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.

Yes þ No o

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.

Yes þ No o

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).

Yes þ No o

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 Filer þ	Accelerated Filer o	Non-Accelerated Filer o	Smaller Reporting Company o
		(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).

Yes o No þ

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

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.

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.

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.

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.

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.

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.

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.

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

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


	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


	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.

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


	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

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

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.

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

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

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.

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.

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.

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


	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

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

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.

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

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

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


	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.

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.

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.

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.

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

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

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.

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.


	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.


	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

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.

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

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.

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