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Fair Value (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of fair value measurements on a recurring basis for consolidated available-for-sale and trading securities by asset class and level of input

		Erie Insurance Group
		September 30, 2012
		Fair value measurements using:
					Quoted prices in active markets for			Observable		Unobservable
(in millions)		Total			identical assets Level 1			inputs Level 2		inputs Level 3
Indemnity
Available-for-sale securities:
States & political subdivisions		$ 195			$ 0			$ 195		$ 0
Corporate debt securities		335			0			334		1
Commercial mortgage-backed securities (CMBS)		6			0			6		0
Collateralized debt obligations (CDO)		3			0			0		3
Other debt securities		8			0			8		0
Total fixed maturities		547			0			543		4
Nonredeemable preferred stock		29			8			21		0
Total available-for-sale securities		576			8			564		4
Trading securities:
Common stock		30			30			0		0
Total trading securities		30			30			0		0
Total available-for-sale and trading securities – Indemnity		$ 606			$ 38			$ 564		$ 4
Exchange
Available-for-sale securities:
U.S. government & agencies		$ 17			$ 5			$ 12		$ 0
States & political subdivisions		1,348			0			1,344		4
Foreign government securities		16			0			16		0
Corporate debt securities		5,886			6			5,846		34
Residential mortgage-backed securities (RMBS)		174			0			174		0
Commercial mortgage-backed securities (CMBS)		72			0			72		0
Collateralized debt obligations (CDO)		62			0			16		46
Other debt securities		48			0			43		5
Total fixed maturities		7,623			11			7,523		89
Nonredeemable preferred stock		624			263			355		6
Total available-for-sale securities		8,247			274			7,878		95
Trading securities:
Common stock		2,639			2,626			0		13
Total trading securities		2,639			2,626			0		13
Total available-for-sale and trading securities – Exchange		$10,886			$2,900			$7,878		$108
Total available-for-sale and trading securities – Erie Insurance Group		$11,492			$2,938			$8,442		$112

		Erie Insurance Group
		December 31, 2011

		Fair value measurements using:

(in millions)		Total			Quoted prices in active markets for identical assets Level 1			Observable inputs Level 2			Unobservable inputs Level 3
Indemnity
Available-for-sale securities:
States & political subdivisions		$	221			$ 0			$ 221		$	0
Corporate debt securities			303			0			303			0
Commercial mortgage-backed securities (CMBS)			13			0			13			0
Collateralized debt obligations (CDO)			4			0			0			4
Other debt securities			7			0			7			0
Total fixed maturities			548			0			544			4
Nonredeemable preferred stock			25			10			15			0
Total available-for-sale securities			573			10			559			4
Trading securities:
Common stock			27			27			0			0
Total trading securities			27			27			0			0
Total available-for-sale and trading securities – Indemnity		$	600			$ 37			$ 559		$	4
Exchange
Available-for-sale securities:
U.S. government & agencies		$	17			$ 6			$ 11		$	0
States & political subdivisions			1,379			0			1,375			4
Foreign government securities			15			0			15			0
Corporate debt securities			5,499			20			5,467			12
Residential mortgage-backed securities (RMBS)			189			0			189			0
Commercial mortgage-backed securities (CMBS)			66			0			66			0
Collateralized debt obligations (CDO)			65			0			36			29
Other debt securities			62			0			57			5
Total fixed maturities			7,292			26			7,216			50
Nonredeemable preferred stock			564			188			371			5
Total available-for-sale securities			7,856			214			7,587			55
Trading securities:
Common stock			2,308			2,296			0			12
Total trading securities			2,308			2,296			0			12
Total available-for-sale and trading securities – Exchange			$10,164			$2,510			$7,587			$67
Total available-for-sale and trading securities – Erie Insurance Group			$10,764			$2,547			$8,146			$71

Schedule of roll forward of Level 3 fair value measurements on a recurring basis for consolidated available-for-sale and trading securities

		Erie Insurance Group


(in millions)		Beginning			Included			Included in other									Transfers in and (out)			Ending balance at
(in millions)		balance at June 30, 2012			in earnings (1)			comprehensive income			Purchases			Sales			of Level 3 (2)			September 30, 2012
Indemnity
Available-for-sale securities:
Corporate debt securities		$ 1			$ 0			$0			$0			$ 0			$ 0			$ 1
Collateralized debt obligations (CDO)		4			0			0			0			(1	)		0			3
Total fixed maturities		5			0			0			0			(1	)		0			4
Total available-for-sale securities		5			0			0			0			(1	)		0			4
Trading securities:
Common stock		0			0			0			0			0			0			0
Total trading securities		0			0			0			0			0			0			0
Total Level 3 assets – Indemnity		$ 5			$ 0			$0			$0			$(1	)		$ 0			$ 4
Exchange
Available-for-sale securities:
States & political subdivisions		$ 4			$ 0			$0			$0			$ 0			$ 0			$ 4
Corporate debt securities		23			0			1			0			0			10			34
Collateralized debt obligations (CDO)		27			0			0			0			(4	)		23			46
Other debt securities		5			0			0			0			0			0			5
Total fixed maturities		59			0			1			0			(4	)		33			89
Nonredeemable preferred stock		5			0			1			0			0			0			6
Total available-for-sale securities		64			0			2			0			(4	)		33			95
Trading securities:
Common stock		14			(1	)		0			0			0			0			13
Total trading securities		14			(1	)		0			0			0			0			13
Total Level 3 assets – Exchange		$78			$(1	)		$2			$0			$(4	)		$33			$108
Total Level 3 assets – Erie Insurance Group		$83			$(1	)		$2			$0			$(5	)		$33			$112

(1)	Includes losses as a result of other-than-temporary impairments and accrual of discount and amortization of premium. These amounts are reported in the Consolidated Statements of Operations. There were no unrealized gains included in earnings for the three months ended September 30, 2012 on Level 3 securities.

(2)	Transfers in and out of Level 3 are attributable to changes in the availability of market observable information for individual securities within the respective categories. Transfers in and out of levels are recognized at the start of the period.

		Erie Insurance Group

(in millions)		Beginning balance at			Included			Included in other									Transfers in and (out)			Ending balance at
(in millions)		December 31, 2011			in earnings (1)			comprehensive income			Purchases			Sales			of Level 3 (2)			September 30, 2012
Indemnity
Available-for-sale securities:
Corporate debt securities		$ 0			$0			$0			$0			$ 0			$ 1			$ 1
Collateralized debt obligations (CDO)		4			0			0			0			(1	)		0			3
Total fixed maturities		4			0			0			0			(1	)		1			4
Total available-for-sale securities		4			0			0			0			(1	)		1			4
Trading securities:
Common stock		0			0			0			0			0			0			0
Total trading securities		0			0			0			0			0			0			0
Total Level 3 assets – Indemnity		$ 4			$0			$0			$0			$ (1	)		$ 1			$ 4
Exchange
Available-for-sale securities:
States & political subdivisions		$ 4			$0			$0			$0			$ 0			$ 0			$ 4
Corporate debt securities		12			0			1			1			(5	)		25			34
Collateralized debt obligations (CDO)		29			1			3			0			(7	)		20			46
Other debt securities		5			0			0			0			0			0			5
Total fixed maturities		50			1			4			1			(12	)		45			89
Nonredeemable preferred stock		5			0			1			0			0			0			6
Total available-for-sale securities		55			1			5			1			(12	)		45			95
Trading securities:
Common stock		12			2			0			0			(1	)		0			13
Total trading securities		12			2			0			0			(1	)		0			13
Total Level 3 assets – Exchange		$67			$3			$5			$1			$(13	)		$45			$108
Total Level 3 assets – Erie Insurance Group		$71			$3			$5			$1			$(14	)		$46			$112

(1)	Includes losses as a result of other-than-temporary impairments and accrual of discount and amortization of premium. These amounts are reported in the Consolidated Statements of Operations. There was $2 million in unrealized gains included in earnings for the nine months ended September 30, 2012 on Level 3 securities.

(2)	Transfers in and out of Level 3 are attributable to changes in the availability of market observable information for individual securities within the respective categories. Transfers in and out of levels are recognized at the start of the period.

		Erie Insurance Group

(in millions)		Beginning balance at June 30, 2011		Included in earnings (1)		Included in other comprehensive income		Purchases			Sales		Transfers in and (out) of Level 3 (2)			Ending balance at September 30, 2011
Indemnity
Available-for-sale securities:
Collateralized debt obligations (CDO)		$ 4		$0		$ 0		$0			$0		$0			$ 4
Total fixed maturities		4		0		0		0			0		0			4
Total available-for-sale securities		4		0		0		0			0		0			4
Trading securities:
Common stock		0		0		0		0			0		0			0
Total trading securities		0		0		0		0			0		0			0
Total Level 3 assets – Indemnity		$ 4		$0		$ 0		$0			$0		$0			$ 4
Exchange
Available-for-sale securities:
States & political subdivisions		$ 4		$0		$ 0		$0			$0		$0			$ 4
Corporate debt securities		11		0		0		1			0		0			12
Collateralized debt obligations (CDO)		30		0		(1)		0			0		0			29
Other debt securities		5		0		0		0			0		0			5
Total fixed maturities		50		0		(1)		1			0		0			50
Nonredeemable preferred stock		7		0		(1)		0			0		0			6
Total available-for-sale securities		57		0		(2)		1			0		0			56
Trading securities:
Common stock		13		0		0		0			0		0			13
Total trading securities		13		0		0		0			0		0			13
Total Level 3 assets – Exchange		$70		$0		$(2)		$1			$0		$0			$69
Total Level 3 assets – Erie Insurance Group		$74		$0		$(2)		$1			$0		$0			$73

(1)	Includes losses as a result of other-than-temporary impairments and accrual of discount and amortization of premium. These amounts are reported in the Consolidated Statements of Operations. There were no unrealized gains included in earnings for the three months ended September 30, 2011 on Level 3 securities.

(2)	Transfers in and out of Level 3 are attributable to changes in the availability of market observable information for individual securities within the respective categories. Transfers in and out of levels are recognized at the start of the period.

Level 3 Assets – Year-to-Date Change:

		Erie Insurance Group

(in millions)		Beginning balance at December 31, 2010				Included in earnings (1)			Included in other comprehensive income			Purchases		Sales		Transfers in and (out) of Level 3 (2)		Ending balance at September 30, 2011
Indemnity
Available-for-sale securities:
Collateralized debt obligations (CDO)			$ 4			$0				$ 0		$0		$ 0		$0			$ 4
Total fixed maturities			4			0				0		0		0		0			4
Total available-for-sale securities			4			0				0		0		0		0			4
Trading securities:
Common stock			0			0				0		0		0		0			0
Total trading securities			0			0				0		0		0		0			0
Total Level 3 assets – Indemnity			$ 4			$0				$ 0		$0		$ 0		$0			$ 4
Exchange
Available-for-sale securities:
States & political subdivisions			$ 4			$0				$ 0		$0		$ 0		$0			$ 4
Corporate debt securities			11			0				0		1		0		0			12
Collateralized debt obligations (CDO)			30			1				(1)		0		(1)		0			29
Other debt securities			10			0				0		0		(5)		0			5
Total fixed maturities			55			1				(1)		1		(6)		0			50
Nonredeemable preferred stock			7			0				(1)		0		0		0			6
Total available-for-sale securities			62			1				(2)		1		(6)		0			56
Trading securities:
Common stock			12			1				0		0		0		0			13
Total trading securities			12			1				0		0		0		0			13
Total Level 3 assets – Exchange			$74			$2				$(2)		$1		$(6)		$0			$69
Total Level 3 assets – Erie Insurance Group			$78			$2				$(2)		$1		$(6)		$0			$73

(1)	Includes losses as a result of other-than-temporary impairments and accrual of discount and amortization of premium. These amounts are reported in the Consolidated Statements of Operations. There was $1 million in unrealized gains included in earnings for the nine months ended September 30, 2011 on Level 3 securities.

(2)	Transfers in and out of Level 3 are attributable to changes in the availability of market observable information for individual securities within the respective categories. Transfers in and out of levels are recognized at the start of the period.

Schedule of Quantitative and Qualitative Disclosures about Unobservable Inputs

		Erie Insurance Group
		September 30, 2012
(dollars in millions)		Fair value		No. of holdings		Valuation techniques		Unobservable input		Range		Weighted average
Indemnity

Corporate debt securities		$ 1		1		Market approach		Non-binding broker quote		115.33

Collateralized debt obligations (CDO)		3		2		Income approach		Projected maturity date		Jun 2014 – Aug 2015
								Repayment at maturity		42-100%		88.2%
								Discount rate		7.5-15.0%		10.8%
								Projected LIBOR rate		0.42%
Total Level 3 assets – Indemnity		$ 4		3

Exchange

States & political subdivisions		$ 4		1		Market approach		Comparable security yield		0.43%
								Added yield due to lack of marketability		1.00%

Corporate debt securities		34		9		Market approach		Non-binding broker quote		107.16 – 120.00		110.66
								Comparable transaction EBITDA multiples		6.7 – 17.1x		7.5x
								Comparable security yield		6.00%

Collateralized debt obligations (CDO)		22		6		Income approach		Projected maturity date		Dec 2012 – Oct 2035
								Repayment at maturity		42-100%		93.7%
								Discount rate		7.0-15%		9.1%
								Projected LIBOR rate		0.42%

		24		3		Market approach		Comparable security yield		0-0.55%
								Added yield due to lack of marketability		1.00-2.80%
								Non-binding broker quote		8.50

Other debt securities		5		1		Income approach		Projected maturity date Repayment at maturity Discount rate		Jan 2029 100% 1.83%

Nonredeemable preferred stock		6		1		Market approach		Comparable security yield		7.21%

Common stock		13		4		Market approach		Comparable transaction EBITDA multiples		6.7 – 17.1x		7.5x
								Discount for lack of marketability		5 – 30%		30%
Total Level 3 assets – Exchange		$108		25
Total Level 3 assets – Erie Insurance Group		$112		28

Schedule of fair value measurements on a recurring basis for consolidated available-for-sale and trading securities by pricing source

		Erie Insurance Group
(in millions)		September 30, 2012
		Total			Level 1			Level 2			Level 3
Indemnity
Fixed maturities:
Priced via pricing services			$ 543		$	0			$ 543			$ 0
Priced via market comparables/non-binding broker quotes (1)			1			0			0			1
Priced via unobservable inputs			3			0			0			3
Total fixed maturities			547			0			543			4
Nonredeemable preferred stock:
Priced via pricing services			27			8			19			0
Priced via market comparables/non-binding broker quotes (1)			2			0			2			0
Priced via unobservable inputs			0			0			0			0
Total nonredeemable preferred stock			29			8			21			0
Common stock:
Priced via pricing services			30			30			0			0
Priced via market comparables/non-binding broker quotes (1)			0			0			0			0
Priced via unobservable inputs			0			0			0			0
Total common stock			30			30			0			0
Total available-for-sale and trading securities – Indemnity			$ 606		$	38			$ 564			$ 4
Exchange
Fixed maturities:
Priced via pricing services			$ 7,497			$11			$7,486			$ 0
Priced via market comparables/non-binding broker quotes (1)			92			0			37			55
Priced via unobservable inputs			34			0			0			34
Total fixed maturities			7,623			11			7,523			89
Nonredeemable preferred stock:
Priced via pricing services			585			263			322			0
Priced via market comparables/non-binding broker quotes (1)			39			0			33			6
Priced via unobservable inputs			0			0			0			0
Total nonredeemable preferred stock			624			263			355			6
Common stock:
Priced via pricing services			2,626			2,626			0			0
Priced via market comparables/non-binding broker quotes (1)			13			0			0			13
Priced via unobservable inputs			0			0			0			0
Total common stock			2,639			2,626			0			13
Total available-for-sale and trading securities – Exchange			$10,886		$	2,900			$7,878			$108
Total available-for-sale and trading securities – Erie Insurance Group			$11,492		$	2,938			$8,442			$112

(1)

All broker quotes obtained for securities were non-binding. When a non-binding broker quote was the only price available, the security was classified as Level 3.

Tabular disclosure of assets, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, by class that are measured at fair value on a recurring basis. The disclosures contemplated herein include the fair value measurements at the reporting date by the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3).

+ References+ Details

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

+ References+ Details