XML 21 R12.htm IDEA: XBRL DOCUMENT

Investments

9 Months Ended

Sep. 30, 2011

Note 7. Investments

The 2010 investment information within this note has been conformed to this current presentation.

The following tables summarize the cost and fair value of our available-for-sale securities at September 30, 2011 and December 31, 2010:

	Erie Insurance Group
	September 30, 2011
(in millions)	Amortized	Gross unrealized	Gross unrealized	Estimated
	cost	gains	losses	fair value
Indemnity
Available-for-sale securities:
States & political subdivisions	$ 213	$ 11	$ 0	$ 224
Corporate debt securities	261	1	2	260
Other debt securities	9	0	0	9
Commercial mortgage-backed securities (CMBS)	20	0	0	20
Collateralized debt obligations (CDO)	4	0	0	4
Total fixed maturities	507	12	2	517
Nonredeemable preferred stock	21	1	0	22
Total available-for-sale securities – Indemnity	$ 528	$ 13	$ 2	$ 539
Exchange
Available-for-sale securities:
U.S. government & agencies	$ 35	$ 2	$ 0	$ 37
States & political subdivisions	1,336	82	1	1,417
Foreign government securities	20	1	0	21
Corporate debt securities	5,094	385	33	5,446
Other debt securities	66	2	0	68
Residential mortgage-backed securities (RMBS)	191	12	0	203
Commercial mortgage-backed securities (CMBS)	66	4	0	70
Collateralized debt obligations (CDO)	69	5	5	69
Total fixed maturities	6,877	493	39	7,331
Nonredeemable preferred stock	559	46	14	591
Total available-for-sale securities – Exchange	$7,436	$539	$53	$7,922
Total available-for-sale securities – Erie Insurance Group	$7,964	$552	$55	$8,461

	Erie Insurance Group
	December 31, 2010
(in millions)	Amortized	Gross unrealized	Gross unrealized	Estimated
	cost	gains	losses	fair value
Indemnity
Available-for-sale securities:
U.S. government & agencies	$ 25	$ 0	$ 0	$ 25
States & political subdivisions	193	6	2	197
Corporate debt securities	36	2	0	38
Collateralized debt obligations (CDO)	3	1	0	4
Total fixed maturities	257	9	2	264
Nonredeemable preferred stock	20	4	0	24
Total available-for-sale securities – Indemnity	$ 277	$ 13	$ 2	$ 288
Exchange
Available-for-sale securities:
U.S. government & agencies	$ 85	$ 2	$ 0	$ 87
States & political subdivisions	1,437	43	9	1,471
Foreign government securities	20	1	0	21
Corporate debt securities	4,900	377	14	5,263
Other debt securities	54	3	0	57
Residential mortgage-backed securities (RMBS)	216	9	1	224
Commercial mortgage-backed securities (CMBS)	82	5	1	86
Collateralized debt obligations (CDO)	69	6	5	70
Total fixed maturities	6,863	446	30	7,279
Nonredeemable preferred stock	503	74	7	570
Total available-for-sale securities – Exchange	$7,366	$520	$37	$7,849
Total available-for-sale securities – Erie Insurance Group	$7,643	$533	$39	$8,137

The amortized cost and estimated fair value of fixed maturities at September 30, 2011 are shown below by remaining contractual term to maturity. Mortgage-backed securities are allocated based upon their stated maturity dates. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Erie Insurance Group
(in millions)	Amortized	Estimated
	cost	fair value
Indemnity
Due in one year or less	$ 152	$ 152
Due after one year through five years	219	222
Due after five years through ten years	48	51
Due after ten years	88	92
Total fixed maturities – Indemnity	$ 507	$ 517
Exchange
Due in one year or less	449	457
Due after one year through five years	2,451	2,576
Due after five years through ten years	2,722	2,949
Due after ten years	1,255	1,349
Total fixed maturities – Exchange	$6,877	$7,331
Total fixed maturities – Erie Insurance Group	$7,384	$7,848

Fixed maturities and equity securities in a gross unrealized loss position at September 30, 2011 are as follows. Data is provided by length of time securities were in a gross unrealized loss position.

	Erie Insurance Group
	September 30, 2011
(dollars in millions)	Less than 12 months		12 months or longer		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized	No. of
Indemnity	value	losses	value	losses	value	losses	holdings
Available-for-sale securities:
States & political subdivisions	$ 0	$ 0	$ 2	$ 0	$ 2	$ 0	1
Corporate debt securities	195	2	0	0	195	2	34
Other debt securities	9	0	0	0	9	0	2
Commercial mortgage-backed securities (CMBS)	20	0	0	0	20	0	4
Total fixed maturities – Indemnity	224	2	2	0	226	2	41
Nonredeemable preferred stock	6	0	3	0	9	0	4
Total available-for-sale securities – Indemnity	$230	$ 2	$ 5	$ 0	$ 235	$ 2	45

Quality breakdown of fixed maturities:
Investment grade	$224	$ 2	$ 2	$ 0	$ 226	$ 2	41
Non-investment grade	0	0	0	0	0	0	0
Total fixed maturities – Indemnity	$224	$ 2	$ 2	$ 0	$ 226	$ 2	41

Exchange
Available-for-sale securities:
U.S. government & agencies	$ 5	$ 0	$ 0	$ 0	$ 5	$ 0	1
States & political subdivisions	9	0	11	1	20	1	5
Corporate debt securities	752	30	54	3	806	33	130
Other debt securities	5	0	0	0	5	0	1
Residential mortgage-backed securities (RMBS)	9	0	0	0	9	0	4
Commercial mortgage-backed securities (CMBS)	5	0	0	0	5	0	2
Collateralized debt obligations (CDO)	0	0	32	5	32	5	6
Total fixed maturities – Exchange	785	30	97	9	882	39	149
Nonredeemable preferred stock	156	12	34	2	190	14	26
Total available-for-sale securities – Exchange	$941	$42	$131	$11	$1,072	$53	175

Quality breakdown of fixed maturities:
Investment grade	$702	$26	$ 90	$ 8	$ 792	$34	127
Non-investment grade	83	4	7	1	90	5	22
Total fixed maturities – Exchange	$785	$30	$ 97	$ 9	$ 882	$39	149

Fixed maturities and equity securities in a gross unrealized loss position at December 31, 2010 are as follows. Data is provided by length of time securities were in a gross unrealized loss position.

	Erie Insurance Group
	December 31, 2010
(dollars in millions)	Less than 12 months		12 months or longer		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized	No. of
Indemnity	value	losses	value	losses	value	losses	holdings
Available-for-sale securities:
U.S. government & agencies	$ 25	$ 0	$ 0	$ 0	$ 25	$ 0	1
States & political subdivisions	39	2	1	0	40	2	20
Corporate debt securities	31	0	0	0	31	0	3
Total fixed maturities – Indemnity	95	2	1	0	96	2	24
Nonredeemable preferred stock	3	0	0	0	3	0	1
Total available-for-sale securities – Indemnity	$ 98	$ 2	$ 1	$ 0	$ 99	$ 2	25

Quality breakdown of fixed maturities:
Investment grade	$ 95	$ 2	$ 1	$ 0	$ 96	$ 2	24
Non-investment grade	0	0	0	0	0	0	0
Total fixed maturities – Indemnity	$ 95	$ 2	$ 1	$ 0	$ 96	$ 2	24

Exchange
Available-for-sale securities:
U.S. government & agencies	$ 22	$ 0	$ 0	$ 0	$ 22	$ 0	3
States & political subdivisions	299	8	5	1	304	9	59
Foreign government securities	10	0	0	0	10	0	1
Corporate debt securities	398	8	144	6	542	14	101
Residential mortgage-backed securities (RMBS)	6	0	7	1	13	1	4
Commercial mortgage-backed securities (CMBS)	0	0	12	1	12	1	2
Collateralized debt obligations (CDO)	1	0	33	5	34	5	6
Total fixed maturities – Exchange	736	16	201	14	937	30	176
Nonredeemable preferred stock	45	2	59	5	104	7	15
Total available-for-sale securities – Exchange	$781	$18	$260	$19	$1,041	$37	191

Quality breakdown of fixed maturities:
Investment grade	$703	$16	$155	$11	$ 858	$27	154
Non-investment grade	33	0	46	3	79	3	22
Total fixed maturities – Exchange	$736	$16	$201	$14	$ 937	$30	176

The above securities for Indemnity and the Exchange have been evaluated and determined to be temporary impairments for which we expect to recover our entire principal plus interest. The primary components of this analysis are a general review of market conditions and financial performance of the issuer along with the extent and duration of which fair value is less than cost. Any debt securities that we intend to sell or will more likely than not be required to sell before recovery are included in other-than-temporary impairments with the impairment charges recognized in earnings.

Investment income, net of expenses, was generated from the following portfolios:

	Erie Insurance Group
(in millions)	Three months ended September 30,		Nine months ended September 30,
	2011	2010	2011	2010
Indemnity
Fixed maturities	$ 3	$ 8	$ 10	$ 25
Equity securities	1	1	2	3
Cash equivalents and other	0	1	1	1
Total investment income	4	10	13	29
Less: investment expenses	0	0	1	1
Investment income, net of expenses – Indemnity	$ 4	$ 10	$ 12	$ 28
Exchange
Fixed maturities	$ 91	$ 88	$275	$261
Equity securities	21	18	63	52
Cash equivalents and other	0	1	0	1
Total investment income	112	107	338	314
Less: investment expenses	8	7	24	20
Investment income, net of expenses – Exchange	$104	$100	$314	$294
Investment income, net of expenses – Erie Insurance Group	$108	$110	$326	$322

Dividend income is recognized as earned and recorded to net investment income.

Realized gains (losses) on investments were as follows:

	Erie Insurance Group
(in millions)	Three months ended September 30,				Nine months ended September 30,
Indemnity	2011		2010		2011		2010
Available-for-sale securities:
Fixed maturities:
Gross realized gains	$ 0		$ 2		$ 2		$ 5
Gross realized losses	0		(1	)	0		(1	)
Net realized gains	0		1		2		4
Equity securities:
Gross realized gains	0		0		3		1
Gross realized losses	0		1		0		0
Net realized gains	0		1		3		1
Trading securities:
Common stock:
Gross realized gains	0		4		2		5
Gross realized losses	0		(1	)	0		(1	)
Valuation adjustments	(6	)	0		(6	)	(2	)
Net realized gains (losses)	(6	)	3		(4	)	2
Net realized investment gains (losses) – Indemnity	$ (6	)	$ 5		$ 1		$ 7
Exchange
Available-for-sale securities:
Fixed maturities:
Gross realized gains	$ 15		$ 10		$ 66		$ 38
Gross realized losses	(5	)	(4	)	(22	)	(16	)
Net realized gains	10		6		44		22
Equity securities:
Gross realized gains	3		4		19		11
Gross realized losses	0		(1	)	(1	)	(2	)
Net realized gains	3		3		18		9
Trading securities:
Common stock:
Gross realized gains	56		24		183		113
Gross realized losses	(35	)	(20	)	(59	)	(50	)
Valuation adjustments	(450	)	187		(421	)	16
Net realized gains (losses)	(429	)	191		(297	)	79
Net realized investment gains (losses) – Exchange	$(416	)	$200		$(235	)	$110
Net realized investment gains (losses) – Erie Insurance Group	$(422	)	$205		$(234	)	$117

The components of other-than-temporary impairments on investments are included below:

	Erie Insurance Group
(in millions)	Three months ended September 30,		Nine months ended September 30,
	2011	2010	2011	2010
Indemnity
Fixed maturities	$0	$0	$0	$(1	)
Equity securities	0	0	0	0
Total	0	0	0	(1	)
Portion recognized in other comprehensive income	0	0	0	0
Net impairment losses recognized in earnings – Indemnity	$0	$0	$0	$(1	)
Exchange
Fixed maturities	$0	$0	$0	$(4	)
Equity securities	0	0	0	(1	)
Total	0	0	0	(5	)
Portion recognized in other comprehensive income	0	0	0	0
Net impairment losses recognized in earnings – Exchange	$0	$0	$0	$(5	)
Net impairment losses recognized in earnings – Erie Insurance Group	$0	$0	$0	$(6	)

In considering if fixed maturity securities were credit-impaired, some of the factors considered include: potential for the default of interest and/or principal, level of subordination, collateral of the issue, compliance with financial covenants, credit ratings and industry conditions. We have the intent to sell all credit-impaired fixed maturity securities, therefore the entire amount of the impairment charges were included in earnings and no non-credit impairments were recognized in other comprehensive income.

Limited partnerships

Our limited partnership investments are recorded using the equity method of accounting. As these investments are generally reported on a one-quarter lag, our limited partnership results for the nine months ended September 30, 2011 are comprised of partnership financial results for the fourth quarter of 2010 and the first six months of 2011. Given the lag in reporting, our limited partnership results do not reflect the market conditions of the third quarter of 2011. Cash contributions made to and distributions received from the partnerships are recorded in the period in which the transaction occurs.

We have provided summarized financial information in the following table for the nine months ended September 30, 2011 and for the year ended December 31, 2010. Amounts provided in the table are presented using the latest available financial statements received from the partnerships. Limited partnership financial information has been presented based on the investment percentage in the partnerships for the Erie Insurance Group consistent with how management evaluates the investments.

	Erie Insurance Group
	As of and for the nine months ended September 30, 2011

(dollars in millions) Investment percentage in limited partnerships	Number of partnerships	Asset recorded	Income (loss) recognized due to valuation adjustments by the partnerships		Income (1oss) recorded
Indemnity
Private equity:
Less than 10%	26	$ 80	$ 7		$ 4
Greater than or equal to 10% but less than 50%	3	9	(1	)	3
Greater than 50%	0	0	0		0
Total private equity	29	89	6		7
Mezzanine debt:
Less than 10%	11	26	(1	)	5
Greater than or equal to 10% but less than 50%	3	15	1		1
Greater than 50%	1	1	(1	)	0
Total mezzanine debt	15	42	(1	)	6
Real estate:
Less than 10%	12	62	5		0
Greater than or equal to 10% but less than 50%	3	19	1		0
Greater than 50%	4	11	2		(1	)
Total real estate	19	92	8		(1	)
Total limited partnerships – Indemnity	63	$ 223	$13		$12
Exchange
Private equity:
Less than 10%	42	$ 544	$35		$28
Greater than or equal to 10% but less than 50%	3	40	(5	)	11
Greater than 50%	0	0	0		0
Total private equity	45	584	30		39
Mezzanine debt:
Less than 10%	16	141	(6	)	18
Greater than or equal to 10% but less than 50%	3	30	1		0
Greater than 50%	3	44	0		8
Total mezzanine debt	22	215	(5	)	26
Real estate:
Less than 10%	25	285	27		1
Greater than or equal to 10% but less than 50%	5	61	2		0
Greater than 50%	4	42	1		4
Total real estate	34	388	30		5
Total limited partnerships – Exchange	101	$1,187	$55		$70
Total limited partnerships – Erie Insurance Group		$1,410	$68		$82

Per the limited partnership financial statements, total partnership assets were $55 billion and total partnership liabilities were $5 billion at September 30, 2011 (as recorded in the June 30, 2011 limited partnership financial statements). For the nine month period comparable to that presented in the preceding table (fourth quarter 2010 and first two quarters of 2011), total partnership valuation adjustment gains were $4 billion and total partnership net income was $3 billion.

As these investments are generally reported on a one-quarter lag, our limited partnership results through December 31, 2010 include the partnership results for the fourth quarter of 2009 and the first three quarters of 2010.

	Erie Insurance Group
	As of and for the year ended December 31, 2010

(dollars in millions) Investment percentage in limited partnerships	Number of partnerships	Asset recorded	Income (loss) recognized due to valuation adjustments by the partnerships		Income (1oss) recorded
Indemnity
Private equity:
Less than 10%	26	$ 78	$ 4		$ 7
Greater than or equal to 10% but less than 50%	3	8	3		0
Greater than 50%	0	0	0		0
Total private equity	29	86	7		7
Mezzanine debt:
Less than 10%	11	30	4		3
Greater than or equal to 10% but less than 50%	3	15	2		(2	)
Greater than 50%	1	2	0		0
Total mezzanine debt	15	47	6		1
Real estate:
Less than 10%	12	59	30		(31	)
Greater than or equal to 10% but less than 50%	4	14	10		(10	)
Greater than 50%	4	10	4		(3	)
Total real estate	20	83	44		(44	)
Total limited partnerships – Indemnity	64	$ 216	$ 57		$(36	)
Exchange
Private equity:
Less than 10%	41	$ 517	$ 28		$ 40
Greater than or equal to 10% but less than 50%	3	38	10		0
Greater than 50%	0	0	0		(1	)
Total private equity	44	555	38		39
Mezzanine debt:
Less than 10%	14	142	12		13
Greater than or equal to 10% but less than 50%	3	41	2		(2	)
Greater than 50%	3	31	0		2
Total mezzanine debt	20	214	14		13
Real estate:
Less than 10%	25	250	(11	)	10
Greater than or equal to 10% but less than 50%	6	52	7		(7	)
Greater than 50%	4	37	15		(11	)
Total real estate	35	339	11		(8	)
Total limited partnerships – Exchange	99	$1,108	$ 63		$ 44
Total limited partnerships – Erie Insurance Group		$1,324	$120		$ 8

Per the limited partnership financial statements, total partnership assets were $58 billion and total partnership liabilities were $10 billion at December 31, 2010 (as recorded in the September 30, 2010 limited partnership financial statements). For the twelve month period comparable to that presented in the preceding table (fourth quarter of 2009 and first three quarters of 2010), total partnership valuation adjustment gains were $4 billion and total partnership net income was $3 billion.

See also Note 12, “Commitments and Contingencies,” for investment commitments related to limited partnerships.