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ERIE INDEMNITY CO - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of financial condition and results of operations highlights significant factors influencing the Erie Insurance Group. This discussion should be read in conjunction with the historical financial statements and the related notes thereto included in Item 1. "Financial Statements" of this Quarterly Report on Form 10- Q, and with...

Edgar Online, Inc.
The following discussion of financial condition and results of operations
highlights significant factors influencing the Erie Insurance Group ("we," "us,"
"our").  This discussion should be read in conjunction with the historical
financial statements 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, 2012, as contained in our Annual
Report on Form 10-K filed with the Securities and Exchange Commission on
February 26, 2013.


INDEX
                                                               Page Number
  Cautionary Statement Regarding Forward-Looking Information       36
  Recent Accounting Pronouncements                                 37
  Operating Overview                                               38
  Results of Operations                                            43
  Management Operations                                            43
  Property and Casualty Insurance Operations                       45
  Life Insurance Operations                                        49
  Investment Operations                                            50
  Financial Condition                                              52
  Investments                                                      52
  Liabilities                                                      56
  Impact of Inflation                                              57
  Liquidity and Capital Resources                                  57
  Critical Accounting Estimates                                    60



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION


"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
Statements contained herein that are not historical fact are forward-looking
statements and, as such, are subject to risks and uncertainties that could cause
actual events and results to differ, perhaps materially, from those discussed
herein.  Forward-looking statements relate to future trends, events or results
and include, without limitation, statements and assumptions on which such
statements are based that are related to our plans, strategies, objectives,
expectations, intentions and adequacy of resources.  Examples of forward-looking
statements are discussions relating to premium and investment income, expenses,
operating results, agency relationships, and compliance with contractual and
regulatory requirements.  Forward-looking statements are not guarantees of
future performance and involve risks and uncertainties that are difficult to
predict.  Therefore, actual outcomes and results may differ materially from what
is expressed or forecasted in such forward-looking statements.  Among the risks
and uncertainties, in addition to those set forth in our filings with the
Securities and Exchange Commission, that could cause actual results and future
events to differ from those set forth or contemplated in the forward-looking
statements include the following:

Risk factors related to the Erie Indemnity Company ("Indemnity") shareholder interest:

• dependence upon Indemnity's relationship with the Exchange and the

management fee under the agreement with the subscribers at the Exchange;

Social Security: The Black Box Edition.

• costs of providing services to the Exchange under the subscriber's agreement;

• ability to attract and retain talented management and employees;


•      ability to maintain uninterrupted business operations, including
       information technology systems;

• factors affecting the quality and liquidity of Indemnity's investment

portfolio;

• credit risk from the Exchange;

• Indemnity's ability to meet liquidity needs and access capital; and

• outcome of pending and potential litigation against Indemnity.

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Risk factors related to the non-controlling interest owned by the Erie Insurance
Exchange ("Exchange"), which includes the Property and Casualty Group and Erie
Family Life Insurance Company:

• general business and economic conditions;

• dependence upon the independent agency system;

• ability to maintain our reputation for customer service;

• factors affecting insurance industry competition;

• changes in government regulation of the insurance industry;

• premium rates and reserves must be established from forecasts of ultimate

costs;

• emerging claims, coverage issues in the industry, and changes in reserve

estimates related to the property and casualty business;

• changes in reserve estimates related to the life business;

• severe weather conditions or other catastrophic losses, including terrorism;

• the Exchange's ability to acquire reinsurance coverage and collectability

from reinsurers;

• factors affecting the quality and liquidity of the Exchange's investment

portfolio;

Social Security: The Black Box Edition.

• the Exchange's ability to meet liquidity needs and access capital;

• the Exchange's ability to maintain an acceptable financial strength rating;

• outcome of pending and potential litigation against the Exchange; and

• dependence upon the service provided by Indemnity.




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


RECENT ACCOUNTING PRONOUNCEMENTS


See Item 1. "Financial Statements - Note 2. Significant Accounting Policies,"
contained within this report for a discussion of adopted and/or pending
accounting pronouncements, none of which are expected to have a material impact
on our future financial condition, results of operations or cash flows.

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OPERATING OVERVIEW

Overview
The Erie Insurance Group represents the consolidated results of Indemnity and
the results of its variable interest entity, the Exchange.  The Erie Insurance
Group operates predominantly as a property and casualty insurer through its
regional insurance carriers that write a broad range of personal and commercial
coverages.  Our property and casualty insurance companies include the Exchange
and its wholly owned subsidiaries, Erie Insurance Company ("EIC"), Erie
Insurance Company of New York ("ENY"), Erie Insurance Property and Casualty
Company ("EPC"), and Flagship City Insurance Company ("Flagship").  These
entities operate collectively as the "Property and Casualty Group."  The Erie
Insurance Group also operates as a life insurer through the Exchange's wholly
owned subsidiary, Erie Family Life Insurance Company ("EFL"), which underwrites
and sells individual and group life insurance policies and fixed annuities.

The Exchange is a reciprocal insurance exchange organized under Article X of
Pennsylvania's Insurance Company Law of 1921 under which individuals,
partnerships and corporations are authorized to exchange reciprocal or
inter-insurance contracts with each other, or with individuals, partnerships,
and corporations of other states and countries, providing indemnity among
themselves from any loss which may be insured against under any provision of the
insurance laws except life insurance.  Each applicant for insurance to the
Exchange signs a subscriber's agreement, which contains an appointment of
Indemnity as their attorney-in-fact to transact the business of the Exchange on
their behalf.

Pursuant to the subscriber's agreement and for its services as attorney-in-fact, Indemnity earns a management fee calculated as a percentage of the direct premiums written by the Exchange and the other members of the Property and Casualty Group, which are assumed by the Exchange under an intercompany pooling arrangement.


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

"Indemnity shareholder interest" refers to the interest in Erie Indemnity Company owned by the Class A and Class B shareholders. "Noncontrolling interest" refers to the interest in the Erie Insurance Exchange held for the interest of the subscribers (policyholders).

Social Security: The Black Box Edition.

The Indemnity shareholder interest in income comprises:

• a management fee of up to 25% of all property and casualty insurance

premiums written or assumed by the Exchange, less the costs associated

with the sales, underwriting and issuance of these policies;

• net investment income and results on investments that belong to Indemnity; and



•      other income and expenses, including income taxes, that are the
       responsibility of Indemnity.


The Exchange's or the noncontrolling interest in income comprises:

• a 100% interest in the net underwriting results of the property and

casualty insurance operations;

• a 100% interest in the net earnings of EFL's life insurance operations;

• net investment income and results on investments that belong to the

Exchange and its subsidiaries; and

• other income and expenses, including income taxes, that are the

       responsibility of the Exchange and its subsidiaries.



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Results of the Erie Insurance Group's Operations by Interest (Unaudited)
The following table represents a breakdown of the composition of the income
attributable to the Indemnity shareholder interest and the income attributable
to the noncontrolling interest (Exchange).  For purposes of this discussion,
EFL's investments are included in the life insurance operations.
                                                                                                                                    Eliminations of
                                                    Indemnity                                Noncontrolling interest                 related party
                                              shareholder interest                                 (Exchange)                        transactions                   Erie Insurance Group
 (in millions)                            Three months ended March 31,                    Three months ended March 31,       Three months ended March 

31, Three months ended March 31,

                          Percent               2013                2012      Percent           2013            2012             2013               2012             2013            2012
Management operations:
Management fee revenue,
net                           100 %   $         296               $   269                 $        -         $      -     $          (296 )     $      (269 )   $           -     $      -
Service agreement
revenue                       100 %               7                     7                          -                -                   -                 -                 7            7
Total revenue from
management operations                           303                   276                          -                -                (296 )            (269 )               7            7
Cost of management
operations                    100 %             254                   230                          -                -                (254 )            (230 )               -            -
Income from management
operations before taxes                          49                    46                          -                -                 (42 )             (39 )               7            7
Property and casualty
insurance operations:
Net premiums earned                               -                     -         100 %        1,156            1,069                   -                 -             1,156        1,069
Losses and loss
expenses                                          -                     -         100 %          817              692                  (1 )              (1 )             816          691
Policy acquisition and
underwriting expenses                             -                     -         100 %          328              302                 (44 )             (41 )             284          261
Income from property
and casualty insurance
operations before taxes                           -                     -                         11               75                  45                42                56          117
Life insurance
operations:(1)
Total revenue                                     -                     -         100 %           46               43                   0                 0                46           43
Total benefits and
expenses                                          -                     -         100 %           35               34                   0                 0                35           34
Income from life
insurance operations
before taxes                                      -                     -                         11                9                   0                 0                11            9
Investment operations:
Net investment income                             4                     4                         79               83                  (3 )              (3 )              80           84
Net realized gains on
investments                                       0                     3                        246              293                   -                 -               246          296
Net impairment losses
recognized in earnings                            0                     0                          0                0                   -                 -                 0            0
Equity in earnings of
limited partnerships                              3                     1                         33               20                   -                 -                36           21
Income from investment
operations before taxes                           7                     8                        358              396                  (3 )              (3 )             362          401
Income from operations
before income taxes and
noncontrolling interest                          56                    54                        380              480                   -                 -               436          534
Provision for income
taxes                                            19                    18                        127              162                   -                 -               146          180
Net income                            $          37               $    36$      253$    318     $             -       $         -     $         290     $    354

(1) Earnings on life insurance related invested assets are integral to the

evaluation of the life insurance operations because of the long duration of

life products. On that basis, for presentation purposes, the life insurance

operations in the table above include life insurance related investment

results. However, the life insurance investment results are included in the

investment operations segment discussion as part of the Exchange's investment

    results.





Net income in the first quarter of 2013 was primarily impacted by increased
losses from our property and casualty insurance operations and lower earnings
from our investment operations, compared to the first quarter of 2012.  The
Exchange's property and casualty insurance operations experienced an 8.2%
increase in earned premium, driven by increases in policies in force and the
average premium per policy.  Losses from the Exchange's property and casualty
insurance operations increased as the first quarter of 2012 experienced a lower
volume of non-catastrophe weather related claims resulting from mild winter
weather, combined with the first quarter of 2013 experiencing slightly adverse
development on prior accident year loss reserves, compared to favorable
development in the first quarter of 2012. Our investment operations generated
lower levels of net realized gains on investments, offset somewhat by increased
equity in earnings of limited partnerships, compared to the first quarter of
2012.

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Reconciliation of Operating Income to Net Income (Unaudited)
We disclose operating income, a non-GAAP financial measure, to enhance our
investors' understanding of our performance related to the Indemnity shareholder
interest.  Our method of calculating this measure may differ from those used by
other companies, and therefore comparability may be limited.

Indemnity defines operating income as net income excluding realized capital gains and losses, impairment losses and related federal income taxes.


Indemnity uses operating income to evaluate the results of its operations.  It
reveals trends that may be obscured by the net effects of realized capital gains
and losses including impairment losses.  Realized capital gains and losses,
including impairment losses, may vary significantly between periods and are
generally driven by business decisions and economic developments such as capital
market conditions which are not related to our ongoing operations.  We are aware
that the price to earnings multiple commonly used by investors as a
forward-looking valuation technique uses operating income as the denominator.
Operating income should not be considered as a substitute for net income
prepared in accordance with U.S. generally accepted accounting principles
("GAAP") and does not reflect Indemnity's overall profitability.

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

                                                                     Indemnity Shareholder
                                                                           Interest
(in millions, except per share data)                             Three months ended March 31,
                                                                       2013            2012
                                                                          (Unaudited)
Operating income attributable to Indemnity                       $           37     $     34
Net realized gains and impairments on investments                             0            3
Income tax expense                                                            0           (1 )
Realized gains and impairments, net of income taxes                           0            2
Net income attributable to Indemnity                             $          

37 $ 36


Per Indemnity Class A common share-diluted:
Operating income attributable to Indemnity                       $         0.69     $   0.64
Net realized gains and impairments on investments                          0.00         0.05
Income tax expense                                                         0.00        (0.02 )
Realized gains and impairments, net of income taxes                        0.00         0.03
Net income attributable to Indemnity                             $         0.69     $   0.67

Summary of Results - Indemnity Shareholder Interest


Three months ended March 31, 2013
Net income attributable to Indemnity per share-diluted was $0.69 per share in
the first quarter of 2013, compared to $0.67 per share in the first quarter of
2012.

Operating income attributable to Indemnity per share-diluted (excluding net realized gains or losses, impairments on investments and related taxes) was $0.69 per share in the first quarter of 2013, compared to $0.64 per share in the first quarter of 2012.



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Operating Segments
Our reportable segments include management operations, property and casualty
insurance operations, life insurance operations and investment operations.

Management operations
Management operations generate internal management fee revenue, which accrues to
the Indemnity shareholder interest, as Indemnity provides services relating to
the sales, underwriting and issuance of policies on behalf of the Exchange.
Management fee revenue is based upon all premiums written or assumed by the
Exchange and the management fee rate, which is not to exceed 25%.  Our Board of
Directors establishes the management fee rate at least annually, generally in
December for the following year, and considers factors such as the relative
financial strength of Indemnity and the Exchange and projected revenue streams.
The management fee rate was set at 25% for both 2013 and 2012.  Management fee
revenue is eliminated upon consolidation.

Property and casualty insurance operations
The property and casualty insurance business is driven by premium growth, the
combined ratio and investment returns.  The property and casualty insurance
industry is cyclical, with periods of rising premium rates and shortages of
underwriting capacity followed by periods of substantial price competition and
excess capacity.  The cyclical nature of the insurance industry has a direct
impact on the direct written premium of the Property and Casualty Group.

The property and casualty insurance operation's premium growth strategy focuses
on growth by expansion of existing operations including a careful agency
selection process and increased market penetration in existing operating
territories.  Expanding the size of our existing agency force of nearly 2,200
independent agencies, with almost 10,400 licensed property and casualty
representatives, will contribute to future growth as new agents build their
books of business with the Property and Casualty Group.

The property and casualty insurance operations insure preferred and standard
risks while maintaining a disciplined underwriting approach.  Based upon direct
written premium in 2012, 45% of our premiums were derived from personal auto,
26% from homeowners and 29% from commercial lines.  Pennsylvania, Maryland and
Virginia made up 62% of the property and casualty lines insurance business 2012
direct written premium.

Members of the Property and Casualty Group pool their underwriting results under
an intercompany pooling agreement.  Under the pooling agreement, the Exchange
retains a 94.5% interest in the net underwriting results of the Property and
Casualty Group, while EIC retains a 5.0% interest and ENY retains a 0.5%
interest.

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

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

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


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

Earnings on life insurance related invested assets are integral to the
evaluation of the life insurance operations because of the long duration of life
products.  On that basis, for presentation purposes, the life insurance
operations segment discussion includes the life insurance related investment
results.  However, also for presentation purposes, the segment footnote and the
investment operations segment discussion also include the life insurance
investment results as part of the Exchange's investment results.

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Investment operations
We generate revenues from our fixed maturity, equity security and limited
partnership investment portfolios to support our underwriting business.  The
portfolios are managed with the objective of maximizing after-tax returns on a
risk-adjusted basis.  Management actively evaluates the portfolios for
impairments.  We record impairment writedowns on investments in instances where
the fair value of the investment is substantially below cost, and we conclude
that the decline in fair value is other-than-temporary.

Earnings from our investment operations decreased modestly in the first quarter
of 2013, compared to the first quarter of 2012, but results in both periods
reflected favorable market conditions.  Net realized gains totaled $249 million
in the first quarter of 2013, compared to gains of $296 million in the prior
year quarter, primarily reflecting strong performance from our common stock
portfolio during both periods.  Net investment income totaled $103 million in
the first quarter of 2013, compared to $108 million in the first quarter of
2012.  Equity in earnings of limited partnerships was $36 million in the first
quarter of 2013, compared to $21 million in the first quarter of 2012.  The
results from our limited partnerships are based upon financial statements
received from our general partners, which are generally received on a quarter
lag.  As a result, our first quarter 2013 partnership earnings reflect the
market conditions experienced in the fourth quarter of 2012 and not in the first
quarter of 2013.

General Conditions and Trends Affecting Our Business
Economic conditions
Unfavorable changes in economic conditions, including declining consumer
confidence, inflation, high unemployment and the threat of recession, among
others, may lead the Property and Casualty Group's customers to modify coverage,
not renew policies, or even cancel policies, which could adversely affect the
premium revenue of the Property and Casualty Group, and consequently Indemnity's
management fee.  These conditions could also impair the ability of customers to
pay premiums when due, and as a result, the Property and Casualty Group's bad
debt write-offs could increase.  Our key challenge is to generate profitable
revenue growth in a highly competitive market that continues to experience the
effects of uncertain economic conditions.

Financial market volatility
Our portfolio of fixed income, preferred and common stocks, and limited
partnerships are subject to market volatility especially in periods of
instability in the worldwide financial markets.  Over time, net investment
income could also be impacted by volatility and by the general level of interest
rates, which impact reinvested cash flow from the portfolio and business
operations.  Depending upon market conditions, which are unpredictable and
remain uncertain, considerable fluctuation could exist in our reported total
investment income, which could have an adverse impact on our financial
condition, results of operations and cash flows.

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RESULTS OF OPERATIONS

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


Management Operations
Management fee revenue is earned by Indemnity from services relating to the
sales, underwriting and issuance of policies on behalf of the Exchange as a
result of its attorney-in-fact relationship, and is eliminated upon
consolidation. A summary of the results of our management operations is as
follows:

                                                                Indemnity Shareholder Interest
                                                                 Three months ended March 31,
(dollars in millions)                                         2013           2012        % Change
                                                                  (Unaudited)
Management fee revenue, net                                $    296$    269      10.2   %
Service agreement revenue                                         7              7      (0.9 )
Total revenue from management operations                        303            276       9.8
Cost of management operations                                   254            230      10.8
Income from management operations - Indemnity (1)          $     49$     46       5.0   %
Gross margin                                                   16.1 %         16.8 %    (0.7 ) pts.



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




Management fee revenue
Management fee revenue is based upon all premiums written or assumed by the
Exchange and the management fee rate, which is determined by our Board of
Directors at least annually. Management fee revenue is calculated by multiplying
the management fee rate by the direct premiums written by the Exchange and the
other members of the Property and Casualty Group, which are assumed by the
Exchange under an intercompany pooling agreement. The following table presents
the calculation of management fee revenue:

                                                                 Indemnity Shareholder Interest
                                                                  Three months ended March 31,
(dollars in millions)                                           2013             2012        % Change
                                                                     (Unaudited)

Property and Casualty Group direct written premium $ 1,187

$     1,078        10.1 %
Management fee rate                                                 25 %              25 %
Management fee revenue, gross                                      297     

270 10.1 Change in allowance for management fee returned on cancelled policies (1)

                                              (1 )              (1 )       NM
Management fee revenue, net of allowance                   $       296$       269        10.2 %



NM = not meaningful

(1) Management fees are returned to the Exchange when policies are cancelled

mid-term and unearned premiums are refunded. We record an estimated

allowance for management fees returned on mid-term policy cancellations.





Direct written premium of the Property and Casualty Group increased 10.1% in the
first quarter of 2013, compared to the first quarter of 2012, due to a 4.3%
increase in policies in force and a 4.7% increase in the year-over-year average
premium per policy for all lines of business.  The year-over-year policy
retention ratio was 91.0% at March 31, 2013, compared to 90.9% at December 31,
2012, and 90.7% at March 31, 2012.  See the "Property and Casualty Insurance
Operations" segment that follows for a complete discussion of property and
casualty direct written premium, which has a direct bearing on Indemnity's
management fee.

The management fee rate was set at 25%, the maximum rate, for both 2013 and 2012. Changes in the management fee rate can affect the Indemnity shareholder interest's revenue and net income from this segment significantly.

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Service agreement revenue
Service agreement revenue includes service charges Indemnity collects from
policyholders for providing extended payment terms on policies written by the
Property and Casualty Group and late payment and policy reinstatement fees. 

The

service charges are fixed dollar amounts per billed installment.  Service
agreement revenue declined 0.9%, totaling $7 million in both the first quarters
of 2013 and 2012.  The slight decrease in service agreement revenue resulted
from a continued shift in policies to the monthly direct debit payment plan,
which does not incur service charges, and the no-fee single payment plan, which
offers a premium discount.  The shift to these plans is driven by the consumers'
desire to avoid paying service charges and to take advantage of the discount in
pricing offered for paid-in-full policies.

Cost of management operations
                                              Indemnity Shareholder Interest
                                               Three months ended March 31,
(in millions)                                   2013               2012    % Change
                                                 (Unaudited)
Commissions                           $     164$ 149       10.2 %
Non-commission expense                       90                      81       12.0
Total cost of management operations   $     254$ 230       10.8 %




Commissions - Commissions increased $15 million in the first quarter of 2013,
compared to the same respective period in 2012, primarily as a result of the
10.1% increase in direct written premium of the Property and Casualty Group.

Non-commission expense - Non-commission expense increased $9 million in the
first quarter of 2013, compared to the first quarter of 2012.  Sales, policy
issuance, advertising, and underwriting costs increased $2 million.  Personnel
costs increased $5 million as a result of a $1 million increase in salaries, a
$2 million increase in pension and medical costs, and a $2 million increase in
the estimate for incentive plan compensation related to growth and underwriting
performance.  All other operating costs increased $2 million, which included a
$1 million increase related to professional fees.

Gross margin
The gross margin in the first quarter of 2013 was 16.1%, compared to 16.8% in
the first quarter of 2012, as a result of expense increases outpacing revenue
growth.



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Property and Casualty Insurance Operations
The Property and Casualty Group operates in 11 Midwestern, Mid-Atlantic and
Southeastern states and the District of Columbia and primarily writes private
passenger automobile, homeowners, commercial multi-peril, commercial automobile,
and workers compensation lines of insurance.  A summary of the results of our
property and casualty insurance operations is as follows:

                                                                Property and Casualty Group
                                                                Three months ended March 31,
(dollars in millions)                                         2013         2012        % Change
                                                                 (Unaudited)
Premiums:
Direct written premium                                     $  1,187$ 1,078       10.1   %
Reinsurance - assumed and ceded                                 (13 )        (6 )       NM
Net written premium                                           1,174       1,072        9.6
Change in unearned premium                                       18           3         NM
Net premiums earned                                           1,156       1,069        8.2
Losses and loss expenses:
Current accident year, excluding catastrophe losses             783         686       14.1
Current accident year catastrophe losses                         27         

25 9.4 Prior accident years, including prior year catastrophe losses

                                                            7         (19 )       NM
Losses and loss expenses                                        817         692       18.1
Policy acquisition and other underwriting expenses              328         302        8.6
Total losses and expenses                                     1,145         994       15.2
Underwriting income - Exchange(1)                          $     11     $   

75 (84.9 ) %

Loss and loss expense ratios: Current accident year loss ratio, excluding catastrophe losses

                                                         67.7 %      64.2  %     3.5   pts.
Current accident year catastrophe loss ratio                    2.3         

2.3 0.0 Prior accident year loss ratio, including prior year catastrophe losses

                                              0.6        (1.8 )      2.4
Total loss and loss expense ratio                              70.6        64.7        5.9
Policy acquisition and other underwriting expense ratio        28.4        28.3        0.1
Combined ratio                                                 99.0 %      93.0  %     6.0   pts.



NM = not meaningful

(1) The Exchange retains 100% of the income from the property and casualty insurance operations.



We measure profit or loss from our property and casualty insurance segment based
upon its underwriting results, which are represented by net premiums earned less
losses and loss expenses and policy acquisition and other underwriting expenses
on a pre-tax basis.  The loss and loss expense ratio and combined ratio are key
performance indicators that we use to assess business trends and to make
comparisons to industry results.  The investment results related to our property
and casualty insurance operations are included in our investment operations
segment discussion.

Premiums

Direct written premium - Direct written premium of the Property and Casualty
Group increased 10.1% to $1.2 billion in the first quarter of 2013, from $1.1
billion in the first quarter of 2012, driven by an increase in policies in force
and increases in average premium per policy.  Year-over-year policies in force
for all lines of business increased by 4.3% in the first quarter of 2013 as the
result of continuing strong policyholder retention and an increase in new
policies written, compared to an increase of 2.6% in the first quarter of 2012.
The year-over-year average premium per policy for all lines of business
increased 4.7% at March 31, 2013, compared to 3.3% at March 31, 2012.  The
combined impact of these increases was seen primarily in our renewal and
personal lines new business premiums.

Premiums generated from new business increased 17.3% to $151 million in the
first quarter of 2013, compared to an increase of 16.5% to $129 million in the
first quarter of 2012.  Underlying the trend in new business premiums was a
14.6% increase in new business policies written in the first quarter of 2013,
compared to 8.8% in the first quarter of 2012, while the year-over-year average
premium per policy on new business increased 6.8% at March 31, 2013, compared to
5.9% at March 31, 2012.


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Premiums generated from renewal business increased 9.1% to $1.0 billion in the
first quarter of 2013, compared to an increase of 5.8% to $949 million in the
first quarter of 2012.  Underlying the trend in renewal business premiums were
increases in average premium per policy and steady policy retention trends. 

The

renewal business year-over-year average premium per policy increased 4.5% at
March 31, 2013, compared to 3.0% at March 31, 2012.  The Property and Casualty
Group's year-over-year policy retention ratio was 91.0% at March 31, 2013, 90.9%
at December 31, 2012, and 90.7% at March 31, 2012.

Personal lines - Total personal lines premiums written increased 8.5% to $810
million in the first quarter of 2013, from $746 million in the first quarter of
2012, driven by an increase of 4.2% in the total personal lines policies in
force and an increase of 3.7% in the total personal lines year-over-year average
premium per policy.

New business premiums written on personal lines increased 20.4% in the first quarter of 2013, compared to 15.6% in the first quarter of 2012, driven by increases in new business policies written and average premium per policy. Personal lines new business policies written increased 16.9% in the first quarter of 2013, compared to 10.2% in the first quarter of 2012, while the year-over-year average premium per policy on personal lines new business increased 4.8% at March 31, 2013, compared to 4.7% at March 31, 2012.

• Private passenger auto new business premiums written increased 18.5% in the

first quarter of 2013, compared to 13.1% in the first quarter of 2012. New

business policies written for private passenger auto increased 15.6% in the

first quarter of 2013, compared to 9.1% in the first quarter of 2012, while

the new business year-over-year average premium per policy for private

      passenger auto increased 3.6% at March 31, 2013, compared to 2.3% at
      March 31, 2012.


• Homeowners new business premiums written increased 23.7% in the first

      quarter of 2013, compared to 20.9% in the first quarter of 2012.  New
      business policies written for homeowners increased 17.4% in the first
      quarter of 2013, compared to 11.8% in the first quarter of 2012.  The new

business year-over-year average premium per policy for homeowners increased

9.7% at March 31, 2013, compared to 6.7% at March 31, 2012.




Renewal premiums written on personal lines increased 7.1% in the first quarter
of 2013, compared to 5.2% in the first quarter of 2012, driven by increases in
average premium per policy and steady policy retention trends.  The
year-over-year average premium per policy on personal lines renewal business
increased 3.7% at March 31, 2013, compared to 2.2% at March 31, 2012.  The
personal lines year-over-year policy retention ratio was 91.6% at March 31, 2013
and December 31, 2012, and 91.4% at March 31, 2012.

• Private passenger auto renewal premiums written increased 4.3% in the first

quarter of 2013, compared to 2.7% in the first quarter of 2012. The

year-over-year average premium per policy on private passenger auto renewal

business increased 1.2% at March 31, 2013, compared to 0.3% at March 31,

2012. The private passenger auto year-over-year policy retention ratio was

92.2% at March 31, 2013, 92.1% at December 31, 2012 and 91.7% at March 31,

      2012.


• Homeowners renewal premiums written increased 13.1% in the first quarter of

2013, compared to 11.2% in the first quarter of 2012. The year-over-year

average premium per policy on homeowners renewal business increased 8.9% at

March 31, 2013, compared to 7.4% at March 31, 2012. The homeowners

year-over-year policyholder retention ratio was 90.8% at March 31, 2013,

and 90.9% at December 31, 2012 and March 31, 2012.

Commercial lines - Total commercial lines premiums written increased 13.6% to $377 million in the first quarter of 2013, from $332 million in the first quarter of 2012, driven by a 4.9% increase in the total commercial lines policies in force and a 7.0% increase in the total commercial lines year-over-year average premium per policy.


New business premiums written on commercial lines increased 12.0% in the first
quarter of 2013, compared to 18.3% in the first quarter of 2012, driven by
increases in new business policies written and average premium per policy.  The
combined impact of these increases was seen primarily in the commercial
multi-peril and commercial auto lines of business.  Commercial lines new
business policies written increased 5.2% in the first quarter of 2013, compared
to 3.3% in the first quarter of 2012, while the year-over-year average premium
per policy on commercial lines new business increased 15.6% at March 31, 2013,
compared to 7.2% at March 31, 2012.

Renewal premiums for commercial lines increased 13.9% in the first quarter of
2013, compared to an increase of 7.0% in the first quarter of 2012, driven by
increases in average premium per policy and steady policy retention trends. 

The

combined impact of these increases was seen primarily in the commercial
multi-peril and workers compensation lines of business.  The year-over-year
average premium per policy on commercial lines renewal business increased 5.5%
at March 31, 2013, compared to 4.4% at March 31, 2012.  The year-over-year
policy retention ratio for commercial lines was 86.7% at March 31, 2013, 86.2%
at December 31, 2012 and 85.9% at March 31, 2012.

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Future trends - premium revenue - We plan to continue our efforts to grow
Property and Casualty Group premiums and improve our competitive position in the
marketplace.  Expanding the size of our agency force through a careful agency
selection process and increased market penetration in our existing operating
territories will contribute to future growth as existing and new agents build
their books of business with the Property and Casualty Group.  At March 31,
2013, we had nearly 2,200 agencies with almost 10,400 licensed property and
casualty representatives.

Changes in premium levels attributable to the growth in policies in force and
rate changes directly affect the profitability of the Property and Casualty
Group and have a direct bearing on Indemnity's management fee.  Our continued
focus on underwriting discipline and the maturing of our pricing sophistication
models have contributed to the Property and Casualty Group's growth in new
policies in force and steady policy retention ratios.

Losses and loss expenses
Current accident year, excluding catastrophe losses - The current accident year
loss and loss expense ratio for all lines of business, excluding catastrophe
losses, was 67.7% in the first quarter of 2013, compared to 64.2% in the first
quarter of 2012.  The lower ratio for the first quarter of 2012 was driven
primarily by a lower volume of non-catastrophe weather related claims resulting
from mild winter weather compared to the first quarter of 2013.

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

Catastrophe losses for the current accident year, as defined by the Property and
Casualty Group, totaled $27 million in the first quarter of 2013, compared to
$25 million in the first quarter of 2012, and contributed 2.3 points to the loss
ratios in both periods.

Prior accident years, including prior accident year catastrophe losses - The
following table provides a breakout of our property and casualty insurance
operation's prior year loss reserve development, including prior accident year
catastrophe loss reserves, by type of business:
                                                                  Property and Casualty Group
                                                                 Three months ended March 31,
(in millions)                                                     2013                  2012
                                                                          (Unaudited)

Direct business, including reserves for catastrophe losses and salvage and subrogation

                          $           9         $         (20 )
Assumed reinsurance business                                           (1 )                   3
Ceded reinsurance business                                             (1 )                  (2 )
Total prior year loss development                           $           7   

$ (19 )

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



Direct business, including reserves for catastrophe losses and salvage and
subrogation - In the first quarter of 2013, the Property and Casualty Group
experienced adverse development on direct prior accident year loss reserves of
$9 million which contributed 0.8 points to the combined ratio, compared to
favorable development of $20 million in the first quarter of 2012 that improved
the combined ratio by 1.8 points.

The adverse development in the first quarter of 2013 was primarily impacted by
increased reserves related to two massive injury lifetime medical claims in the
workers compensation line of business, offset by favorable development in the
commercial multi-peril and homeowners lines of business resulting from better
than expected severity trends on property claims.  In the first quarter of 2012,
the favorable development was primarily driven by better than expected trends on
liability claims in the personal auto and homeowners lines of business and
better than expected trends on liability and property claims in the commercial
multi-peril line of business, offset somewhat by adverse development in the
workers compensation line of business resulting from increased severity trends.

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Assumed reinsurance - The Property and Casualty Group experienced favorable
development on prior accident year loss reserves for its assumed reinsurance
business totaling $1 million in the first quarter of 2013, compared to adverse
development of $3 million in the first quarter of 2012. The favorable
development in the first three months of 2013 was due to less than anticipated
growth in involuntary reinsurance, whereas the adverse development in the first
three months of 2012 was due to growth in involuntary reinsurance.

Ceded reinsurance - The Property and Casualty Group's ceded reinsurance reserve
recoveries increased $1 million the first quarter of 2013, compared to $2
million in the first quarter of 2012.  The increase in ceded recoveries is
reflected as favorable loss development as it represents an increase in
recoveries resulting from adverse development on our direct loss reserves.  In
the first three months of 2013, the increase in ceded recoveries was primarily
due to adverse development in the commercial multi-peril and workers
compensation lines of business, whereas the increase in the first three months
of 2012 was primarily due to adverse development in our other commercial lines
of business.

Policy acquisition and other underwriting expenses - Our policy acquisition and
other underwriting expense ratio remained relatively flat, increasing only 0.1
points to 28.4% in the first quarter of 2013, compared to 28.3% in the first
quarter of 2012. The management fee rate was 25% for the periods ending
March 31, 2013 and 2012.

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Life Insurance Operations
EFL is a Pennsylvania-domiciled life insurance company which underwrites and
sells individual and group life insurance policies and fixed annuities and
operates in 10 states and the District of Columbia.  A summary of the results of
our life insurance operations is as follows:

                                                            Erie Family Life Insurance Company
                                                               Three months ended March 31,
(in millions)                                                 2013         2012       % Change
                                                                 (Unaudited)
Individual life premiums, net of reinsurance               $      18$    17         8.2  %
Group life and other premiums                                      1           1         4.2
Other revenue                                                      1           1       (11.7 )
Total net policy revenue                                          20          19         7.8
Net investment income                                             23          24        (2.0 )
Net realized gains on investments                                  3           0          NM
Impairment losses recognized in earnings                           0           0          NM
Equity in earnings (losses) of limited partnerships                0           0          NM
Total revenues                                                    46          43         7.7
Benefits and other changes in policy reserves                     26          25         4.1
Amortization of deferred policy acquisition costs                  3           3        (8.7 )
Other operating expenses                                           6           6        (2.1 )
Total benefits and expenses                                       35          34         2.0
Income before taxes - Exchange(1)                          $      11$     9        30.2  %



NM = not meaningful

(1) The Exchange retains 100% of the income from the life insurance operations.





Policy revenue
Gross policy revenues increased 4.3% to $29 million in the first quarter 2013,
from $28 million in the first quarter of 2012.  EFL uses, and has used, a
variety of reinsurance programs to reduce claims volatility and for other
financial benefits.  While the amount of risk that EFL retains can vary based
upon the type of policy issued and the year it was issued, EFL generally does
not retain more than $1 million of risk on any individual life.  Ceded
reinsurance premiums totaled $9 million in the first quarter of 2013, compared
to $10 million in the first quarter of 2012.

Premiums received on annuity and universal life products totaled $21 million and
$20 million in the first quarters of 2013 and 2012, respectively.  Of these
amounts, annuity and universal life premiums, which are recorded as deposits and
therefore not reflected in revenue on the Consolidated Statements of Operations,
totaled $16 million in both the first quarters of 2013 and 2012.

Investment revenue
EFL's investment revenue in the first quarter of 2013 was primarily impacted by
an increase in net realized gains on investments, as a result of having gains on
the disposal of a previously impaired security and increased call activity,
offset by a slight decrease in net investment income, compared to the first
quarter of 2012.  See the discussion of investments in the "Investment
Operations" segment that follows for further information.

Benefits and expenses
Total benefits and expenses increased slightly in the first quarter of 2013,
impacted by a slight increase in benefits and other changes in policy reserves
compared to the first quarter of 2012.

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Investment Operations
The investment results related to our life insurance operations are included in
the investment operations segment discussion as part of the Exchange's
investment results.  A summary of the results of our investment operations is as
follows:

                                                                    Erie Insurance Group
(in millions)                                                   Three months ended March 31,
                                                               2013            2012       % Change
Indemnity                                                         (Unaudited)
Net investment income                                     $        4$     4        (9.4 )%
Net realized gains on investments                                  0               3       (98.5 )
Net impairment losses recognized in earnings                       0               0          NM
Equity in earnings of limited partnerships                         3               1          NM
Net revenue from investment operations - Indemnity        $        7$     8       (20.5 )%
Exchange
Net investment income                                     $      102$   107        (4.4 )%
Net realized gains on investments                                249             293       (15.0 )
Net impairment losses recognized in earnings                       0               0          NM
Equity in earnings of limited partnerships                        33              20        65.8
Net revenue from investment operations - Exchange(1)      $      384$   420        (8.6 )%


NM = not meaningful

(1)    The Exchange's investment results for the first quarter of 2013 and 2012
       include net investment revenues from EFL's operations of $26 million and
       $24 million, respectively.




Net investment income
Net investment income primarily includes interest and dividends on our fixed
maturity and equity security portfolios net of investment expenses.  Indemnity's
net investment income was unchanged in the first quarter of 2013, compared to
the first quarter of 2012, while the Exchange's net investment income decreased
$5 million during the same period.  The decrease in net investment income for
the Exchange in the first quarter of 2013 was due to lower investment yields,
which more than offset higher invested balances.

Net realized gains on investments
Net realized gains and losses on investments include the changes in fair value
of common stocks designated as trading securities, and gains and losses
resulting from the actual sales of all security categories.  Indemnity generated
net realized gains of less than $0.1 million in the first quarter of 2013,
compared to gains of $3 million in the first quarter of 2012, while the Exchange
generated net realized gains of $249 million, compared to gains of $293 million
during the same periods.  Net realized gains for the Exchange decreased in the
first quarter of 2013 primarily due to lower increases in fair value on common
stocks compared to the same period in 2012. Indemnity recorded no changes in
fair value on common stock in the first quarter of 2013 due to the sale of its
common stock portfolio classified as trading securities in the fourth quarter of
2012.

Net impairment losses recognized in earnings
There were no net impairment losses recorded in earnings for Indemnity for the
first quarter of 2013 and 2012.  Net impairment losses for the Exchange were
$0.4 million in the first quarter of 2013, compared to net impairment losses of
$0.1 million in the first quarter of 2012.

Equity in earnings of limited partnerships
Indemnity's equity in earnings of limited partnerships increased $2 million in
the first quarter of 2013, compared to the first quarter of 2012, while the
Exchange's equity in earnings of limited partnerships increased $13 million
during the same period.  The increase in earnings for both Indemnity and the
Exchange during the first quarter of 2013 was primarily due to higher earnings
from real estate investments which were partially offset by lower earnings from
private equity and mezzanine debt.


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

                                                    Erie Insurance Group
(in millions)                                   Three months ended March 31,
                                                       2013               2012
Indemnity                                               (Unaudited)
Securities sold:
Fixed maturities                             $           0               $   0
Preferred stock equity securities                        0                  

0

Common stock equity securities                           0                  

1

Common stock increases in fair value(1)                  0                  

2

Total net realized gains - Indemnity(2)      $           0               $   3
Exchange
Securities sold:
Fixed maturities                             $          13               $   6
Preferred stock equity securities                        2                  

1

Common stock equity securities                          90                  

29

Common stock increases in fair value(1)                144                 

257

Total net realized gains - Exchange(2) (3)   $         249               $ 293

(1) The fair value on our common stock portfolio is based upon exchange traded

       prices provided by a nationally recognized pricing service.


(2) See Item 1. "Financial Statements - Note 7. Investments," contained within

       this report for additional disclosures regarding net realized gains
       (losses) on investments.


(3) The Exchange's results for the first quarter of 2013 and 2012 include net

       realized gains from EFL's operations of $3 million and $0 million,
       respectively.




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

                                                                      Erie Insurance Group
(in millions)                                                     Three months ended March 31,
                                                                    2013                    2012
Indemnity                                                                  (Unaudited)
Private equity                                              $           (1 )           $          1
Mezzanine debt                                                           1                        2
Real estate                                                              3                       (2 )
Total equity in earnings of limited partnerships -
Indemnity                                                   $            3             $          1
Exchange
Private equity                                              $           10             $         14
Mezzanine debt                                                           7                       10
Real estate                                                             16                       (4 )
Total equity in earnings of limited partnerships -
Exchange (1)                                                $           33             $         20


(1) The Exchange's results include equity in earnings (losses) of limited

       partnerships from EFL of $0.4 million for the first quarter of 2013 and
       ($0.4) million for the first quarter of 2012.




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

Limited partnership earnings tend to be cyclical based upon market conditions,
the age of the partnership, and the nature of the investments.  Generally,
limited partnership earnings are recorded on a quarter lag from financial
statements we receive from our general partners.  As a consequence, earnings
from limited partnerships reported at March 31, 2013 reflect investment
valuation changes resulting from the financial markets and the economy in the
fourth quarter of 2012.

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FINANCIAL CONDITION

Investments
Our investment strategy takes a long-term perspective emphasizing investment
quality, diversification, and superior investment returns.  Investments are
managed on a total return approach that focuses on current income and capital
appreciation.  Our investment strategy also provides for liquidity to meet our
short- and long-term commitments.

Distribution of investments

                                                                Erie Insurance Group
                                           Carrying value                  Carrying value
                                                 at                              at
                                                                            December 31,
(in millions)                              March 31, 2013    % to total         2012          % to total
Indemnity                                           (Unaudited)
Fixed maturities                           $        421           66 %     $         452           66 %
Equity securities:
Preferred stock                                      23            3                  29            4
Common stock                                         26            4                  26            4
Limited partnerships:
Private equity                                       68           11                  73           11
Mezzanine debt                                       24            4                  27            4
Real estate                                          75           12                  80           11
Real estate mortgage loans                            1            0                   1            0
Total investments - Indemnity              $        638          100 %     $         688          100 %
Exchange
Fixed maturities                           $      7,891           63 %     $       7,707           64 %
Equity securities:
Preferred stock                                     631            5                 631            5
Common stock                                      2,974           24               2,731           22
Limited partnerships:
Private equity                                      476            4                 482            4
Mezzanine debt                                      185            1                 196            2
Real estate                                         343            3                 359            3
Life policy loans                                    16            0                  16            0
Real estate mortgage loans                            4            0                   4            0
Total investments - Exchange               $     12,520          100 %     $      12,126          100 %
Total investments - Erie Insurance Group   $     13,158$      12,814




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

We individually analyze all positions with emphasis on those that have, in
management's opinion, declined significantly below cost.  In compliance with
impairment guidance for debt securities, we perform further analysis to
determine if a credit-related impairment has occurred.  Some of the factors
considered in determining whether a debt security is credit impaired include
potential for the default of interest and/or principal, level of subordination,
collateral of the issue, compliance with financial covenants, credit ratings and
industry conditions.  We have the intent to sell all credit-impaired debt
securities, therefore the entire amount of the impairment charges are included
in earnings and no credit impairments are recorded in other comprehensive
income.  For available-for-sale equity securities, a charge is recorded in the
Consolidated Statements of Operations for positions that have experienced
other-than-temporary impairments due to credit quality or other factors.  (See
the "Investment Operations" section herein for further information.)  Management
believes its investment valuation philosophy and accounting practices result in
appropriate and timely measurement of value and recognition of impairment.

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Fixed maturities
Under our investment strategy, we maintain a fixed maturity portfolio that is of
high quality and well diversified within each market sector.  This investment
strategy also achieves a balanced maturity schedule.  Our fixed maturity
portfolio is managed with the goal of achieving reasonable returns while
limiting exposure to risk.  Our municipal bond portfolio accounts for $176
million, or 42%, of the total fixed maturity portfolio for Indemnity and $1.3
billion, or 16%, of the fixed maturity portfolio for the Exchange at March 31,
2013.  The overall credit rating of the municipal portfolio without
consideration of the underlying insurance is AA.

Fixed maturities classified as available-for-sale are carried at fair value with
unrealized gains and losses, net of deferred taxes, included in shareholders'
equity.  Indemnity's net unrealized gains on fixed maturities, net of deferred
taxes, amounted to $9 million at March 31, 2013, compared to $10 million at
December 31, 2012.  At March 31, 2013, the Exchange had net unrealized gains on
fixed maturities of $422 million, compared to $449 million at December 31, 2012.

The following table presents a breakdown of the fair value of our fixed
maturities portfolio by sector and rating for Indemnity and the Exchange,
respectively:
                                                      Erie Insurance Group(1)
                                                         At March 31, 2013
(in millions)                                               (Unaudited)
                                                                         Non- investment       Fair
      Industry Sector          AAA        AA         A         BBB            grade           value
Indemnity
Basic materials               $   0$     0$     0$     8    $               0    $     8
Communications                    0          0         21          0                    0         21
Consumer                          0          0         19         11                    0         30
Energy                            0          0          5         24                    0         29
Financial                         0         34         44         35                   10        123
Government-municipal             75         70         28          3                    0        176
Industrial                        0          0          1          1                    0          2
Structured securities(2)          0          0          0          2                    0          2
Technology                        0          0          0          9                    0          9
Utilities                         0          0          3         18                    0         21
Total - Indemnity             $  75$   104$   121$   111    $              10    $   421
Exchange
Basic materials               $   0$     0$    53$   176    $               5    $   234
Communications                    0          0        199        348                   14        561
Consumer                          0         31        304        623                   20        978
Diversified                       0          0         15          0                    0         15
Energy                           16         48        144        387                   24        619
Financial                         1        185      1,123      1,058                  168      2,535
Foreign government                0         16         13          0                    0         29
Government-municipal            369        760        142         28                    0      1,299

Government sponsored entity 0 29 2 0

            0         31
Industrial                        0         11         71        233                   16        331
Structured securities(2)         38        289         47         26                    3        403
Technology                        0         10         48         89                    0        147
U.S. Treasury                     0        154          0          0                    0        154
Utilities                         0          0        101        433                   21        555
Total - Exchange              $ 424$ 1,533$ 2,262$ 3,401    $             271    $ 7,891

(1) Ratings are supplied by S&P, Moody's, and Fitch. The table is based upon

       the lowest rating for each security.


(2) Structured securities include asset-backed securities, collateral, lease

       and debt obligations, commercial mortgage-backed securities and
       residential mortgage-backed securities.



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

The following table presents an analysis of the fair value of our preferred and common stock securities by sector for Indemnity and Exchange, respectively:

                                   Erie Insurance Group
                                      Fair value at:
(in millions)           March 31, 2013           December 31, 2012
                         (Unaudited)
                     Preferred     Common       Preferred       Common
 Industry sector       stock       stock          stock         stock
Indemnity
Communications      $     1$     0$      1$     0
Diversified               3             0           3                0
Financial                15             0          15                0
Funds (1)                 0            26           0               26
Utilities                 4             0          10                0
Total - Indemnity   $    23$    26$     29$    26
Exchange
Basic materials     $     0$    79$      0$    94
Communications           10           258          10              190
Consumer                  6           833           5              765
Diversified               2            17           2               21
Energy                    0           184           0              177
Financial               504           424         495              423
Funds (1)                 0           554           0              436
Government                1             0           1                0
Industrial                7           384           0              390
Technology                0           203           0              197
Utilities               101            38         118               38
Total - Exchange    $   631$ 2,974$    631$ 2,731

(1) Includes certain exchange traded funds with underlying holdings of fixed

maturity securities totaling $26 million for Indemnity and $312 million

for the Exchange at March 31, 2013, and $26 million for Indemnity and $314

million for the Exchange at December 31, 2012. These securities meet the

criteria of a common stock under U.S. GAAP, and are included on the

balance sheet as available-for-sale equity securities. Remaining common

       stock investments are classified as trading securities.




Equity securities classified as available-for-sale include preferred and certain
common stock securities, and are carried at fair value on the Consolidated
Statements of Financial Position with all changes in unrealized gains and losses
reflected in other comprehensive income.  At March 31, 2013, the unrealized gain
on equity securities classified as available-for-sale, net of deferred taxes,
amounted to $1 million for Indemnity and $56 million for the Exchange, compared
to $1 million for Indemnity and $48 million for the Exchange at December 31,
2012.

Our common stocks classified as trading securities are measured at fair value
with all changes in unrealized gains and losses reflected in the Consolidated
Statements of Operations.

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Limited partnerships
In the first quarter of 2013, investments in limited partnerships decreased
modestly for Indemnity and the Exchange from the investment levels at
December 31, 2012.  Changes in partnership values are a function of
contributions and distributions, adjusted for market value changes in the
underlying investments. The decrease in limited partnership investments was due
to net distributions received from the partnerships which were partially offset
by partnership earnings.  The results from our limited partnerships are based
upon financial statements received from our general partners, which are
generally received on a quarter lag.  As a result, the market values and
earnings recorded during the first quarter of 2013 reflect the partnership
activity experienced in the fourth quarter of 2012.

The components of limited partnership investments are as follows:

                                                     Erie Insurance Group
(in millions)                             At March 31, 2013     At December 31, 2012
Indemnity                                    (Unaudited)
Private equity                           $        68           $                   73
Mezzanine debt                                    24                               27
Real estate                                       75                               80
Total limited partnerships - Indemnity   $       167           $                  180
Exchange
Private equity                           $       476           $                  482
Mezzanine debt                                   185                              196
Real estate                                      343                              359
Total limited partnerships - Exchange    $     1,004           $                1,037



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Liabilities


Property and casualty losses and loss expense reserves
Loss reserves are established to account for the estimated ultimate costs of
losses and loss expenses for claims that have been reported but not yet settled
and claims that have been incurred but not reported.  While we exercise
professional diligence to establish reserves at the end of each period that are
fully reflective of the ultimate value of all claims incurred, these reserves
are, by their nature, only estimates and cannot be established with
absolute certainty.

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

Losses and loss expense reserves are presented on the Consolidated Statements of
Financial Position on a gross basis.  The following table represents the direct
and assumed losses and loss expense reserves by major line of business for our
property and casualty insurance operations.  The reinsurance recoverable amount
represents the related ceded amounts which results in the net liability
attributable to the Property and Casualty Group.

                                                                      

Property and Casualty Group

                                                                                             At December 31,
(in millions)                                                     At March 31, 2013               2012
                                                                     (Unaudited)
Gross reserve liability(1):
Personal auto                                               $         1,153                  $       1,169
Automobile massive injury                                               350                            351
Homeowners                                                              311                            299
Workers compensation                                                    532                            512
Workers compensation massive injury                                     101                             99
Commercial auto                                                         341                            340
Commercial multi-peril                                                  557                            557
All other lines of business                                             178                            166
Assumed reinsurance                                                     105                            105
Gross reserves                                                        3,628                          3,598
Reinsurance recoverable                                                 153                            154
Net reserve liability - Exchange                            $         3,475                  $       3,444

(1) Loss reserves are set at full expected cost, except for workers compensation

loss reserves which have been discounted using an interest rate of 2.5%.

This discounting reduced unpaid losses and loss expenses by $83 million at

March 31, 2013 and $85 million at December 31, 2012.




The reserves that have the greatest potential for variation are the massive
injury lifetime medical claim reserves.  The Property and Casualty Group is
currently reserving for 268 claimants requiring lifetime medical care, of which
110 involve massive injuries.  The reserve carried by the Property and Casualty
Group for the massive injury claimants, which includes automobile massive injury
and workers compensation massive injury reserves, totaled $306 million at
March 31, 2013, which is net of $145 million of anticipated reinsurance
recoverables, compared to $305 million at December 31, 2012, which is net of
$145 million of anticipated reinsurance recoverables.

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

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IMPACT OF INFLATION


Property and casualty insurance premiums are established before losses occur and
before loss expenses are incurred, and therefore, before the extent to which
inflation may impact such costs is known. Consequently, in establishing premium
rates, we attempt to anticipate the potential impact of inflation, including
medical cost inflation, construction and auto repair cost inflation and tort
issues.  Medical costs are a broad element of inflation that impacts personal
and commercial auto, general liability, workers compensation and commercial
multi-peril lines of insurance written by the Property and Casualty Group.
Inflation assumptions take the form of explicit numerical values in the survival
ratio, individual claim, and massive injury lifetime medical reserving methods.
Inflation assumptions are implicitly derived through the selection of applicable
loss development patterns for all other reserving methods.  Occasionally,
unusual aberrations in loss development patterns are caused by external and
internal factors such as changes in claim reporting, settlement patterns,
unusually large losses, process changes, legal or regulatory changes, and other
influences.  In these instances, analyses of alternate development factor
selections are performed to evaluate the effect of these factors and actuarial
judgment is applied to make appropriate assumptions needed to develop a best
estimate of ultimate losses.


LIQUIDITY AND CAPITAL RESOURCES


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

Volatility in the financial markets presents challenges to us as we do
occasionally access our investment portfolio as a source of cash.  Some of our
fixed income investments, despite being publicly traded, are illiquid.
Volatility in these markets could impair our ability to sell certain of our
fixed income securities or cause such securities to sell at deep discounts.
Additionally, our limited partnership investments are significantly less
liquid.  We believe we have sufficient liquidity to meet our needs from other
sources even if market volatility persists throughout 2013.

Cash flow activities - Erie Insurance Group
The following table provides condensed consolidated cash flow information for
the three months ended March 31:

(in millions)                                             Erie Insurance

Group

                                                           2013           

2012

Net cash provided by operating activities              $     127       $    

72

Net cash used in investing activities                       (133 )         (22 )
Net cash used in financing activities                         (6 )         

(36 ) Net (decrease) increase in cash and cash equivalents $ (12 )$ 14





Net cash provided by operating activities totaled $127 million and $72 million
for the first three months of 2013 and 2012, respectively.  Increased cash from
operating activities for the first three months of 2013 was driven primarily by
an increase in premiums collected by the Exchange driven by the increase in
premiums written, a decrease in income taxes paid, and an increase in limited
partnership distributions received. Somewhat offsetting this increase in cash
were increases in losses and loss expenses paid and other underwriting and
acquisition costs paid compared to the first three months of 2012.

At March 31, 2013, we recorded a net deferred tax asset of $39 million attributable to Indemnity and a net deferred tax liability of $410 million attributable to the Exchange. There was no deferred tax valuation allowance recorded at March 31, 2013. Our capital gain and loss strategies take into consideration our ability to offset gains and losses in future periods, carry-back of

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capital loss opportunities to the three preceding years, and capital loss carry-forward opportunities to apply against future capital gains over the next five years.


Net cash used in investing activities totaled $133 million and $22 million for
the first three months of 2013 and 2012, respectively.  The first three months
of 2013, investing activities primarily included increased cash used to purchase
certain common stocks and fixed maturity securities, offset somewhat by
increased cash generated from the sale of other common and preferred stocks and
fixed maturity securities compared to the first three months of 2012.  At
March 31, 2013, we had contractual commitments to invest up to $410 million
related to our limited partnership investments to be funded as required by the
partnerships' agreements.  Of this amount, the total remaining commitment to
fund limited partnerships that invest in private equity securities was $156
million, mezzanine debt securities was $155 million, and real estate activities
was $99 million.

For a discussion of net cash used in financing activities, see the following
"Cash flow activities - Indemnity," for the primary drivers of financing cash
flows related to Indemnity.

Cash flow activities - Indemnity
The following table is a summary of cash flows for Indemnity for the three
months ended March 31:

(in millions)                                                   Indemnity Shareholder Interest
                                                                   2013                  2012

Net cash (used in) provided by operating activities $ (1 )

         $           9
Net cash provided by investing activities                              45                      53
Net cash used in financing activities                                 (15 )                   (45 )
Net increase in cash and cash equivalents                   $          29           $          17



See Item 1. "Financial Statements - Note 15. Indemnity Supplemental Information," contained within this report for more detail on Indemnity's cash flows.


Net cash used in Indemnity's operating activities totaled $1 million for the
first three months of 2013, compared to cash provided of $9 million for the
first three months of 2012.  Decreased cash from operating activities for the
first three months of 2013 was primarily due to an increase in commissions paid
to agents, general operating expenses paid, and cash paid for salaries and
wages. Offsetting this decrease was an increase in management fee revenue
received. Management fee revenues were higher reflecting the increase in the
premiums written or assumed by the Exchange.  Cash paid for agent commissions
and bonuses increased to $197 million in the first three months of 2013,
compared to $180 million for the first three months of 2012, as a result of an
increase in cash paid for ordinary commissions.  Indemnity made a $17 million
contribution to its pension plan in the first quarter of 2013, compared to $16
million in the first quarter of 2012.  Indemnity's policy for funding its
pension plan is generally to contribute an amount equal to the greater of the
IRS minimum required contribution or the target normal cost for the year plus
interest to the date the contribution is made.  Indemnity is generally
reimbursed approximately 57% of the net periodic benefit cost of the pension
plan from its affiliates, which represents pension benefits for Indemnity
employees performing claims and life functions.

At March 31, 2013, Indemnity recorded a net deferred tax asset of $39 million. There was no deferred tax valuation allowance recorded at March 31, 2013.


Net cash provided by Indemnity's investing activities totaled $45 million for
the first three months of 2013, compared to $53 million for the first three
months of 2012.  Indemnity's first three months of 2013 investing activities
primarily included decreased cash generated from the sales of fixed maturity
securities, offset somewhat by a slight increase in cash generated from the
sales of preferred stocks and limited partnerships and a slight increase in cash
used to purchase other fixed maturity securities, compared to the first three
months of 2012.  Also impacting Indemnity future investing activities are
limited partnership commitments, which totaled $36 million at March 31, 2013,
and will be funded as required by the partnerships' agreements.  Of this amount,
the total remaining commitment to fund limited partnerships that invest in
private equity securities was $13 million, mezzanine debt securities was $10
million, and real estate activities was $13 million.

Net cash used in Indemnity's financing activities totaled $15 million for the
first three months of 2013, compared to $45 million for the first three months
of 2012.  The decrease in cash used in financing activities for the first three
months of 2013 was driven primarily by a decrease in the cash outlay for
dividends paid to shareholders.  There were no dividends paid to shareholders
for the first three months of 2013, compared to $27 million for the first three
months of 2012.  Normally, a regular

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quarterly dividend is declared by the Board at its December meeting of the
previous year and paid in January, as in the first three months of 2012. In the
first three months of 2013, the payment of the regular dividend normally made in
January was accelerated and paid in December 2012 due to the potential
significant increases in tax rates on 2013 dividend income pending at the time
of declaration. Indemnity increased both its Class A and Class B shareholder
quarterly dividends by 7.2% for 2013, compared to 2012.  There are no regulatory
restrictions on the payment of dividends to Indemnity's shareholders.

Indemnity repurchased 0.2 million shares of its Class A nonvoting common stock
in conjunction with its stock repurchase program at a total cost of $15 million
in the first quarter of 2013, based upon settlement date.  In the first three
months of 2012, shares repurchased under this program also totaled 0.2 million
at a total cost of $18 million.  In October 2011, our Board of Directors
approved a continuation of the current stock repurchase program for a total of
$150 million with no time limitation.  This repurchase authority includes, and
is not in addition to, any unspent amounts remaining under the prior
authorization.  Indemnity had approximately $55 million of repurchase authority
remaining under this program at March 31, 2013, based upon trade date.

The month of January 2013 includes repurchases of 444 shares of our outstanding
Class A nonvoting common stock outside of our publicly announced share
repurchase program at a total cost of $30,927, or $69.65 per share, to settle a
payment due to a retired senior vice president under our long-term incentive
plan. These shares were delivered to the plan participant in January 2013. In
January 2012, Indemnity also purchased 669 shares of our outstanding Class A
nonvoting common stock outside of our publicly announced share repurchase
program at a total cost of $50,724, or $75.82 per share, to settle a payment due
to a retired senior vice president under our long-term incentive plan.  These
shares were delivered to the plan participant in January 2012.

Capital Outlook
We regularly prepare forecasts evaluating the current and future cash
requirements of Indemnity and the Exchange for both normal and extreme risk
events.  Should an extreme risk event result in a cash requirement exceeding
normal cash flows, we have the ability to meet our future funding requirements
through various alternatives available to us.

Indemnity

Outside of Indemnity's normal operating and investing cash activities, future
funding requirements could be met through: 1) Indemnity's cash and cash
equivalents, which total approximately $41 million at March 31, 2013, 2) a $100
million bank revolving line of credit held by Indemnity, and 3) liquidation of
assets held in Indemnity's investment portfolio, including common stock,
preferred stock and investment grade bonds which totaled approximately $350
million at March 31, 2013.  Volatility in the financial markets could impair
Indemnity's ability to sell certain of its fixed income securities or cause such
securities to sell at deep discounts.  Additionally, Indemnity has the ability
to curtail or modify discretionary cash outlays such as those related to
shareholder dividends and share repurchase activities.

Indemnity had no borrowings under its line of credit at March 31, 2013.  At
March 31, 2013, bonds with fair values of $110 million were pledged as
collateral.  These securities have no trading restrictions.  The bank requires
compliance with certain covenants, which include minimum net worth and leverage
ratios.  Indemnity was in compliance with its bank covenants at March 31, 2013.

Exchange

Outside of the Exchange's normal operating and investing cash activities, future
funding requirements could be met through: 1) the Exchange's cash and cash
equivalents, which total approximately $347 million at March 31, 2013, 2) a $300
million bank revolving line of credit held by the Exchange, and 3) liquidation
of assets held in the Exchange's investment portfolio, including common stock,
preferred stock and investment grade bonds which totaled approximately $10.9
billion at March 31, 2013.  Volatility in the financial markets could impair the
Exchange's ability to sell certain of its fixed income securities or cause such
securities to sell at deep discounts.

The Exchange had no borrowings under its line of credit at March 31, 2013.  At
March 31, 2013, bonds with fair values of $326 million were pledged as
collateral.  These securities have no trading restrictions.  The bank requires
compliance with certain covenants, which include statutory surplus and risk
based capital ratios.  The Exchange was in compliance with its bank covenants at
March 31, 2013.

Indemnity has no rights to the assets, capital, or line of credit of the
Exchange and, conversely, the Exchange has no rights to the assets, capital, or
line of credit of Indemnity.  We believe we have the funding sources available
to us to support our cash flow requirements in 2013.


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

Surplus Notes
Indemnity holds a surplus note for $25 million from EFL that is payable on
demand on or after December 31, 2018; however, no principal or interest payments
may be made without prior approval of the Pennsylvania Insurance Commissioner.
Interest payments are scheduled to be paid semi-annually.  For the three month
period ended March 31, 2013 and 2012, Indemnity recognized interest income on
the note of $0.4 million.

The Exchange holds a surplus note for $20 million from EFL that is payable on
demand on or after December 31, 2025; however, no principal or interest payments
may be made without prior approval of the Pennsylvania Insurance Commissioner.
Interest payments are scheduled to be paid semi-annually.  For the three month
period ended March 31, 2013 and 2012, the Exchange recognized interest income on
the note of $0.3 million.


CRITICAL ACCOUNTING ESTIMATES

We make estimates and assumptions that have a significant effect on the amounts
and disclosures reported in the financial statements.  The most significant
estimates relate to the property and casualty insurance losses and loss expense
reserves, life insurance and annuity policy reserves, investment valuation,
deferred acquisition costs related to life insurance and investment-type
contracts, deferred taxes and retirement benefit plans for employees.  While
management believes its estimates are appropriate, the ultimate amounts may
differ from estimates provided.  Our most critical accounting estimates are
described in Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations," for the year ended December 31, 2012 of
our Annual Report on Form 10-K as filed with the Securities and Exchange
Commission on February 26, 2013.  See Item 1. "Financial Statements - Note 6.
Fair Value," contained within this report for additional information on our
valuation of investments.



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