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Erie Indemnity Reports Third Quarter 2009 Results

ERIE, Pa., Oct. 29 /PRNewswire-FirstCall/ --

3Q 2009 Highlights

  • Net income per share-diluted was $0.69 per share in the third quarter 2009 compared to $0.07 per share in the third quarter of 2008.
    • Impairment losses were $0.04 per share, after tax, for the third quarter of 2009 compared to $0.42 per share, after tax, from the third quarter 2008.
  • Net operating income per share (excluding net realized gains or losses and impairments on investments and related taxes) increased to $0.66 per share in the third quarter of 2009 from $0.54 per share for the same period one year ago.
    • Equity in earnings of EFL was $0.09 per share, after tax, for the third quarter of 2009 compared to losses of $0.16 per share, after tax, from the third quarter 2008.
    • Losses from limited partnership investments were $0.10 per share, after tax, for the third quarter of 2009 compared to earnings of $0.01 per share, after tax, from the third quarter 2008.
  • Gross margins from management operations decreased to 18.1 percent in the third quarter of 2009 compared to 19.3 percent in the third quarter of 2008.
  • GAAP combined ratios of the insurance underwriting operations decreased to 98.1 percent in the third quarter of 2009 from 99.4 percent in the third quarter of 2008.
  • Revenue from investment operations totaled $8.3 million for the third quarter of 2009, compared to losses of $40.2 million for the third quarter of 2008.

Erie Indemnity Company (Nasdaq: ERIE) announced today third quarter 2009 earnings of $39.7 million, or $0.69 per diluted share, compared to $4.2 million, or $0.07 per diluted share, from the third quarter of 2008. Operating income (excluding net realized gains or losses and impairments on investments and related taxes) increased to $38.2 million, or $0.66 per share, in the third quarter of 2009 from $31.1 million, or $0.54 per share, for the same period one year ago.

Details of Third Quarter 2009 Segment Results:

                                                  Segment Results
                                                  ---------------
    (in millions)                              3Q'09          3Q'08
                                               -----          -----

    Management Operations                      $47.2         $49.4
    Insurance Underwriting
     Operations                                  1.0           0.3
    Investment Operations                        8.3         (40.2)
                                                 ---        ------
           Income before income taxes          $56.5          $9.5
    Provision for income taxes                  16.8           5.3
                                                ----           ---
           Net Income                          $39.7          $4.2
                                               -----          ----

Management operations

Pre-tax income from management operations decreased to $47.2 million in the third quarter of 2009 from $49.4 million in the third quarter of 2008.

Gross margins from management operations decreased to 18.1 percent in the third quarter of 2009 compared to 19.3 percent in the third quarter of 2008. Management fee revenue increased 2.0 percent for the quarter ended September 30, 2009. Direct written premiums of the Property and Casualty Group, upon which the management fee is calculated, increased 2.0 percent in the third quarter of 2009, compared to the third quarter of 2008, reflecting an increase in policies in force offset by decreasing average premium per policy.

Policies in force grew 3.4 percent to over 4.1 million at September 30, 2009. Growth in policies in force is the result of continuing improvements in policyholder retention and increases in new policies sold. The policyholder retention ratio increased to 90.7 percent at September 30, 2009, compared to 90.6 percent at December 31, 2008, and 90.5 percent at September 30, 2008. The year-over-year average premium per policy decreased 2.2 percent to $932 at September 30, 2009 compared to $953 at September 30, 2008. This decrease was driven by market conditions causing shifts to lower exposure coverages and higher deductibles.

The cost of management operations increased 3.6 percent to $214.2 million in the third quarter of 2009 from $206.7 million for the same period in 2008. Commission costs, the largest component of the cost of management operations, increased to $146.6 million, or 2.3 percent, in the third quarter 2009 from $143.3 million in the third quarter of 2008. Third quarter cost of management operations, excluding commission costs, increased 6.8 percent to $67.6 million from $63.3 million primarily driven by contract labor costs related to various technology initiatives.

Insurance underwriting operations

Insurance underwriting operations generated income before income tax of $1.0 million in the third quarter of 2009 compared to $0.3 million for the same period in 2008. GAAP combined ratios of the insurance underwriting operations decreased to 98.1 percent in the third quarter of 2009 from 99.4 percent in the third quarter of 2008.

  • The loss and loss adjustment expense ratio related to the current accident year, excluding catastrophe losses, was 65.6% in the third quarter of 2009, which was 1.8 points higher than the third quarter of 2008.
  • Development of prior accident year direct loss reserves improved the combined ratio by 4.3 points, or $2.3 million, in the third quarter of 2009 compared to 0.4 points for the third quarter of 2008.
  • Catastrophe losses contributed 2.4 points and 8.1 points to the GAAP combined ratio in the third quarters of 2009 and 2008, respectively.
  • Our GAAP combined ratio was also impacted 5.2 points, or $2.8 million, as a result of the write-off of assumed involuntary reinsurance premium related to the North Carolina Beach and Coastal Plans deemed uncollectible as a result of recent state legislation.

Investment operations

Investment operations generated income before income tax of $8.3 million for the third quarter of 2009, compared to losses before income tax of $40.2 million for the third quarter of 2008.

  • Net investment income, which includes primarily interest and dividends on the Company's bonds and stocks, decreased by 7.4 percent to $9.5 million for the quarter ended September 30, 2009, from $10.2 million for the same period in 2008. This decrease was driven by lower preferred stock dividends.
  • Net realized gains on investments totaled $5.5 million compared to losses of $3.9 million in the third quarters of 2009 and 2008, respectively, as a result of market valuation adjustments on our common stock trading portfolio. Unrealized gains of $4.5 million were recorded on common stock in the third quarter of 2009 versus unrealized losses of $3.4 million in the third quarter of 2008.
  • Net impairment losses recognized in earnings totaled $3.2 million in the third quarter of 2009 compared to $37.4 million in the third quarters of 2008.
  • Equity in losses of limited partnerships totaled $8.8 million in the third quarter of 2009 compared to earnings of $1.1 million in the third quarter of 2008.
  • Equity in earnings of Erie Family Life Insurance Company was $5.4 million in the third quarter of 2009, compared to losses of $10.1 million in the third quarter of 2008, primarily due to lower impairment charges recognized on investments in the third quarter of 2009.

Nine Month 2009 Summary

Erie Indemnity net income totaled $83.5 million, or $1.46 per share-diluted, for the first nine months of 2009 compared to $75.5 million, or $1.30 per share-diluted, for the nine months ending September 30, 2008.

According to A.M. Best Company, Erie Insurance Group, based in Erie, Pennsylvania, is the 14(th) largest automobile insurer in the United States based on direct premiums written and the 18(th) largest property/casualty insurer in the United States based on total lines net premium written. The Group, rated A+ (Superior) by A.M. Best Company, has over 4.1 million policies in force and operates in 11 states and the District of Columbia.

Erie Insurance earned J.D. Power and Associates' award for "Highest in Customer Satisfaction with the Auto Insurance Shopping Experience." This recognition is based on the results of the 2009 Insurance Shopping Study, which evaluates the experience of customers purchasing a new auto insurance policy. Erie Insurance has also been recognized on the list of Ward's 50 Group of top performing insurance companies The Ward's 50 award analyzes the financial performance of 3,000 property and casualty companies and 800 life-health insurance companies and recognizes the top performers for achieving outstanding financial results in safety and consistency over a five-year period (2004-2008).

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995:

Certain statements contained herein are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are not in the present or past tense and can generally be identified by the use of words such as "anticipate," "believe," "estimate," "expect," "intend," "likely," "plan," "project," "seek," "should," "target," "will," and other expressions that indicate future trends and events. Forward-looking statements 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 such statements are discussions relating to management fee revenue, cost of management operations, underwriting, premium and investment income volumes, and agency appointments. Such 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 that could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements are the following:

  • factors affecting the property/casualty and life insurance industries generally, including price competition, legislative and regulatory developments;
  • government regulation of the insurance industry including approval of rate increases;
  • the size, frequency and severity of claims;
  • natural disasters;
  • exposure to environmental claims;
  • fluctuations in interest rates;
  • inflation and general business conditions;
  • the geographic concentration of our business as a result of being a regional company;
  • the accuracy of our pricing and loss reserving methodologies;
  • changes in driving habits; our ability to maintain our business operations including our information technology system;
  • our dependence on the independent agency system;
  • the quality and liquidity of our investment portfolio;
  • our dependence on our relationship with Erie Insurance Exchange; and
  • the other risks and uncertainties discussed or indicated in all documents filed by the Company with the Securities and Exchange Commission.

A forward-looking statement speaks only as of the date on which it is made and reflects the Company's analysis only as of that date. The Company 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.

News releases and more information about Erie Insurance Group are available at http://www.erieinsurance.com.

    Erie Indemnity Company
    Consolidated Statements of Operations
    (dollars in thousands, except per share data)

                                Three months ended       Nine months ended
                                   September 30,           September 30,
                                 2009        2008        2009        2008
                                 ----        ----        ----        ----
                                    (unaudited)             (unaudited)
    Operating revenue
      Management fee
       revenue, net            $238,752    $234,120    $701,270    $692,737
      Premiums earned            52,989      52,057     156,849     155,719
      Service agreement
       revenue                    8,730       8,340      25,911      23,480
                                  -----       -----      ------      ------
        Total operating
         revenue                300,471     294,517     884,030     871,936
    ---------------------       -------     -------     -------     -------

    Operating expenses
      Cost of management
       operations               202,412     195,297     581,648     577,754
      Losses and loss
       adjustment expenses
       incurred                  33,746      37,185     111,834     104,768
      Policy acquisition
       and other underwriting
       expenses                  16,146      12,311      41,056      36,592
                                 ------      ------      ------      ------
        Total operating
         expenses               252,304     244,793     734,538     719,114
    ---------------------       -------     -------     -------     -------

    Investment income
     (loss) - unaffiliated
      Investment income,
       net of expenses            9,466      10,218      31,526      33,357
      Realized gains
       (losses) on
       investments                5,453      (3,925)      5,086     (18,368)
      Net impairment
       losses recognized
       in earnings               (3,232)    (37,431)    (10,384)    (61,834)
      Equity in (losses)
       earnings of limited
       partnerships              (8,752)      1,057     (63,581)     20,310
    ---------------------        ------       -----     -------      ------
        Total investment
         income (loss) -
         unaffiliated             2,935     (30,081)    (37,353)    (26,535)
    ----------------------        -----     -------     -------     -------

    Income before income
     taxes and equity
     in earnings
     (losses) of Erie
     Family Life Insurance       51,102      19,643     112,139     126,287

    Provision for income
     taxes                       16,440       6,011      33,918      40,550
    Equity in earnings
     (losses) of Erie
     Family Life
     Insurance,
     net of tax                   5,024      (9,384)      5,328     (10,197)
                                  -----      ------       -----     -------

          Net income            $39,686      $4,248     $83,549     $75,540
                                =======      ======     =======     =======
          Net income
           per share:
            Class A common
             stock - basic        $0.77       $0.08       $1.62       $1.45
                                  =====       =====       =====       =====
            Class A common
             stock - diluted       0.69        0.07        1.46        1.30
                                   ====        ====        ====        ====
            Class B common
             stock - basic
             and diluted         112.06       15.92      239.96      216.59
                                 ======       =====      ======      ======

          Weighted average
           shares outstanding:
            Class A common
             stock - basic   51,252,693  51,376,513  51,255,234  51,984,203
                             ==========  ==========  ==========  ==========
            Class A common
             stock - diluted 57,383,900  57,533,591  57,393,641  58,141,281
                             ==========  ==========  ==========  ==========
            Class B common
             stock - basic
             and diluted          2,546       2,551       2,549       2,551
                                  =====       =====       =====       =====

         Dividends declared
          per share:
           Class A common
            stock                 $0.45       $0.44       $1.35       $1.32
                                  =====       =====       =====       =====
           Class B common
            stock                 67.50       66.00      202.50      198.00
                                  =====       =====      ======      ======



    Erie Indemnity Company
    Consolidated Statements of Operations - Segment Basis
    (amounts in thousands, except per share data)

                                    Three months ended   Nine months ended
                                       September 30,       September 30,
                                        2009      2008      2009      2008
                                        ----      ----      ----      ----
                                        (unaudited)         (unaudited)
    Management operations
    Management fee revenue          $252,624  $247,723  $742,166  $733,131
    Service agreement revenue          8,730     8,340    25,911    23,480
    -------------------------          -----     -----    ------    ------
      Total revenue from
       management operations         261,354   256,063   768,077   756,611
    Cost of management operations    214,175   206,652   615,541   611,426
    -----------------------------    -------   -------   -------   -------
      Income from
       management operations          47,179    49,411   152,536   145,185
    ----------------------            ------    ------   -------   -------

    Insurance underwriting
     operations
    Premiums earned                   52,989    52,057   156,849   155,719
    ---------------                   ------    ------   -------   -------

    Losses and loss adjustment
     expenses incurred                33,746    37,185   111,834   104,768
    Policy acquisition and other
     underwriting expenses            18,255    14,559    48,059    43,313
    ----------------------------      ------    ------    ------    ------
      Total losses and expenses       52,001    51,744   159,893   148,081
    ----------------------------      ------    ------   -------   -------
      Underwriting income (loss)         988       313    (3,044)    7,638
    -----------------------------        ---       ---    ------     -----

    Investment operations
    Investment income,
     net of expenses                   9,466    10,218    31,526    33,357
    Realized gains (losses)
     on investments                    5,453    (3,925)    5,086   (18,368)
    Net impairment losses
     recognized in earnings           (3,232)  (37,431)  (10,384)  (61,834)
    Equity in (losses) earnings
     of limited partnerships          (8,752)    1,057   (63,581)   20,310
    Equity in earnings (losses)
     of Erie Family Life Insurance     5,402   (10,090)    5,729   (10,965)
    ------------------------------     -----   -------     -----   -------
      Net revenue (loss) from
       investment operations           8,337   (40,171)  (31,624)  (37,500)
    --------------------------         -----   -------   -------   -------

    Income before income taxes        56,504     9,553   117,868   115,323
    Provision for income taxes        16,818     5,305    34,319    39,783

    -------------                    -------    ------   -------   -------
      Net income                     $39,686    $4,248   $83,549   $75,540
    =============                    =======    ======   =======   =======

      Net income per share -
       Class A basic                   $0.77     $0.08     $1.62     $1.45
    =========================          =====     =====     =====     =====
      Net income per share -
       Class A diluted                  0.69      0.07      1.46      1.30
    =========================           ====      ====      ====      ====
      Net income per share -
       Class B basic and diluted      112.06     15.92    239.96    216.59
    ============================      ======     =====    ======    ======

    Weighted average shares
     outstanding - Class A diluted    57,384    57,534    57,394    58,141
    ===============================   ======    ======    ======    ======

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



    Erie Indemnity Company
    Reconciliation of Operating Income to Net Income

    Definition of non-GAAP and operating measures
    ---------------------------------------------

    We believe that investors' understanding of our performance 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 and impairment losses and related federal income taxes.  We
    elected the fair value measurement option for our common stock portfolio
    effective January 1, 2008.  As such, changes in value related to common
    stocks are reported in earnings.  These unrealized gains or losses are
    included in the net realized losses/gains on investments on the
    Consolidated Statements of Operations that is used to calculate
    operating income.  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.
    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 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 the
    periods ended September 30, 2009 and 2008:

                                     Three months ended  Nine months ended
     (in thousands, except per           September 30,       September 30,
     share data)                       2009      2008      2009      2008
                                       ----      ----      ----      ----
                                         (Unaudited)         (Unaudited)
    Operating income                 $38,242   $31,129   $86,993   $127,671
      Net realized gains (losses)
       and impairments on
       investments                     2,221   (41,356)   (5,298)   (80,202)
      Income tax (expense) benefit      (777)   14,475     1,854     28,071
                                        ----    ------     -----     ------
        Realized gains (losses)
         and impairments, net of
         income taxes                  1,444   (26,881)   (3,444)   (52,131)
                                       -----   -------    ------    -------
    Net income                       $39,686    $4,248   $83,549    $75,540
                                     =======    ======   =======    =======


                                     Three months ended   Nine months ended
                                        September 30,       September 30,
    Per Class A share - diluted:       2009      2008      2009       2008
                                       ----      ----      ----       ----
                                         (Unaudited)         (Unaudited)
    Operating income                   $0.66     $0.54     $1.52      $2.20
      Net realized gains (losses)
       and impairments on
      investments                       0.04     (0.72)    (0.09)     (1.38)
      Income tax (expense) benefit     (0.01)     0.25      0.03       0.48
                                       -----      ----      ----       ----
        Realized gains (losses)
         and impairments, net of
         income taxes                   0.03     (0.47)    (0.06)     (0.90)
                                        ----     -----     -----      -----
    Net income                         $0.69     $0.07     $1.46      $1.30
                                       =====     =====     =====      =====



    Erie Indemnity Company
    Consolidated Statements of Financial Position
    (amounts in thousands, except per share data)

                                                   September 30, December 31,
                                                        2009         2008
                                                        ----         ----
                                                     (unaudited)
    Assets
    Investments
    Available-for-sale securities, at fair value:
      Fixed maturities                                $646,908     $563,429
      Equity securities                                 40,499       55,281
    Trading securities, at fair value                   41,072       33,338
    Other invested assets                              249,266      300,391
                                                       -------      -------
        Total investments                              977,745      952,439

    Cash and cash equivalents                           36,872       61,073
    Equity in Erie Family Life Insurance                71,006       29,236
    Premiums receivable from policyholders             251,784      244,760
    Receivables from affiliates                      1,194,373    1,130,610
    Other assets                                       177,700      195,268
                                                       -------      -------
        Total assets                                $2,709,480   $2,613,386
                                                    ==========   ==========


    Liabilities and shareholders' equity
    Liabilities
    Unpaid losses and loss adjustment expenses        $982,972     $965,081
    Unearned premiums                                  452,815      424,370
    Other liabilities                                  395,578      432,060
                                                       -------      -------
        Total liabilities                            1,831,365    1,821,511
        Total shareholders' equity                     878,115      791,875
                                                       -------      -------
        Total liabilities and
         shareholders' equity                       $2,709,480   $2,613,386
                                                    ==========   ==========

    Book value per share                                $15.31       $13.79
                                                        ======       ======
    Shares outstanding                                  57,363       57,405
                                                        ======       ======



    Erie Indemnity Company
    Reconciliation of Property and Casualty Group to Indemnity Results

    (dollars in thousands)     Three months ended      Nine months ended
                                   September 30,          September 30,
                                  2009      2008        2009        2008
    -------------------------     ----      ----        ----        ----
    Property and Casualty Group
     insurance underwriting
     operations (SAP basis)
      Direct underwriting results
        Direct written
         premium              $1,008,901  $989,291  $2,974,265  $2,937,724
                              ----------  --------  ----------  ----------
        Premiums earned          965,100   956,771   2,870,287   2,857,056
                                 -------   -------   ---------   ---------
        Loss and loss
         adjustment expenses
         incurred                622,297   695,208   2,027,762   1,900,836
        Policy acquisition
         and other
         underwriting expenses   277,832   271,140     834,408     810,256
                                 -------   -------     -------     -------
          Total losses
           and expenses          900,129   966,348   2,862,170   2,711,092
                                 -------   -------   ---------   ---------
          Direct underwriting
           income (loss)          64,971    (9,577)      8,117     145,964
                                  ------    ------       -----     -------

      Nonaffiliated reinsurance
       underwriting results
        Assumed voluntary-
         less ceded
         retrocessions             3,212       831       3,176         486
        Assumed involuntary      (42,680)   15,497     (39,503)     13,092
        Less:  Ceded               5,743    (3,313)     27,181      14,984
                                   -----    ------      ------      ------
          Nonaffiliated
           reinsurance
           underwriting income   (45,211)   19,641     (63,508)     (1,406)

                                 -------   -------    --------    --------
      Net underwriting income
       (loss) (SAP basis)        $19,760   $10,064    ($55,391)   $144,558
                                 =======   =======    ========    ========

    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) (SAP basis)       $1,087      $554     ($3,047)     $7,951

        SAP to GAAP adjustments      (99)     (241)          3        (313)
                                     ---      ----         ---        ----

      Indemnity underwriting
       income (loss) before
       tax (GAAP basis)             $988      $313     ($3,044)     $7,638
                                    ====      ====     =======      ======

                     Property & Casualty Group (SAP basis)
    Net basis
    ---------
      Loss and LAE ratio           63.1%     70.7%       70.8%       66.7%
      Underwriting ratio            26.5      27.0        27.5        27.2
      Policyholder dividends
       ratio                         0.0       0.0         0.0         0.1
                                     ---       ---         ---         ---
      Statutory combined ratio      89.6      97.7        98.3        94.0
                                    ----      ----        ----        ----
      Adjusted combined ratio,
       excluding profit
       component                    85.8      93.6        94.0        89.8

    Direct business
    ---------------
      Loss ratio points from
       prior accident year
       reserve development -
       (redundancy) deficiency      (4.3)     (0.4)       (0.2)       (3.2)
      Loss ratio points from
       prior accident years
       from salvage and
       subrogation
       recoveries collected         (0.9)     (1.0)       (1.9)       (2.0)
                                    ----      ----        ----        ----

        Total loss ratio
         points from prior
         accident years             (5.2)     (1.4)       (2.1)       (5.2)
                                    ----      ----        ----        ----

      Loss ratio points from
       catastrophes                  2.4       8.0         3.8         4.2

                     Erie Indemnity Company
      GAAP combined ratio           98.1      99.4       101.9        95.1
      GAAP loss ratio points
       from catastrophes             2.4       8.1         3.9         4.2
    -------------------------        ---       ---         ---         ---


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



    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 our opinion, 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.

    (dollars in thousands)       Three months ended         Nine months ended
    Statutory accounting basis      September 30,             September 30,
                                 2009          2008        2009        2008
                                 ----          ----        ----        ----
                                     (unaudited)               (unaudited)
    Premiums earned          $921,050      $902,260  $2,718,765  $2,694,802
    Losses, loss adjustment
     expenses and
     underwriting expenses    902,388       892,731   2,771,110   2,558,171
    Net underwriting
     income (loss)             18,662         9,529     (52,345)    136,631
                               ------         -----     -------     -------
    Total investment
     income (loss)             27,588      (269,878)   (163,820)   (294,141)
                               ------      --------    --------    --------
    Income (loss) before
     income taxes              46,250      (260,349)   (216,165)   (157,510)
    Federal income tax
     expense (benefit)         13,468        15,800     (34,096)    129,164
                               ------        ------     -------     -------
    Net income (loss)         $32,782     ($276,149)  ($182,069)  ($286,674)
                              =======     =========   =========   =========


    (dollars in thousands)     As of         As of
    Statutory accounting    September      December
     basis                      30,           31,
                               2009          2008
                               ----          ----
                           (unaudited)
    Cash and invested
     assets                $8,262,437    $7,595,727
    Other assets            1,345,768     1,552,902
                            ---------     ---------
      Total assets         $9,608,205    $9,148,629
                           ==========    ==========

    Loss, loss adjustment
     expense and
     unearned
     premium reserves      $4,909,177    $4,768,240
    Other liabilities         407,944       334,399
                              -------       -------
      Total liabilities     5,317,121     5,102,639
                            ---------     ---------
    Policyholders'
     surplus                4,291,084     4,045,990
                            ---------     ---------
      Total liabilities
       and policyholders'
       surplus             $9,608,205    $9,148,629
                           ==========    ==========



    Management fee revenue by major lines of business - Segment basis:
    ------------------------------------------------------------------

                    Three months ended           Nine months ended
    (dollars in         September 30,     %         September 30,     %
     thousands)        2009      2008  Change      2009      2008  Change
                       ----      ----  ------      ----      ----  ------
    Private
     passenger
     auto          $125,048  $122,011     2.5% $358,386  $352,065     1.8%
    Homeowners       55,957    52,266     7.1   150,942   141,806     6.4
    Commercial
     multi-peril     26,151    25,877     1.1    85,173    84,570     0.7
    Commercial
     auto            17,891    18,351    -2.5    58,645    60,707    -3.4
    Workers
     compensation    13,700    15,831   -13.5    49,747    56,535   -12.0
    All other
     lines
     of business     13,477    12,987     3.8    40,673    38,748     5.0
                     ------    ------     ---    ------    ------     ---
                    252,224   247,323     2.0   743,566   734,431     1.2
    Change in
     allowance for
     management fee
     returned on
     cancelled
     policies           400       400            (1,400)   (1,300)
                        ---       ---            ------    ------
    Management fee
     revenue, net
     of allowance  $252,624  $247,723     2.0% $742,166  $733,131     1.2%
                   ========  ========     ===  ========  ========     ===

    Management
     fee rate         25.00%    25.00%            25.00%    25.00%
                      =====     =====             =====     =====



    Growth rates of policies in force for Property and
     Casualty Group insurance operations by major lines of
     business:
    ------------------------------------------------------

                    Private    12-mth.               12-mth.
                   Passenger    growth                growth
        Date         Auto        rate     Homeowners   rate
        ----         ----        ----     ----------   ----
    09/30/2007       1,649,801     0.8%    1,408,114     2.5%
    12/31/2007       1,651,234     1.1     1,413,712     2.6
    03/31/2008       1,655,869     1.2     1,420,250     2.6
    06/30/2008       1,667,446     1.4     1,433,504     2.5
    09/30/2008       1,677,151     1.7     1,446,779     2.7
    12/31/2008       1,683,526     2.0     1,454,797     2.9
    03/31/2009       1,694,583     2.3     1,466,227     3.2
    06/30/2009       1,709,580     2.5     1,483,763     3.5
    09/30/2009       1,721,388     2.6     1,498,285     3.6

                               12-mth.      Total    12-mth.
                   All Other    growth     Personal   growth
        Date    Personal Lines   rate       Lines      rate
        ----    --------------   ----       -----      ----
    09/30/2007         316,786     6.2%    3,374,701     2.0%
    12/31/2007         321,431     6.6     3,386,377     2.2
    03/31/2008         325,926     6.7     3,402,045     2.3
    06/30/2008         332,922     6.8     3,433,872     2.4
    09/30/2008         340,566     7.5     3,464,496     2.7
    12/31/2008         346,953     7.9     3,485,276     2.9
    03/31/2009         353,470     8.5     3,514,280     3.3
    06/30/2009         362,582     8.9     3,555,925     3.6
    09/30/2009         369,253     8.4     3,588,926     3.6


                               12-mth.               12-mth.
                                growth       CML*     growth
        Date       CML* Auto     rate    Multi-Peril   rate
        ----       ---------     ----    -----------   ----
    09/30/2007         122,154     2.2%      226,302     3.9%
    12/31/2007         122,558     2.3       228,214     4.4
    03/31/2008         122,882     2.5       229,577     4.7
    06/30/2008         123,955     1.9       234,393     4.8
    09/30/2008         124,418     1.9       236,994     4.7
    12/31/2008         124,205     1.3       237,228     3.9
    03/31/2009         123,747     0.7       236,804     3.1
    06/30/2009         124,917     0.8       240,970     2.8
    09/30/2009         125,149     0.6       243,771     2.9

                               12-mth.               12-mth.
                    Workers     growth    All Other   growth
        Date         Comp.       rate     CML* Lines   rate
        ----         -----       ----     ----------   ----
    09/30/2007          54,341    (0.1)%      96,167     3.8%
    12/31/2007          54,720     1.5        96,464     4.1
    03/31/2008          54,927     2.7        96,511     3.9
    06/30/2008          55,801     3.4        97,745     3.3
    09/30/2008          56,381     3.8        98,786     2.7
    12/31/2008          56,704     3.6        98,796     2.4
    03/31/2009          56,661     3.2        98,622     2.2
    06/30/2009          57,549     3.1        99,973     2.3
    09/30/2009          58,238     3.3       101,157     2.4

                     Total     12-mth.
                     CML*       growth
        Date         Lines       rate
        ----         -----       ----
    09/30/2007         498,964     3.0%
    12/31/2007         501,956     3.5
    03/31/2008         503,897     3.8
    06/30/2008         511,894     3.7
    09/30/2008         516,579     3.5
    12/31/2008         516,933     3.0
    03/31/2009         515,834     2.4
    06/30/2009         523,409     2.2
    09/30/2009         528,315     2.3

                               12-mth.
                     Total      growth
        Date       All Lines     rate
        ----       ---------     ----
    09/30/2007       3,873,665     2.1%
    12/31/2007       3,888,333     2.4
    03/31/2008       3,905,942     2.5
    06/30/2008       3,945,766     2.5
    09/30/2008       3,981,075     2.8
    12/31/2008       4,002,209     2.9
    03/31/2009       4,030,114     3.2
    06/30/2009       4,079,334     3.4
    09/30/2009       4,117,241     3.4


    CML* = Commercial



    Policy retention trends for Property and Casualty Group
     insurance operations by major lines of business:
    -------------------------------------------------------

                  Private                   CML*              All    Total
                Passenger  Home-   CML*    Multi-  Workers   Other    All
        Date       Auto    owners  Auto    Peril    Comp.    Lines   Lines
        ----       ----   -------  -----   ------   -----    -----  ------
    09/30/2007     91.3%    90.1%  88.2%    86.1%    86.8%   87.5%   90.0%
    12/31/2007     91.5     90.3   88.2     86.0     86.8    87.8    90.2
    03/31/2008     91.6     90.5   88.4     86.5     87.6    87.9    90.4
    06/30/2008     91.6     90.7   87.9     86.2     87.5    88.1    90.4
    09/30/2008     91.7     91.0   87.8     86.0     87.2    88.2    90.5
    12/31/2008     91.8     91.1   87.6     85.6     86.6    88.5    90.6
    03/31/2009     91.9     91.4   87.5     85.7     86.3    88.8    90.8
    06/30/2009     91.9     91.6   87.3     85.2     85.7    89.1    90.8
    09/30/2009     91.9     91.4   87.0     84.9     85.8    88.8    90.7

    CML* = Commercial



    Average premium per policy trends for Property and
     Casualty Group insurance operations by major lines
     of business:
    ---------------------------------------------------

                 Private  12-mth.             12-mth.
                Passenger percent     Home-   percent
        Date       Auto    change    owners   change
        ----       ----    ------    ------   ------
    09/30/2007     $1,093    (2.6)%     $519     (2.1)%
    12/31/2007      1,092    (1.6)       518     (1.5)
    03/31/2008      1,091    (0.8)       518     (1.1)
    06/30/2008      1,088    (0.5)       514     (1.2)
    09/30/2008      1,086    (0.6)       511     (1.5)
    12/31/2008      1,085    (0.6)       511     (1.4)
    03/31/2009      1,081    (0.9)       512     (1.2)
    06/30/2009      1,076    (1.1)       516      0.4
    09/30/2009      1,076    (0.9)       520      1.8

                All Other 12-mth.    Total    12-mth.
                Personal  percent   Personal percent
        Date      Lines    change     Lines   change
        ----      -----    ------     -----   ------
    09/30/2007       $352     1.1%      $783     (2.9)%
    12/31/2007        353     1.1        782     (1.9)
    03/31/2008        354     1.4        781     (1.3)
    06/30/2008        353     0.6        777     (1.1)
    09/30/2008        354     0.6        774     (1.1)
    12/31/2008        356     0.8        773     (1.2)
    03/31/2009        358     1.1        771     (1.3)
    06/30/2009        359     1.7        769     (1.0)
    09/30/2009        359     1.4        770     (0.5)

                          12-mth.             12-mth.
                          percent    Workers  percent
        Date    CML* Auto  change     Comp.   change
        ----    ---------  ------     -----   ------
    09/30/2007     $2,600    (3.9)%   $5,780     (4.4)%
    12/31/2007      2,577    (4.1)     5,602     (6.4)
    03/31/2008      2,568    (3.6)     5,453     (7.8)
    06/30/2008      2,530    (3.7)     5,236    (11.3)
    09/30/2008      2,514    (3.3)     5,067    (12.3)
    12/31/2008      2,505    (2.8)     4,951    (11.6)
    03/31/2009      2,483    (3.3)     4,792    (12.1)
    06/30/2009      2,439    (3.6)     4,555    (13.0)
    09/30/2009      2,420    (3.7)     4,354    (14.1)

                All Other 12-mth.     Total   12-mth.
                  CML*    percent     CML*    percent
        Date      Lines    change     Lines   change
        ----      -----    ------     -----   ------
    09/30/2007     $1,592    (4.6)%   $2,295     (5.0)%
    12/31/2007      1,581    (4.6)     2,262     (5.5)
    03/31/2008      1,576    (4.0)     2,240     (5.3)
    06/30/2008      1,546    (4.3)     2,187     (6.3)
    09/30/2008      1,536    (3.5)     2,157     (6.0)
    12/31/2008      1,533    (3.0)     2,141     (5.3)
    03/31/2009      1,537    (2.5)     2,122     (5.3)
    06/30/2009      1,511    (2.3)     2,067     (5.5)
    09/30/2009      1,496    (2.6)     2,030     (5.9)

                          12-mth.
                  Total   percent
        Date    All Lines  change
        ----    ---------  ------
    09/30/2007       $978    (3.3)%
    12/31/2007        973    (2.8)
    03/31/2008        969    (2.2)
    06/30/2008        960    (2.4)
    09/30/2008        953    (2.6)
    12/31/2008        949    (2.5)
    03/31/2009        944    (2.6)
    06/30/2009        936    (2.5)
    09/30/2009        932    (2.2)

    CML* = Commercial



    Property & Casualty Group Adjusted Combined Ratio by Major Lines of
    Business (SAP Basis) - Direct Business

                            Three Months ended September 30, 2009
                       ---------------------------------------------------
                                 Prior Year**                    Current
                                   Reserve                       Accident
                                  Development                     Year
                       Calendar*  Deficiency     Catastrophe    Excluding
                         Year    (Redundancy)      Losses     Catastrophes
                       ---------------------------------------------------

    Private passenger
     auto                91.6%          0.0%          0.3%          91.3%
    Homeowners           87.0%          0.2%          9.0%          77.8%
    Other personal
     lines               67.7%        (11.8)%         3.1%          76.4%
      Total personal
        lines            89.3%         (0.5)%         2.9%          86.9%

    Commercial
     multi-peril        101.1%          6.2%          3.3%          91.6%
    Commercial auto      79.2%        (15.7)%        (0.1)%         95.0%
    Workers
     compensation        67.9%        (49.4)%         0.0%         117.3%
    Other commercial
     lines               79.8%        (13.8)%         1.1%          92.5%
      Total commercial
       lines             85.6%        (14.4)%         1.4%          98.6%

    Grand total -
     direct business
     only                87.9%         (4.3)%         2.4%          89.8%


                            Three Months ended September 30, 2008
                       ---------------------------------------------------
                                 Prior Year**                    Current
                                   Reserve                       Accident
                                  Development                     Year
                       Calendar*  Deficiency     Catastrophe    Excluding
                         Year    (Redundancy)      Losses     Catastrophes
                       ---------------------------------------------------

    Private passenger
     auto                82.9%         (3.5)%         1.2%          85.2%
    Homeowners          116.6%          0.8%         30.7%          85.1%
    Other personal
     lines               68.2%        (11.4)%        11.3%          68.3%
      Total personal
       lines             91.6%         (2.6)%         9.8%          84.4%

    Commercial
     multi-peril        119.2%          4.2%          9.2%         105.8%
    Commercial auto      81.0%          0.0%          0.4%          80.6%
    Workers
     compensation       115.8%          6.6%          0.0%         109.2%
    Other commercial
     lines              144.3%         22.7%          0.2%         121.4%
      Total commercial
       lines            109.4%          4.9%          3.7%         100.8%

    Grand total -
     direct business
     only                96.6%         (0.4)%         8.0%          89.0%



                            Nine Months Ended September 30, 2009
                       ---------------------------------------------------
                                 Prior Year**                    Current
                                   Reserve                       Accident
                                  Development                     Year
                       Calendar*  Deficiency     Catastrophe    Excluding
                         Year    (Redundancy)      Losses     Catastrophes
                       ---------------------------------------------------

    Private passenger
     auto                94.1%          2.0%          0.6%          91.5%
    Homeowners          104.7%          2.1%         13.7%          88.9%
    Other personal
     lines               77.3%         (7.7)%         4.5%          80.5%
      Total personal
       lines             96.3%          1.6%          4.5%          90.2%

    Commercial
     multi-peril        108.8%          9.9%          5.2%          93.7%
    Commercial auto      76.3%        (10.8)%         1.2%          85.9%
    Workers
     compensation        81.8%        (18.8)%         0.0%         100.6%
    Other commercial
     lines               62.2%        (16.2)%         0.7%          77.7%
      Total commercial
       lines             89.7%         (4.8)%         2.5%          92.0%

    Grand total -
     direct business
     only                94.4%         (0.2)%         3.8%          90.8%


                            Nine Months Ended September 30, 2008
                       ---------------------------------------------------
                                 Prior Year**                    Current
                                    Reserve                      Accident
                                  Development                     Year
                       Calendar*  Deficiency     Catastrophe    Excluding
                         Year    (Redundancy)      Losses     Catastrophes
                       ---------------------------------------------------

    Private passenger
     auto                83.8%         (5.7)%         0.8%          88.7%
    Homeowners           98.3%         (3.3)%        15.6%          86.0%
    Other personal
     lines               75.5%         (6.4)%         5.9%          76.0%
      Total personal
       lines             87.5%         (5.1)%         5.1%          87.5%

    Commercial
     multi-peril        100.8%          0.0%          4.7%          96.1%
    Commercial auto      79.3%         (6.6)%         0.6%          85.3%
    Workers
     compensation       107.0%          5.9%          0.0%         101.1%
    Other commercial
     lines              108.5%         23.0%          0.3%          85.2%
      Total commercial
       lines             97.0%          1.3%          2.0%          93.7%

    Grand total -
     direct business
     only                90.3%         (3.2)%         4.2%          89.3%


    *The calendar year combined ratio represents the adjusted statutory
    combined ratio, which removes the profit component of the management
    fee earned by the Company.

    **The prior accident year reserve development does not include the
    effects of salvage and subrogation recoveries.

SOURCE Erie Indemnity Company

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