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Indemnity Supplemental Information

9 Months Ended

Sep. 30, 2011

Note 14. Indemnity Supplemental Information

	Erie Insurance Group
	Consolidating Statement of Financial Position
	September 30, 2011
(in millions)	Indemnity	Exchange	Reclassifications		Erie
	shareholder	noncontrolling	and		Insurance
Assets	interest	interest	eliminations		Group
Investments
Available-for-sale securities, at fair value:
Fixed maturities	$ 517	$ 7,331	$ –		$ 7,848
Equity securities	22	591	–		613
Trading securities, at fair value	26	2,085	–		2,111
Limited partnerships	223	1,187	–		1,410
Other invested assets	1	19	–		20
Total investments	789	11,213	–		12,002
Cash and cash equivalents	34	42	–		76
Premiums receivable from policyholders	–	1,035	–		1,035
Reinsurance recoverable	–	197	–		197
Deferred acquisition costs	–	495	–		495
Other assets	109	349	–		458
Receivables from Exchange and other affiliates	269	–	(269	)	–
Note receivable from EFL	25	–	(25	)	–
Total assets	$1,226	$13,331	$(294	)	$14,263
Liabilities
Losses and loss expense reserves	$ –	$ 3,686	$ –		$ 3,686
Life policy and deposit contract reserves	–	1,659	–		1,659
Unearned premiums	–	2,249	–		2,249
Deferred income taxes	6	97	–		103
Other liabilities	375	387	(294	)	468
Total liabilities	381	8,078	(294	)	8,165
Shareholders’ equity and noncontrolling interest
Total Indemnity shareholders’ equity	845	–	–		845
Noncontrolling interest in consolidated entity – Exchange	–	5,253	–		5,253
Total equity	845	5,253	–		6,098
Total liabilities, shareholders’ equity and noncontrolling interest	$1,226	$13,331	$(294	)	$14,263

	Erie Insurance Group
	Consolidating Statement of Financial Position
	December 31, 2010
(in millions)	Indemnity	Exchange	Reclassifications		Erie
	shareholder	noncontrolling	and		Insurance
Assets	interest	interest	eliminations		Group
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 third quarters ended September 30, 2011 and 2010.

	Erie Indemnity Company
	Income attributable to Indemnity shareholder interest
(in millions)			Three months ended September 30,		Nine months ended September 30,
	Percent		2011	2010	2011	2010
Management operations:
Management fee revenue, net	100.0%		$280	$266	$816	$773
Service agreement revenue	100.0%		8	9	25	26
Total revenue from management operations			288	275	841	799
Cost of management operations	100.0%		226	217	667	626
*Income from management operations before taxes*			62	58	174	173
Property and casualty insurance operations: (2)
Net premiums earned	5.5%	(2)	–	55	–	161
Losses and loss expenses	5.5%	(2)	–	38	–	118
Policy acquisition and underwriting expenses	5.5%	(2)	–	16	–	46
*Income (loss) from property and casualty insurance operations before taxes*			–	1	–	(3	)
Life insurance operations: (1)
Total revenue	21.6%	(3)	–	10	10	28
Total benefits and expenses	21.6%	(3)	–	7	7	20
*Income from life insurance operations before taxes*			–	3	3	8
Investment operations:
Net investment income (2)			4	10	12	28
Net realized (losses) gains on investments (2)			(6)	5	1	7
Net impairment losses recognized in earnings (2)			0	0	0	(1	)
Equity in earnings of limited partnerships			7	5	25	11
*Income from investment operations before taxes* (2)			5	20	38	45
Income from operations before income taxes			67	82	215	223
Provision for income taxes			20	28	72	73
Net income			$ 47	$ 54	$143	$150

(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:

	Erie Indemnity Company
	Direct method of cash flows
(in millions)	Nine months ended September 30,
	2011		2010
Management fee received	$ 791		$ 713
Service agreement fee received	25		26
Premiums collected (1)	–		166
Net investment income received (1)	17		33
Limited partnership distributions	14		14
Decrease in reimbursements collected from affiliates	(13	)	(5	)
Commissions and bonuses paid to agents	(450	)	(414	)
Salaries and wages paid	(95	)	(80	)
Pension contribution and employee benefits paid	(32	)	(29	)
Losses paid (1)	–		(99	)
Loss expenses paid (1)	–		(17	)
Other underwriting and acquisition costs paid (1)	–		(42	)
General operating expenses paid	(93	)	(87	)
Income taxes paid	(51	)	(50	)
Net cash provided by operating activities	113		129
Net cash used in investing activities	(180	)	(14	)
Net cash used in financing activities	(209	)	(118	)
Net decrease in cash and cash equivalents	(276	)	(3	)
Cash and cash equivalents at beginning of period	310		76
Cash and cash equivalents at end of period	$ 34		$ 73

(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”.)

- Definition

The entire disclosure for condensed financial information, including the financial position, cash flows, and the results of operations of the registrant (parent company) as of the same dates or for the same periods for which audited consolidated financial statements are being presented. Alternatively, the details of this disclosure can be reported by the specific parent company taxonomy elements, indicating the appropriate date and period contexts in an instance document.

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