			—			(1,136		)	4,051
Income (loss) before income taxes	191		120		(40		)	261			—			532
Provision for income taxes	67		42		(14		)	71			—			166
Net income (loss)	$	124	$	78	$	(26	)	$	190		$	—		$	366




	Erie Insurance Group
(in millions)	Nine months ended September 30, 2014
	Management operations		Property and casualty insurance operations			Life insurance operations			Investment operations			Eliminations			Consolidated
Premiums earned/life policy revenue			$	3,899		$	64					$	(1	)	$	3,962
Net investment income									$	346		(11		)	335
Net realized investment gains									104						104
Net impairment losses recognized in earnings									(1		)				(1		)
Equity in earnings of limited partnerships									111						111
Management fee revenue	$	1,047										(1,047		)	—
Service agreement and other revenue	23					1									24
Total revenues	1,070		3,899			65			560			(1,059		)	4,535
Cost of management operations	882											(882		)	—
Insurance losses and loss expenses			3,016			83						(4		)	3,095
Policy acquisition and underwriting expenses			1,132			28						(173		)	987
Total benefits and expenses	882		4,148			111			—			(1,059		)	4,082
Income (loss) before income taxes	188		(249		)	(46		)	560			—			453
Provision for income taxes	66		(87		)	(16		)	170			—			133
Net income (loss)	$	122	$	(162	)	$	(30	)	$	390		$	—		$	320