Indemnity Supplemental Information

6 Months Ended

Jun. 30, 2011

Indemnity Supplemental Information

Indemnity Supplemental Information

Note 14.  Indemnity Supplemental Information

	Consolidating Statement of Financial Position
	June 30, 2011
	Indemnity	Exchange	Reclassifications		Erie
(in millions)	shareholder	noncontrolling	and		Insurance
	interest	interest	eliminations		Group
Assets
Investments
Available-for-sale securities, at fair value:
Fixed maturities	$   525	$  7,380	$     –		$  7,905
Equity securities	20	610	–		630
Trading securities, at fair value	30	2,513	–		2,543
Limited partnerships	224	1,166	–		1,390
Other invested assets	1	19	–		20
Total investments	800	11,688	–		12,488
Cash and cash equivalents	48	61	–		109
Premiums receivable from policyholders	–	1,017	–		1,017
Reinsurance recoverable	–	198	–		198
Deferred acquisition costs	–	484	–		484
Other assets	111	316	–		427
Receivables from Exchange and other affiliates	265	–	(265	)	–
Note receivable from EFL	25	–	(25	)	–
Total assets	$1,249	$13,764	$(290	)	$14,723
Liabilities
Losses and loss expense reserves	$      –	$  3,791	$     –		$  3,791
Life policy and deposit contract reserves	–	1,637	–		1,637
Unearned premiums	–	2,196	–		2,196
Deferred income taxes	1	250	–		251
Other liabilities	382	374	(290	)	466
Total liabilities	383	8,248	(290	)	8,341
Shareholders’ equity and noncontrolling interest
Total Indemnity shareholders’ equity	866	–	–		866
Noncontrolling interest in consolidated entity – Exchange	–	5,516	–		5,516
Total equity	866	5,516	–		6,382
Total liabilities, shareholders’ equity and noncontrolling interest	$1,249	$13,764	$(290	)	$14,723

	Consolidating Statement of Financial Position
	December 31, 2010
	Indemnity	Exchange	Reclassifications		Erie
(in millions)	shareholder	noncontrolling	and		Insurance
	interest	interest	eliminations		Group
Assets
Investments
Available-for-sale securities, at fair value:
Fixed maturities	$   264	$  7,279	$     –		$  7,543
Equity securities	24	570	–		594
Trading securities, at fair value	28	2,306	–		2,334
Limited partnerships	216	1,108	–		1,324
Other invested assets	1	19	–		20
Total investments	533	11,282	–		11,815
Cash and cash equivalents	310	120	–		430
Premiums receivable from policyholders	–	942	–		942
Reinsurance recoverable	–	201	–		201
Deferred acquisition costs	–	467	–		467
Other assets	132	357	–		489
Receivables from Exchange and other affiliates	232	–	(232	)	–
Note receivable from EFL	25	–	(25	)	–
Equity in EFL (1)	80	–	(80	)	–
Total assets	$1,312	$13,369	$(337	)	$14,344
Liabilities
Losses and loss expense reserves	$       –	$  3,584	$     –		$  3,584
Life policy and deposit contract reserves	–	1,603	–		1,603
Unearned premiums	–	2,082	–		2,082
Deferred income taxes	26	257	–		283
Other liabilities	374	341	(257	)	458
Total liabilities	400	7,867	(257	)	8,010
Shareholders’ equity and noncontrolling interest
Total Indemnity shareholders’ equity	912	–	–		912
Noncontrolling interest in consolidated entity – Exchange	–	5,502	(80	)	5,422
Total equity	912	5,502	(80	)	6,334
Total liabilities, shareholders’ equity and noncontrolling interest	$1,312	$13,369	$(337	)	$14,344

(1) On March 31, 2011, Indemnity sold its 21.6% ownership interest in EFL to the Exchange. (See Note 1, “Nature of Operations”.)

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.  EFL accrued interest to Indemnity of $0.4 million in each of the second quarters ended June 30, 2011 and 2010.

(in millions)	Income attributable to Indemnity shareholder interest
			Three months ended June 30,			Six months ended June 30,
	Percent		2011	2010		2011	2010
Management operations:
Management fee revenue, net	100.0%		$285	$270		$536	$507
Service agreement revenue	100.0%		9	9		17	17
Total revenue from management operations			294	279		553	524
Cost of management operations	100.0%		230	217		441	409
Income from management operations before taxes			64	62		112	115
Property and casualty insurance operations: (2)
Net premiums earned	5.5%	(2)	–	53		–	106
Losses and loss expenses	5.5%	(2)	–	40		–	80
Policy acquisition and other underwriting expenses	5.5%	(2)	–	15		–	30
Loss from property and casualty insurance operations before taxes			–	(2	)	–	(4	)
Life insurance operations: (1)
Total revenue	21.6%	(3)	–	9		10	18
Total benefits and expenses	21.6%	(3)	–	6		7	13
Income from life insurance operations before taxes			–	3		3	5
Investment operations:
Net investment income (2)			4	9		8	18
Net realized gains (losses) on investments (2)			6	(3	)	7	2
Net impairment losses recognized in earnings (2)			0	(1	)	0	(1	)
Equity in earnings of limited partnerships			7	6		18	6
Income from investment operations before taxes (2)			17	11		33	25
Income from operations before income taxes			81	74		148	141
Provision for income taxes			29	25		52	45
Net income			$  52	$  49		$  96	$  96

(1) Earnings on life insurance related invested assets are integral to the evaluation of the life insurance operations because of the long duration of life products. On that basis, for presentation purposes, the life insurance operations in the table above include life insurance related investment results. However, the life insurance investment results are included in the investment operations segment discussion in Note 5, “Segment Information”.

(2) Prior to and through December 31, 2010, the underwriting results retained by EIC and ENY and the investment results of EIC, ENY and EPC accrued to the Indemnity shareholder interest. Due to the sale of Indemnity’s property and casualty subsidiaries to the Exchange on December 31, 2010, all property and casualty underwriting results and all investment results for these companies accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after December 31, 2010. (See Note 1, “Nature of Operations”.)

(3) Prior to and through March 31, 2011, Indemnity retained a 21.6% ownership interest in EFL, which accrued to the Indemnity shareholder interest, and the Exchange retained a 78.4% ownership interest in EFL, which accrued to the interest of the subscribers (policyholders) of the Exchange or noncontrolling interest. Due to the sale of Indemnity’s 21.6% ownership interest in EFL to the Exchange on March 31, 2011, 100% of the life insurance results of EFL accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after March 31, 2011. (See Note 1, “Nature of Operations”.)

Direct method of cash flows

Indemnity’s components of direct cash flows as presented in the Consolidated Statements of Cash Flows are as follows for the six months ended June 30:

	Indemnity
(in millions)	Six months ended June 30,
	2011			2010
Management fee received	$	521		$	467
Service agreement fee received	17			17
Premiums collected (1)	–			109
Net investment income received (1)	13			23
Limited partnership distributions	10			7
Decrease in reimbursements collected from affiliates	(18		)	(11		)
Commissions and bonuses paid to agents	(313		)	(290		)
Salaries and wages paid	(62		)	(56		)
Employee benefits paid	(11		)	(20		)
Losses paid (1)	–			(67		)
Loss expenses paid (1)	–			(11		)
Other underwriting and acquisition costs paid (1)	–			(30		)
General operating expenses paid	(68		)	(59		)
Income taxes paid	(28		)	(37		)
Net cash provided by operating activities	61			42
Net cash used in investing activities	(181		)	(17		)
Net cash used in financing activities	(142		)	(67		)
Net decrease in cash	(262		)	(42		)
Cash and cash equivalents at beginning of period	310			76
Cash and cash equivalents at end of period	$	48		$	34

(1) Prior to and through December 31, 2010, the underwriting results retained by EIC and ENY and the investment results of EIC, ENY and EPC accrued to the Indemnity shareholder interest. Due to the sale of Indemnity’s property and casualty subsidiaries to the Exchange on December 31, 2010, all property and casualty underwriting results and all investment results for these companies accrue to the interest of the subscribers (policyholders) of the Exchange, or noncontrolling interest, after December 31, 2010. (See Note 1, “Nature of Operations”.)