Note 15. Indemnity Supplemental Information

Consolidating Statement of Financial Position



	Erie Insurance Group
	At September 30, 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	$	588	$	9,392	$	—		$	9,980
Equity securities	20		720		—			740
Trading securities, at fair value	—		2,981		—			2,981
Limited partnerships	95		832		—			927
Other invested assets	1		21		—			22
Total investments	704		13,946		—			14,650
Cash and cash equivalents	122		496		—			618
Premiums receivable from policyholders	—		1,417		—			1,417
Reinsurance recoverable	—		162		—			162
Deferred income tax asset	51		—		—			51
Deferred acquisition costs	—		656		—			656
Other assets	110		451		—			561
Receivables from the Exchange and other affiliates	385		—		(385		)	—
Note receivable from EFL	25		—		(25		)	—
Total assets	$	1,397	$	17,128	$	(410	)	$	18,115
Liabilities
Losses and loss expense reserves	$	—	$	3,923	$	—		$	3,923
Life policy and deposit contract reserves	—		1,848		—			1,848
Unearned premiums	—		3,109		—			3,109
Deferred income tax liability	—		283		—			283
Other liabilities	647		590		(410		)	827
Total liabilities	647		9,753		(410		)	9,990
Shareholders’ equity and noncontrolling interest
Total Indemnity shareholders’ equity	750		—		—			750
Noncontrolling interest in consolidated entity – Exchange	—		7,375		—			7,375
Total equity	750		7,375		—			8,125
Total liabilities, shareholders’ equity, and noncontrolling interest	$	1,397	$	17,128	$	(410	)	$	18,115

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		—		—			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	—		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

Transactions with 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 payable from the Exchange to Indemnity were $381 million and $331 million at September 30, 2015 and December 31, 2014, respectively. The payable from EFL to Indemnity for expense allocations and interest on the surplus note totaled $4 million at September 30, 2015 and December 31, 2014.

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 nine months ended September 30, 2015 and 2014, Indemnity recognized interest income on the note of $1.3 million.

Income attributable to Indemnity shareholder interest



	Indemnity Shareholder Interest
(in millions)	Three months ended September 30,					Nine months ended September 30,
	2015			2014		2015			2014
Management operations:
Management fee revenue, net	$	389		$	362	$	1,127		$	1,047
Service agreement revenue	7			8		22			23
Total revenue from management operations	396			370		1,149			1,070
Cost of management operations	328			308		958			882
Income from management operations before taxes	68			62		191			188
Investment operations:
Net investment income	4			4		13			12
Net realized investment gains	0			0		0			1
Net impairment losses recognized in earnings	(1		)	0		(1		)	0
Equity in earnings of limited partnerships	4			4		17			13
Income from investment operations before taxes	7			8		29			26
Income from operations before income taxes	75			70		220			214
Provision for income taxes	25			23		75			72
Net income attributable to Indemnity	$	50		$	47	$	145		$	142

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



	Indemnity Shareholder Interest
(in millions)	Nine months ended September 30,
	2015			2014
Management fee received	$	1,094		$	1,011
Service agreement fee received	23			23
Net investment income received	19			16
Limited partnership distributions	12			12
Decrease in reimbursements collected from affiliates	(17		)	(7		)
Commissions and bonuses paid to agents	(633		)	(576		)
Salaries and wages paid	(115		)	(116		)
Pension contribution and employee benefits paid	(34		)	(42		)
General operating expenses paid	(144		)	(140		)
Income taxes paid	(74		)	(70		)
Net cash provided by operating activities	131			111
Net cash used in investing activities	(6		)	(6		)
Net cash used in financing activities	(95		)	(109		)
Net increase (decrease) in cash and cash equivalents	30			(4		)
Cash and cash equivalents at beginning of period	92			49
Cash and cash equivalents at end of period	$	122		$	45