Erie Indemnity (ERIE) 8-K Erie Indemnity Reports Second Quarter 2005 Results

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

	Three		Three		Six		Six
	months		months		months		months
	ended		ended		ended		ended
	June 30		June 30		June 30		June 30
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
	2005		2004		2005		2004
OPERATING REVENUE:
Management fee revenue-net	$	240,390	$	242,037	$	458,126	$	451,702
Premiums earned		54,166		51,065		107,814		101,714
Service agreement revenue		5,359		5,224		10,146		10,823
Total operating revenue		299,915		298,326		576,086		564,239
OPERATING EXPENSES:
Cost of management operations		187,232		182,120		355,172		343,941
Losses and loss adjustment expenses incurred		33,785		40,002		66,462		78,040
Policy acquisition and other underwriting expenses		12,356		12,434		24,200		23,752
Total operating expenses		233,373		234,556		445,834		445,733
Investment income — Unaffiliated
Investment income, net of expenses		15,934		15,605		30,402		30,291
Net realized gains on investments		9,196		3,030		14,693		5,883
Equity in earnings of limited
partnerships		20,645		1,465		22,756		1,883
Total investment income — unaffiliated		45,775		20,100		67,851		38,057
Income before income taxes and equity in earnings of Erie Family
Life Insurance Company		112,317		83,870		198,103		156,563
Provision for income taxes		37,581		28,289		66,310		52,724
Equity in earnings of Erie Family Life Insurance Company, net of tax		1,432		1,374		2,146		2,688
Net income	$	76,168	$	56,955	$	133,939	$	106,527
Net income per share — basic
Class A common stock	$	1.21	$	0.89	$	2.12	$	1.66
Class B common stock	$	183.89	$	135.81	$	322.67	$	253.68
Net income per share — diluted	$	1.10	$	0.81	$	1.92	$	1.50
Weighted average shares outstanding
Basic:
Class A common stock		62,618,604		63,715,921		62,771,739		63,877,980
Class B common stock		2,843		2,878		2,847		2,878
Diluted shares		69,525,438		70,697,736		69,688,173		70,859,795
Dividends declared per share
Class A non-voting common	$	0.325	$	0.215	$	0.650	$	0.430
Class B common	$	48.75	$	32.25	$	97.50	$	64.50

1

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS — SEGMENT BASIS

(Amounts in thousands, except per share data)

	Three		Three			Six		Six
	months		months			months		months
	ended June 30		ended June 30			ended June 30		ended June 30
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
	2005		2004			2005		2004
MANAGEMENT OPERATIONS
Management fee revenue	$	254,381	$	256,124		$	484,790	$	477,991
Service agreement revenue		5,359		5,224			10,146		10,823
Total revenue from management operations		259,740		261,348			494,936		488,814
Cost of management operations		198,129		192,719			375,844		363,958
Income from management operations		61,611		68,629			119,092		124,856
INSURANCE UNDERWRITING OPERATIONS
Premiums earned		54,166		51,065			107,814		101,714
Losses and loss adjustment expenses incurred		33,786		40,002			66,462		78,040
Policy acquisition and other underwriting expenses		15,450		15,922			30,192		30,024
Total losses and expenses		49,236		55,924			96,654		108,064
Underwriting gain (loss)		4,930		(4,859	)		11,160		(6,350	)
INVESTMENT OPERATIONS
Net investment income		15,934		15,605			30,402		30,291
Net realized gains on investments		9,196		3,030			14,693		5,883
Equity in earnings of limited
partnerships		20,645		1,465			22,756		1,883
Equity in earnings of Erie Family Life Insurance Company		1,541		1,477			2,308		2,891
Net revenue from investment operations		47,316		21,577			70,159		40,948
Income before income taxes		113,857		85,347			200,411		159,454
Provision for income taxes		37,689		28,392			66,472		52,927
Net income	$	76,168	$	56,955		$	133,939	$	106,527
Net income per share – Class A basic	$	1.21	$	0.89		$	2.12	$	1.66
Net income per share – Class B basic	$	183.89	$	135.81		$	322.67	$	253.68
Net income per share — diluted	$	1.10	$	0.81		$	1.92	$	1.50
WEIGHTED AVERAGE SHARES OUTSTANDING — DILUTED		69,525		70,698			69,688		70,860

Amounts presented on a segment basis are presented gross of intercompany/intersegment items

2

ERIE INDEMNITY COMPANY

RECONCILIATION OF OPERATING INCOME TO NET INCOME

(Amounts in thousands, except per share data)

Definition on Non-GAAP and Operating Measures

Management believes that investors’ understanding of the Company’s performance is enhanced by the disclosure of the following non-GAAP financial measure. The Company’s method of calculating this measure may differ from those used by other companies and therefore comparability may be limited.

Operating incomeis net income excluding realized capital gains and losses and related federal income taxes. Equity in earnings or losses of Erie Family Life Insurance Company and equity in earnings or losses of limited partnerships are not excluded from the calculation of operating income. Both of these categories include the respective investment’s realized capital gains and losses, as well as unrealized gains and losses, as these investments are accounted for under the equity method.

Net income is the GAAP measure that is most directly comparable to operating income.

The Company uses operating income to evaluate the results of operations. It reveals trends in the Company’s management services, insurance underwriting and investment operations that may be obscured by the net effects of realized capital gains and losses. Realized capital gains and losses may vary significantly between periods and are generally driven by business decisions and economic developments such as capital market condition, the timing of which is unrelated to management services and the insurance underwriting processes of the Company. The Company believes it is useful for investors to evaluate these components separately and in the aggregate when reviewing the Company’s performance. The Company is 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 the overall profitability of the Company’s business.

The following table reconciles operating income and net income for the periods ended June 30, 2005 and 2004:

	Three months			Three months ended			Six months ended			Six months ended
	ended June 30			June 30			June 30			June 30
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
	2005			2004			2005			2004
(in thousands)
Operating income	$	70,191		$	54,985		$	124,389		$	102,703
Net realized gains on investments		9,196			3,030			14,693			5,883
Income tax expense on realized gains		(3,219	)		(1,060	)		(5,143	)		(2,059	)
Realized gains, net of income tax expense		5,977			1,970			9,550			3,824
Net income	$	76,168		$	56,955		$	133,939		$	106,527
	Three months			Three months			Six months			Six months
	ended June 30			ended June 30			ended June 30			ended June 30
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
		2005			2004			2005			2004
Per Share Information – Diluted
Operating income	$	1.01		$	0.78		$	1.79		$	1.45
Net realized gains on investments		0.13			0.04			0.21			0.08
Income tax expense on realized gains		(0.04	)		(0.01	)		(0.08	)		(0.03	)
Realized gains, net of income tax expense		0.09			0.03			0.13			0.05
Net income	$	1.10		$	0.81		$	1.92		$	1.50

3

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Amounts in thousands, except per share data)

	June 30		December 31
	2005		2004
	(Unaudited)
ASSETS
Investments
Fixed maturities	$	987,637	$	974,512
Equity securities
Preferred stock		159,022		143,851
Common stock		73,678		58,843
Other invested assets		141,329		135,508
Total investments		1,361,666		1,312,714
Cash and cash equivalents		33,271		50,061
Equity in Erie Family Life Insurance Company		60,149		58,728
Premiums receivable from policyholders		286,820		275,721
Receivables from affiliates		1,159,214		1,145,238
Other assets		174,488		137,282
Total assets	$	3,075,608	$	2,979,744
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Unpaid losses and loss adjustment expenses	$	955,487	$	943,034
Unearned premiums		478,643		472,553
Other liabilities		330,342		297,276
Total liabilities		1,764,472		1,712,863
Total shareholders’ equity		1,311,136		1,266,881
Total liabilities and shareholders’ equity	$	3,075,608	$	2,979,744
Book value per share	$	18.91	$	18.14
Shares outstanding		69,343		69,852

4

Selected financial data of Erie Insurance Exchange:

The selected financial data below is derived from the Erie Insurance Exchange’s financial statements prepared in accordance with Statutory Accounting Principles. In the opinion of management, all adjustments consisting only of normal recurring accruals, considered necessary for a fair presentation have been included. The financial data set forth below is only a summary.

	Three months		Three months ended		Six months ended		Six months ended
	ended June 30		June 30		June 30		June 30
	2005		2004		2005		2004
(In thousands) (Unaudited)
Statutory Accounting Basis
Premiums earned	$	957,895	$	914,360	$	1,890,689	$	1,804,603
Losses and loss adjustment expenses		580,315		600,610		1,134,309		1,257,382
Insurance underwriting and other expenses		276,248		274,128		529,875		519,100
Net underwriting gain		101,332		39,622		226,505		28,121
Net investment income		100,883		68,765		180,518		131,494
Net realized gains		294,706		14,023		371,305		31,179
Federal income tax expense		163,957		38,180		252,155		56,200
Net income	$	332,964	$	84,230	$	526,173	$	134,594

(In thousands)
	As of		As of
	June 30		Dec. 31
	2005		2004
Statutory Accounting Basis
	(Unaudited)
Cash and invested assets	$	7,630,388	$	7,199,447
Other assets		1,156,884		1,070,315
Total assets	$	8,787,272	$	8,269,762
Claims and unearned premium reserves	$	5,019,911	$	4,973,136
Other liabilities		679,565		492,568
Total liabilities		5,699,476		5,465,704
Policyholders’ surplus		3,087,796		2,804,058
Total liabilities and policyholders’ surplus	$	8,787,272	$	8,269,762

5

ERIE INDEMNITY COMPANY
RECONCILIATION OF PROPERTY AND CASUALTY GROUP TO INDEMNITY RESULTS

	Three months			Three months ended			Six months ended			Six months ended
	ended June 30			June 30			June 30			June 30
	2005			2004			2005			2004
(Dollars in thousands)
(Unaudited)
Underwriting results of the Property and Casualty Group-(SAP Basis)
Direct underwriting results
Direct written premium	$	1,066,447		$	1,077,975		$	2,038,273		$	2,038,685
Premiums earned		1,012,644			974,864			2,033,927			1,902,359
Loss and loss adjustment expenses incurred		604,506			638,540			1,178,558			1,306,179
Policy acquisition and other underwriting expenses		293,506			293,627			564,119			552,318
Direct underwriting income		114,632			42,697			261,250			43,862
Nonaffiliated reinsurance underwriting results-net
Assumed voluntary-less ceded retrocessions		5,518			2,410			1,899			3,845
Assumed involuntary		(5,383	)		(1,204	)		(13,172	)		(8,868	)
Ceded reinsurance		8,177			8,184			12,024			16,363
Nonaffiliated reinsurance underwriting loss		(8,042	)		(6,978	)		(23,297	)		(21,386	)
Net Underwriting Income (SAP Basis)	$	106,590		$	35,719		$	237,953		$	22,476
Erie Indemnity Insurance Underwriting Operations (SAP to GAAP Basis)
Percent of pool assumed by the Indemnity Company		5.50	%		5.50	%		5.50	%		5.50	%
Indemnity preliminary underwriting income (loss)	$	5,862		$	1,965		$	13,088		$	1,236
Excess-of-loss premiums ceded to the Exchange		(844	)		(842	)		(1,687	)		(1,684	)
Excess-of-loss changes to recoveries under the agreement		166			(4,929	)		(173	)		(4,929	)
SAP to GAAP adjustments		(254	)		(1,053	)		(68	)		(973	)
Indemnity Underwriting Income (Loss) — (GAAP Basis)	$	4,930		$	(4,859	)	$	11,160		$	(6,350	)
Net Property & Casualty Group (SAP Basis)
Loss and LAE Ratio		60.6			66.3			60.1			70.0
Underwriting ratio		26.9			26.4			26.7			26.2
Policyholder Dividends ratio		0.4			0.5			0.6			0.5
Statutory combined ratio		87.9			93.2			87.4			96.7
Adjusted combined ratio, excluding profit component		82.7			87.3			82.1			91.1
Loss ratio points from prior accident year reserve development-(redundancy) deficiency		(3.1	)		(1.9	)		(4.0	)		(2.6	)
Loss ration points from salvage and subrogation recoveries            collected		(1.4	)		(1.4	)		(2.2	)		(2.2	)
Total loss ratio point impact from accident years		(4.5	)		(3.3	)		(6.2	)		(4.8	)
Loss ratio points from catastrophes		0.4			2.2			0.5			1.5
Erie Indemnity Company
GAAP combined ratio		90.9			109.5			89.7			106.2
GAAP loss ratio points from catastrophes		0.4			2.3			0.5			1.5

SAP Basis represents statutory accounting principles as codified by the National Association of Insurance Commissioners (NAIC)

6Management fee revenue by line of business-Segment basis:

	Three months		Three months ended					Six months ended		Six months ended
	ended June 30		June 30		%			June 30		June 30			%
	2005		2004		Change			2005		2004			Change
(in thousands)
Private passenger auto	$	120,285	$	122,938		-2.2		$	233,143	$	235,948			-1.2
Commercial auto		21,808		21,407		1.9			42,319		41,369			2.3
Homeowners		48,621		48,317		0.6			84,718		82,653			2.5
Commercial multi-peril		29,309		28,556		2.6			56,932		55,110			3.3
Workers’ compensation		22,015		21,243		3.6			46,008		43,828			5.0
All other lines of business		11,243		10,863		3.5			20,970		20,183			3.9
		253,281		253,324		0.0			484,090		479,091			1.0
Change in allowance for management fee returned on cancelled policies		1,100		2,800					700		(1,100	)
Management fee revenue, after changes in allowance	$	254,381	$	256,124		-0.7	%	$	484,790	$	477,991			1.4	%

7

Growth rates of policies in force for Property and Casualty Group insurance operations:

	Private		12-mth.					12-mth.		All other		12-mth.		Total		12-mth.
	passenger		growth					growth		personal lines		growth		Personal		growth
Date	auto		rate			Homeowners		rate		of business		rate		lines		rate
06/30/03		1,650,225		9.1			1,293,575		12.8		264,423		14.0		3,208,223		11.0
09/30/03		1,666,285		7.2			1,316,775		10.6		269,640		12.2		3,252,700		9.0
12/31/03		1,672,621		5.1			1,327,842		7.9		272,547		9.2		3,273,010		6.6
03/31/04		1,678,496		3.4			1,335,763		5.8		275,970		7.2		3,290,229		4.7
06/30/04		1,686,524		2.2			1,347,409		4.2		278,547		5.3		3,312,480		3.3
09/30/04		1,682,561		1.0			1,350,899		2.6		278,707		3.4		3,312,167		1.9
12/31/04		1,670,804		(0.1	)		1,347,671		1.5		278,974		2.4		3,297,449		0.8
03/31/05		1,661,955		(1.0	)		1,343,803		0.6		279,927		1.4		3,285,685		(0.1	)
06/30/05		1,658,278		(1.7	)		1,350,491		0.2		282,670		1.5		3,291,439		(0.6	)

Growth rates of policies in force for Property and Casualty Group insurance operations:

			12-mth.		CML*		12-mth.				12-mth.			All other		12-mth.		Total		12-mth.
	CML*		growth		multi-		growth		Workers'		growth			CML* lines		growth		CML*		growth
Date	auto		rate		peril		rate		comp.		rate			of business		rate		lines		rate
06/30/03		112,911		10.2		201,614		12.2		61,932		11.4			83,826		10.5		460,283		11.3
09/30/03		114,339		8.5		205,127		10.5		62,396		8.8			85,789		9.8		467,651		9.7
12/31/03		115,171		6.6		206,533		8.3		62,282		5.7			86,409		8.3		470,395		7.5
03/31/04		115,760		5.3		206,937		6.2		61,378		2.1			86,344		6.1		470,419		5.4
06/30/04		117,060		3.7		209,795		4.1		60,735		(1.9	)		87,172		4.0		474,762		3.1
09/30/04		117,090		2.4		210,012		2.4		59,863		(4.1	)		87,921		2.5		474,886		1.5
12/31/04		117,287		1.8		209,623		1.5		58,931		(5.4	)		87,815		1.6		473,656		0.7
03/31/05		117,382		1.4		209,619		1.3		57,949		(5.6	)		87,877		1.8		472,827		0.5
06/30/05		118,445		1.2		212,100		1.1		57,368		(5.5	)		88,981		2.1		476,924		0.5

Growth rates of policies in force for Property and Casualty Group insurance operations:

			12-mth.
	Total all		growth
Date	lines		rate
06/30/03		3,668,506		11.0
09/30/03		3,720,351		9.0
12/31/03		3,743,405		6.7
03/31/04		3,760,648		4.7
06/30/04		3,787,242		3.2
09/30/04		3,787,053		1.8
12/31/04		3,771,105		0.7
03/31/05		3,758,512		(0.1	)
06/30/05		3,768,363		(0.5	)

*CML = Commercial

8

Policy retention trends for Property and Casualty Group insurance operations:

	Private						CML*				All other
	passenger		CML*				multi-		Workers'		lines of
Date	auto		auto		Homeowners		peril		comp.		business		Total
06/30/03		92.2		91.1		90.5		88.4		89.4		88.4		91.0
09/30/03		91.9		90.4		90.1		88.0		88.9		88.4		90.6
12/31/03		91.6		89.8		89.5		87.5		88.1		88.2		90.2
03/31/04		91.2		89.7		89.0		87.6		88.1		87.5		89.8
06/30/04		90.7		89.0		88.4		86.7		86.7		86.8		89.2
09/30/04		90.3		88.5		87.9		86.0		86.2		86.0		88.7
12/31/04		90.0		88.3		87.6		85.3		85.8		85.8		88.4
03/31/05		89.9		88.2		87.6		85.5		85.9		85.5		88.3
06/30/05		89.8		87.8		87.8		85.0		85.8		85.5		88.3

*CML = Commercial

9

ERIE INDEMNITY COMPANY

PROPERTY & CASUALTY GROUP ADJUSTED COMBINED RATIO BY
MAJOR LINES OF BUSINESS (SAP BASIS) – DIRECT BUSINESS

	Three months			Three months ended			Six months ended			Six months ended
	ended			June 30			June 30			June 30
	June 30			2004			2005			2004
		2005			—			—			—
Private passenger auto		90.2	%		91.4	%		89.5	%		95.0	%
Home protector		68.3	%		77.2	%		67.8	%		79.1	%
Other personal lines		51.0	%		67.8	%		62.2	%		74.2	%
Total personal		83.1	%		87.1	%		82.8	%		90.5	%
Commercial multi-peril		73.9	%		82.7	%		66.8	%		87.9	%
Commercial auto		80.6	%		91.5	%		80.4	%		86.8	%
Workers’ compensation		98.6	%		109.0	%		90.6	%		105.2	%
Other commercial lines		45.6	%		49.3	%		57.3	%		68.3	%
Total commercial		81.3	%		91.0	%		76.9	%		91.6	%
Grand total-direct business only		82.6	%		88.3	%		81.1	%		90.8	%

10