Erie Indemnity (ERIE) 10-Q 2010 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PERSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

Commission file number 0-24000

ERIE INDEMNITY COMPANY

(Exact name of registrant as specified in its charter)

PENNSYLVANIA	25-0466020
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

100 Erie Insurance Place, Erie, Pennsylvania	16530
(Address of principal executive offices)	(Zip Code)

(814) 870-2000

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yesþ Noo

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filerþ	Accelerated Filero	Non-Accelerated Filero	Smaller Reporting Companyo
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso Noþ

The number of shares outstanding of the registrant’s Class A Common Stock as of the latest practicable date, with no par value and a stated value of $0.0292 per share, was 50,153,649 at October 22, 2010.

The number of shares outstanding of the registrant’s Class B Common Stock as of the latest practicable date, with no par value and a stated value of $70 per share, was 2,546 at October 22, 2010.

PART I.FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	3
Consolidated Statements of Operations—Three and nine months ended September 30, 2010 and 2009	3
Consolidated Statements of Financial Position—September 30, 2010 and December 31, 2009	4
Consolidated Statements of Comprehensive Income—Three and nine months ended September 30, 2010 and 2009	5
Consolidated Statements of Cash Flows—Nine months ended September 30, 2010 and 2009	6
Notes to Consolidated Financial Statements—September 30, 2010	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3. Quantitative and Qualitative Disclosures About Market Risk	68
Item 4. Controls and Procedures	69
PART II.OTHER INFORMATION
Item 1A. Risk Factors	70
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 6. Exhibits	71
SIGNATURES	72
EX-10.1
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars in millions, except per share data)

	Three months ended					Nine months ended
	September 30,					September 30,
	2010		2009			2010			2009
			(As adjusted						(As adjusted
			Note 2)						Note 2)
Revenues
Premiums earned	$	1,005	$	977		$	2,972		$	2,898
Net investment income		110		102			322			324
Net realized investment gains		205		251			117			304
Net impairment losses recognized in earnings		0		(16	)		(6	)		(99	)
Equity in earnings (losses) of limited partnerships		28		(37	)		58			(324	)
Other income		9		9			26			27
Total revenues		1,357		1,286			3,489			3,130
Benefits and expenses
Insurance losses and loss expenses		710		631			2,208			2,094
Policy acquisition and underwriting expenses		242		299			699			762
Total benefits and expenses		952		930			2,907			2,856
Income from operations before income taxes and noncontrolling interest		405		356			582			274
Provision for income taxes		130		104			176			2
Net income	$	275	$	252		$	406		$	272
Less: Net income attributable to noncontrolling interest in consolidated entity — Exchange		221		212			256			188
Net income attributable to Indemnity	$	54	$	40		$	150		$	84
Earnings Per Share
Net income attributable to Indemnity per share
Class A common stock — basic	$	1.05	$	0.77		$	2.92		$	1.62
Class A common stock — diluted	$	0.94	$	0.69		$	2.62		$	1.46
Class B common stock — basic and diluted	$	150.87	$	112.06		$	421.91		$	239.96
Weighted average shares outstanding attributable to Indemnity — Basic
Class A common stock		50,499,551		51,252,693			50,897,035			51,255,234
Class B common stock		2,546		2,546			2,546			2,549
Weighted average shares outstanding attributable to Indemnity— Diluted
Class A common stock		56,624,310		57,383,900			57,021,794			57,393,641
Class B common stock		2,546		2,546			2,546			2,549
Dividends declared per share
Class A common stock	$	0.48	$	0.45		$	1.44		$	1.35
Class B common stock	$	72.00	$	67.50		$	216.00		$	202.50

See accompanying notes to Consolidated Financial Statements.

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ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(dollars in millions, except per share data)

	September 30,			December 31,
	2010			2009
	(Unaudited)
Assets
Investments — Indemnity
Available-for-sale securities, at fair value:
Fixed maturities (amortized cost of $649 and $642, respectively)	$	695		$	664
Equity securities (cost of $40 and $35, respectively)		46			38
Trading securities, at fair value (cost of $22 and $36, respectively)		26			42
Limited partnerships (cost of $263 and $281, respectively)		234			235
Other invested assets		1			1
Investments — Exchange
Available-for-sale securities, at fair value:
Fixed maturities (amortized cost of $6,453 and $6,277, respectively)		7,019			6,517
Equity securities (cost of $467 and $425, respectively)		538			472
Trading securities, at fair value (cost of $1,689 and $1,556, respectively)		1,985			1,835
Limited partnerships (cost of $1,333 and $1,392, respectively)		1,148			1,116
Other invested assets		19			20
Total investments		11,711			10,940
Cash and cash equivalents (Exchange portion of $239 and $158, respectively)		312			234
Premiums receivable from policyholders (Exchange portion of $780 and $715, respectively)		993			906
Reinsurance recoverable (Exchange portion of $201 and $212, respectively)		204			215
Deferred income taxes (Exchange portion of $0 and $75, respectively)		11			116
Deferred acquisition costs (Exchange portion of $416 and $416, respectively)		473			467
Other assets (Exchange portion of $337 and $306, respectively)		454			409
Total assets	$	14,158		$	13,287
Liabilities and shareholders’ equity
Liabilities
Indemnity liabilities
Losses and loss expense reserves	$	743		$	752
Unearned premiums		355			325
Other liabilities		370			387
Exchange liabilities
Losses and loss expense reserves		2,870			2,846
Life policy and deposit contract reserves		1,600			1,540
Unearned premiums		1,803			1,656
Deferred income taxes		103			0
Other liabilities		88			56
Total liabilities		7,932			7,562
Indemnity’s shareholders’ equity
Class A common stock, stated value $0.0292 per share; authorized 74,996,930 shares; 68,289,600 issued; 50,252,872 and 51,203,473 shares outstanding, respectively		2			2
Class B common stock, convertible at a rate of 2,400 Class A shares for one Class B share, stated value $70 per share; 2,546 authorized, issued and outstanding, respectively		0			0
Additional paid-in-capital		8			8
Accumulated other comprehensive loss		(17	)		(43	)
Retained earnings, before cumulative effect adjustment		1,825			1,743
Cumulative effect of accounting changes, net of tax		0			6
Retained earnings, after cumulative effect adjustment		1,825			1,749
Total contributed capital and retained earnings		1,818			1,716
Treasury stock, at cost, 18,036,728 and 17,086,127 shares, respectively		(860	)		(814	)
Total Indemnity shareholders’ equity		958			902
Noncontrolling interest in consolidated entity — Exchange		5,268			4,823
Total equity		6,226			5,725
Total liabilities, shareholders’ equity and noncontrolling interest	$	14,158		$	13,287

See accompanying notes to Consolidated Financial Statements. See Note 14 for supplemental consolidating statements of financial position information.

4

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in millions)

	Erie Insurance Group
	Three months ended						Nine months ended
	September 30,						September 30,
	2010			2009			2010			2009
				(As adjusted						(As adjusted
				Note 2)						Note 2)
Accumulated other comprehensive loss:
Balance, beginning of period — Indemnity	$	(32	)	$	(101	)	$	(43	)	$	(136	)
Cumulative effect of accounting changes, net of tax*		—			—			—			(6	)
Adjusted balance, beginning of period		(32	)		(101	)		(43	)		(142	)
Gross unrealized holding gains on investments arising during period		25			47			44			101
Reclassification adjustment for gross (gains) losses included in net income		(2	)		3			(4	)		12
Unrealized gains on investments		23			50			40			113
Income tax expense related to unrealized gains		(8	)		(18	)		(14	)		(40	)
Change in other comprehensive income, net of tax — Indemnity		15			32			26			73
Balance, end of period — Indemnity	$	(17	)	$	(69	)	$	(17	)	$	(69	)
Change in other comprehensive income, net of tax — Indemnity	$	15		$	32		$	26		$	73
Change in other comprehensive income, net of tax — Exchange	$	118		$	198		$	189		$	491
Change in other comprehensive income, net of tax — Erie Insurance Group	$	133		$	230		$	215		$	564
Comprehensive income:
Net income — Erie Insurance Group	$	275		$	252		$	406		$	272
Change in other comprehensive income, net of tax — Erie Insurance Group		133			230			215			564
Total comprehensive income — Erie Insurance Group		408			482			621			836
Less: Noncontrolling interest in consolidated entity — Exchange		339			410			445			679
Total comprehensive income — Indemnity	$	69		$	72		$	176		$	157

* Previously recognized non-credit other-than-temporary impairment losses were reclassified from retained earnings to other comprehensive income upon the adoption of Financial Accounting Standards Board Accounting Standards Codification 320,Investments — Debt and Equity Securities, during the second quarter of 2009.

5

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)

	Nine months ended
	September 30,
	2010			2009
				(As adjusted
				Note 2)
Cash flows from operating activities
Premiums collected	$	3,068		$	3,025
Net investment income received		325			306
Limited partnership distributions		88			57
Service agreement fee received		26			26
Commissions and bonuses paid to agents		(414	)		(420	)
Losses paid		(1,808	)		(1,701	)
Loss expenses paid		(321	)		(306	)
Other underwriting and acquisition costs paid		(394	)		(435	)
Income taxes (paid) recovered		(105	)		161
Net cash provided by operating activities		465			713
Cash flows from investing activities
Purchase of investments:
Fixed maturities		(1,415	)		(1,339	)
Preferred stock		(146	)		(132	)
Common stock		(787	)		(1,129	)
Limited partnerships		(105	)		(133	)
Sales/maturities of investments:
Fixed maturity sales		486			386
Fixed maturity calls/maturities		794			531
Preferred stock		117			146
Common stock		740			1,082
Net policy loans		0			1
Sale of and returns on limited partnerships		40			8
Purchase of property and equipment		(27	)		(10	)
Net collections (distributions) on agent loans		2			(2	)
Net cash used in investing activities		(301	)		(591	)
Cash flows from financing activities
Annuity and supplementary contract deposits and interest		87			134
Annuity and supplementary contract surrenders and withdrawals		(59	)		(107	)
Universal life deposits and interest		30			27
Universal life surrenders		(26	)		(27	)
Purchase of treasury stock		(44	)		(1	)
Dividends paid to shareholders		(74	)		(70	)
Decrease in collateral from securities lending		0			(119	)
Redemption of securities lending collateral		0			119
Net cash used in financing activities		(86	)		(44	)
Net increase in cash and cash equivalents		78			78
Cash and cash equivalents at beginning of period		234			277
Cash and cash equivalents at end of period	$	312		$	355

See accompanying notes to Consolidated Financial Statements. See Note 14 for supplemental cash flow information.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Nature of Operations

Erie Indemnity Company (“Indemnity”) is a publicly held Pennsylvania business corporation that since 1925 has been the managing Attorney-in-Fact for the subscribers (policyholders) of Erie Insurance Exchange (“Exchange”). The Exchange is a subscriber (policyholder) owned Pennsylvania-domiciled reciprocal insurer that writes property and casualty insurance.

Indemnity’s primary function is to perform certain services for the Exchange relating to sales, underwriting and issuance of policies on behalf of the Exchange. This is done in accordance with a subscriber’s agreement (a limited power of attorney) executed by each subscriber (policyholder), appointing Indemnity as their common attorney-in-fact to transact business on their behalf and to manage the affairs of the Exchange. Indemnity earns a management fee from the Exchange for these services, which is paid from the premiums collected from subscribers (policyholders).

Indemnity also operates as a property and casualty insurer through its wholly-owned subsidiaries, Erie Insurance Company (“EIC”), Erie Insurance Company of New York (“ENY”) and the Erie Insurance Property and Casualty Company (“EPC”).

The “Property and Casualty Group” refers to the Exchange and its wholly-owned subsidiary, Flagship City Insurance Company (“Flagship”) and Indemnity’s wholly-owned subsidiaries. The Property and Casualty Group operates in 11 Midwestern, Mid-Atlantic and Southeastern states and the District of Columbia and primarily writes personal auto insurance, which comprised 48% of its 2009 direct premiums.

Erie Family Life Insurance Company (“EFL”) is an affiliated life insurance company that underwrites and sells nonparticipating individual and group life insurance policies and fixed annuities. Indemnity and Exchange own 21.6% and 78.4% of EFL, respectively.

“Indemnity shareholder interest” refers to the interest in Erie Indemnity Company owned by the Class A and Class B shareholders. In addition to referring to Erie Insurance Exchange, the term “Exchange” sometimes refers to the noncontrolling interest held for the benefit of the subscribers (policyholders) and includes its interests in Flagship and EFL.

The accompanying consolidated financial statements of Erie Indemnity Company reflect the consolidated results of Indemnity and its variable interest entity, the Exchange, which we refer to collectively as “Erie Insurance Group”.

Note 2. Significant Accounting Policies

Basis of presentation and principles of consolidation

The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of Indemnity together with its affiliate companies in which Indemnity holds a majority voting or economic interest. In addition, we consolidate the Exchange as a variable interest entity for which Indemnity is the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation. The required presentation of noncontrolling interests is reflected in the consolidated financial statements. Noncontrolling interests represent the ownership interests of the Exchange, all of which is held by parties other than Indemnity (i.e. the Exchange’s subscribers (policyholders)). Noncontrolling interests also include the Exchange subscribers’ 78.4% ownership interest in EFL. See the discussion “Retrospective adoption of new accounting principle” that follows for additional consolidation information.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. For further information, refer to the consolidated financial statements and footnotes for the year ended December 31, 2009 included in our Form 8-K as filed with the Securities and Exchange Commission on May 6, 2010.

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Presentation of assets and liabilities— While the assets of the Exchange are presented separately in the Consolidated Statements of Financial Position, the Exchange’s assets can only be used to satisfy the Exchange’s liabilities or for other unrestricted activities. Accounting Standards Codification (ASC) 810,Consolidation, does not require separate presentation of the Exchange’s assets. However, because the shareholders of Indemnity have no rights to the assets of the Exchange and, conversely, the Exchange has no rights to the assets of Indemnity, we have presented the invested assets of the Exchange separately on the Consolidated Statements of Financial Position along with the remaining consolidated assets reflecting the Exchange’s portion parenthetically. Liabilities are required under ASC 810,Consolidation,to be presented separately for the Exchange on the Consolidated Statements of Financial Position as the Exchange’s creditors do not have recourse to the general credit of Indemnity.

Rights of shareholders of Indemnity and subscribers (policyholders) of the Exchange— The shareholders of Indemnity, through the management fee, have a controlling financial interest in the Exchange; however, they have no other rights to or obligations arising from assets and liabilities of the Exchange. The shareholders of Indemnity own its equity but have no rights or interest in the Exchange’s (noncontrolling interest) income or equity. The noncontrolling interest equity represents the Exchange’s equity held for the benefit of its subscribers (policyholders), who have no rights or interest in the Indemnity shareholder interest income or equity.

All intercompany assets, liabilities, revenues and expenses between Indemnity and the Exchange have been eliminated in the Consolidated Statements of Financial Position.

Retrospective adoption of new accounting principle

On June 12, 2009, the Financial Accounting Standards Board (FASB) updated ASC 810,Consolidation, which amended the existing guidance for determining whether an enterprise is the primary beneficiary of a variable interest entity (“VIE”). As of January 1, 2010, Indemnity adopted the new accounting principle on a retrospective basis since inception.

This guidance changed the methodology for assessing whether an enterprise is the primary beneficiary of a VIE by requiring a qualitative analysis to determine if an enterprise’s variable interest gives it a controlling financial interest. The qualitative analysis looks at the power to direct activities of the VIE that most significantly impact economic performance and the right to receive benefits (or obligation to absorb losses) from the VIE that could potentially be significant.

In accordance with the new accounting guidance, Indemnity is deemed to be the primary beneficiary of the Exchange given the significance of the management fee to the Exchange and Indemnity’s power to direct the Exchange’s significant activities. Under the previously issued accounting guidance, Indemnity was not deemed the primary beneficiary of the Exchange and its financial position and operating results were not consolidated with Indemnity’s. Following adoption of the new accounting guidance, as primary beneficiary of the Exchange, Erie Indemnity Company has consolidated Indemnity and the Exchange’s financial position and operating results.

Furthermore, upon consolidation of the Exchange, 100% of the ownership of EFL resides within the consolidated entity and consequently EFL’s financial results are also consolidated. The financial statements and notes to the financial statements presented herein have all been adjusted to reflect the retrospective adoption of the new accounting principle.

There was no cumulative effect to Indemnity’s shareholders’ equity from consolidation of the Exchange and EFL. The noncontrolling interest in total equity represents the amount of the Exchange’s subscribers’ (policyholders’) equity.

Recent Accounting Updates

In January 2010, the FASB issued Accounting Standards Update (ASU) 2010-06,Improving Disclosures about Fair Value Measurements. This guidance updated the disclosures for FASB ASC 820,Fair Value Measurements and Disclosures. The additional disclosures include the amounts and reasons for significant transfers between the levels in the fair value hierarchy, the expansion of fair market disclosures by each class of assets, disclosure of the policy for recognition of level transfers, and disclosure of the valuation techniques used for all Level 2 and Level 3 assets. These disclosures are effective for periods beginning after December 15, 2009 and have been included in Note 6. An additional disclosure requirement to present purchases, sales, issuances, and settlements of Level 3 activity on a gross basis becomes effective with periods beginning after December 15, 2010.

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Note 3. Earnings Per Share

Basic earnings per share is calculated under the two-class method, which allocates earnings to each class of stock based on its dividend rights. Class B shares are convertible into Class A shares at a conversion ratio of 2,400 to 1. Class A diluted earnings per share is calculated under the if-converted method which reflects the conversion of Class B shares and the effect of potentially dilutive outstanding employee stock-based awards and awards not yet vested related to the outside directors’ stock compensation plan.

A reconciliation of the numerators and denominators used in the basic and diluted per-share computations is presented as follows for each class of Indemnity common stock:

	Indemnity Earnings Per Share Calculation
(dollars in millions,	Three months ended September 30,
except share data)	2010						2009
	Allocated		Weighted		Per-		Allocated		Weighted		Per-
	net income		shares		share		net income		shares		share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
Class A — Basic EPS:
Income available to Class A stockholders	$	54		50,499,551	$	1.05	$	40		51,252,693	$	0.77
Dilutive effect of stock awards		0		14,359		—		0		20,807		—
Assumed conversion of Class B shares		0		6,110,400		—		0		6,110,400		—
Class A — Diluted EPS:
Income available to Class A stockholders on Class A equivalent shares	$	54		56,624,310	$	0.94	$	40		57,383,900	$	0.69
Class B — Basic and diluted EPS:
Income available to Class B stockholders	$	0		2,546	$	150.87	$	0		2,546	$	112.06
	Indemnity Earnings Per Share Calculation
(dollars in millions,	Nine months ended September 30,
except share data)		2010					2009
	Allocated		Weighted		Per-		Allocated		Weighted		Per-
	net income		shares		share		net income		Shares		share
	(numerator)		(denominator)		amount		(numerator)		(denominator)		amount
Class A — Basic EPS:
Income available to Class A stockholders	$	149		50,897,035	$	2.92	$	83		51,255,234	$	1.62
Dilutive effect of stock awards		0		14,359		—		0		20,807		—
Assumed conversion of Class B shares		1		6,110,400		—		1		6,117,600		—
Class A — Diluted EPS:
Income available to Class A stockholders on Class A equivalent shares	$	150		57,021,794	$	2.62	$	84		57,393,641	$	1.46
Class B — Basic and diluted EPS:
Income available to Class B stockholders	$	1		2,546	$	421.91	$	1		2,549	$	239.96

Included in the diluted earnings per share calculations for the third quarters of 2010 and 2009, respectively, were 7,959 and 9,607 shares of awards not yet vested related to our outside directors’ stock compensation plan, and 6,400 and 11,200 shares of other stock-based awards not yet vested.

Note 4. Variable Interest Entity

Exchange

The Exchange is a reciprocal insurance exchange domiciled in Pennsylvania, for which Indemnity serves as attorney-in-fact. Indemnity holds a variable interest in the Exchange because of the absence of decision-making capabilities by the equity owners (i.e. subscribers (policyholders)) of the Exchange and because of the significance of the management fees the Exchange pays to Indemnity as the decision maker. The new accounting guidance, which we adopted on January 1, 2010, requires entities to perform a qualitative analysis to determine the primary beneficiary of variable interest entities. As a result of adopting the new guidance, Indemnity is deemed to have a controlling financial interest in the Exchange and is considered the primary beneficiary. The Exchange’s results have been consolidated with those of Indemnity. We have retrospectively applied the new accounting guidance and have consolidated the Exchange for all periods presented in this report for comparability purposes. See Note 2.

9

Consolidation of the Exchange is required given the significance of the management fee to the Exchange and because Indemnity has the power to direct the activities of the Exchange that most significantly impact the Exchange’s economic performance. Indemnity earns management fee revenues from the Exchange for services provided as attorney-in-fact for the Exchange. Indemnity’s management fee revenues are based on the direct written premiums of the Exchange and the other members of the Property and Casualty Group. Indemnity’s Board of Directors determines the management fee rate paid by the Exchange to Indemnity. This rate cannot exceed 25% of the direct and affiliated assumed written premiums of the Exchange, as defined by the subscriber agreement signed by each policyholder. The management fee revenues and management fee expenses are eliminated in consolidation.

Indemnity participates in the underwriting results of the Exchange through the pooling arrangement in which its insurance subsidiaries have a 5.5% participation. If the Exchange were to default, Indemnity’s insurance subsidiaries would be liable for the policies that they wrote directly. Indemnity’s property and casualty insurance subsidiaries wrote approximately 16% of the 2009 direct written premiums of the Property and Casualty Group. Indemnity’s Board of Directors determines the continuation and participation percentage of Indemnity’s property and casualty subsidiaries in the reinsurance pooling arrangement.

Indemnity has no obligation related to any underwriting and/or investment losses experienced by the Exchange. Indemnity would however be adversely impacted if the Exchange incurred significant underwriting and/or investment losses. If the surplus of the Exchange were to decline significantly from its current level, its financial strength ratings could be reduced and as a consequence the Exchange could find it more difficult to retain its existing business and attract new business. A decline in the business of the Exchange would have an adverse effect on the amount of the management fees Indemnity receives and the underwriting results of the Property and Casualty Group in which Indemnity has a 5.5% participation. In addition, a decline in the surplus of the Exchange from its current level may impact the management fee rate received by Indemnity. Indemnity also has an exposure to a concentration of credit risk related to the unsecured receivables due from the Exchange for its management fee, reinsurance recoverables from unpaid losses and loss expenses and unearned premium balances ceded under the pooling arrangement and cost reimbursements.

Indemnity has not provided financial or other support to the Exchange for the reporting periods presented. At September 30, 2010, there are no explicit or implicit arrangements that would require Indemnity to provide future financial support to the Exchange. Indemnity is not liable if the Exchange was to be in violation of its debt covenants or was unable to meet its obligation for unfunded commitments to limited partnerships.

Note 5. Segment Information

As a result of the changes in our reporting entity at January 1, 2010 (see Note 2), our reportable segments have increased from three to four. Our reportable segments include management operations, property and casualty insurance operations, life insurance operations and investment operations. The segment information presented below includes reclassification of all comparative prior period segment information. Accounting policies for segments are the same as those described in the summary of significant accounting policies. For further information, refer to the consolidated financial statements and footnotes for the year ended December 31, 2009 included in our Form 8-K as filed with the Securities and Exchange Commission on May 6, 2010. Assets are not allocated to the segments but rather are reviewed in total for purposes of decision-making. No single customer or agent provides 10% or more of revenues.

Our management operations segment reflects the results of serving as attorney-in-fact for the Exchange. Indemnity operates in this capacity solely for the Exchange. We evaluate profitability of our management operations segment principally on the gross margin from management operations.

Indemnity earns management fees from the Exchange for providing sales, underwriting and policy issuance services. The management fee revenue, which is eliminated in consolidation, is calculated as a percentage of the direct written premium of the Property and Casualty Group. The Exchange issues policies with annual terms only. Management fees are recorded upon policy issuance or renewal, as substantially all of the services required to be performed by Indemnity have been satisfied at that time. Certain activities are performed and related costs are incurred

10

by Indemnity subsequent to policy issuance in connection with the services provided to the Exchange; however, these activities are inconsequential and perfunctory. Although these management fee revenues and expenses are eliminated in consolidation, the amount of the fee directly impacts allocations of our consolidated net income between noncontrolling interest, which bears the management fee expense and represents the interests of the Exchange subscribers, and Indemnity’s interests, which earns the management fee revenue and represents Indemnity shareholder interest in net income.

Our property and casualty insurance operations segment includes personal and commercial lines of business. Personal lines consist primarily of personal auto and homeowners and are marketed to individuals. Commercial lines consist primarily of commercial multi-peril, commercial auto and workers compensation and are marketed to small and medium-sized businesses. Our property and casualty policies are sold by independent agents. Our property and casualty insurance underwriting operations are conducted through Indemnity subsidiaries and the Exchange and its subsidiaries, and include assumed voluntary reinsurance from nonaffiliated domestic and foreign sources, assumed involuntary and ceded reinsurance business. The Exchange exited the assumed voluntary reinsurance business effective December 31, 2003, and therefore unaffiliated reinsurance includes only run-off activity of the previously assumed voluntary reinsurance business. We evaluate profitability of the property and casualty operations principally based on net underwriting results represented by the combined ratio.

Our life insurance operations segment includes traditional and universal life insurance products and fixed annuities marketed to individuals using the same independent agency force utilized by our property and casualty operations. We evaluate profitability of the life insurance operations segment principally based on segment net income, including investments, which for segment purposes are reflected in the investment operations segment. At the same time, we recognize that investment-related income is integral to the evaluation of the life insurance segment because of the long duration of life products. For the third quarter 2010 and 2009, investment activities on life insurance-related assets generated revenues of $27 million and $19 million, respectively, resulting in EFL reporting income before income taxes of $16 million and $8 million, respectively, before intercompany eliminations. For the nine months ended September 30, 2010 and 2009, investment activities on life insurance and related assets generated revenues of $79 million and $45 million, respectively, resulting in EFL reporting income before taxes of $37 million and $8 million, respectively, before intercompany eliminations. See Note 15 for EFL supplemental information.

The investment operations segment performance is evaluated based on appreciation of assets, rate of return and overall return. Investment-related income for the life operations is included in the investment segment results.

The following tables summarize the components of the Consolidated Statements of Operations by reportable business segments:

	Erie Insurance Group
	For the three months ended September 30, 2010
			Property
			and
			casualty		Life
	Management		insurance		insurance			Investment
(in millions)	operations		operations		operations			operations		Eliminations			Consolidated
Premiums earned/life policy revenue			$	990	$	16				$	(1	)	$	1,005
Net investment income								$	113		(3	)		110
Net realized investment gains									205					205
Net impairment losses recognized in earnings									0					0
Equity in earnings of limited partnerships									28					28
Management fee revenue	$	266									(266	)		—
Service agreement and other revenue		9				0								9
Total revenues		275		990		16			346		(270	)		1,357
Cost of management operations		217									(217	)		—
Insurance losses and loss expenses				690							(1	)		689
Benefits and other changes in policy reserves						21								21
Policy acquisition and underwriting expense				288		6					(52	)		242
Total benefits and expenses		217		978		27			—		(270	)		952
Income (loss) before income taxes		58		12		(11	)		346		—			405
Provision (benefit) for income taxes		22		4		(4	)		108		—			130
Net income (loss)	$	36	$	8	$	(7	)	$	238	$	—		$	275

11

	Erie Insurance Group
	For the three months ended September 30, 2009
			Property and
	Management		casualty insurance			Life insurance			Investment
(in millions)	operations		operations			operations			operations(1)			Eliminations			Consolidated
Premiums earned/life policy revenue			$	964		$	14					$	(1	)	$	977
Net investment income									$	105			(3	)		102
Net realized investment gains										251						251
Net impairment losses recognized in earnings										(16	)					(16	)
Equity in losses of limited partnerships										(37	)					(37	)
Management fee revenue	$	253											(253	)		—
Service agreement and other revenue		9					0									9
Total revenues		262		964			14			303			(257	)		1,286
Cost of management operations		214											(214	)		—
Insurance losses and loss expenses				613									(1	)		612
Benefits and other changes in policy reserves							19									19
Policy acquisition and underwriting expense				335			6						(42	)		299
Total benefits and expenses		214		948			25			—			(257	)		930
Income (loss) before income taxes		48		16			(11	)		303			—			356
Provision (benefit) for income taxes		24		6			(4	)		78			—			104
Net income (loss)	$	24	$	10		$	(7	)	$	225		$	—		$	252
	Erie Insurance Group
	For the nine months ended September 30, 2010
			Property
			and
			casualty			Life
	Management		insurance			insurance			Investment
(in millions)	operations		operations			operations			operations			Eliminations			Consolidated
Premiums earned/life policy revenue			$	2,926		$	48					$	(2	)	$	2,972
Net investment income									$	330			(8	)		322
Net realized investment gains										117						117
Net impairment losses recognized in earnings										(6	)					(6	)
Equity in earnings of limited partnerships										58						58
Management fee revenue	$	773											(773	)		—
Service agreement and other revenue		26					0									26
Total revenues		799		2,926			48			499			(783	)		3,489
Cost of management operations		626											(626	)		—
Insurance losses and loss expenses				2,145									(4	)		2,141
Benefits and other changes in policy reserves							67									67
Policy acquisition and underwriting expense				829			23						(153	)		699
Total benefits and expenses		626		2,974			90			—			(783	)		2,907
Income (loss) before income taxes		173		(48	)		(42	)		499			—			582
Provision (benefit) for income taxes		61		(17	)		(15	)		147			—			176
Net income (loss)	$	112	$	(31	)	$	(27	)	$	352		$	—		$	406

12

	Erie Insurance Group
	For the nine months ended September 30, 2009
			Property
			and
			casualty			Life
	Management		insurance			insurance			Investment
(in millions)	operations		operations			operations			operations(1)			Eliminations			Consolidated
Premiums earned/life policy revenue			$	2,852		$	48					$	(2	)	$	2,898
Net investment income									$	332			(8	)		324
Net realized investment gains										304						304
Net impairment losses recognized in earnings										(99	)					(99	)
Equity in losses of limited partnerships										(324	)					(324	)
Management fee revenue	$	742											(742	)		—
Service agreement and other revenue		26					1									27
Total revenues		768		2,852			49			213			(752	)		3,130
Cost of management operations		615											(615	)		—
Insurance losses and loss expenses				2,033									(4	)		2,029
Benefits and other changes in policy reserves							65									65
Policy acquisition and underwriting expense				874			21						(133	)		762
Total benefits and expenses		615		2,907			86			—			(752	)		2,856
Income (loss) before income taxes		153		(55	)		(37	)		213			—			274
Provision (benefit) for income taxes		54		(19	)		(13	)		(20	)		—			2
Net income (loss)	$	99	$	(36	)	$	(24	)	$	233		$	—		$	272

(1) The significant realized losses, impairment charges and market value adjustments on limited partnership investments were impacted by the significant disruption in the financial markets.

See the “Results of the Erie Insurance Group’s operations by interest” table in the Management’s Discussion and Analysis for the composition of income attributable to Indemnity and income attributable to the noncontrolling interest (Exchange).

Note 6. Fair Value

Our available-for-sale and trading securities are recorded at fair value, which is the price that would be received to sell the asset in an orderly transaction between willing market participants as of the measurement date.

Valuation techniques used to derive the fair value of our available-for-sale and trading securities are based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources.

Unobservable inputs reflect our own assumptions regarding fair market value for these securities. Although the majority of our prices are obtained from third party sources, we also perform an internal pricing review for securities with low trading volumes in the current market conditions. Financial instruments are categorized based upon the following characteristics or inputs to the valuation techniques:

Level 1	Quoted prices for identical instruments in active markets not subject to adjustments or discounts.
Level 2	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3	Instruments whose significant value drivers are unobservable and reflect management’s estimate of fair value based on assumptions used by market participants in an orderly transaction as of the valuation date.

13

The following table represents the fair value measurements on a recurring basis for our consolidated available-for-sale and trading securities by asset class and level of input at September 30, 2010:

	Erie Insurance Group
	September 30, 2010
	Fair value measurements using:
			Quoted prices in				Significant
			active markets for		Significant		unobservable
			identical assets		observable inputs		inputs
(in millions)	Total		Level 1		Level 2		Level 3
Indemnity
Available for sale securities:
Fixed maturities
U.S. treasuries and government agencies	$	6	$	4	$	2	$	0
U.S. government sponsored enterprises		13		0		13		0
Municipal securities		263		0		263		0
U.S. corporate debt — non-financial		180		0		180		0
U.S. corporate debt — financial		149		0		147		2
Foreign corporate debt — non-financial		29		0		29		0
Foreign corporate debt — financial		25		0		25		0
Structured securities:
Asset-backed securities — auto loans		2		0		2		0
Collateralized debt obligations		10		0		3		7
Commercial mortgage-backed		4		0		4		0
Residential mortgage-backed:
Government sponsored enterprises		11		0		11		0
Non-government sponsored enterprises		3		0		3		0
Total fixed maturities — Indemnity	$	695	$	4	$	682	$	9
Equity securities
U.S. nonredeemable preferred securities:
Financial	$	27	$	7	$	18	$	2
Non-financial		14		6		8		0
Foreign nonredeemable preferred securities:
Financial		4		0		4		0
Non-financial		1		0		1		0
Total equity securities — Indemnity	$	46	$	13	$	31	$	2
Total available-for-sale securities — Indemnity	$	741	$	17	$	713	$	11
Trading securities:
Common stock	$	26	$	26	$	0	$	0
Total trading securities	$	26	$	26	$	0	$	0
Total Indemnity	$	767	$	43	$	713	$	11

14

	Erie Insurance Group
	September 30, 2010
	Fair value measurements using:
			Quoted prices in				Significant
			active markets for		Significant		unobservable
			identical assets		observable inputs		inputs
(in millions)	Total		Level 1		Level 2		Level 3
Exchange
Available for sale securities:
Fixed maturities
U.S. treasuries and government agencies	$	6	$	5	$	1	$	0
U.S. government sponsored enterprises		62		0		62		0
Foreign government		21		0		21		0
Municipal securities		1,445		0		1,445		0
U.S. corporate debt — non-financial		2,347		6		2,332		9
U.S. corporate debt — financial		1,828		6		1,822		0
Foreign corporate debt — non-financial		449		0		449		0
Foreign corporate debt — financial		390		0		390		0
Structured securities:
Asset-backed securities — auto loans		39		0		39		0
Asset-backed securities — other		29		0		24		5
Collateralized debt obligations		79		0		37		42
Commercial mortgage-backed		95		0		95		0
Residential mortgage-backed:
Government sponsored enterprises		201		0		201		0
Non-government sponsored enterprises		28		0		28		0
Total fixed maturities — Exchange	$	7,019	$	17	$	6,946	$	56
Equity securities
U.S. nonredeemable preferred securities:
Financial	$	349	$	97	$	247	$	5
Non-financial		132		47		85		0
Government sponsored enterprises		0		0		0		0
Foreign nonredeemable preferred securities:
Financial		48		16		32		0
Non-financial		9		0		9		0
Total equity securities — Exchange	$	538	$	160	$	373	$	5
Total available for sale securities — Exchange	$	7,557	$	177	$	7,319	$	61
Trading securities:
Common stock	$	1,985	$	1,974	$	0	$	11
Total trading securities	$	1,985	$	1,974	$	0	$	11
Total — Exchange	$	9,542	$	2,151	$	7,319	$	72
Total — Erie Insurance Group	$	10,309	$	2,194	$	8,032	$	83

15

Level 3 Assets — Quarterly Change:

	Erie Insurance Group
													Ending
	Beginning				Included in other		Purchases,			Transfers in			balance at
	balance at		Included in		comprehensive		sales and			and (out) of			September 30,
(in millions)	June 30, 2010		earnings(1)		income		adjustments			Level 3(2)			2010
Indemnity
Available-for-sale securities:
Fixed maturities:
U.S. corporate debt — financial	$	2	$	0	$	0	$	0		$	0		$	2
Collateralized debt obligations		8		0		0		0			(1	)		7
Total fixed maturities		10		0		0		0			(1	)		9
Preferred stock:
U.S. nonredeemable — financial		1		0		0		1			0			2
Total preferred stock		1		0		0		1			0			2
Total Level 3 assets — Indemnity	$	11	$	0	$	0	$	1		$	(1	)	$	11
Exchange
Available-for-sale securities:
Fixed maturities:
U.S. corporate debt — non-financial	$	9	$	0	$	0	$	0		$	0		$	9
Asset backed securities — other		5		0		0		0			0			5
Collateralized debt obligations		53		0		0		(1	)		(10	)		42
Total fixed maturities		67		0		0		(1	)		(10	)		56
Preferred stock:
U.S. nonredeemable — financial		4		0		0		1			0			5
Total preferred stock		4		0		0		1			0			5
Trading securities:
Common stock		10		1		0		0			0			11
Total Level 3 assets — Exchange	$	81	$	1	$	0	$	0		$	(10	)	$	72
Total Level 3 assets — Erie Insurance Group	$	92	$	1	$	0	$	1		$	(11	)	$	83

16

Level 3 Assets — Year-to-Date Change:

	Erie Insurance Group
	Beginning											Ending
	balance at				Included in other		Purchases,		Transfers in			balance at
	December 31,		Included in		comprehensive		sales and		and (out) of			September 30,
(in millions)	2009		earnings(1)		income		adjustments		Level 3(2)			2010
Indemnity
Available-for-sale securities:
Fixed maturities:
U.S. corporate debt — financial	$	2	$	0	$	0	$	0	$	0		$	2
Collateralized debt obligations		8		0		0		0		(1	)		7
Total fixed maturities		10		0		0		0		(1	)		9
Preferred stock:
U.S. nonredeemable — financial		1		0		0		1		0			2
Total preferred stock		1		0		0		1		0			2
Total Level 3 assets — Indemnity	$	11	$	0	$	0	$	1	$	(1	)	$	11
Exchange
Available-for-sale securities:
Fixed maturities:
U.S. corporate debt — non-financial	$	17	$	0	$	0	$	0	$	(8	)	$	9
Asset backed securities — other		5		0		0		0		0			5
Collateralized debt obligations		49		2		4		0		(13	)		42
Total fixed maturities		71		2		4		0		(21	)		56
Preferred stock:
U.S. nonredeemable — financial		4		0		1		0		0			5
Total preferred stock		4		0		1		0		0			5
Trading securities:
Common stock		9		2		0		0		0			11
Total Level 3 assets — Exchange	$	84	$	4	$	5	$	0	$	(21	)	$	72
Total Level 3 assets — Erie Insurance Group	$	95	$	4	$	5	$	1	$	(22	)	$	83

(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 Statement of Operations. There were no unrealized gains or losses included in earnings for the three or nine months ended September 30, 2010 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. There were no significant transfers in and out of Level 3. Transfers in and out of levels are recognized at the end of the period.

     There were no significant transfers between Levels 1 and 2 during the nine months ended September 30, 2010.

17

     The following table represents the fair value measurements on a recurring basis for our consolidated available-for-sale and trading securities by asset class and level of input at December 31, 2009:

	Erie Insurance Group
			At December 31, 2009
			Fair value measurements using:
			Quoted prices
			in active		Significant		Significant
			markets for		observable		unobservable
			identical assets		inputs		inputs
(in millions)	Total		Level 1		Level 2		Level 3
Indemnity
Available-for-sale securities:
Fixed maturities	$	664	$	6	$	648	$	10
Preferred stock		38		9		28		1
Trading securities — common stock		42		42		0		0
Total — Indemnity	$	744	$	57	$	676	$	11
Exchange
Available-for-sale securities:
Fixed maturities	$	6,517	$	31	$	6,415	$	71
Preferred stock		472		157		311		4
Trading securities — common stock		1,835		1,826		0		9
Total — Exchange	$	8,824	$	2,014	$	6,726	$	84
Total — Erie Insurance Group	$	9,568	$	2,071	$	7,402	$	95

18

Level 3 Assets — Quarterly Change:

	Erie Insurance Group
													Ending
	Beginning					Included in other		Purchases,		Transfers in			balance at
	balance at		Included in			comprehensive		sales and		and (out) of			September 30,
(in millions)	June 30,2009		earnings(1)			income		adjustments		Level 3(2)			2009
Indemnity
Available-for-sale securities:
Fixed maturities:
U.S. corporate debt — financial	$	5	$	0		$	0	$	0	$	(5	)	$	0
Collateralized debt obligations		9		(2	)		2		0		0			9
Total fixed maturities		14		(2	)		2		0		(5	)		9
Preferred stock:
U.S. nonredeemable — financial		7		0			0		0		(3	)		4
U.S. nonredeemable — non-financial		4		0			0		0		(4	)		0
Total preferred stock		11		0			0		0		(7	)		4
Total Level 3 assets — Indemnity	$	25	$	(2	)	$	2	$	0	$	(12	)	$	13
Exchange
Available-for-sale securities:
Fixed maturities:
U.S. corporate debt — financial	$	17	$	0		$	0	$	0	$	(17	)	$	0
U.S. corporate debt — non-financial		19		0			0		0		(2	)		17
Foreign corporate debt — financial		0		0			0		0		0			0
Foreign corporate debt — non-financial		1		0			0		0		0			1
Asset backed securities — other		5		0			0		0		0			5
Collateralized debt obligations		76		(5	)		5		1		0			77
Total fixed maturities		118		(5	)		5		1		(19	)		100
Preferred stock:
U.S. nonredeemable — financial		20		0			1		0		(12	)		9
U.S. nonredeemable — non-financial		24		0			0		0		(19	)		5
Total preferred stock		44		0			1		0		(31	)		14
Total Level 3 assets — Exchange	$	162	$	(5	)	$	6	$	1	$	(50	)	$	114
Total Level 3 assets — Erie Insurance Group	$	187	$	(7	)	$	8	$	1	$	(62	)	$	127

19

Level 3 Assets — Year-to-Date Change:

	Erie Insurance Group
														Ending
	Beginning					Included in other		Purchases,			Transfers in			balance at
	balance at		Included in			comprehensive		sales and			and (out) of			September 30,
(in millions)	December 31, 2008		earnings(1)			income		adjustments			Level 3(2)			2009
Indemnity
Available-for-sale securities:
Fixed maturities:
U.S. corporate debt — financial	$	5	$	0		$	0	$	0		$	(5	)	$	0
Collateralized debt obligations		7		(1	)		3		0			0			9
Commercial mortgage-backed securities		2		0			0		0			(2	)		0
Total fixed maturities		14		(1	)		3		0			(7	)		9
Preferred stock:
U.S. nonredeemable — financial		7		0			0		0			(3	)		4
U.S. nonredeemable — non-financial		4		0			0		0			(4	)		0
Total preferred stock		11		0			0		0			(7	)		4
Total Level 3 assets — Indemnity	$	25	$	(1	)	$	3	$	0		$	(14	)	$	13
Exchange
Available-for-sale securities:
Fixed maturities:
U.S. corporate debt —financial	$	36	$	0		$	0	$	(16	)	$	(20	)	$	0
U.S. corporate debt — non-financial		21		0			0		(1	)		(3	)		17
Foreign corporate debt —financial		1		0			0		0			(1	)		0
Foreign corporate debt — non-financial		2		0			0		(1	)		0			1
Asset backed securities — other		5		0			0		0			0			5
Collateralized debt obligations		36		(8	)		23		10			16			77
Commercial mortgage-backed securities		7		0			0		0			(7	)		0
Total fixed maturities		108		(8	)		23		(8	)		(15	)		100
Preferred stock:
U.S. nonredeemable — financial		24		0			0		0			(15	)		9
U.S. nonredeemable — non-financial		22		0			0		0			(17	)		5
Total preferred stock		46		0			0		0			(32	)		14
Total Level 3 assets — Exchange	$	154	$	(8	)	$	23	$	(8	)	$	(47	)	$	114
Total Level 3 assets — Erie Insurance Group	$	179	$	(9	)	$	26	$	(8	)	$	(61	)	$	127

(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 Statement of Operations. There were no unrealized gains or losses included in earnings for the three or nine months ended September 30, 2009 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 end of the period.

Estimates of fair values for our investment portfolio are obtained primarily from a nationally recognized pricing service. Our Level 1 category includes those securities valued using an exchange traded price provided by the pricing service. The methodologies used by the pricing service that support a Level 2 classification of a financial instrument include multiple verifiable, observable inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. Pricing service valuations for Level 3 securities are based on proprietary models and are used when observable inputs are not available in illiquid markets. In limited circumstances we adjust the price received from the pricing service when in our judgment a better reflection of fair value is available based on corroborating information and our knowledge and monitoring of market conditions. At September 30, 2010, we adjusted some prices received by the pricing service to reflect an alternate fair market value based on observable market data such as a disparity in price of comparable securities and/or non-binding broker quotes.

20

The following table displays the number and values of these adjustments at September 30, 2010:

			Value of		Value of
			securities		securities used in
	Number of		using pricing		the financial
(dollars in millions)	holdings		service		statements
Indemnity		1	$	0	$	0
Exchange		2		4		5
Total — Erie Insurance Group			$	4	$	5

We perform continuous reviews of the prices obtained from the pricing service. This includes evaluating the methodology and inputs used by the pricing service to ensure we determine the proper level classification of the financial instrument. Price variances, including large periodic changes, are investigated and corroborated by market data. We have reviewed the pricing methodologies of our pricing service and believe that their prices adequately consider market activity in determining fair value.

In cases in which a price from the pricing service is not available, values are determined by obtaining non-binding broker quotes and/or market comparables. When available, we obtain multiple quotes for the same security. The ultimate value for these securities is determined based on our best estimate of fair value using corroborating market information. Our evaluation includes the consideration of benchmark yields, reported trades, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. For certain structured securities in an illiquid market, there may be no prices available from a pricing service and no comparable market quotes available. In these situations, we value the security using an internally-developed risk-adjusted discounted cash flow model.

21

The following table sets forth the fair value of the consolidated fixed maturity and preferred stock securities by pricing source:

	Erie Insurance Group
	September 30, 2010
(in millions)	Total		Level 1		Level 2		Level 3
Indemnity
Fixed maturity securities:
Priced via pricing services	$	684	$	4	$	680	$	0
Priced via market comparables/non-binding broker quote(1)		2		0		2		0
Priced via internal modeling(2)		9		0		0		9
Total fixed maturity securities		695		4		682		9
Preferred stock securities:
Priced via pricing services		44		13		29		2
Priced via market comparables/non-binding broker quote(1)		2		0		2		0
Priced via internal modeling(2)		0		0		0		0
Total preferred stock securities		46		13		31		2
Common stock securities:
Priced via pricing services		26		26		0		0
Priced via market comparables/non-binding broker quote(1)		0		0		0		0
Priced via internal modeling(2)		0		0		0		0
Total common stock securities		26		26		0		0
Total available-for-sale/trading securities — Indemnity	$	767	$	43	$	713	$	11
Exchange
Fixed maturity securities:
Priced via pricing services	$	6,913	$	17	$	6,896	$	0
Priced via market comparables/non-binding broker quote(1)		51		0		50		1
Priced via internal modeling(2)		55		0		0		55
Total fixed maturity securities		7,019		17		6,946		56
Preferred stock securities:
Priced via pricing services		521		160		356		5
Priced via market comparables/non-binding broker quote(1)		17		0		17		0
Priced via internal modeling(2)		0		0		0		0
Total preferred stock securities		538		160		373		5
Common stock securities:
Priced via pricing services		1,973		1,973		0		0
Priced via market comparables/non-binding broker quote(1)		0		0		0		0
Priced via internal modeling(2)		12		1		0		11
Total common stock securities		1,985		1,974		0		11
Total available-for-sale/trading securities — Exchange	$	9,542	$	2,151	$	7,319	$	72
Total available-for-sale/trading securities — Erie Insurance Group	$	10,309	$	2,194	$	8,032	$	83

(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.
(2)	Internal modeling using a discounted cash flow model was performed on 15 fixed maturities and 3 common equity securities representing less than 0.7% of the total portfolio of the Erie Insurance Group.

We have no assets that were measured at fair value on a nonrecurring basis during the nine months ended September 30, 2010.

22

Note 7. Investments

The following tables summarize the cost and fair value of our available-for-sale securities at September 30, 2010 and December 31, 2009:

	Erie Insurance Group
	September 30, 2010
(in millions)	Amortized		Gross unrealized		Gross unrealized		Estimated
Available-for-sale securities	cost		gains		losses		fair value
Indemnity
Fixed maturities
U.S. treasuries and government agencies	$	5	$	1	$	0	$	6
U.S. government sponsored enterprises		13		0		0		13
Municipal securities		249		14		0		263
U.S. corporate debt — non-financial		164		16		0		180
U.S. corporate debt — financial		140		10		1		149
Foreign corporate debt — non-financial		26		3		0		29
Foreign corporate debt — financial		23		2		0		25
Structured securities:
Asset-backed securities — auto loans		2		0		0		2
Collateralized debt obligations		10		1		1		10
Commercial mortgage-backed		4		0		0		4
Residential mortgage-backed:
Government sponsored enterprises		10		1		0		11
Non-government sponsored enterprises		3		0		0		3
Total fixed maturities-Indemnity	$	649	$	48	$	2	$	695
Equity securities
U.S. nonredeemable preferred securities:
Financial	$	23	$	4	$	0	$	27
Non-financial		13		1		0		14
Foreign nonredeemable preferred securities:
Financial		3		1		0		4
Non-financial		1		0		0		1
Total equity securities — Indemnity	$	40	$	6	$	0	$	46
Total available-for-sale securities — Indemnity	$	689	$	54	$	2	$	741
Exchange
Fixed maturities
U.S. treasuries and government agencies	$	5	$	1	$	0	$	6
U.S. government sponsored enterprises		60		2		0		62
Foreign government		20		1		0		21
Municipal securities		1,364		81		0		1,445
U.S. corporate debt — non-financial		2,114		236		3		2,347
U.S. corporate debt — financial		1,666		168		6		1,828
Foreign corporate debt — non-financial		407		42		0		449
Foreign corporate debt — financial		363		28		1		390
Structured securities:
Asset-backed securities — auto loans		36		3		0		39
Asset-backed securities — other		28		1		0		29
Collateralized debt obligations		80		5		6		79
Commercial mortgage-backed		90		6		1		95
Residential mortgage-backed:
Government sponsored enterprises		191		10		0		201
Non-government sponsored enterprises		29		0		1		28
Total fixed maturities — Exchange	$	6,453	$	584	$	18	$	7,019
Equity securities
U.S. nonredeemable preferred securities:
Financial	$	291	$	60	$	2	$	349
Non-financial		124		9		1		132
Government sponsored enterprises		0		0		0		0
Foreign nonredeemable preferred securities:
Financial		44		5		1		48
Non-financial		8		1		0		9
Total equity securities — Exchange	$	467	$	75	$	4	$	538
Total available-for-sale securities — Exchange	$	6,920	$	659	$	22	$	7,557
Total available-for-sale securities — Erie Insurance Group	$	7,609	$	713	$	24	$	8,298

23

	Erie Insurance Group
	December 31, 2009
(in millions)	Amortized		Gross unrealized		Gross unrealized		Estimated
Available-for-sale securities	cost		gains		losses		fair value
Indemnity
Fixed maturities
U.S. treasuries and government agencies	$	3	$	0	$	0	$	3
U.S. government sponsored enterprises		14		0		0		14
Foreign government		2		0		0		2
Municipal securities		235		9		0		244
U.S. corporate debt — non-financial		172		10		1		181
U.S. corporate debt — financial		135		7		4		138
Foreign corporate debt — non-financial		26		2		0		28
Foreign corporate debt — financial		19		2		1		20
Structured securities:
Asset-backed securities — auto loans		4		0		0		4
Collateralized debt obligations		10		0		2		8
Commercial mortgage-backed		5		0		0		5
Residential mortgage-backed:
Government sponsored enterprises		14		0		0		14
Non-government sponsored enterprises		3		0		0		3
Total fixed maturities-Indemnity	$	642	$	30	$	8	$	664
Equity securities
U.S. nonredeemable preferred securities:
Financial	$	20	$	3	$	1	$	22
Non-financial		9		1		0		10
Foreign nonredeemable preferred securities:
Financial		5		0		0		5
Non-financial		1		0		0		1
Total equity securities — Indemnity	$	35	$	4	$	1	$	38
Total available-for-sale securities — Indemnity	$	677	$	34	$	9	$	702
Exchange
Fixed maturities
U.S. treasuries and government agencies	$	5	$	0	$	0	$	5
U.S. government sponsored enterprises		76		1		0		77
Foreign government		10		1		0		11
Municipal securities		1,389		55		3		1,441
U.S. corporate debt — non-financial		2,078		125		10		2,193
U.S. corporate debt — financial		1,498		82		28		1,552
Foreign corporate debt — non-financial		375		22		2		395
Foreign corporate debt — financial		292		11		4		299
Structured securities:
Asset-backed securities — auto loans		48		3		0		51
Asset-backed securities — credit cards		5		0		0		5
Asset-backed securities — other		35		0		2		33
Collateralized debt obligations		88		5		16		77
Commercial mortgage-backed		127		5		5		127
Residential mortgage-backed:
Government sponsored enterprises		192		6		0		198
Non-government sponsored enterprises		59		0		6		53
Total fixed maturities — Exchange	$	6,277	$	316	$	76	$	6,517
Equity securities
U.S. nonredeemable preferred securities:
Financial	$	259	$	53	$	11	$	301
Non-financial		111		4		2		113
Government sponsored enterprises		1		2		0		3
Foreign nonredeemable preferred securities:
Financial		46		4		3		47
Non-financial		8		0		0		8
Total equity securities — Exchange	$	425	$	63	$	16	$	472
Total available-for-sale securities — Exchange	$	6,702	$	379	$	92	$	6,989
Total available-for-sale securities — Erie Insurance Group	$	7,379	$	413	$	101	$	7,691

24

The amortized cost and estimated fair value of fixed maturities at September 30, 2010, are shown below by remaining contractual term to maturity. Mortgage-backed securities are allocated based on 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
	Amortized		Estimated
(in millions)	cost		fair value
Indemnity
Due in one year or less	$	34	$	36
Due after one year through five years		268		283
Due after five years through ten years		244		268
Due after ten years		103		108
Total fixed maturities — Indemnity	$	649	$	695
Exchange
Due in one year or less	$	314	$	330
Due after one year through five years		2,279		2,450
Due after five years through ten years		2,575		2,855
Due after ten years		1,285		1,384
Total fixed maturities — Exchange	$	6,453	$	7,019
Total fixed maturities — Erie Insurance Group	$	7,102	$	7,714

Fixed maturities and equity securities in a gross unrealized loss position at September 30, 2010 are as follows for Indemnity. Data is provided by length of time securities were in a gross unrealized loss position.

September 30, 2010

	Erie Insurance Group
	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		No. of
(dollars in millions)	value		losses		value		losses		Value		losses		holdings
Indemnity
Fixed maturities:
U.S. government sponsored enterprises	$	3	$	0	$	0	$	0	$	3	$	0		1
Municipal securities		4		0		2		0		6		0		4
U.S. corporate debt — non-financial		5		0		2		0		7		0		3
U.S. corporate debt — financial		0		0		10		1		10		1		5
Foreign corporate debt — non-financial		0		0		1		0		1		0		1
Foreign corporate debt — financial		0		0		2		0		2		0		1
Structured securities:
Collateralized debt obligations		0		0		4		1		4		1		5
Commercial mortgage-backed		1		0		0		0		1		0		1
Total fixed maturities — Indemnity	$	13	$	0	$	21	$	2	$	34	$	2		21
Equity securities:
U.S. nonredeemable preferred securities:
Financial	$	0	$	0	$	5	$	0	$	5	$	0		3
Non-financial		0		0		2		0		2		0		1
Government sponsored enterprises		0		0		0		0		0		0		2
Foreign nonredeemable preferred securities:
Financial		0		0		1		0		1		0		1
Total equity securities — Indemnity	$	0	$	0	$	8	$	0	$	8	$	0		7

Quality breakdown of fixed maturities at September 30, 2010

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		No. of
(dollars in millions)	value		losses		value		losses		Value		losses		holdings
Indemnity
Investment grade	$	13	$	0	$	19	$	1	$	32	$	1		18
Non-investment grade		0		0		2		1		2		1		3
Total fixed maturities — Indemnity	$	13	$	0	$	21	$	2	$	34	$	2		21

25

Fixed maturities and equity securities in a gross unrealized loss position at September 30, 2010 are as follows for the Exchange. Data is provided by length of time securities were in a gross unrealized loss position.

September 30, 2010

	Erie Insurance Group
	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		No. of
(dollars in millions)	value		losses		value		losses		Value		losses		holdings
Exchange
Fixed maturities:
U.S. government sponsored enterprises	$	16	$	0	$	0	$	0	$	16	$	0		2
Municipal securities		16		0		14		0		30		0		4
U.S. corporate debt — non-financial		37		0		38		3		75		3		11
U.S. corporate debt — financial		13		0		90		6		103		6		30
Foreign corporate debt — non-financial		0		0		15		0		15		0		3
Foreign corporate debt — financial		5		0		16		1		21		1		4
Structured securities:
Asset backed — other		0		0		3		0		3		0		1
Collateralized debt obligations		7		0		37		6		44		6		8
Commercial mortgage-backed		0		0		12		1		12		1		3
Residential mortgage-backed:
Non-government sponsored enterprises		0		0		8		1		8		1		2
Total fixed maturities — Exchange	$	94	$	0	$	233	$	18	$	327	$	18		68
Equity securities:
U.S. nonredeemable preferred securities:
Financial	$	27	$	0	$	25	$	2	$	52	$	2		7
Non-financial		12		0		18		1		30		1		5
Government sponsored enterprises		0		0		0		0		0		0		2
Foreign nonredeemable preferred securities:
Financial		2		0		15		1		17		1		4
Total equity securities — Exchange	$	41	$	0	$	58	$	4	$	99	$	4		18

Quality breakdown of fixed maturities at September 30, 2010

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		No. of
(dollars in millions)	value		losses		value		losses		Value		losses		holdings
Exchange
Investment grade	$	85	$	0	$	174	$	13	$	259	$	13		48
Non-investment grade		9		0		59		5		68		5		20
Total fixed maturities — Exchange	$	94	$	0	$	233	$	18	$	327	$	18		68

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. A large portion of the unrealized losses greater than 12 months are related to U.S. financial sector securities. 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.

26

Fixed maturities and equity securities in a gross unrealized loss position at December 31, 2009 are as follows for Indemnity. Data is provided by length of time securities were in a gross unrealized loss position.

December 31, 2009

	Erie Insurance Group
	Less than 12 months				12 months or longer						Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		No. of
(dollars in millions)	value		losses		value		losses		Value		losses		holdings
Indemnity
Fixed maturities:
U.S. government sponsored enterprises	$	8	$	0	$	0	$	0	$	8	$	0		2
Municipal securities		18		0		5		0		23		0		12
U.S. corporate debt – non-financial		19		0		8		1		27		1		16
U.S. corporate debt – financial		16		1		40		3		56		4		42
Foreign corporate debt – non-financial		0		0		4		0		4		0		3
Foreign corporate debt – financial		2		0		3		1		5		1		4
Structured securities:
Collateralized debt obligations		0		0		3		2		3		2		6
Commercial mortgage-backed		0		0		1		0		1		0		1
Residential mortgage-backed:
Government sponsored enterprises		6		0		0		0		6		0		2
Non-government sponsored enterprises		0		0		3		0		3		0		2
Total fixed maturities – Indemnity	$	69	$	1	$	67	$	7	$	136	$	8		90
Equity securities:
U.S. nonredeemable preferred securities:
Financial	$	5	$	0	$	5	$	1	$	10	$	1		8
Non-financial		3		0		4		0		7		0		3
Foreign nonredeemable preferred securities:
Financial		0		0		1		0		1		0		1
Total equity securities – Indemnity	$	8	$	0	$	10	$	1	$	18	$	1		12

Quality breakdown of fixed maturities at December 31, 2009

	Less than 12 months				12 months or longer						Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		No. of
(dollars in millions)	value		losses		value		losses		value		losses		holdings
Indemnity
Investment grade	$	69	$	1	$	49	$	4	$	118	$	5		71
Non-investment grade		0		0		18		3		18		3		19
Total fixed maturities – Indemnity	$	69	$	1	$	67	$	7	$	136	$	8		90

27

Fixed maturities and equity securities in a gross unrealized loss position at December 31, 2009 are as follows for the Exchange. Data is provided by length of time securities were in a gross unrealized loss position.

December 31, 2009

	Erie Insurance Group
	Less than 12 months				12 months or longer						Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		No. of
(dollars in millions)	value		losses		value		losses		Value		losses		holdings
Exchange
Fixed maturities:
U.S. government sponsored enterprises	$	50	$	0	$	0	$	0	$	50	$	0		6
Municipal securities		105		2		26		1		131		3		24
U.S. corporate debt – non-financial		128		3		129		7		257		10		56
U.S. corporate debt – financial		159		2		318		26		477		28		98
Foreign corporate debt – non-financial		12		0		36		2		48		2		9
Foreign corporate debt – financial		17		0		68		4		85		4		17
Structured securities:
Asset backed – credit cards		0		0		5		0		5		0		1
Asset backed – other		0		0		18		2		18		2		3
Collateralized debt obligations		8		1		28		15		36		16		15
Commercial mortgage-backed		1		0		34		5		35		5		6
Residential mortgage-backed:
Government sponsored enterprises		28		0		0		0		28		0		4
Non-government sponsored enterprises		0		0		45		6		45		6		9
Total fixed maturities – Exchange	$	508	$	8	$	707	$	68	$	1,215	$	76		248
Equity securities:
U.S. nonredeemable preferred securities:
Financial	$	36	$	2	$	72	$	9	$	108	$	11		20
Non-financial		14		0		43		2		57		2		10
Foreign nonredeemable preferred securities:
Financial		0		0		18		3		18		3		4
Total equity securities – Exchange	$	50	$	2	$	133	$	14	$	183	$	16		34

Quality breakdown of fixed maturities at December 31, 2009

	Less than 12 months				12 months or longer						Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		No. of
(dollars in millions)	value		losses		value		losses		value		losses		holdings
Exchange
Investment grade	$	494	$	8	$	522	$	50	$	1,016	$	58		191
Non-investment grade		14		0		185		18		199		18		57
Total fixed maturities – Exchange	$	508	$	8	$	707	$	68	$	1,215	$	76		248

28

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

	Erie Insurance Group
	Three months ended				Nine months ended
	September 30,				September 30,
(in millions)	2010		2009		2010		2009
Indemnity
Fixed maturities	$	8	$	9	$	25	$	28
Equity securities		1		1		3		4
Cash equivalents and other		1		0		1		1
Total investment income		10		10		29		33
Less: investment expenses		0		0		1		1
Investment income, net of expenses – Indemnity	$	10	$	10	$	28	$	32
Exchange
Fixed maturities	$	88	$	83	$	261	$	257
Equity securities		18		15		52		49
Cash equivalents and other		1		0		1		4
Total investment income		107		98		314		310
Less: investment expenses		7		6		20		18
Investment income, net of expenses – Exchange	$	100	$	92	$	294	$	292
Total consolidated investment income, net of expenses – Erie Insurance Group	$	110	$	102	$	322	$	324

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

Realized gains (losses) on investments were as follows:

	Erie Insurance Group
	Three months ended						Nine months ended
	September 30,						September 30,
(in millions)	2010			2009			2010			2009
Indemnity
Available-for-sale securities:
Fixed maturities
Gross realized gains	$	2		$	0		$	5		$	1
Gross realized losses		(1	)		0			(1	)		(3	)
Net realized gains (losses)		1			0			4			(2	)
Equity securities
Gross realized gains		0			3			1			6
Gross realized gains (losses)		1			(3	)		0			(6	)
Net realized gains		1			0			1			0
Trading securities:
Common stock
Gross realized gains		4			1			5			2
Gross realized losses		(1	)		0			(1	)		(3	)
Valuation adjustments		0			4			(2	)		8
Net realized gains		3			5			2			7
Net realized gains on investments – Indemnity	$	5		$	5		$	7		$	5

29

	Erie Insurance Group
	Three months ended						Nine months ended
	September 30,						September 30,
(in millions)	2010			2009			2010			2009
Exchange
Available-for-sale securities:
Fixed maturities
Gross realized gains	$	10		$	5		$	38		$	14
Gross realized losses		(4	)		(6	)		(16	)		(34	)
Net realized gains (losses)		6			(1	)		22			(20	)
Equity securities
Gross realized gains		4			17			11			30
Gross realized losses		(1	)		(10	)		(2	)		(23	)
Net realized gains		3			7			9			7
Trading securities:
Common stock
Gross realized gains		24			33			113			81
Gross realized losses		(20	)		(19	)		(50	)		(181	)
Valuation adjustments		187			226			16			412
Net realized gains		191			240			79			312
Net realized gains on investments – Exchange	$	200		$	246		$	110		$	299
Net realized gains on investments – Erie Insurance Group	$	205		$	251		$	117		$	304

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

	Erie Insurance Group
	Three months ended					Nine months ended
	September 30,					September 30,
(in millions)	2010		2009			2010			2009
Indemnity
Fixed maturities	$	0	$	(2	)	$	(1	)	$	(6	)
Equity securities		0		(1	)		0			(4	)
Total		0		(3	)		(1	)		(10	)
Portion recognized in other comprehensive income		0		0			0			0
Net impairment losses recognized in earnings – Indemnity	$	0	$	(3	)	$	(1	)	$	(10	)
Exchange
Fixed maturities	$	0	$	(11	)	$	(4	)	$	(43	)
Equity securities		0		(2	)		(1	)		(46	)
Total		0		(13	)		(5	)		(89	)
Portion recognized in other comprehensive income		0		0			0			0
Net impairment losses recognized in earnings – Exchange	$	0	$	(13	)	$	(5	)	$	(89	)
Net impairment losses recognized in earnings – Erie Insurance Group	$	0	$	(16	)	$	(6	)	$	(99	)

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. Prior to the second quarter of 2009 when new impairment guidance was issued for debt securities, the impairment policy for fixed maturities was consistent with that of equity securities.

30

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 through September 30, 2010 are comprised of general partnership financial results for the fourth quarter of 2009 and the first two quarters of 2010. Given the lag in reporting, our limited partnership results do not reflect the market conditions of the third quarter of 2010. 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, 2010 and for the year ended December 31, 2009. 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.

31

As these investments are generally reported on a one-quarter lag, our limited partnership results through September 30, 2010 include the general partnership financial results for the fourth quarter of 2009 and the first six months of 2010.

	As of and for the nine months ended September 30, 2010
					Income (loss)
					recognized
(dollars in millions)					due to valuation
Investment percentage in partnership	Number of				adjustments			Income (loss)
for Erie Insurance Group	partnerships		Asset recorded		by the partnerships			recorded
Indemnity
Private equity:
Less than 10%		26	$	77	$	7		$	2
Greater than or equal to 10% but less than 50%		3		8		1			(1	)
Greater than 50%		1		3		0			0
Total private equity		30		88		8			1
Mezzanine debt:
Less than 10%		12		33		4			1
Greater than or equal to 10% but less than 50%		3		16		2			(2	)
Greater than 50%		1		2		0			0
Total mezzanine debt		16		51		6			(1	)
Real estate:
Less than 10%		19		70		0			(2	)
Greater than or equal to 10% but less than 50%		5		15		0			(1	)
Greater than 50%		4		10		3			(3	)
Total real estate		28		95		3			(6	)
Total limited partnerships — Indemnity		74	$	234	$	17		$	(6	)
Exchange
Private equity:
Less than 10%		41	$	491	$	26		$	14
Greater than or equal to 10% but less than 50%		3		36		5			(1	)
Greater than 50%		1		6		0			0
Total private equity		45		533		31			13
Mezzanine debt:
Less than 10%		15		151		12			5
Greater than or equal to 10% but less than 50%		4		42		2			(2	)
Greater than 50%		3		30		1			1
Total mezzanine debt		22		223		15			4
Real estate:
Less than 10%		32		301		(12	)		(3	)
Greater than or equal to 10% but less than 50%		7		56		0			(3	)
Greater than 50%		4		35		13			(11	)
Total real estate		43		392		1			(17	)
Total limited partnerships — Exchange		110	$	1,148	$	47		$	0
Total limited partnerships — Erie Insurance Group			$	1,382	$	64		$	(6	)

Per the limited partner financial statements, total partnership assets were $56 billion and total partnership liabilities were $10 billion at September 30, 2010 (as recorded in the June 30, 2010 limited partnership financial statements). For the nine month period comparable to that presented in the preceding table (fourth quarter 2009 and first two quarters of 2010), total partnership valuation adjustment gains were $4 billion and total partnership net income was $449 million.

32

As these investments are generally reported on a one-quarter lag, our limited partnership results through December 31, 2009 include the general partnership results for the fourth quarter of 2008 and the first three quarters of 2009.

	As of and for the year ended December 31, 2009
					(Loss) income
					recognized
(dollars in millions)					due to valuation
Investment percentage in partnership	Number of				adjustments			(Loss) income
for Erie Insurance Group	partnerships		Asset recorded		by the partnerships			recorded
Indemnity
Private equity:
Less than 10%		26	$	76	$	(11	)	$	(1	)
Greater than or equal to 10% but less than 50%		3		6		0			0
Greater than 50%		1		3		0			0
Total private equity		30		85		(11	)		(1	)
Mezzanine debt:
Less than 10%		12		30		(4	)		(1	)
Greater than or equal to 10% but less than 50%		3		18		(2	)		2
Greater than 50%		1		3		(1	)		0
Total mezzanine debt		16		51		(7	)		1
Real estate:
Less than 10%		19		65		(31	)		1
Greater than or equal to 10% but less than 50%		5		17		(6	)		1
Greater than 50%		4		17		(21	)		(2	)
Total real estate		28		99		(58	)		0
Total limited partnerships — Indemnity		74	$	235	$	(76	)	$	0
Exchange
Private equity:
Less than 10%		41	$	466	$	(46	)	$	14
Greater than or equal to 10% but less than 50%		3		31		1			(1	)
Greater than 50%		1		6		(1	)		(1	)
Total private equity		45		503		(46	)		12
Mezzanine debt:
Less than 10%		14		138		(11	)		4
Greater than or equal to 10% but less than 50%		4		48		(4	)		9
Greater than 50%		3		30		(2	)		2
Total mezzanine debt		21		216		(17	)		15
Real estate:
Less than 10%		32		302		(164	)		(8	)
Greater than or equal to 10% but less than 50%		7		61		(40	)		(1	)
Greater than 50%		4		34		(48	)		4
Total real estate		43		397		(252	)		(5	)
Total limited partnerships — Exchange		109	$	1,116	$	(315	)	$	22
Total limited partnerships — Erie Insurance Group			$	1,351	$	(391	)	$	22

Per the limited partner financial statements, total partnership assets were $53 billion and total partnership liabilities were $11 billion at December 31, 2009 (as recorded in the September 30, 2009 limited partnership financial statements). For the twelve month period comparable to that presented in the preceding table (fourth quarter of 2008 and first three quarters of 2009), total partnership valuation adjustment losses were $8 billion and total partnership net losses were $1 billion.

See also Note 12 for investment commitments related to limited partnerships.

33

Note 8. Bank Line of Credit

As of September 30, 2010, Indemnity has available a $100 million line of credit that expires on December 31, 2011. There were no borrowings outstanding on the line of credit as of September 30, 2010. Bonds with a fair value of $128 million are pledged as collateral on the line at September 30, 2010.

As of September 30, 2010, the Exchange has available a $200 million revolving line of credit that expires on September 30, 2012. There were no borrowings outstanding on the line of credit as of September 30, 2010. Bonds with a fair value of $258 million are pledged as collateral on the line at September 30, 2010.

Securities pledged as collateral on both lines have no restrictions and are reported as available-for-sale fixed maturities in the Consolidated Statements of Financial Position as of September 30, 2010. The banks require compliance with certain covenants, which include statutory surplus and risk based capital ratios for the Exchange’s line of credit and minimum net worth and leverage ratios for Indemnity’s line of credit. We are in compliance with all covenants at September 30, 2010.

Note 9. Income Tax

Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statement or tax returns. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. At September 30, 2010, we recorded a net deferred tax liability of $92 million on our Consolidated Statements of Financial Position. Of this amount, $103 million represents a net deferred tax liability relating to the Exchange, offset by a net deferred tax asset of $11 million relating to Indemnity. Although realization of the deferred tax asset is not assured, management believes it is more likely than not that the deferred tax asset will be realized based on our assessment that the losses ultimately recognized for tax purposes will be fully utilized. As such, there was no deferred tax valuation allowance recorded at September 30, 2010. The Exchange records an actual period-to-date tax rate rather than the annual projected effective tax rate. This is primarily due to the uncertainty in making a reliable estimate of the annual projected effective tax rate due to the volatility of pre-tax income related to investment and underwriting income.

Note 10. Postretirement Benefits

The liabilities for the plans described in this note are presented in total for all employees of the Erie Insurance Group. The gross liability for the pension plans is presented in the Consolidated Statements of Financial Position as part of other liabilities. A portion of annual expenses related to the pension plans is allocated to related entities within the Erie Insurance Group.

We offer a noncontributory defined benefit pension plan that covers substantially all employees. This is the largest benefit plan we offer. We also offer an unfunded supplemental retirement plan (SERP) for certain members of executive and senior management of the Erie Insurance Group. The components of net periodic benefit cost for our pension benefits are:

	Three months ended						Nine months ended
	September 30,						September 30,
(in millions)	2010			2009			2010			2009
Service cost	$	3		$	3		$	11		$	11
Interest cost		5			5			15			15
Expected return on plan assets		(6	)		(6	)		(19	)		(18	)
Amortization of prior service cost		1			1			1			1
Amortization of actuarial loss		1			1			3			2
Net periodic benefit cost	$	4		$	4		$	11		$	11

34

Note 11. Reconciliation of Shareholders’ Equity

A reconciliation of shareholders’ equity follows for the year to date December 31, 2009 and September 30, 2010:

	Indemnity			Exchange
	shareholders’			noncontrolling		Erie Insurance
(in millions, except per share data)	interest			interest		Group
Balance at December 31, 2008	$	792		$	3,967	$	4,759
Comprehensive income:
Net income		108			338		446
Other comprehensive income, net of tax:
Unrealized gains on securities		75			518		593
Postretirement plans:
Prior service cost		0			—		0
Net actuarial gain		27			—		27
Loss due to amendments		(2	)		—		(2	)
Curtailment/settlement loss		(1	)		—		(1	)
Postretirement plans		24			—		24
Other comprehensive income, net of tax		99			518		617
Comprehensive income		207			856		1,063
Purchase of treasury stock		(3	)		—		(3	)
Conversion of Class B shares to Class A shares		0			—		0
Dividends declared:
Class A $1.83 per share		(94	)		—		(94	)
Class B $274.50 per share		0			—		0
Balance at December 31, 2009	$	902		$	4,823	$	5,725
Comprehensive income:
Net income		150			256		406
Other comprehensive income, net of tax:
Unrealized gains on securities		26			189		215
Other comprehensive income, net of tax		26			189		215
Comprehensive income		176			445		621
Purchase of treasury stock		(46	)		—		(46	)
Dividends declared:
Class A $1.44 per share		(73	)		—		(73	)
Class B $216.00 per share		(1	)		—		(1	)
Balance at September 30, 2010	$	958		$	5,268	$	6,226

35

Note 12. Commitments and Contingencies

Indemnity has contractual commitments to invest up to $60 million related to its limited partnership investments at September 30, 2010. These commitments are split between private equity securities of $27 million, real estate activities of $21 million and mezzanine debt securities of $12 million. These commitments will be funded as required by the partnership agreements.

The Exchange, including EFL, has contractual commitments to invest up to $472 million related to its limited partnership investments at September 30, 2010. These commitments are split between private equity securities of $215 million, real estate activities of $173 million and mezzanine debt securities of $84 million. These commitments will be funded as required by the partnership agreements.

We are involved in litigation arising in the ordinary course of business. In our opinion, the effects, if any, of such litigation are not expected to be material to our consolidated financial condition, operations or cash flows.

Note 13. Statutory Information

Cash and securities with a carrying value of $14 million and $13 million were deposited by the property and casualty and life entities with regulatory authorities under statutory requirements at September 30, 2010 and December 31, 2009, respectively.

36

Note 14. Indemnity Supplemental Information

	Consolidated Statement of Financial Position
	Indemnity		Exchange		Reclassifications			Erie
September 30, 2010	shareholder		noncontrolling		and			Insurance
(in millions)	interest		Interest		eliminations			Group
Assets
Investments
Available-for-sale securities, at fair value:
Fixed maturities	$	695	$	7,019	$	—		$	7,714
Equity securities		46		538		—			584
Trading securities, at fair value		26		1,985		—			2,011
Limited partnerships		234		1,148		—			1,382
Other invested assets		1		19		—			20
Total investments		1,002		10,709		—			11,711
Cash and cash equivalents		73		239		—			312
Premiums receivable from policyholders		262		997		(266	)		993
Reinsurance recoverable		2		202		—			204
Deferred income taxes		11		—		—			11
Deferred acquisition costs		57		416		—			473
Other assets		115		339		—			454
Reinsurance recoverables and receivables from Exchange and other affiliates		1,075		—		(1,075	)		—
Note receivable from EFL		25		—		(25	)		—
Equity in EFL		87		—		(87	)		—
Total assets	$	2,709	$	12,902	$	(1,453	)	$	14,158
Liabilities
Losses and loss expense reserves(1)	$	931	$	3,442	$	(760	)	$	3,613
Life policy and deposit contract reserves		—		1,600		—			1,600
Unearned premiums(1)		474		2,039		(355	)		2,158
Deferred income taxes		—		103		—			103
Other liabilities		346		363		(251	)		458
Total liabilities		1,751		7,547		(1,366	)		7,932
Shareholders’ equity and noncontrolling interest
Total Indemnity shareholders’ equity		958		—		—			958
Noncontrolling interest in consolidated entity — Exchange		—		5,355		(87	)		5,268
Total equity		958		5,355		(87	)		6,226
Total liabilities, shareholders’ equity and noncontrolling interest	$	2,709	$	12,902	$	(1,453	)	$	14,158

(1) Indemnity’s insurance related accounts in this table include its wholly-owned property and casualty insurance subsidiaries’ direct business in addition to their share of the pooling transactions, which represents 5.5% of the total Property and Casualty Group business. The Consolidated Statements of Financial Position include direct business only as the 5.5% of activity assumed in accordance with the intercompany pooling arrangement has been eliminated in the consolidated presentation.

37

	Consolidated Statement of Financial Position
	Indemnity		Exchange		Reclassifications			Erie
December 31, 2009	shareholder		noncontrolling		and			Insurance
(in millions)	interest		interest		eliminations			Group
Assets
Investments
Available-for-sale securities, at fair value:
Fixed maturities	$	664	$	6,517	$	—		$	7,181
Equity securities		38		472		—			510
Trading securities, at fair value		42		1,835		—			1,877
Limited partnerships		235		1,116		—			1,351
Other invested assets		1		20		—			21
Total investments		980		9,960		—			10,940
Cash and cash equivalents		76		158		—			234
Premiums receivable from policyholders		237		872		(203	)		906
Reinsurance recoverable		2		213		—			215
Deferred income taxes		41		75		—			116
Deferred acquisition costs		17		450		—			467
Other assets		102		308		(1	)		409
Reinsurance recoverables and receivables from Exchange and other affiliates		1,115		—		(1,115	)		—
Note receivable from EFL		25		—		(25	)		—
Equity in EFL		72		—		(72	)		—
Total assets	$	2,667	$	12,036	$	(1,416	)	$	13,287
Liabilities
Losses and loss expense reserves(1)	$	965	$	3,424	$	(791	)	$	3,598
Life policy and deposit contract reserves		—		1,540		—			1,540
Unearned premiums(1)		434		1,872		(325	)		1,981
Other liabilities		366		305		(228	)		443
Total liabilities		1,765		7,141		(1,344	)		7,562
Shareholders’ equity and noncontrolling interest
Total Indemnity shareholders’ equity		902		—		—			902
Noncontrolling interest in consolidated entity — Exchange		—		4,895		(72	)		4,823
Total equity		902		4,895		(72	)		5,725
Total liabilities, shareholders’ equity and noncontrolling interest	$	2,667	$	12,036	$	(1,416	)	$	13,287

(1) Indemnity’s insurance related accounts in this table include its wholly-owned property and casualty insurance subsidiaries’ direct business in addition to their share of the pooling transactions, which represents 5.5% of the total Property and Casualty Group business. The Consolidated Statements of Financial Position include direct business only as the 5.5% of activity assumed in accordance with the intercompany pooling arrangement has been eliminated in the consolidated presentation.

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. EFL accrued interest to Indemnity of $0.4 million in each of the third quarters ended September 30, 2010 and 2009.

38

	Income attributable to Indemnity shareholder interest
				Three months ended					Nine months ended
				September 30,					September 30,
(in millions)	Percent			2010		2009			2010			2009
Management operations
Management fee revenue, net		100.0	%	$	266	$	253		$	773		$	742
Service agreement revenue		100.0	%		9		9			26			26
Total revenue from management operations					275		262			799			768
Cost of management operations		100.0	%		217		214			626			615
Income from management operations before taxes					58		48			173			153
Property and casualty insurance operations
Premiums earned		5.5	%		55		53			161			157
Losses and loss expenses		5.5	%		38		34			118			112
Underwriting expenses		5.5	%		16		18			46			48
Income (loss) from property and casualty insurance operations before taxes					1		1			(3	)		(3	)
Life insurance operations
Total revenue		21.6	%		10		7			28			20
Total benefits and expenses		21.6	%		7		5			20			18
Income from life insurance operations before taxes					3		2			8			2
Investment operations
Investment income, net of expenses					10		10			28			32
Net realized gains on investments					5		5			7			5
Impairment losses recognized in earnings					0		(3	)		(1	)		(10	)
Equity in earnings (losses) of limited partnerships					5		(9	)		11			(64	)
Income (loss) from investment operations before taxes					20		3			45			(37	)
Income from operations before income taxes and noncontrolling interest					82		54			223			115
Provision for income taxes					28		14			73			31
Net income				$	54	$	40		$	150		$	84

Indemnity’s components of direct cash flows as presented in the Consolidated Statements of Cash Flows is as follows for the nine months ended September 30:

Direct method of cash flows

	Indemnity
(in millions)	2010			2009
Management fee received	$	713		$	690
Service agreement fee received		26			26
Premiums collected		166			162
Net investment income received		33			33
Limited partnership distributions		14			9
Decrease in reimbursements collected from affiliates		(5	)		(21	)
Commissions and bonuses paid to agents		(414	)		(420	)
Salaries and wages paid		(80	)		(80	)
Pension contribution and employee benefits paid		(29	)		(29	)
Losses paid		(99	)		(94	)
Loss expenses paid		(17	)		(16	)
Other underwriting and acquisition costs paid		(42	)		(45	)
General operating expenses paid		(87	)		(81	)
Income taxes paid		(50	)		(45	)
Net cash provided by operating activities		129			89
Net cash used in investing activities		(14	)		(42	)
Net cash used in financing activities		(118	)		(71	)
Net decrease in cash		(3	)		(24	)
Cash and cash equivalents at beginning of period		76			61
Cash and cash equivalents at end of period	$	73		$	37

39

Note 15. EFL Supplemental Information

EFL is a Pennsylvania-domiciled life insurance company operating in 10 states and the District of Columbia. Indemnity owns 21.6% of EFL’s common shares outstanding and accounts for its ownership interest using the equity method of accounting.

The following presents condensed financial information for EFL on a U.S. GAAP basis:

	Three months ended					Nine months ended
	September 30,					September 30,
(in millions)	2010		2009			2010		2009
Policy and other revenues	$	16	$	14		$	48	$	49
Net investment income		27		19			79		45
Benefits and expenses		27		25			90		86
Income before income taxes		16		8			37		8
Income tax expense (benefit)		7		(16	)		10		(18	)
Net income		9		24			27		26
Comprehensive income	$	24	$	62		$	68	$	138

EFL recorded no impairment charges in the third quarter of 2010 compared to $3 million in the third quarter of 2009. Realized gains on investments totaled $3 million in both the third quarter of 2010 and 2009. Equity in earnings of limited partnerships improved by $3 million in the third quarter of 2010 compared to the third quarter of 2009.

Net income in the third quarter of 2009 was positively impacted by the reversal of the deferred tax valuation allowance of $19 million. As a result of improved market conditions, the valuation allowance was reduced by $4 million to $0 in the first quarter of 2010 and remains at $0 at September 30, 2010.

EFL experienced unrealized gains, after tax of $13 million in the third quarter of 2010 which contributed to the change in comprehensive income. Comprehensive income for the third quarter of 2009 included unrealized gains after tax of $38 million.

For the nine months ended September 30, 2010, total investment income increased $34 million over the nine months ended September 30, 2009 primarily as a result of a $10 million increase in realized gains, a $16 million decrease in impairment losses and a $7 million decrease in equity in losses of limited partnerships.

	At September 30,		At December 31,
(in millions, except per share data)	2010		2009
Investments	$	1,823	$	1,639
Total assets		2,090		1,941
Liabilities		1,690		1,609
Accumulated other comprehensive income		57		18
Cumulative effect adjustment		—		27
Total shareholders’ equity		400		333
Book value per share	$	42.36	$	35.19

EFL shareholders’ equity increased $67 million at September 30, 2010 compared to December 31, 2009. The main factors driving this increase were $38 million in unrealized gains, net of tax and net income of $29 million.

In 2009, Indemnity made a $12 million capital contribution to EFL and the Exchange made a $43 million capital contribution to EFL to strengthen its surplus. The $55 million in capital contributions increased EFL’s investments and total shareholders’ equity. Also in 2009, a required cumulative effect adjustment reclassified previously recognized non-credit other-than-temporary impairments of $27 million out of retained earnings. Deferred taxes of $9 million related to this cumulative effect adjustment were offset by a reduction in the valuation allowance in the same amount related to previously recognized impairments.

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Note 16. Capital Stock

Stock repurchase plan

In April 2010, our Board of Directors approved a continuation of the current stock repurchase program through June 30, 2011 for a total of $100 million.

Note 17. Subsequent Events

We have evaluated for recognized and nonrecognized subsequent events through the date of financial statement issuance and have identified the following:

On November 4, 2010, Erie Indemnity Company (“Indemnity”) entered into a definitive agreement (the “Wholly Owned Subsidiaries Stock Purchase Agreement”) with Erie Insurance Exchange (“the Exchange”) for the sale of Indemnity’s wholly-owned property and casualty subsidiaries — Erie Insurance Company, Erie Insurance Company of New York and Erie Insurance Property and Casualty Company (collectively, the “Wholly Owned Subsidiaries”)—to the Exchange for an aggregate purchase price equal to the GAAP book value as of December 31, 2010, of the Wholly Owned Subsidiaries (the “Final Purchase Price of the Wholly Owned Subsidiaries”).

In addition, on November 4, 2010, Indemnity entered into a definitive agreement (the “Erie Family Life Stock Purchase Agreement”) for the sale of Indemnity’s 21.6% ownership interest in Erie Family Life Insurance Company (“EFL”) to the Exchange for a per share purchase price equal to 95% of GAAP book value per share as of March 31, 2011, (the “Final Purchase Price of the Erie Family Life Stock Purchase Agreement”).

Under the new structure, all property and casualty and life insurance operations will be owned by the Exchange, and Indemnity will continue to function as the management company. This structure removes underwriting volatility from Indemnity’s operations and allows it to better utilize capital. It also centralizes underwriting risk and its supporting capital within the Exchange, providing greater capital management flexibility to enhance service and product offerings. There is no impact to the pooling agreement between the Exchange and the Wholly Owned Subsidiaries, and there is no impact to policyholders, agents, or employees as a result of these transactions.

The sale of the Wholly Owned Subsidiaries, pending regulatory approval, is scheduled to close by December 31, 2010. On the closing date, the Exchange will pay Indemnity $293 million in cash based on an estimated purchase price (the “Estimated Purchase Price of the Wholly Owned Subsidiaries”). Within ninety (90) days following the closing date, the financials of the Wholly Owned Subsidiaries for the year ending December 31, 2010, will be finalized. In the event that the final December 31, 2010, GAAP book value is higher than the Estimated Purchase Price of the Wholly Owned Subsidiaries, the Exchange will pay Indemnity the difference; if it is lower, Indemnity will pay the Exchange the difference.

Net cash proceeds to Indemnity from the sale of the Wholly Owned Subsidiaries to the Exchange are estimated to be $290 million to $300 million.

The sale of Indemnity’s 21.6% ownership interest in EFL, pending regulatory approval, is scheduled to be completed by March 31, 2011. On the closing date, the Exchange will pay Indemnity approximately $82 million in cash based on an estimated purchase price (the “Estimated Purchase Price of Indemnity’s ownership interest in EFL”). Within ninety (90) days following the closing date, the financials of EFL as of March 31, 2011, will be finalized. In the event that the final March 31, 2011, GAAP book value per share is higher than the Estimated Purchase Price of Indemnity’s ownership interest in EFL, the Exchange will pay Indemnity 95% of the difference; if it is lower, Indemnity will pay the Exchange 95% of the difference.

Net cash proceeds to Indemnity from the sale of Indemnity’s 21.6% ownership interest in EFL are estimated to be $55 million to $60 million.

Because Indemnity and the Exchange are under common control for financial reporting purposes, any gains or losses resulting from the sale of the Wholly Owned Subsidiaries and Indemnity’s equity interest in EFL will be recorded as an adjustment directly to the equity balance of Indemnity.

Indemnity will record a deferred tax liability of approximately $17 million in the fourth quarter of 2010 related to its equity

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interest in EFL. This deferred tax charge is required due to Indemnity’s decision to sell its 21.6% ownership interest in EFL rather than receiving its share of EFL’s capital in the form of future dividends, which would have been eligible for an 80% dividend received deduction.

The agreements for each sale contain customary representations, warranties, agreements, indemnification rights and termination provisions. The completion of each transaction is subject to regulatory approvals and the satisfaction of other customary conditions, some of which are beyond our control, and no assurance can be given that such completion will occur.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On June 12, 2009, the Financial Accounting Standards Board (FASB)  updated Accounting Standards Codification (ASC) 810, Consolidation, which amended the existing guidance for determining whether an enterprise is the primary beneficiary of a variable interest entity (“VIE”). As of January 1, 2010 Erie Indemnity Company (“Indemnity”) adopted the new accounting principle on a retrospective basis since inception.

The following discussion of financial condition and results of operations highlights significant factors influencing Erie Insurance Group (“we,” “us,” “our”). This discussion should be read in conjunction with the historical financial information and the related notes thereto included in Item 1. “Financial Statements” of this Quarterly Report on Form 10-Q and with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2009 contained in our Form 8-K as filed with the Securities and Exchange Commission on May 6, 2010.

INDEX

	Page Number
Cautionary statement regarding forward-looking information	43
Recent accounting pronouncements	44
Operating review	45
Results of operations	51
Management operations	51
Property and casualty insurance operations	53
Life insurance operations	57
Investment operations	58
Financial condition	60
Investments	60
Liabilities	64
Impact of inflation	65
Liquidity and capital resources	66
Critical accounting estimates	68

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:

Statements contained herein that are not historical fact are forward-looking statements and, as such, are subject to risks and uncertainties that could cause actual events and results to differ, perhaps materially, from those discussed herein. Forward-looking statements relate to future trends, events or results and include, without limitation, statements and assumptions on which such statements are based that are related to our plans, strategies, objectives, expectations, intentions and adequacy of resources. Examples of forward-looking statements are discussions relating to premium and investment income, expenses, operating results, agency relationships, and compliance with contractual and regulatory requirements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Among the risks and uncertainties, in addition to those set forth in our filings with the Securities and Exchange Commission, that could cause actual results and future events to differ from those set forth or contemplated in the forward-looking statements include the following:

Risk factors related to Indemnity’s business:

• dependence on Indemnity’s relationship with the Exchange and the management fee under the agreement with the subscribers at the Exchange;

• dependence on the independent agency system;

• accuracy and adequacy of pricing and loss reserving methodologies;

• geographic concentration of business as a result of being a regional company;

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• ability to maintain the uninterrupted operations of our business, including our information technology system;

• quality and liquidity of our investment portfolio; and

• outcome of pending and potential litigations against us.

Risk factors related to the business of the property/casualty and life insurance industry:

• factors affecting price competition;

• government regulation of the insurance industry, including approval of rate increases and rating factors such as credit and prior experience, and required processes related to underwriting and claims handling;

• the uncertain role of the Federal Government, and the ongoing role of the States, in regulating the property/casualty or life insurance industries;

• frequency and severity of claims and trends in auto and home repair costs;

• changes in driving habits;

• weather conditions and natural disasters;

• exposure to environmental claims;

• fluctuations in interest rates;

• inflation and general business and economic conditions;

• trends in litigation;

• changes in the laws and regulations that govern the insurance industry; and

• acts of war and terrorist activities.

A forward-looking statement speaks only as of the date on which it is made and reflects Indemnity’s analysis only as of that date. Indemnity undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in assumptions, or otherwise.

RECENT ACCOUNTING PRONOUNCEMENTS

Indemnity adopted amended guidance related to the consolidation of affiliated entities that became effective January 1, 2010 as required under generally accepted accounting principles (“GAAP”). As a result of this new guidance, Indemnity is considered to have a controlling financial interest in its affiliated entity, the Erie Insurance Exchange (“Exchange”). Indemnity is named as, and serves as, the Exchange’s attorney-in-fact. Consolidation of the Exchange is required given the significance of the management fee to the Exchange and because Indemnity has the power to direct the activities of the Exchange that most significantly impact the Exchange’s economic performance. The consolidation of the Exchange resulted in no change to Indemnity’s net income or equity. The Exchange’s net income and equity is identified as the noncontrolling interest net income or equity.

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OPERATING REVIEW

Overview

Erie Insurance Group represents the consolidated results of Indemnity and the results of its VIE, the Exchange. The Erie Insurance Group operates as a property and casualty insurer through its regional insurance carriers that write a broad line of personal and commercial lines coverages. The property and casualty insurance companies include the Exchange, a consolidated affiliate and its property and casualty insurance subsidiary, Flagship City Insurance Company (“Flagship”), and Indemnity’s three wholly-owned property and casualty insurance subsidiaries, Erie Insurance Company (“EIC”), Erie Insurance Property and Casualty Company (“EPC”) and Erie Insurance Company of New York (“ENY”). These entities operate collectively as the Property and Casualty Group. The Erie Insurance Group also operates as a life insurer through its affiliate, Erie Family Life Insurance Company (“EFL”), which is owned 21.6% by Indemnity and 78.4% by the Exchange. EFL underwrites and sells nonparticipating individual and group life insurance policies and fixed annuities.

The Exchange is a reciprocal insurance exchange, which is an unincorporated association of individuals, partnerships and corporations that agree to insure one another. Each applicant for insurance to the Exchange signs a subscriber’s agreement, which contains an appointment of Indemnity as their attorney-in-fact to transact the business of the Exchange on their behalf. As attorney-in-fact, Indemnity is required to perform certain services relating to the sales, underwriting and issuance of policies on behalf of the Exchange. The Exchange is a VIE.

The Exchange’s equity, which is comprised of its retained earnings and accumulated other comprehensive income, is held for the benefit of its subscribers (policyholders) and meets the definition of a noncontrolling interest and is reflected as such in our consolidated financial statements. Indemnity shareholders benefit from their interest in Indemnity’s income and equity but not in the noncontrolling interest’s income or equity.

Generally, Indemnity shareholders’ interest in income comprises:

• a 25% management fee on all property and casualty insurance policies written, less the costs associated with the sales, underwriting and issuance of these policies,

• a 5.5% interest in the net underwriting results of the property and casualty lines operations,

• a 21.6% equity interest in the net earnings of EFL,

• net investment income and results on investments that do not belong to the Exchange or its subsidiaries, and

• other income and expenses, including income taxes, that are not the responsibility of the Exchange or its subsidiaries.

Generally, the noncontrolling interest’s income comprises:

• a 94.5% interest in the net underwriting results of the property and casualty lines operations,

• a 78.4% equity interest in the net earnings of EFL,

• net investment income and related results on investments that belong to the Exchange and its subsidiaries, and

• other income and expenses, including income taxes, that are the responsibility of the Exchange and its subsidiaries.

“Indemnity shareholder interest” refers to the interest in Indemnity owned by the Class A and Class B shareholders. Exchange refers to the noncontrolling interest held for the benefit of the subscribers (policyholders) and includes its interests in Flagship and EFL.

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The following tables represent a breakdown of the composition of the income attributable to Indemnity and the income attributable to the noncontrolling interest (Exchange) for the three and nine months ended September 30, 2010. For purposes of this discussion, EFL’s investments are included in the life insurance operations.

Results of the Erie Insurance Group’s operations by interest (Unaudited)

																	Eliminations of
	Indemnity shareholder								Noncontrolling interest								related party
	interest								(Exchange)								transactions						Erie Insurance Group
				Three months ended								Three months ended					Three months ended						Three months ended
				September 30,								September 30,					September 30,						September 30,
(in millions)	Percent			2010		2009			Percent			2010		2009			2010			2009			2010		2009
Management operations
Management fee revenue, net		100.0	%	$	266	$	253					$	—	$	—		$	(266	)	$	(253	)	$	—	$	—
Service agreement revenue		100.0	%		9		9						—		—			—			—			9		9
Total revenue from management operations					275		262						—		—			(266	)		(253	)		9		9
Cost of management operations		100.0	%		217		214						—		—			(217	)		(214	)		—		—
Income from management operations before taxes					58		48						—		—			(49	)		(39	)		9		9
Property and casualty insurance operations
Premiums earned		5.5	%		55		53			94.5	%		935		911			—			—			990		964
Losses and loss expenses		5.5	%		38		34			94.5	%		652		579			(1	)		(1	)		689		612
Underwriting expenses		5.5	%		16		18			94.5	%		272		317			(51	)		(41	)		237		294
Income from property and casualty insurance operations before taxes					1		1						11		15			52			42			64		58
Life insurance operations (1)
Total revenue		21.6	%		10		7			78.4	%		33		26			(1	)		(1	)		42		32
Total benefits and expenses		21.6	%		7		5			78.4	%		20		20			(1	)		(1	)		26		24
Income from life insurance operations before taxes					3		2						13		6			0			0			16		8
Investment operations
Investment income, net of expenses					10		10						79		73			(3	)		(3	)		86		80
Net realized gains on investments					5		5						197		244			—			—			202		249
Impairment losses recognized in earnings					0		(3	)					0		(10	)		—			—			0		(13	)
Equity in earnings (losses) of limited partnerships					5		(9	)					23		(26	)		—			—			28		(35	)
Income from investment operations before taxes					20		3						299		281			(3	)		(3	)		316		281
Income from operations before income taxes and noncontrolling interest					82		54						323		302			—			—			405		356
Provision for income taxes					28		14						102		90			—			—			130		104
Net income				$	54	$	40					$	221	$	212		$	—		$	—		$	275	$	252

(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 as part of the Exchange’s investment results.

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Results of the Erie Insurance Group’s operations by interest (Unaudited)

														��					Eliminations of
	Indemnity shareholder									Noncontrolling interest									related party
	interest									(Exchange)									transactions						Erie Insurance Group
				Nine months ended									Nine months ended						Nine months ended						Nine months ended
				September 30,									September 30,						September 30,						September 30,
(in millions)	Percent			2010			2009			Percent			2010			2009			2010			2009			2010			2009
Management operations
Management fee revenue, net		100.0	%	$	773		$	742					$	—		$	—		$	(773	)	$	(742	)	$	—		$	—
Service agreement revenue		100.0	%		26			26						—			—			—			—			26			26
Total revenue from management operations					799			768						—			—			(773	)		(742	)		26			26
Cost of management operations		100.0	%		626			615						—			—			(626	)		(615	)		—			—
Income from management operations before taxes					173			153						—			—			(147	)		(127	)		26			26
Property and casualty insurance operations
Premiums earned		5.5	%		161			157			94.5	%		2,765			2,695			—			—			2,926			2,852
Losses and loss expenses		5.5	%		118			112			94.5	%		2,027			1,921			(4	)		(4	)		2,141			2,029
Underwriting expenses		5.5	%		46			48			94.5	%		783			826			(151	)		(131	)		678			743
(Loss) Income from property and casualty insurance operations before taxes					(3	)		(3	)					(45	)		(52	)		155			135			107			80
Life insurance operations (1)
Total revenue		21.6	%		28			20			78.4	%		99			74			(2	)		(2	)		125			92
Total benefits and expenses		21.6	%		20			18			78.4	%		70			68			(2	)		(2	)		88			84
Income from life insurance operations before taxes					8			2						29			6			0			0			37			8
Investment operations
Investment income, net of expenses					28			32						232			231			(8	)		(8	)		252			255
Net realized gains on investments					7			5						99			298			—			—			106			303
Impairment losses recognized in earnings					(1	)		(10	)					(3	)		(71	)		—			—			(4	)		(81	)
Equity in earnings (losses) of limited partnerships					11			(64	)					47			(253	)		—			—			58			(317	)
Income (loss) from investment operations before taxes					45			(37	)					375			205			(8	)		(8	)		412			160
Income from operations before income taxes and noncontrolling interest					223			115						359			159			—			—			582			274
Provision for income taxes					73			31						103			(29	)		—			—			176			2
Net income				$	150		$	84					$	256		$	188		$	—		$	—		$	406		$	272

(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 as part of the Exchange’s investment results.

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Reconciliation of operating income to net income

We believe that investors’ understanding of our performance related to the Indemnity shareholder interest is enhanced by the disclosure of the following non-GAAP financial measure. Our method of calculating this measure may differ from those used by other companies and therefore comparability may be limited.

Operating income is net income excluding realized capital gains and losses, impairment losses and related federal income taxes. Our common stock portfolio is measured at fair value. As such, changes in fair value related to common stocks are reported in earnings. These unrealized gains or losses are included in the net realized gains and losses on investments in our Consolidated Statements of Operations that is used to calculate operating income. Equity in earnings or losses of EFL and equity in earnings or losses of limited partnerships are included in the calculation of operating income. Equity in earnings or losses of limited partnerships includes the respective investment’s realized capital gains and losses, as well as unrealized gains and losses.

Net income is the generally accepted accounting principle (“GAAP”) measure that is most directly comparable to operating income. We use operating income to evaluate the results of operations. It reveals trends in our management services, insurance underwriting and investment operations that may be obscured by the net effects of realized capital gains and losses including impairment losses. Realized capital gains and losses, including impairment losses, may vary significantly between periods and are generally driven by business decisions and economic developments such as capital market conditions, the timing of which is unrelated to our management services and insurance underwriting processes. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. We are aware that the price to earnings multiple commonly used by investors as a forward-looking valuation technique uses operating income as the denominator. Operating income should not be considered as a substitute for net income and does not reflect our overall profitability.

The following table reconciles operating income and net income for Indemnity shareholder interest:

	Indemnity Shareholder Interest
	Three months ended						Nine months ended
	September 30,						September 30,
	2010			2009			2010			2009
(in millions, except per share data)	(Unaudited)						(Unaudited)
Operating income attributable to Indemnity	$	51		$	38		$	146		$	87
Net realized gains and impairments on investments		5			2			6			(5	)
Income tax (expense) benefit		(2	)		0			(2	)		2
Realized gains and impairments, net of income taxes		3			2			4			(3	)
Net income attributable to Indemnity	$	54		$	40		$	150		$	84
Per Indemnity Class A common share-diluted:
Operating income attributable to Indemnity	$	0.89		$	0.66		$	2.55		$	1.52
Net realized gains and impairments on investments		0.08			0.04			0.11			(0.09	)
Income tax (expense) benefit		(0.03	)		(0.01	)		(0.04	)		0.03
Realized gains and impairments, net of income taxes		0.05			0.03			0.07			(0.06	)
Net income attributable to Indemnity	$	0.94		$	0.69		$	2.62		$	1.46

The increase in operating income was primarily the result of Indemnity’s limited partnership investments generating earnings of $5 million in the third quarter of 2010, compared to generating losses of $9 million in the third quarter of 2009. For the nine months ended September 30, 2010, limited partnership earnings totaled $11 million compared to losses of $64 million recorded for the same period in 2009.

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Operating Segments

As a result of the changes in our reporting entity at January 1, 2010 (see Note 2), our reportable segments have increased from three to four. Our reportable segments include management operations, property and casualty insurance operations, life insurance operations and investment operations. The segment information presented below includes reclassification of all comparative prior period segment information.

Management operations

Management operations generate internal fee revenue by providing services to the Exchange. Management fee revenue is based upon the management fee rate, determined by our Board of Directors, and the direct written premiums of the Property and Casualty Group.

Property and casualty insurance operations

The property and casualty insurance industry is highly cyclical, with periods of rising premium rates and shortages of underwriting capacity followed by periods of substantial price competition and excess capacity. The cyclical nature of the insurance industry has a direct impact on the direct written premiums of the Property and Casualty Group. The Property and Casualty Group’s economically sensitive lines, such as workers compensation and commercial auto, continue to experience reduced exposures and reduced average premium per policy due to continuing unfavorable economic conditions. Industry premium exposures in property and casualty lines were suppressed in 2009, with premium rates for personal lines showing signs of firming and most commercial lines reflecting rate reductions.

The property and casualty insurance business is driven by premium growth, the combined ratio and investment returns. The property and casualty operations premium growth strategy focuses on growth by expansion of existing operations including a careful agency selection process and increased market penetration in existing operating territories. Expanding the size of our existing agency force of almost 2,100 independent agencies will contribute to future growth as new agents build up their books of business with the Property and Casualty Group. We appointed 83 new agencies during the first nine months of 2010. In 2009, we appointed 120 new agencies and plan to appoint a similar number during 2010.

The property and casualty insurance operations insure standard and preferred risks while adhering to a set of consistent underwriting standards. Nearly 50% of premiums are derived from personal auto, 20% from homeowners and 30% from commercial lines. Pennsylvania, Maryland and Virginia made up 64% of the property and casualty lines insurance business based on 2009 direct written premium. As a result of the intercompany pooling arrangement, Indemnity retains a 5.5% interest in the net underwriting results of the Property and Casualty Group. The Exchange retains 94.5% of the net underwriting results of the Property and Casualty Group.

The combined ratio, expressed as a percentage, is the key measure of underwriting profitability traditionally used in the property and casualty insurance industry. It is the sum of the ratio of losses and loss expenses to premiums earned (loss ratio) plus the ratio of policy acquisition and other underwriting expenses to premiums earned (expense ratio). When the combined ratio is less than 100%, underwriting results are generally considered profitable; when the combined ratio is greater than 100%, underwriting results are generally considered unprofitable.

Factors affecting loss and loss expenses include the frequency and severity of losses, the nature and severity of catastrophic losses, the quality of risks underwritten and underlying claims and settlement expenses related to medical costs and litigation.

Investments held by the Property and Casualty Group are reported in the investment operations segment, separate from the underwriting business.

Life insurance operations

EFL generates revenues through sales of its individual and group life insurance policies and fixed individual and group annuities. These products provide our property and casualty agency force an opportunity to cross-sell both personal and commercial accounts. EFL’s profitability depends principally on the ability to develop, price and distribute insurance products, attract and retain deposit funds, generate investment returns and manage expenses. Other drivers include mortality and morbidity experience, persistency experience to enable the recovery of acquisition costs, maintaining interest spreads over the amounts credited to deposit funds and the maintenance of strong ratings from rating agencies.

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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 in the Management’s Discussion and Analysis, the life insurance operations include life insurance related investment results. However, for presentation purposes in the segment footnote, the life insurance investment results are included in the investment operations segment discussion as part of the Exchange’s investment results.

Investment operations

We generate revenues from our fixed maturity, equity security and alternative investment portfolios. The portfolios are managed with a view toward maximizing after-tax returns on a risk-adjusted basis. Management actively evaluates the portfolios for impairments. We record impairment writedowns on investments in circumstances where the fair value of the investment is substantially below cost, and we conclude that the decline in fair value is other-than-temporary.

Our investment operations reflect the improvement experienced in the financial markets. During the third quarter 2010, there were no impairments of securities compared to impairments of $16 million in the third quarter 2009.

Our alternative investments benefited from improving financial market conditions in the fourth quarter of 2009 and the first six months of 2010. In particular, the improvement in the private equity and mezzanine debt markets had a positive impact on our limited partnership portfolio. Equity in earnings of limited partnerships was $58 million through September 30, 2010 compared to losses of $324 million through September 30, 2009. The valuation adjustments in the limited partnerships are based on financial statements received from our general partners, which are generally received on a quarter lag. As a result, the third quarter partnership earnings do not reflect the valuation changes from the third quarter of 2010.

General conditions and trends affecting our business

Financial conditions

Unfavorable changes in economic conditions, including declining consumer confidence, inflation, unemployment and recession, among others, may lead the Property and Casualty Group’s customers to modify coverage, not renew policies, or even cancel policies. Our key challenge is to generate profitable revenue growth in a highly competitive market that currently continues to experience the effects of these unfavorable economic conditions.

Market volatility

Our portfolio of fixed income, preferred and common stocks and limited partnerships is subject to market volatility. Depending upon market conditions, this could cause considerable fluctuation in reported total investment income.

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RESULTS OF OPERATIONS

The information that follows is presented on a segment basis prior to eliminations.

Management operations

Management fee revenue earned by Indemnity from services provided to the Exchange is eliminated upon consolidation.

	Erie Insurance Group
	Three months ended September 30,									Nine months ended September 30,
	2010			2009			%Change			2010			2009			%Change
(in millions)	(Unaudited)									(Unaudited)
Management fee revenue	$	266		$	253			5.3	%	$	773		$	742			4.2	%
Service agreement revenue		9			9			(1.9	)		26			26			(1.7	)
Total revenue from management operations		275			262			5.1			799			768			4.0
Cost of management operations		217			214			1.1			626			615			1.7
Income from management operations —Indemnity(1)	$	58		$	48			23.0	%	$	173		$	153			13.4	%
Gross margin		21.1	%		18.1	%		3.0	pts.		21.7	%		19.9	%		1.8	pts.

(1) Indemnity retains 100% of the income from management operations.

Management fee revenue

The following table presents the direct written premium of the Property and Casualty Group and the calculation of the management fee revenue.

	Erie Insurance Group
	Three months ended September 30,									Nine months ended September 30,
	2010			2009			%Change			2010			2009			%Change
(dollars in millions)	(Unaudited)									(Unaudited)
Property and Casualty Group direct written premiums	$	1,062		$	1,009			5.2	%	$	3,098		$	2,974			4.2	%
Management fee rate		25.00	%		25.00	%					25.00	%		25.00	%
Management fee revenue, gross	$	265		$	252			5.2	%	$	774		$	743			4.2	%
Change in allowance for management fee returned on cancelled policies(1)		1			1		NM				(1	)		(1	)	NM
Management fee revenue, net of allowance	$	266		$	253			5.3	%	$	773		$	742			4.2	%

NM	= not meaningful
(1)	Management fees are returned to the Exchange when policies are cancelled mid-term and unearned premiums are refunded. We record an estimated allowance for management fees returned on mid-term policy cancellations.

Management fee revenue is based upon the management fee rate, determined by our Board of Directors, and the direct written premiums of the Property and Casualty Group. Changes in the management fee rate can affect the segment’s revenue and net income significantly. The management fee rate was set at 25%, the maximum rate, for both 2010 and 2009.

Direct written premiums of the Property and Casualty Group increased 5.2% in the third quarter of 2010, compared to the third quarter of 2009, due to a 3.4% increase in policies in force and modest increases in average premium. The year-over-year average premium per policy for all lines of business increased 0.4% at September 30, 2010, compared to a decrease of 2.2% at September 30, 2009. The policy retention ratio remained steady at 90.6% at September 30, 2010, compared to 90.6% at December 31, 2009, and 90.7% at September 30, 2009. See the “Property and casualty insurance operations” segment that follows for a complete discussion of property and casualty direct written premiums.

Service agreement revenue

Service agreement revenue includes service charges Indemnity collects from policyholders for providing extended payment terms on policies written by the Property and Casualty Group and late payment and policy reinstatement fees. The service charges are fixed dollar amounts per billed installment. Service agreement revenue totaled $9 million in both third quarters of 2010 and 2009.

51

Cost of management operations

	Erie Insurance Group
	Three months ended September 30,							Nine months ended September 30,
	2010		2009		%Change			2010		2009		%Change
(in millions)	(Unaudited)							(Unaudited)
Commissions	$	149	$	146		1.3	%	$	426	$	419		1.5	%
Non-commission expense		68		68		0.7			200		196		2.1
Total cost of management operations	$	217	$	214		1.1	%	$	626	$	615		1.7	%

Commissions— Scheduled rate commissions increased $8 million in the third quarter of 2010 and $18 million for the nine months ended September 30, 2010, compared to the same periods in 2009, impacted by the 5.2% and 4.2%, respectively, increase in direct written premiums of the Property and Casualty Group. Offsetting these increases were decreases in agent bonuses of $5 million in the third quarter of 2010 and $10 million for the nine months ended September 30, 2010, reflecting a reduction in our estimate of the profitability component of the bonus when factoring in the most recent year’s underwriting data.

Non-commission expense— Non-commission expense was flat in the third quarter of 2010 compared to the third quarter of 2009. Personnel costs, the second largest component in the cost of management operations, increased $1 million primarily due to an increase in salaries and wages as a result of higher average pay rates and staffing levels. Hardware and software costs also increased $1 million, offset by a $3 million decrease in professional fees due to the capitalization of contract labor costs, related to our technology initiatives.

For the nine months ended September 30, 2010, non-commission expense increased $4 million. Driving this increase was a $4 million increase in software costs related to various technology initiatives, a $4 million increase in personnel costs as salaries and wages were impacted by higher average pay rates and staffing levels, and a $2 million increase in survey and underwriting expense. These increases were offset by a $5 million reduction for a favorable ruling related to an outstanding judgment against us, and a $4 million decrease in professional fees primarily resulting from the capitalization of contract labor costs related to various technology initiatives.

The gross margin of 21.7% for the nine months ended September 30, 2010, was positively impacted by a $5 million reduction for a favorable court ruling. Excluding this adjustment, the gross margin would have been 21.0%, compared to 19.9% for the first nine months of 2009. The improved gross margin in the first nine months of 2010, compared to the first nine months of 2009, resulted from revenue growth slightly outpacing expense growth.

52

Property and casualty insurance operations

A summary of the results of operations of our property and casualty insurance business is as follows:

	Property and Casualty Group
	Three months ended									Nine months ended
	September 30,									September 30,
	2010			2009			%Change			2010			2009			%Change
(dollars in millions)	(Unaudited)									(Unaudited)
Direct written premium	$	1,062		$	1,009			5.2	%	$	3,098		$	2,974			4.2	%
Reinsurance — assumed and ceded		(5	)		2		NM				(11	)		4		NM
Net written premium		1,057			1,011			4.6			3,087			2,978			3.6
Change in unearned premium		67			47			44.3			161			126			28.0
Net premiums earned		990			964			2.7			2,926			2,852			2.6
Losses and loss expenses		690			613			12.4			2,145			2,033			5.5
Policy acquisition and other underwriting expenses		288			335			(13.5	)		829			874			(5.0	)
Total losses and expenses		978			948			3.3			2,974			2,907			2.3
Underwriting income (loss) — Erie Insurance Group	$	12		$	16			(31.6	)%	$	(48	)	$	(55	)		9.9	%
Underwriting income (loss) — Indemnity	$	1		$	1					$	(3	)	$	(3	)
Underwriting income (loss) — Exchange	$	11		$	15					$	(45	)	$	(52	)
Loss and loss expense ratio		69.7	%		63.7	%		6.0	pts.		73.3	%		71.3	%		2.0	pts.
Policy acquisition and other underwriting expense ratio		29.0			34.4			(5.4	)		28.4			30.6			(2.2	)
Combined ratio		98.7	%		98.1	%		0.6	pts.		101.7	%		101.9	%		(0.2	) pts.

NM = not meaningful

We measure profit or loss for our property and casualty segment based upon underwriting results, which represent net earned premium less loss and loss expenses and underwriting expenses on a pre-tax basis. Loss and combined ratios are key performance indicators that we use to assess business trends and to make comparisons to industry results. Investment results of our property and casualty insurance company subsidiaries are included in our investment operations segment.

Direct written premiums

Direct written premiums of the Property and Casualty Group increased 5.2% to nearly $1.1 billion in the third quarter of 2010, compared to the third quarter of 2009, driven by an increase in policies in force and modest increases in average premium per policy. The combined impact of these increases was seen primarily in personal lines renewal business, commercial lines new business, and commercial multi-peril renewal business.

Premiums generated from new business increased 4.3% in the third quarter of 2010, compared to 4.8% in the third quarter of 2009. Underlying the trend in new business premiums was an increase in new business policies in force of 4.4% in the third quarter of 2010, compared to 6.3% in the third quarter of 2009, while the year-over-year average premium per policy on new business increased 2.1% at September 30, 2010, compared to a decline of 1.9% at September 30, 2009.

Premiums generated from renewal business increased 5.4% in the third quarter of 2010, compared to 1.6% in the third quarter of 2009. Underlying the trend in renewal business premiums was an increase in renewal business policies in force of 3.3% in the third quarter of 2010, compared to 3.0% in the third quarter of 2009, while the year-over-year average premium per policy on renewal business increased 0.3% at September 30, 2010, compared to a decline of 2.2% at September 30, 2009. The Property and Casualty Group’s year-over-year policy retention ratio was 90.6% at September 30, 2010, compared to 90.6% at December 31, 2009, and 90.7% at September 30, 2009.

Personal lines— Total personal lines premiums written increased 5.7% to $803 million in the third quarter of 2010, compared to $759 million in the third quarter of 2009. Total personal lines policies in force increased 3.3% in the third quarter of 2010 and the total personal lines year-over-year average premium per policy increased 2.0%.

53

New business premiums written on personal lines decreased 0.6% in the third quarter of 2010, compared to an increase of 6.5% in the third quarter of 2009. Personal lines new business policies in force increased 3.2% for the twelve months ended September 30, 2010, compared to 7.9% for the same period in the prior year. The year-over-year average premium per policy on personal lines new business increased 1.7% at September 30, 2010, compared to 0.3% at September 30, 2009.

• Private passenger auto new business premiums written decreased 0.6% in the third quarter of 2010, compared to an increase of 6.9% in the third quarter of 2009. Private passenger auto new business policies in force increased 2.2% for the twelve months ended September 30, 2010, compared to 9.4% for the same period in the prior year. The new business year-over-year average premium per policy for private passenger auto increased 2.2% at September 30, 2010, compared to a decrease of 0.9% at September 30, 2009.

• Homeowners new business premiums written decreased 3.9% in the third quarter of 2010, compared to an increase of 9.0% in the third quarter of 2009. Homeowners new business policies in force increased 4.9% compared to 5.6% for the twelve months ended September 30, 2010 and 2009, respectively. The new business year-over-year average premium per policy for homeowners increased 1.5% at September 30, 2010, compared to 1.8% at September 30, 2009.

Renewal premiums written on personal lines increased 6.5% in the third quarter 2010, compared to 3.7% in the third quarter of 2009, driven by a modest increase in average premium per policy and steady policy retention ratio trends. The year-over-year average premium per policy on personal lines renewal business increased 2.0% at September 30, 2010, compared to a decline of 0.5% at September 30, 2009. The year-over-year policy retention ratio for personal lines was 91.4% at September 30, 2010, 91.5% at December 31, 2009, and 91.6% at September 30, 2009.

• Private passenger auto renewal premiums written increased 5.1% in the third quarter of 2010 compared to 2.1% in the third quarter of 2009. The year-over-year average premium per policy on private passenger auto renewal business increased 1.8% at September 30, 2010, compared to a decline of 0.9% at September 30, 2009. The private passenger auto year-over-year policy retention ratio remained steady at 91.8% at September 30, 2010, compared to 91.9% at December 31, 2009 and September 30, 2009.

• Homeowners renewal premiums written increased 9.3% in the third quarter of 2010, compared to 6.8% in the third quarter of 2009. The year-over-year average premium per policy on homeowners renewal business increased 4.1% at September 30, 2010, compared to 1.9% at September 30, 2009. The homeowners year-over-year policyholder retention ratio was 91.0% at September 30, 2010, 91.2% at December 31, 2009, and 91.4% at September 30, 2009.

Commercial lines— Total commercial lines premiums written increased 3.8% to $259 million in the third quarter of 2010, compared to $249 million in the third quarter of 2009. Total commercial lines policies in force increased 3.9% while the total commercial lines year-over-year average premium per policy decreased 3.7%.

New business premiums written on commercial lines increased 15.4% in the third quarter of 2010, compared to 1.1% in the third quarter of 2009. Commercial lines new business policies in force increased 9.9% in the third quarter of 2010, compared to a decline of 0.4% in the third quarter of 2009. The year-over-year average premium per policy on commercial lines new business was flat at September 30, 2010, compared to a decline of 2.5% at September 30, 2009.

Renewal premiums for commercial lines increased 1.9% in the third quarter of 2010 compared to a decrease of 4.5% in the third quarter of 2009, driven by improved policy retention trends and smaller decreases in average premium per policy, the combined impact of which was seen primarily in the commercial multi-peril line of business. The commercial lines year-over-year policy retention ratio improved to 85.2% at September 30, 2010, compared to 84.9% at December 31, 2009, and 84.8% at September 30, 2009. The year-over-year average premium per policy on commercial lines renewal business decreased 4.0% at September 30, 2010, compared to 6.5% at September 30, 2009, driven primarily by the workers compensation and commercial auto lines of business in both years. The workers compensation and commercial auto year-over-year average premium per policy decreases were 10.6% and 3.3%, respectively, at September 30, 2010, compared to decreases of 14.5% and 4.2%, respectively, at September 30, 2009. Contributing to the workers compensation lower average premium per policy were shifts in the mix of our book of business and lower exposures driven by reductions in payroll levels. The commercial auto average premium per policy decrease was driven by shifts in the mix of our book of business and fewer insured vehicles.

54

Future trends—premium revenue— We are continuing our efforts to grow Property and Casualty Group premiums and improve our competitive position in the marketplace. Expanding the size of the agency force will contribute to future growth as existing and new agents build up their book of business with the Property and Casualty Group. Through the first nine months of 2010, we appointed 83 new agencies, which increased our total to 2,087 agencies. We expect our pricing actions to result in a net increase in direct written premium in 2010, however, exposure reductions and changes in our mix of business could impact the average premium written by the Property and Casualty Group as customers may continue to reduce coverages.

Current year losses and loss expenses

The current accident year loss and loss expense ratio, excluding catastrophe losses, was 72.2% in the third quarter of 2010 compared to 67.6% in the third quarter of 2009.

The personal lines loss and loss expense ratio related to the current accident year, excluding catastrophe losses, was 72.6% in the third quarter of 2010 compared to 65.5% in the third quarter of 2009. Excluding catastrophe losses, the current accident year loss and loss expense ratio for personal auto increased to 73.7% in the third quarter of 2010 from 72.9% in the third quarter of 2009, while the homeowners loss and loss expense ratio increased to 71.5% from 54.2% for the same periods, respectively. The homeowners line of business experienced an increase in frequency in the third quarter of 2010 compared to the third quarter 2009.

The commercial lines loss and loss expense ratio related to the current accident year, excluding catastrophe losses, was 71.0% in the third quarter of 2010 compared to 72.7% in the third quarter of 2009. Excluding catastrophe losses, the current accident year loss and loss expense ratios for the third quarters of 2010 and 2009, respectively, were 69.9% and 95.0% for the workers compensation line of business, 72.7% and 60.6% for the commercial multi-peril line of business, and 79.3% and 70.2% for the commercial auto line of business. The workers compensation line of business was impacted by three new large workers compensation claims in the third quarter of 2009, while the commercial multi-peril line of business experienced an increase in frequency in the third quarter of 2010.

Catastrophe losses

Catastrophes are an inherent risk of the property and casualty insurance business and can have a material impact on our insurance underwriting results. In addressing this risk, we employ what we believe are reasonable underwriting standards and monitor our exposure by geographic region. The Property and Casualty Group’s definition of catastrophes includes those weather-related or other loss events which we consider significant to our geographic footprint which, individually or in the aggregate, may not reach the level of a national catastrophe as defined by the Property Claim Service (PCS). The Property and Casualty Group maintains sufficient property catastrophe reinsurance coverage from unaffiliated reinsurers and no longer participates in the voluntary assumed reinsurance business, which lowers the variability of the underwriting results of the Property and Casualty Group.

Catastrophe losses, as defined by the Property and Casualty Group, totaled $52 million in the third quarter of 2010 and $23 million in the third quarter of 2009. These catastrophe losses contributed 5.2 points and 2.4 points to the combined ratios at September 30, 2010 and 2009, respectively. Catastrophe losses in the third quarter of 2010 were the result of flooding, hail and wind storms primarily in the states of Wisconsin and Maryland. In the third quarter of 2009, catastrophe losses resulted from flooding, wind and hail storms primarily in Indiana and Wisconsin. Catastrophe losses incurred for the first nine months of 2010 and 2009 were $245 million and $111 million, respectively, and contributed 8.3 points and 3.8 points to the combined ratio, respectively.

Prior year loss development

The following table provides the details of the prior year loss reserve development:

	Erie Insurance Group
	Three months ended						Nine months ended
	September 30,						September 30,
	2010			2009			2010			2009
(in millions)	(Unaudited)						(Unaudited)
Prior year loss development:
Direct business including salvage and subrogation	$	(49	)	$	(41	)	$	(105	)	$	(6	)
Assumed reinsurance business		(26	)		(18	)		(37	)		(26	)
Ceded reinsurance business		(1	)		(1	)		(6	)		1
Total prior year loss development	$	(76	)	$	(60	)	$	(148	)	$	(31	)

Negative amounts represent a redundancy (decrease in reserves), while positive amounts represent a deficiency (increase in reserves).

55

Development of loss reserves

Direct business including salvage and subrogation —Favorable development of prior accident years, including the effects of salvage and subrogation recoveries totaled $49 million and improved the combined ratio by 4.9 points in the third quarter of 2010, compared to $41 million, or 4.2 points in the third quarter of 2009. The favorable development in the third quarter of 2010 was primarily the result of improved severity trends, of which $16 million related to the workers compensation line of business, $12 million related to the private passenger auto line of business, and $8 million related to the commercial multi-peril line of business. In the third quarter of 2009, the favorable development was primarily the result of reserve releases for one large workers compensation claim.

Favorable development of prior accident years, including the effects of salvage and subrogation recoveries, totaled $105 million during the first nine months of 2010 and improved the combined ratio by 3.6 points, compared to $6 million, or 0.2 points in the first nine months of 2009. Driving the prior accident year development through September 30, 2010 was favorable development of $34 million related to the personal auto line of business, $33 million related to the commercial multi-peril line of business, $21 million related to the workers compensation line of business, and $10 million related to the homeowners line of business. Of the $34 million of favorable development in the personal auto line of business, the majority was primarily the result of improvements in severity trends on automobile bodily injury and uninsured/underinsured motorist bodily injury, while $7 million was the result of closing two pre-1986 automobile massive injury claims. The favorable development experienced in the commercial multi-peril and workers compensation lines of business was primarily the result of improvements in severity trends, while the favorable development in the homeowners line of business was primarily the result of the settlement of one large claim. The favorable development in 2009 was primarily the result of the settlement of several massive injury workers compensation claims, offset by adverse development related to the commercial multi-peril line as a result of reserve strengthening and the outcome of certain court decisions.

Assumed reinsurance —The Property and Casualty Group’s favorable development of prior accident year loss reserves on its assumed reinsurance business totaled $26 million in the third quarter of 2010, compared to $18 million in the third quarter of 2009. For the first nine months of 2010, favorable development of prior accident year loss reserves on assumed reinsurance totaled $37 million, compared to $26 million in the first nine months of 2009. The favorable development for all periods was due to less than anticipated growth in involuntary reinsurance.

Ceded reinsurance —Favorable development of ceded reinsurance reserves was flat at $1 million in the third quarters of 2010 and 2009. During the first nine months of 2010, ceded reinsurance reserves increased $6 million, which is reflected as favorable development of reserves, compared to a reduction of $1 million during the first nine months of 2009, which is reflected as adverse development of reserves. The favorable development in 2010 was primarily the result of a $9 million increase related to the business catastrophe liability line, offset by a $4 million reduction in ceded recoveries related to the pre-1986 automobile massive injury reserves.

Policy acquisition and other underwriting expenses

Our expense ratio decreased 5.4 points in the third quarter of 2010 and 2.2 points for the nine months ended September 30, 2010, compared to the same respective periods in 2009. The management fee rate was 25% at both September 30, 2010 and 2009. The third quarter and first nine months of 2009 include a charge of $62 million related to the write-off of assumed involuntary reinsurance premium related to the North Carolina Beach and Coastal Plans deemed uncollectible as a result of state legislation, and added 6.5 points and 2.2 points to the third quarter and first nine months of 2009, respectively, policy acquisition and other underwriting expense ratios. The third quarter of 2009 also includes the reversal of a charge for the North Carolina Escrow account of $10 million, originally incurred in the first and second quarters of 2009, as the final rate was approved by North Carolina and approximated our filed rates. This reversal reduced policy acquisition and other underwriting expense ratio by 1.0 point in the third quarter of 2009.

56

Life insurance operations

EFL is a Pennsylvania-domiciled life insurance company which underwrites and sells nonparticipating individual and group life insurance policies and fixed annuities and operates in 10 states and the District of Columbia.

	Erie Family Life Insurance Company
	Three months ended September 30,								Nine months ended September 30,
	2010		2009			%Change			2010			2009			%Change
(in millions)	(Unaudited)								(Unaudited)
Individual life premiums, net of reinsurance	$	15	$	12			14.6	%	$	46		$	46			1.7	%
Group life and other premiums		1		1			(2.4	)		2			2			(5.0	)
Other revenue		0		1			4.8			0			1			(3.6	)
Total net policy revenue		16		14			13.6			48			49			1.3
Net investment income		24		22			5.5			71			70			0.9
Net realized gains on investments		3		3			24.4			11			1		NM
Impairment losses recognized in earnings		0		(3	)	NM				(2	)		(18	)		89.2
Equity in losses of limited partnerships		0		(3	)	NM				(1	)		(8	)		91.7
Total revenues		43		33			26.4			127			94			36.6
Benefits and other changes in policy reserves		21		19			8.2			67			65			3.5
Amortization of deferred policy acquisition costs		3		3			(16.7	)		12			10			20.3
Other operating expenses		3		3			(10.0	)		11			11			(2.8	)
Total benefits and expenses		27		25			2.5			90			86			4.7
Income before income taxes	$	16	$	8			97.6	%	$	37		$	8		NM
Income before taxes — Indemnity(1)	$	3	$	2					$	8		$	2
Income before taxes — Exchange	$	13	$	6					$	29		$	6

NM = not meaningful
(1)	The Exchange has a 78.4% ownership interest in EFL, with the remaining 21.6% owned by Indemnity.

Premiums

Gross policy revenues increased 3.2% to $26 million in the third quarter of 2010, compared to $25 million in the third quarter of 2009. EFL reinsures a large portion of its traditional products in order to reduce claims volatility. Our reinsurers assume 75% of the risk on new term business. Ceded reinsurance premiums were $10 million and $11 million in the third quarters of 2010 and 2009, respectively. For the first nine months of 2010 compared to the first nine months of 2009, gross policy revenues totaled $78 million and $75 million, respectively, while ceded reinsurance premiums totaled $30 million and $28 million, respectively.

Premiums received on annuity and universal life products totaled $26 million in the third quarter of 2010, compared to $49 million in the third quarter of 2009. Of this amount, annuity and universal life premiums recorded as deposits, and therefore not reflected in revenue on the Consolidated Statements of Operations, totaled $22 million and $45 million in the third quarters of 2010 and 2009, respectively. For the first nine months of 2010 compared to the first nine months of 2009, premiums received on annuity and universal life products totaled $89 million and $132 million, respectively, while annuity and universal life deposits totaled $77 million and $119 million, respectively.

Investments

Due to continued improvements in market conditions in the third quarter and first nine months of 2010, EFL experienced low levels of impairments and an increase in net realized gains on investments compared to the third quarter and first nine months of 2009. Equity in earnings of limited partnerships also reflected the improvement in market conditions, as limited partnership activity is reported on a one quarter lag. See additional discussion of investments in the “Investment Operations” segment that follows.

Benefits and expenses

The third quarter and first nine months of 2010 benefits and other changes in policy reserves were impacted by an increase in surrender and other benefits offset by decreases in interest on annuity deposits. The amortization of deferred policy acquisition costs increased during the first nine months of 2010 as a result of a significant reduction in impairments and experiencing a greater level of realized gains as compared to the first nine months of 2009.

57

Investment operations

	Erie Insurance Group
	Three months ended					Nine months ended
	September 30,					September 30,
	2010		2009			2010			2009
(in millions)	(Unaudited)					(Unaudited)
Indemnity
Net investment income	$	10	$	10		$	28		$	32
Net realized gains on investments		5		5			7			5
Net impairment losses recognized in earnings		0		(3	)		(1	)		(10	)
Equity in earnings (losses) of limited partnerships		5		(9	)		11			(64	)
Net revenue (loss) from investment operations — Indemnity	$	20	$	3		$	45		$	(37	)
Exchange
Net investment income	$	100	$	92		$	294		$	292
Net realized gains on investments		200		246			110			299
Net impairment losses recognized in earnings		0		(13	)		(5	)		(89	)
Equity in earnings (losses) of limited partnerships		23		(28	)		47			(260	)
Net revenue from investment operations — Exchange(1)	$	323	$	297		$	446		$	242

(1) The Exchange’s results for the third quarter of 2010 and 2009 include net investment revenues from EFL’s operations of $27 million and $19 million, respectively. The Exchange’s results for the first nine months of 2010 and 2009 include net investment revenues from EFL’s operations of $79 million and $45 million, respectively.

Investment income

Net investment income primarily includes interest and dividends on our fixed maturity and equity security portfolios. Net investment income was relatively flat for both Indemnity and the Exchange. Though our invested balances have increased, yields on new security purchases are down.

Realized gains and losses

Realized gains on investments were flat for Indemnity and decreased for the Exchange for the quarter ended September 30, 2010 compared to the quarter ended September 30, 2009. The Exchange’s realized gains on investments were impacted by a $39 million decline in unrealized gains on the common stock trading portfolio.

Impairment losses recognized in earnings

There were no impairments that triggered a loss for Indemnity during the third quarter of 2010, compared to losses of $3 million recorded in the third quarter of 2009. Impairment losses recognized in earnings for the Exchange decreased $13 million for the same period. Year-to-date 2010 impairment losses are down $9 million in Indemnity and $84 million in the Exchange from the prior year-to-date as a result of improved market conditions.

Equity in earnings of limited partnerships

Indemnity’s equity in earnings of limited partnerships was $11 million through September 30, 2010 compared to losses of $64 million through September 30, 2009. The Exchange’s equity in earnings of limited partnerships was $47 million through September 30, 2010 compared to losses of $260 million through September 30, 2009.

Limited partnership earnings pertain to investments in U.S. and foreign private equity, real estate and mezzanine debt partnerships. Valuation adjustments are recorded to reflect the fair value of limited partnerships. These adjustments are recorded as a component of equity in earnings of limited partnerships in the Consolidated Statements of Operations.

We experienced an increase in earnings as a result of fair value increases in our private equity and mezzanine debt limited partnerships which were offset by losses in our real estate limited partnerships. Limited partnership earnings tend to be cyclical based on market conditions, the age of the partnership and the nature of the investments. Generally, limited partnership earnings are recorded on a quarter lag from financial statements we receive from our general partners. As a consequence, earnings from limited partnerships reported at September 30, 2010 reflect investment valuation changes resulting from the financial markets and the economy in the first half of 2010 and the fourth quarter of 2009.

58

The breakdown of our net realized (losses) gains on investments is as follows:

	Erie Insurance Group
	Three months ended					Nine months ended
	September 30,					September 30,
	2010		2009			2010			2009
(in millions)	(Unaudited)					(Unaudited)
Indemnity
Securities sold:
Fixed maturities	$	1	$	0		$	4		$	(2	)
Preferred stock equity securities		1		0			1			0
Common stock equity securities		3		1			4			(1	)
Common stock valuation adjustments		0		4			(2	)		8
Total net realized gains— Indemnity	$	5	$	5		$	7		$	5
Exchange
Securities sold:
Fixed maturities	$	6	$	(1	)	$	22		$	(20	)
Preferred stock equity securities		3		7			9			7
Common stock equity securities		4		14			63			(100	)
Common stock valuation adjustments		187		226			16			412
Total net realized gains — Exchange(1)	$	200	$	246		$	110		$	299

(1) The Exchange’s net realized gains for the third quarter of 2010 and 2009 include net realized gains from EFL’s operations of $3 million for both periods. The Exchange’s results for the first nine months of 2010 and 2009 include net realized gains from EFL’s operations of $11 million and $1 million, respectively

The components of equity in earnings (losses) of limited partnerships are as follows:

	Erie Insurance Group
	Three months ended					Nine months ended
	September 30,					September 30,
	2010		2009			2010			2009
(in millions)	(Unaudited)					(Unaudited)
Indemnity
Private equity	$	1	$	2		$	9		$	(14	)
Real estate		3		(11	)		(3	)		(48	)
Mezzanine debt		1		0			5			(2	)
Total equity in earnings (losses) of limited partnerships — Indemnity	$	5	$	(9	)	$	11		$	(64	)
Exchange
Private equity	$	7	$	17		$	44		$	(48	)
Real estate		9		(51	)		(16	)		(214	)
Mezzanine debt		7		6			19			2
Total equity in earnings (losses) of limited partnerships — Exchange(1)	$	23	$	(28	)	$	47		$	(260	)

(1) The Exchange’s results for the third quarter of 2010 and 2009 include equity in losses of limited partnerships from EFL of $0 million and $3 million, respectively. The Exchange’s results for the first nine months of 2010 and 2009 include equity in losses of limited partnerships from EFL of $1 million and $8 million, respectively.

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FINANCIAL CONDITION

Investments

Our investment strategy takes a long-term perspective emphasizing investment quality, diversification and superior investment returns. Investments are managed on a total return approach that focuses on current income and capital appreciation. Our investment strategy also provides for liquidity to meet our short- and long-term commitments. Investments, along with our operating cash flow, provide the liquidity we require to meet the demands on our funds.

Distribution of investments (Unaudited)

	Erie Insurance Group
	Carrying value at					Carrying value at
	September 30,					December 31,
(in millions)	2010		%to total			2009		%to total
Indemnity
Fixed maturities	$	695		69	%	$	664		68	%
Equity securities:
Preferred stock		46		5			38		4
Common stock		26		3			42		4
Limited partnerships:
Real estate		95		9			99		10
Private equity		88		9			85		9
Mezzanine debt		51		5			51		5
Real estate mortgage loans		1		0			1		0
Total investments—Indemnity	$	1,002		100	%	$	980		100	%
Exchange
Fixed maturities	$	7,019		65	%	$	6,517		65	%
Equity securities:
Preferred stock		538		5			472		5
Common stock		1,985		19			1,835		18
Limited partnerships:
Real estate		392		3			397		4
Private equity		533		5			503		5
Mezzanine debt		223		2			216		2
Policy loans		14		1			15		1
Real estate mortgage loans		5		0			5		0
Total investments—Exchange	$	10,709		100	%	$	9,960		100	%
Total investments — Erie Insurance Group	$	11,711				$	10,940

We continually review the investment portfolio to evaluate positions that might incur other-than-temporary declines in value. For all investment holdings, general economic conditions and/or conditions specifically affecting the underlying issuer or its industry, including downgrades by the major rating agencies, are considered in evaluating impairment in value. In addition to specific factors, other factors considered in our review of investment valuation are the length of time and amount the fair value is below cost.

We individually analyze all positions with emphasis on those that have, in management’s opinion, declined significantly below costs. With the issuance of new impairment guidance for debt securities in the second quarter of 2009, we further analyze debt securities to determine if a credit-related impairment has occurred. Some of the factors considered in determining whether a debt security is credit impaired 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 debt securities, therefore the entire amount of the impairment charges were included in earnings and non-credit impairments were recorded in other comprehensive income. Prior to the second quarter of 2009, there was no differentiation between impairments related to credit loss and those related to other factors, declines in the fair value of debt securities were deemed other-than-temporary if we did not have the intent and ability to hold a security to recovery. For available-for-sale equity securities, a charge is recorded in the Consolidated Statement of Operations for positions that have

60

experienced other-than-temporary impairments due to credit quality or other factors (See “Investment Operations” section herein).

If our policy for determining the recognition of impaired positions was different, our Consolidated Results of Operations could be significantly impacted. Management believes its investment valuation philosophy and accounting practices result in appropriate and timely measurement of value and impairment recognition.

Fixed maturities

Under our investment strategy, we maintain a fixed maturities portfolio that is of high quality and well diversified within each market sector. This investment strategy also achieves a balanced maturity schedule. The fixed maturities portfolio is managed with the goal of achieving reasonable returns while limiting exposure to risk. The municipal bond portfolio accounts for $263 million, or 38%, of the total fixed maturity portfolio for Indemnity and $1.4 billion, or 21% of the fixed maturity portfolio for the Exchange at September 30, 2010. The overall credit rating of the municipal portfolio without consideration of the underlying insurance is AA-. Because of the rating downgrades of municipal bond insurers, the insurance does not improve the overall credit rating.

Fixed maturities classified as available-for-sale are carried at fair value with unrealized gains and losses, net of deferred taxes, included in shareholders’ equity. At September 30, 2010, Indemnity’s net unrealized gains on fixed maturities, net of deferred taxes, amounted to $30 million compared to net unrealized gains of $14 million at December 31, 2009. At September 30, 2010, the Exchange had net unrealized gains on fixed maturities of $368 million compared to net unrealized gains of $156 million at December 31, 2009.

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The following tables present a breakdown of the fair value of our fixed maturities portfolio by sector and rating as of September 30, 2010 for Indemnity and the Exchange, respectively:

	Erie Insurance Group
(in millions)	(Unaudited)
Indemnity									Not Investment		Fair
Industry Sector	AAA		AA		A		BBB		Grade		value
Structured securities(1)	$	20	$	3	$	0	$	3	$	7	$	33
Basic materials		0		0		0		6		1		7
Communications		0		0		10		22		0		32
Consumer		0		4		18		37		2		61
Diversified		0		0		1		0		0		1
Energy		2		1		2		25		1		31
Financial		5		24		86		45		13		173
Government-municipal		69		134		56		4		0		263
Industrial		0		0		9		16		2		27
U.S. treasury		6		0		0		0		0		6
Government sponsored entity		13		0		0		0		0		13
Technology		0		0		2		3		0		5
Utilities		0		0		5		35		3		43
Total	$	115	$	166	$	189	$	196	$	29	$	695

Exchange									Not Investment		Fair
Industry Sector	AAA		AA		A		BBB		Grade		value
Structured securities(1)	$	342	$	41	$	7	$	22	$	58	$	470
Basic materials		0		0		47		133		5		185
Communications		0		0		118		331		21		470
Consumer		0		24		189		384		65		662
Diversified		0		0		22		0		0		22
Energy		17		11		108		296		30		462
Financial		24		297		1,126		603		167		2,217
Funds		0		0		0		6		0		6
Government-municipal		392		800		229		22		2		1,445
Industrial		0		6		89		217		28		340
U.S. treasury		6		0		0		0		0		6
Government sponsored entity		59		0		2		0		0		61
Government — other countries		0		0		16		6		0		22
Technology		0		0		40		62		0		102
Utilities		0		3		77		413		56		549
Total	$	840	$	1,182	$	2,070	$	2,495	$	432	$	7,019

(1) Structured securities include asset-backed securities, collateral, lease and debt obligations, commercial mortgage-backed securities and residential mortgage-backed securities.

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Equity securities

Our equity securities consist of common stock and nonredeemable preferred stock. Investment characteristics of common stock and nonredeemable preferred stock differ substantially from one another. Our nonredeemable preferred stock portfolio provides a source of current income that is competitive with investment-grade bonds.

The following tables present an analysis of the fair value of our non-redeemable preferred and common stock securities by sector for Indemnity and Exchange, respectively.

	Indemnity
	(Unaudited)
	Fair Value at September 30,				Fair Value at December 31,
(in millions)	2010				2009
Industry sector	Preferred stock		Common stock		Preferred stock		Common stock
Basic materials	$	0	$	1	$	0	$	2
Communications		1		2		1		2
Consumer		0		13		0		15
Diversified		0		0		0		1
Energy		0		1		0		3
Financial		31		5		27		9
Funds		0		0		0		3
Industrial		2		3		2		6
Technology		3		1		3		1
Utilities		9		0		5		0
Total	$	46	$	26	$	38	$	42

	Exchange
	(Unaudited)
	Fair Value at September 30,				Fair Value at December 31,
(in millions)	2010				2009
Industry sector	Preferred stock		Common stock		Preferred stock		Common stock
Basic materials	$	0	$	81	$	0	$	95
Communications		8		174		8		170
Consumer		5		502		0		457
Diversified		0		8		0		8
Energy		0		131		0		157
Financial		397		253		348		231
Funds		0		312		0		298
Government		0		0		3		0
Industrial		6		268		5		207
Technology		15		231		12		190
Utilities		107		25		96		22
Total	$	538	$	1,985	$	472	$	1,835

Our preferred stock equity securities are classified as available-for-sale and are carried at fair value on the Consolidated Statements of Financial Position with all changes in unrealized gains and losses reflected in other comprehensive income. At September 30, 2010, the unrealized gain on preferred stock classified as available-for-sale securities, net of deferred taxes amounted to $4 million for Indemnity and $46 million for the Exchange compared to a $2 million gain for Indemnity and $31 million gain for the Exchange at December 31, 2009.

The common stock portfolio is classified as a trading portfolio and measured at fair value with all changes in unrealized gains and losses reflected in our Consolidated Statements of Operations.

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Limited partnerships

In the third quarter of 2010, investments in limited partnerships remained relatively flat from the investment levels at December 31, 2009. The changes in partnership value are a function of contributions and distributions, adjusted for fair value changes. During 2010, the limited partnership market values and partnerships earnings have been generally positive as the recent market conditions continue to show signs of improvement.

The components of limited partnership investments are as follows:

	Erie Insurance Group
	At September 30,		December 31,
(in millions)	2010		2009
Indemnity	(Unaudited)
Private equity	$	88	$	85
Real estate		95		99
Mezzanine debt		51		51
Total limited partnerships — Indemnity	$	234	$	235
Exchange
Private equity	$	533	$	503
Real estate		392		397
Mezzanine debt		223		216
Total limited partnerships — Exchange	$	1,148	$	1,116

Liabilities

Property and casualty loss reserves

Loss reserves are established to account for the estimated ultimate costs of loss and loss expenses for claims that have been reported but not yet settled and claims that have been incurred but not reported.

The factors which may potentially cause the greatest variation between current reserve estimates and the actual future paid amounts are: unforeseen changes in statutory or case law altering the amounts to be paid on existing claim obligations, new medical procedures and/or drugs with costs significantly different from those seen in the past, and claims patterns on current business that differ significantly from historical claims patterns.

Loss and loss expense reserves are presented on our Consolidated Statements of Financial Position on a gross basis. The following tables represent the direct and assumed loss and loss expense reserves by major line of business for Indemnity and Exchange, respectively. The reinsurance recoverable amount represents the related ceded amounts which results in the net liability attributable to Indemnity and Exchange, respectively.

	Erie Insurance Group
	At September 30,		At December 31,
	2010		2009
(in millions)	(Unaudited)
Indemnity
Gross reserve liability:
Personal auto	$	219	$	221
Automobile massive injury		146		147
Homeowners		19		22
Workers compensation		165		169
Workers compensation massive injury		12		12
Commercial auto		59		56
Commercial multi-peril		72		68
All other lines of business		51		57
Gross reserves		743		752
Reinsurance recoverable		1		1
Net reserve liability — Indemnity	$	742	$	751

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	Erie Insurance Group
	At September 30,		At December 31,
	2010		2009
(in millions)	(Unaudited)
Exchange
Gross reserve liability:
Personal auto	$	881	$	887
Automobile massive injury		298		316
Homeowners		239		178
Workers compensation		341		342
Workers compensation massive injury		124		132
Commercial auto		228		226
Commercial multi-peril		498		475
All other lines of business		261		290
Gross reserves		2,870		2,846
Reinsurance recoverable		188		199
Net reserve liability — Exchange	$	2,682	$	2,647

The reserves that have the greatest potential for variation are the massive injury claim reserves. The Property and Casualty Group is currently reserving for about 300 claimants requiring lifetime medical care, of which about 120 involve massive injuries. The reserve carried by the Property and Casualty Group for the massive injury claimants, which includes automobile and workers compensation massive injury reserves, totaled $406 million at September 30, 2010, which is net of $174 million of anticipated reinsurance recoverables, compared to $428 million at December 31, 2009, which was net of $179 million of anticipated reinsurance recoverables. The pre-1986 automobile massive injury and workers compensation massive injury reserves decreased at September 30, 2010 compared to December 31, 2009 primarily due to settling four claims.

The reserves above are presented on a gross basis. After the effects of the intercompany pooling transactions are considered, Indemnity retains 5.5% of the gross reserves and the Exchange retains 94.5% of the gross reserves. Indemnity’s 5.5% share of the massive injury liability reserves, net of unaffiliated reinsurance recoveries, totaled $23 million at September 30, 2010, and $24 million at December 31, 2009.

Life insurance reserves

EFL’s primary commitment is its obligation to pay future policy benefits under the terms of its life insurance and annuity contracts. To meet these future obligations, EFL establishes life insurance reserves based on the type of policy, the age, gender and risk class of the insured and the number of years the policy has been in force. EFL also establishes annuity and universal life reserves based on the amount of policyholder deposits (less applicable insurance and expense charges) plus interest earned on those deposits. Life insurance and annuity reserves are supported primarily by EFL’s long-term, fixed income investments as the underlying policy reserves are generally also of a long-term nature.

IMPACT OF INFLATION

Property and casualty insurance premiums are established before losses and loss expenses, and therefore, before the extent to which inflation may impact such costs are known. Consequently, in establishing premium rates, we attempt to anticipate the potential impact of inflation, including medical cost inflation, construction and auto repair cost inflation and tort issues. Medical costs are a broad element of inflation that impacts personal and commercial auto, general liability, workers compensation and commercial multi-peril lines of insurance written by the Property and Casualty Group.

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LIQUIDITY AND CAPITAL RESOURCES

Sources and uses of cash

Liquidity is a measure of a company’s ability to generate sufficient cash flows to meet the short- and long-term cash requirements of its business operations and growth needs. Our liquidity requirements have been met primarily by funds generated from premiums collected and income from investments. The insurance operations provide liquidity in that premiums are collected in advance of paying losses under the policies purchased with those premiums. Cash outflows for the property and casualty business are generally variable since settlement dates for liabilities for unpaid losses and the potential for large losses, whether individual or in the aggregate, cannot be predicted with absolute certainty. Accordingly, after satisfying our operating cash requirements, excess cash flows are used to build our investment portfolio in order to increase future investment income, which then may be used as a source of liquidity if cash from our insurance operations would not be sufficient to meet our obligations. Cash provided from these sources is used primarily to fund losses and policyholder benefits, fund the costs of operations including commissions, salaries and wages, pension plans, share repurchases, dividends to shareholders and the purchase and development of information technology. We expect that our operating cash needs will be met by funds generated from operations.

Continuing volatility in the financial markets presents challenges to us as we do occasionally access our investment portfolio as a source of cash. Some of our fixed income investments, despite being publicly traded, are illiquid due to current credit market conditions. Further volatility in these markets could impair our ability to sell certain of our fixed income securities or cause such securities to sell at deep discounts. Additionally, our limited partnership investments are illiquid. We believe we have sufficient liquidity to meet our needs from other sources even if market volatility persists throughout 2010.

Cash flow activities

The following table is a summary of our condensed consolidated cash flows:

	Erie Insurance Group
	Nine months ended
	September 30,
	2010			2009
(in millions)	(Unaudited)
Net cash provided by operating activities	$	465		$	713
Net cash used in investing activities		(301	)		(591	)
Net cash used in financing activities		(86	)		(44	)
Net increase in cash	$	78		$	78

The decrease in cash flows from operating activities in the first nine months of 2010 was primarily driven by the payment of federal income taxes of $105 million, compared to the recovery of federal income taxes of $161 million in the first nine months of 2009. Also reducing the cash flows from operating activities in 2010 was an increase in loss and loss expenses paid, offset somewhat by increases in premiums collected, net investment income received and limited partnership distributions.

At September 30, 2010, we recorded a net deferred tax liability of $92 million, which included capital loss carry-forwards of $12 million. There was no valuation allowance at September 30, 2010. We have the ability to carry-back capital losses of $281 million as a result of gains recognized in prior years. At September 30, 2010, the carry-back relating to the 2009 capital losses has not been received. This carry-back is estimated to be $260 million with a tax refund expected to be $91 million.

Cash flows used in investing activities decreased in the first nine months of 2010 compared to the same period in 2009. In the first nine months of 2010, we generated more proceeds from certain fixed maturities and used more cash for the purchase of other fixed maturities, while generating fewer proceeds from common stocks and using less cash for the purchase of other common stocks. At September 30, 2010, we had contractual commitments to invest up to $532 million related to our limited partnership investments to be funded as required by the partnerships’ agreements. At September 30, 2010, the total remaining commitment to fund limited partnerships that invest in private equity securities was $242 million, real estate activities was $194 million and mezzanine debt securities was $96 million.

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Cash flow activities — Indemnity

The following table summarizes Indemnity cash flows:

	Indemnity
	Nine months ended
	September 30,
	2010			2009
(in millions)	(Unaudited)
Net cash provided by operating activities	$	129		$	89
Net cash used in investing activities		(14	)		(42	)
Net cash used in financing activities		(118	)		(71	)
Net decrease in cash	$	(3	)	$	(24	)

See Indemnity’s supplemental information footnote (Note 14) for more detail on Indemnity cash flows.

Indemnity’s cash flows provided from operating activities increased to $129 million in the first nine months of 2010, compared to $89 million for the same period in 2009. Higher operating cash flows in 2010 were primarily due to an increase in management fee revenues received and a smaller decrease in reimbursements collected from affiliates as compared to 2009. Management fee revenues were higher reflecting the increase in the Property and Casualty Group’s direct written premium. Cash paid for agent commissions and bonuses decreased to $414 million in the first nine months of 2010, compared to $420 million in the first nine months of 2009, as a result of a decrease in cash paid for agent bonuses. We made a contribution to our pension plan of $13 million in the second quarter of 2010, compared to $14 million made in the third quarter of 2009. Indemnity’s policy is to contribute at least the minimum required contribution to its pension plan that is in accordance with the Pension Protection Act of 2006 and to fund the annual “normal” costs of the pension. Indemnity is generally reimbursed about 50% of the net periodic benefit cost of the pension plan from its affiliates.

At September 30, 2010, Indemnity recorded a net deferred tax asset of $11 million, which included capital loss carry-forwards of $4 million. There was no valuation allowance at September 30, 2010. Indemnity has the ability to carry back capital losses of $39 million as a result of gains recognized in prior years. At September 30, 2010, the carry-back relating to the 2009 capital losses has not been received. This carry-back is estimated to be $32 million with a tax refund expected to be $11 million. Indemnity’s capital gain and loss strategies take into consideration its ability to offset gains and losses in future periods, further capital loss carry-back opportunities to the three preceding years, and capital loss carry-forward opportunities to apply against future capital gains over the next five years.

Cash flows used in Indemnity investing activities decreased to $14 million in the first nine months of 2010 compared to $42 million for the same period in 2009. Investing activities in 2009 include a capital contribution to EFL in the amount of $12 million to support EFL’s life insurance and annuity business and to strengthen its surplus. Impacting future investing activities are limited partnership commitments, which totaled $60 million at September 30, 2010, and will be funded as required by the partnerships’ agreements.

The increase in cash used in financing activities in the third quarter of 2010 was primarily driven by increases in the cash outlay for share repurchases and dividends paid to shareholders. During the third quarter of 2010, Indemnity repurchased 551,088 shares of our Class A nonvoting common stock at a total cost of $28 million. Of this amount, 546,288 shares were repurchased in conjunction with our current stock repurchase plan for a total cost of $28 million. The remaining 4,800 shares were purchased related to the vesting of stock-based awards for executive management at a total cost of $0.2 million, or $48.75 per share. During the first nine months of 2010, 950,601 shares were repurchased under the plan at a total cost of $46 million, of which $1 million occurred the last week of September that was settled in cash in October. There were no shares repurchased in the third quarter of 2009, while 42,200 shares were repurchased at a total cost of $1 million during the first nine months of 2009. In April 2010, our Board of Directors approved a continuation of the current stock repurchase program through June 30, 2011 for a total of $100 million. Indemnity has approximately $58 million of repurchase authority remaining under this plan at September 30, 2010. Indemnity plans to continue to repurchase shares through this program as cash becomes available for this purpose. (See Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds, Issuer Purchases of Equity Securities”.) Dividends paid to shareholders totaled $74 million and $70 million for the first nine months of 2010 and 2009, respectively. Indemnity increased both its Class A and Class B shareholder quarterly dividend by 6.7% in 2010, compared to 2009. There are no regulatory restrictions on the payment of dividends to Indemnity shareholders, although there are state law restrictions on the payment of dividends from Indemnity’s property and casualty insurance subsidiaries.

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Capital outlook

If the financial market volatility continues, we have the ability to meet our future funding requirements through various alternatives available to us. Outside of our normal operating and investing cash activities, future funding requirements could be met through (1) a $200 million bank line of credit held by the Exchange, from which there were no borrowings at September 30, 2010, (2) a $100 million bank line of credit held by Indemnity, from which there were no borrowings as of September 30, 2010, and (3) our more liquid investments that can be sold, such as our common stock and cash and cash equivalents, which total approximately $2.3 billion at September 30, 2010. Indemnity has no rights to the assets or capital of the Exchange and, conversely, the Exchange has no rights to the assets or capital of Indemnity.

Additionally, Indemnity has the ability to curtail or modify discretionary cash outlays such as those related to shareholder dividends and our share repurchase activities. We believe we have the funding sources available to us to support future cash flow requirements in 2010.

The Exchange and Indemnity had no borrowings under their respective lines of credit at September 30, 2010. At September 30, 2010, bonds with fair values of $258 million and $128 million were pledged as collateral on the Exchange’s and Indemnity’s lines of credit, respectively. These securities have no restrictions. The bank requires compliance with certain covenants, which include statutory surplus and risk based capital ratios for the Exchange line of credit and minimum net worth and leverage ratios for Indemnity line of credit. The Exchange and Indemnity were in compliance with all bank covenants at September 30, 2010.

Off-Balance Sheet Arrangements

Off-balance sheet arrangements include those with unconsolidated entities that may have a material current or future effect on our financial condition or results of operations, including material variable interests in unconsolidated entities that conduct certain activities. We have no material off-balance sheet obligations or guarantees, other than the limited partnership investment commitments.

Surplus notes

The Exchange has a surplus note for $20 million with EFL that is payable on demand on or after March 31, 2025. EFL accrued interest to the Exchange on the surplus note of $0.9 million through September 30, 2010 and 2009. No other interest is charged or received on these intercompany balances due to the timely settlement terms and nature of the items.

Indemnity has a surplus note for $25 million with EFL that is payable on demand on or after December 31, 2018. EFL accrued interest to Indemnity on the surplus note of $1.3 million through September 30, 2010 and 2009. No other interest is charged or received on these intercompany balances due to the timely settlement terms and nature of the items.

Capital contribution

In June 2009, the Exchange made a $43 million capital contribution to EFL and Indemnity made a $12 million capital contribution to EFL to strengthen its surplus. This $55 million in capital contributions increased EFL’s investments and total shareholders’ equity.

CRITICAL ACCOUNTING ESTIMATES

We make estimates and assumptions that have a significant effect on the amounts and disclosures reported in the financial statements. The most significant estimates relate to the valuation of investments, reserves for property/casualty insurance unpaid losses and loss adjustment expenses, life insurance and annuity policy reserves, deferred taxes and retirement benefits. While management believes its estimates are appropriate, the ultimate amounts may differ from estimates provided. Our most critical accounting estimates are described in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2009 of our Form 8-K as filed with the Securities and Exchange Commission on May 6, 2010. See Note 6, Fair Value, for additional information on our valuation of investments.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk is primarily related to fluctuations in prices and interest rates. Quantitative and qualitative disclosures about market risk resulting from changes in prices and interest rates for the year ended December 31, 2009 are included in Item 7A. in our Form 8-K as filed with the Securities and Exchange Commission on May 6, 2010. There have been no material changes that impact our portfolio or reshape our periodic investment reviews of asset allocation during the nine months ended September 30, 2010. The information contained in the investments section of Management’s Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.

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ITEM 4. CONTROLS AND PROCEDURES

We carried out an evaluation, with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. Our management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, any change in our internal control over financial reporting and determined there has been no change in our internal control over financial reporting during the nine months ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table summarizes Indemnity’s Class A common stock repurchased each month, based upon trade date, during the quarter ended September 30, 2010:

							Approximate
							Dollar Value
					Total Number of		of Shares that
	Total Number		Average		Shares Purchased		May Yet Be
	of Shares		Price Paid		as Part of Publicly		Purchased
Period	Purchased		Per Share		Announced Plan		Under the Plan
July 1 — 31, 2010		225,496	$	47.25		220,696
August 1 — 31, 2010		189,725	$	50.77		189,725
September 1 — 30, 2010		135,867	$	55.02		135,867
Total		551,088				546,288	$	57,600,000

In April 2010, our Board of Directors approved a continuation of the current stock repurchase program, authorizing repurchases through June 30, 2011 for a total of $100 million.

In addition, the month of July 2010 includes a repurchase of 4,800 shares of our Class A nonvoting common stock for $0.2 million, or $48.75 per share, for the vesting of stock-based awards for executive management. These shares were delivered in July 2010.

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ITEM 6. EXHIBITS

Exhibit
Number	Description of Exhibit
10.1	Second Amendment to Erie Indemnity Company Annual Incentive Plan (As Amended and Restated Effective January 1, 2009) effective January 1, 2010
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Erie Indemnity Company
	(Registrant)
Date: November 4, 2010	/s/ Terrence W. Cavanaugh
	Terrence W. Cavanaugh, President & CEO
	/s/ Marcia A. Dall
	Marcia A. Dall, Executive Vice President & CFO

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