UNITED STATES SECURITIES AND EXCHANGE COMMISSION ~~Washington, D.C. 20549~~

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2003~~2004

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 2-39458

ERIE FAMILY LIFE INSURANCE COMPANY ~~(Exact name of registrant as specified in its charter)~~

(Exact name of registrant as specified in its charter)


PENNSYLVANIA		25-1186315

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


100 Erie Insurance Place, Erie, Pennsylvania		16530

(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (814) 870-2000


Not applicable

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

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

Yes [X ] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes [ ] No [X]

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: 9,450,000 shares of Common Stock outstanding on ~~October 15~~August 13, ~~2003~~2004.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
		ERIE FAMILY LIFE INSURANCE COMPANY STATEMENTS OF FINANCIAL POSITION
		STATEMENTS OF FINANCIAL POSITION
		STATEMENTS OF OPERATIONS (Unaudited)
		STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
		STATEMENTS OF CASH FLOWS (Unaudited)
		STATEMENTS OF CASH FLOWS (Unaudited) (Continued)
		NOTES TO FINANCIAL STATEMENTS (Unaudited)
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF FINANCIAL OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Section 302 Certification of CEO
Section 302 Certification of CFO
Section 906 Certifications of CEO and FCO

INDEX

ERIE FAMILY LIFE INSURANCE COMPANY

PART I. FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)
	Statements of Financial Position - September 30, 2003 and December 31, 2002
		Statements of Financial Position - June 30, 2004 (Unaudited) and December 31, 2003
	Statements of Operations - Three and nine months ended September 30, 2003 and 2002
		Statements of Operations (Unaudited) - Three and six months ended June 30, 2004 and 2003
	Statements of Comprehensive Income - Three and nine months ended September 30, 2003 and 2002
		Statements of Comprehensive Income (Unaudited) - Three and six months ended June 30, 2004 and 2003
	Statements of Cash Flows - Nine months ended September 30, 2003 and 2002
		Statements of Cash Flows (Unaudited) - Six months ended June 30, 2004 and 2003
	Notes to Financial Statements - September 30, 2003
		Notes to Financial Statements - June 30, 2004
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.		Quantitative and Qualitative Disclosures About Market Risk
Item 4.		Controls and Procedures
PART II. OTHER INFORMATION
Item 1.		Legal Proceedings
Item 4.		Submission of Matters to a Vote of Security Holders
Item 6.		Exhibits and Reports on Form 8-K
SIGNATURES
Certification
Certification
Certifications

PART I. FINANCIAL INFORMATION

ERIE FAMILY LIFE INSURANCE COMPANY ~~STATEMENTS OF FINANCIAL POSITION~~

			(Dollars in thousands)
			September 30,		December 31,
ASSETS			2003		2002
			(Unaudited)
Invested Assets:
	Fixed Maturities at fair value (amortized cost of $1,164,777 and $986,137, respectively)		$	1,252,052	$	1,039,367
	Equity Securities at fair value (cost of $58,936 and $66,072, respectively)			64,703		68,749
	Limited Partnerships (cost of $13,210 and $16,352, respectively)			12,751		16,053
	Real Estate			1,148		1,210
	Policy Loans			10,026		9,516
	Real Estate Mortgage Loans			6,785		7,175
		Total Invested Assets	$	1,347,465	$	1,142,070
	Cash and Cash Equivalents			123,204		97,022
	Premiums Receivable from Policyholders			6,475		6,225
	Reinsurance Recoverable			710		1,713
	Other Receivables			460		1,486
	Accrued Investment Income			18,406		13,353
	Deferred Policy Acquisition Costs			96,271		104,065
	Reserve Credit for Reinsurance Ceded			18,627		14,123
	Prepaid Federal Income Taxes			627		2,674
	Other Assets			6,763		6,888
		Total Assets	$	1,619,008	$	1,389,619

STATEMENTS OF FINANCIAL POSITION

See notes to financial statements


	(Dollars in thousands)
	June 30,		December 31,
ASSETS	2004		2003
	(Unaudited)		(Restated)
Investments:
Fixed maturities at fair value (amortized cost of $1,257,776 and $1,203,607, respectively)	$	1,290,791	$	1,280,327
Equity securities at fair value (cost of $60,137 and $56,608, respectively)		64,370		62,948
Limited partnerships at fair value (cost of $13,031 and $12,203, respectively)		13,108		12,241
Real estate mortgage loans		6,216		6,305
Real estate		1,086		1,127
Policy loans		10,371		9,951

Total investments		1,385,942		1,372,899
Cash and cash equivalents		70,115		91,667
Premiums receivable from policyholders		6,933		7,344
Reinsurance recoverable		1,584		2,960
Other receivables		373		137
Accrued investment income		15,456		15,088
Deferred policy acquisition costs		114,812		98,207
Reserve credit for reinsurance ceded		24,191		20,758
Prepaid federal income taxes		1,216		1,983
Other assets		6,755		18,520

Total assets	$	1,627,377	$	1,629,563

See Notes to Financial Statements.

ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION

		(Dollars in thousands)		~~(Dollars in thousands)~~
				September 30,			December 31,
		June 30,			December 31,
				2003			2002
LIABILITIES AND SHAREHOLDERS’ EQUITY		2004			2003
		(Unaudited)		~~(Unaudited)~~	(Restated)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Liabilities:
Policy Liabilities and Accruals:
	Policy Liabilities and Accruals:
Future policy benefits		$	115,553		$	108,089
		Future Policy Benefits		$	103,902		$	94,243
Policy and contract claims			3,023			3,653
		Policy and Contract Claims			2,274			2,362
Annuity deposits			962,907			932,553
		Annuity Deposits			922,299			803,675
Universal life deposits			157,057			150,421
		Universal Life Deposits			147,163			135,551
Supplementary contracts not including life contingencies			718			579
		Supplementary Contracts Not Including Life Contingencies			584			625
Other policyholder funds			4,910			9,856
	Other Policyholder Funds				9,953			14,335
Deferred income taxes			37,275			46,813
	Deferred Income Taxes				49,678			41,577
Reinsurance premium due			1,327			1,875
	Reinsurance Premium Due				795			1,591
Securities lending collateral			43,831			65,495
	Securities Lending Collateral				70,058			41,669
Accounts payable and accrued expenses			9,383			9,239
	Accounts Payable and Accrued Expenses				13,881			9,673
Notes payable to Erie Indemnity Company			40,000			40,000
	Notes Payable to Erie Indemnity Company				40,000			15,000
Due to affiliates			4,046			3,442
	Due to Affiliates				1,933			2,886
Dividends payable			2,079			1,985
	Dividends Payable				3,969			1,985
Total liabilities			1,382,109			1,374,000
			Total Liabilities	$	1,366,489		$	1,165,172
Shareholders’ Equity:
Shareholders’ Equity:
Common stock, $.40 par value per share; authorized 15,000,000 shares; 9,450,000 shares issued and outstanding			3,780			3,780
	Common Stock, $.40 Par Value Per Share; Authorized15,000,000 Shares; 9,450,000 Shares Issued and Outstanding			$	3,780		$	3,780
Additional paid-in capital			630			630
	Additional Paid-In Capital				630			630
Accumulated other comprehensive income			18,703			44,603
	Accumulated Other Comprehensive Income				48,951			36,145
Retained earnings			222,155			206,550
	Retained Earnings				199,158			183,892
Total shareholders’ equity			245,268			255,563
			Total Shareholders’ Equity	$	252,519		$	224,447
Total liabilities and shareholders’ equity		$	1,627,377		$	1,629,563
			Total Liabilities and Shareholders’ Equity	$	1,619,008		$	1,389,619

See ~~notes~~Notes to ~~financial~~Financial ~~statements~~Statements.

ERIE FAMILY LIFE INSURANCE COMPANY ~~STATEMENTS OF OPERATIONS (Unaudited)~~

				(Dollars in thousands, except per share data)
				Three Months Ended					Nine Months Ended
				September 30					September 30
				2003		2002			2003		2002
Revenues:
	Net Policy Revenue:
		Life Premiums		$	12,757	$	11,532		$	38,528	$	35,879
		Group Life and Other Premiums			841		779			2,492		2,279
			Total Net Policy Revenue	$	13,598	$	12,311		$	41,020	$	38,158
	Net Investment Income				18,932		16,517			57,358		48,025
	Net Realized Gains (Losses) on Investments				4,908		(5,235	)		9,170		(10,878	)
	Equity in Earnings of Limited Partnerships				1,394		151			1,794		3,733
	Other Income				264		139			659		560
			Total Revenues	$	39,096	$	23,883		$	110,001	$	79,598
Benefits and Expenses:
	Death Benefits			$	4,456	$	3,758		$	11,058	$	11,186
	Interest on Annuity Deposits				10,957		10,050			31,496		29,007
	Interest on Universal Life Deposits				1,658		1,823			5,263		5,422
	Surrender and Other Benefits				236		304			960		871
	Increase in Future Life Policy Benefits				1,858		2,328			5,155		7,034
	Amortization of Deferred Policy Acquisition Costs				2,164		1,233			7,896		5,254
	Commissions				287		1,008			2,771		2,470
	General Expenses				1,497		2,007			7,791		7,511
	Taxes, Licenses and Fees				693		622			2,077		1,849
			Total Benefits and Expenses	$	23,806	$	23,133		$	74,467	$	70,604
Income Before Income Taxes				$	15,290	$	750		$	35,534	$	8,994
Provision for Federal Income Tax (Benefit):
	Current				3,207		292			11,126		5,075
	Deferred				2,099		(32	)		1,204		(1,963	)
			Total Provision for Federal Income Tax		5,306		260			12,330		3,112
Net Income				$	9,984	$	490		$	23,204	$	5,882
Net Income Per Share				$	1.06	$	0.05		$	2.46	$	0.62
Dividends Declared Per Share				$	0.21	$	0.21		$	0.84	$	0.84

STATEMENTS OF OPERATIONS (Unaudited)

See notes to financial statements


	Three Months Ended						Six Months Ended
	June 30						June 30
	2004			2003			2004			2003
				(Restated)						(Restated)
	(Dollars in thousands, except per share data)
Revenues:
Net Policy Revenue:
Life Premiums	$	13,789		$	13,529		$	26,901		$	25,771
Group Life and Other Premiums		836			805			1,703			1,651

Total Net Policy Revenue		14,625			14,334			28,604			27,422
Net Investment Income		19,752			19,843			38,507			38,426
Net Realized Gains on Investments		5,556			2,099			8,404			4,261
Equity in Earnings of Limited Partnerships		712			120			867			400
Other Income		238			217			556			396

Total Revenues		40,883			36,613			76,938			70,905

Benefits and Expenses:
Death Benefits		3,479			2,761			8,383			6,602
Interest on Annuity Deposits		11,136			10,605			22,046			20,540
Interest on Universal Life Deposits		1,751			1,827			3,487			3,606
Surrender and Other Benefits		295			448			615			723
Increase in Future Life Policy Benefits		1,784			1,509			4,031			3,297
Amortization of Deferred Policy Acquisition Costs		(3,592	)		1,725			(3,365	)		3,909
Commissions		1,043			1,143			1,585			2,483
General Expenses		4,097			3,915			7,975			8,337
Taxes, Licenses and Fees		1,023			707			1,857			1,384

Total Benefits and Expenses		21,016			24,640			46,614			50,881

Income Before Income Taxes		19,867			11,973			30,324			20,024
Provision for Federal Income Tax (Benefit):
Current		3,662			4,194			6,148			7,919
Deferred		2,958			(39	)		4,411			(971	)

Total Provision for Federal Income Tax		6,620			4,155			10,559			6,948

Net Income	$	13,247		$	7,818		$	19,765		$	13,076

Net Income Per Share	$	1.40		$	0.83		$	2.09		$	1.38

Dividends Declared Per Share	$	0.22		$	0.42		$	0.44		$	0.63

See Notes to Financial Statements.

ERIE FAMILY LIFE INSURANCE COMPANY ~~STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)~~

						(Dollars in thousands)
			Three Months Ended						Nine Months Ended
			September 30						September 30
			2003			2002			2003			2002
Net Income			$	9,984		$	490		$	23,204		$	5,882
Unrealized (Losses) Gains on Securities:
	Unrealized Holding (Losses) Gains Arising During Period, Net of Related Offsets			(38,626	)		19,677			28,872			8,804
	Less: (Gains) Losses Included in Net Income			(4,908	)		5,235			(9,170	)		10,878
		Net Unrealized Holding (Losses) Gains Arising During Period, Net of Related Offsets		($43,534	)	$	24,912		$	19,702		$	19,682
	Income Tax Benefit (Expense) Related to Unrealized (Losses) Gains			15,246			(8,719	)		(6,896	)		(6,889	)
	Unrealized (Depreciation) Appreciation of Investments, Net of Tax			($28,288	)	$	16,193		$	12,806		$	12,793
Comprehensive (Loss) Income				($18,304	)	$	16,683		$	36,010		$	18,675

STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

See notes to financial statements


	Three Months Ended						Six Months Ended
	June 30						June 30
	2004			2003			2004			2003
				(Restated)						(Restated)
	(Dollars in thousands)
Net Income	$	13,247		$	7,818		$	19,765		$	13,076

Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during period, net of related offsets		(57,315	)		41,296			(31,442	)		54,650
Less: gains included in net income		(5,556	)		(2,099	)		(8,404	)		(4,261	)

Net unrealized holding (losses) gains arising during period, net of related offsets		(62,871	)		39,197			(39,846	)		50,389

Income tax benefit (expense) related to unrealized (losses) gains		22,005			(13,719	)		13,946			(17,636	)

Unrealized (deprecation) appreciation of investments, net of tax		(40,866	)		25,478			(25,900	)		32,753

Comprehensive (Loss) Income	($	27,619	)	$	33,296		($	6,135	)	$	45,829

See Notes to Financial Statements.

ERIE FAMILY LIFE INSURANCE COMPANY ~~STATEMENTS OF CASH FLOWS (Unaudited)~~

					(Dollars in thousands)
					Nine Months Ended			Nine Months Ended
					September 30, 2003			September 30, 2002
Cash flows from operating activities:
Net income					$	23,204		$	5,882
Adjustments to reconcile net income to net cash provided by operating activities:
		Amortization of deferred policy acquisition costs				7,896			5,254
		Other amortization				535			230
		Deferred federal income tax expense (benefit)				1,204			(1,963	)
		Realized (gains) losses on investments				(9,170	)		10,878
		Equity in earnings of limited partnerships				(1,794	)		(3,733	)
Decrease (increase) in premium and other receivables						777			(1,776	)
Increase in accrued investment income						(5,053	)		(5,120	)
Increase in policy acquisition costs deferred						(17,426	)		(15,535	)
(Increase) decrease in other assets						(62	)		427
Increase in reinsurance recoverables and reserve credits						(3,501	)		(2,284	)
Decrease in prepaid federal income taxes						2,047			5,516
Increase in future policy benefits and claims						9,571			11,192
(Decrease) increase in other Policyholder funds						(4,382	)		7,564
Decrease in reinsurance premium due						(796	)		(1,474	)
Increase in accounts payable and due to affiliates						3,254			1,478
			Net cash provided by operating activities		$	6,304		$	16,536
Cash flows used in investing activities:
Purchase of investments:
	Fixed maturities					($452,842	)		($368,994	)
	Equity securities					(10,774	)		(23,781	)
	Limited partnerships					(1,910	)		(5,599	)
Sales/maturities of investments:
		Sales of fixed maturities				200,549			104,038
		Calls/maturities of fixed maturities				80,031			90,746
		Equity securities				20,468			23,767
		Limited partnerships				6,846			10,829
Increase in collateral from securities lending						28,389			249
Net mortgage loans						391			135
Net policy loans						(510	)		(473	)
				Net cash used in investing activities		($129,362	)		($169,083	)

STATEMENTS OF CASH FLOWS (Unaudited)

See notes to financial statements


	Six Months Ended			Six Months Ended
	June 30, 2004			June 30, 2003
	(Dollars in thousands)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Premiums collected	$	23,277		$	23,965
Net investment income received		40,323			37,953
Miscellaneous income		556			395
Benefits to policyholders		(34,654	)		(32,140	)
Commissions paid to agents		(3,252	)		(7,986	)
Salaries and wages paid		(6,501	)		(5,582	)
General operating expenses paid		(7,092	)		(6,969	)
Taxes, licenses and fees paid		(2,024	)		(1,814	)
Income taxes paid		(5,382	)		(8,675	)

Net cash provided by (used in) operating activities		5,251			(853	)

CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of investments:
Fixed maturities		(166,147	)		(317,047	)
Equity securities		(3,529	)		(8,598	)
Limited partnerships		(810	)		(1,910	)
Sales/maturities of investments:
Sales of fixed maturities		116,770			115,837
Calls/maturities of fixed maturities		14,954			58,331
Equity securities		0			7,071
Limited partnerships		890			3,113
(Decrease) increase in collateral from securities lending		(21,664	)		27,010
Net mortgage loans		89			345
Net policy loans		(420	)		(266	)

Net cash used in investing activities		(59,867	)		(116,114	)

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Annuity and supplementary contract deposits and interest		66,254			124,747
Annuity and supplementary contract surrenders and withdrawals		(35,761	)		(26,344	)
Universal life deposits and interest		9,891			10,425
Universal life surrenders		(3,256	)		(2,560	)
Dividends paid to shareholders		(4,064	)		(3,969	)

Net cash provided by financing activities		33,064			102,299

Net decrease in cash and cash equivalents		(21,552	)		(14,668	)
Cash and cash equivalents at beginning of period		91,667			97,022

Cash and cash equivalents at end of period	$	70,115		$	82,354

See Notes to Financial Statements.

ERIE FAMILY LIFE INSURANCE COMPANY ~~STATEMENTS OF CASH FLOWS (Unaudited) (Continued)~~

			(Dollars in thousands)
			Nine Months Ended			Nine Months Ended
			September 30, 2003			September 30, 2002
Cash flows provided by financing activities:
Annuity and supplementary contract deposits and interest			$	158,912		$	133,726
Annuity and supplementary contract surrenders and withdrawals				(40,330	)		(34,807	)
Universal life deposits and interest				15,448			14,451
Universal life surrenders				(3,836	)		(3,468	)
Proceeds from issue of note payable				25,000			0
Dividends paid to Shareholders				(5,954	)		(5,812	)
		Net cash provided by financing activities	$	149,240		$	104,090
Net increase (decrease) in cash and cash equivalents				26,182			(48,457	)
Cash and cash equivalents at beginning of year				97,022			159,462
Cash and cash equivalents at end of period			$	123,204		$	111,005
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
	Interest		$	640		$	640
	Income taxes			9,078			(441	)

NOTES TO FINANCIAL STATEMENTS (Unaudited)
(All dollar amounts are in thousands)

~~See~~NOTE ~~notes~~A to— ~~financial~~BASIS ~~statements~~OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in conformity with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on August 20, 2004.

NOTE B — RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

During the second quarter of 2004, the Company completed a comprehensive analysis of its deferred policy acquisition cost (DAC) asset in response to a material weakness in internal control. The analysis indicated that amounts previously reported as deferred acquisition costs and related amortization were incorrectly calculated. Accordingly, the Company has restated its’ previously issued financial statements. The impact of the restatement to net income and net income per share for the three and six months ended June 30, 2003, and deferred policy acquisition costs and shareholders' equity as of December 31, 2003 is as follows:


	Three Months Ended		Six Months Ended
	June 30, 2003		June 30, 2003
	(Dollars in thousands, except per share data)
As originally reported:
Net income	$	7,814	$	13,220
Net income per share	$	0.83	$	1.40
As restated:
Net income	$	7,818	$	13,076
Net income per share	$	0.83	$	1.38


	December 31,
	2003
	(Dollars in thousands)
As originally reported:
Deferred policy acquisition costs	$	103,874
Shareholders’ equity	$	259,247
As restated:
Deferred policy acquisition costs	$	98,207
Shareholders' equity	$	255,563

NOTE C — EARNINGS PER SHARE

Earnings per share amounts are based on the weighted average number of common shares outstanding during each of the respective periods.

ERIE FAMILY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (Unaudited) (All dollar amounts are in thousands)

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on March 27, 2003.

NOTE B — RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.” This Interpretation provides guidance on the identification of variable interest entities (VIE) for which control is achieved through means other than through voting rights and how to determine when and which business enterprises should consolidate VIEs. The entity identified as the VIEs primary beneficiary is required to consolidate the VIE. Effective October 9, 2003, the FASB issued a Staff Position deferring the effective date for applying the provisions of FIN46 for VIEs created before February 1, 2003. The new application date is the first interim or annual period ending after December 15, 2003.

Management evaluated the impact of the Interpretation on the Company’s financial statements. Although this Interpretation is not expected to have an impact on the Company’s financial statements, management believes the Erie Insurance Exchange (Exchange) qualifies as a VIE under the Interpretation and will require consolidation in the Erie Indemnity Company’s (EIC) financial statements for the year ended December 31, 2003. In addition, application of the Interpretation to the Exchange will result in consolidation of the Company in the EIC’s financial statements.

In July 2003, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts.” This SOP is not applicable to the Company since the Company does not issue the products addressed in the SOP.

NOTE C — RECLASSIFICATIONS

Certain amounts previously reported in the 2002 financial statements have been reclassified to conform to the current period’s presentation. Such reclassifications did not impact earnings or total Shareholders’ Equity.

NOTE D — INVESTMENTS

At ~~September~~June 30, 2004 and 2003, marketable equity securities consist of ~~nonredeemable~~common and nonredeemable preferred stock while fixed maturities consist of bonds, notes and redeemable preferred stock. ~~The~~Management ~~Company~~considers ~~sold~~all ~~its~~fixed maturities ~~entire~~as available-for-sale. Management determines the appropriate classification of fixed maturities at the time of purchase and reevaluates such designation as of each statement of financial position date. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of deferred federal income taxes, reported as a separate component of Comprehensive (Loss) Income and Shareholders’ Equity.

The following is a summary of available-for-sale securities:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
June 30, 2004
Fixed Maturities:
Bonds:
U.S. treasuries and government agencies	$	67,151	$	654	$	573	$	67,232
Public utilities		153,680		7,049		1,702		159,027
U.S. banks, trusts and insurance companies		177,450		6,435		3,010		180,875
U.S. industrial and miscellaneous		546,705		23,625		4,159		566,171
Mortgage-backed		154,412		2,069		2,464		154,017
Asset-backed		8,023		225		202		8,046
Foreign		143,339		7,987		2,974		148,352

Total bonds		1,250,760		48,044		15,084		1,283,720
Redeemable preferred stock		7,016		55		0		7,071

Total fixed maturities		1,257,776		48,099		15,084		1,290,791

Equity Securities:
Common stock:
U.S. industrial and miscellaneous		529		0		85		444
Nonredeemable preferred stock:
Public utilities		1,864		54		0		1,918
U.S. banks, trusts and insurance companies		16,909		1,579		0		18,488
U.S. industrial and miscellaneous		17,119		1,484		159		18,444
Foreign		23,716		1,435		75		25,076

Total equity securities		60,137		4,552		319		64,370

Total fixed maturities and equity securities	$	1,317,913	$	52,651	$	15,403	$	1,355,161

ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE D — INVESTMENTS (Continued)

common stock portfolio in the fourth quarter of 2002. Management considers all fixed maturities as available-for-sale. Management determines the appropriate classification of fixed maturities at the time of purchase and reevaluates such designation as of each statement of financial position date. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of deferred federal income taxes, reported as a separate component of Shareholders’ Equity.


			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
December 31, 2003
Fixed Maturities:
Bonds:
U.S. treasuries and government agencies	$	61,176	$	1,543	$	37	$	62,682
Public utilities		141,154		10,377		528		151,003
U.S. banks, trusts and insurance companies		158,731		9,358		836		167,253
U.S. industrial and miscellaneous		547,363		41,077		776		587,664
Mortgage-backed		145,394		3,622		182		148,834
Asset-backed		5,032		330		0		5,362
Foreign		137,741		13,314		933		150,122

Total bonds		1,196,591		79,621		3,292		1,272,920
Redeemable preferred stock		7,016		391		0		7,407

Total fixed maturities		1,203,607		80,012		3,292		1,280,327

Equity Securities:
Nonredeemable preferred stock:
Public utilities		1,864		136		0		2,000
U.S. banks, trusts and insurance companies		13,909		1,921		0		15,830
U.S. industrial and miscellaneous		17,119		1,775		20		18,874
Foreign		23,716		2,528		0		26,244

Total equity securities		56,608		6,360		20		62,948

Total fixed maturities and equity securities	$	1,260,215	$	86,372	$	3,312	$	1,343,275

~~The~~Realized ~~following~~gains isand alosses ~~summary~~on the sales of ~~available-~~investments are recognized in income using the specific identification method. Investments that have declined in value below cost and for which the decline is considered to be other-~~sale~~than-temporary ~~securities:~~by management are written down to estimated realizable value. The impairments are made on an individual security basis and are recorded as a component of net realized gains on investments in the Statements of Operations.

						Gross		Gross
				Amortized		Unrealized		Unrealized		Estimated
				Cost		Gains		Losses		Fair Value
September 30, 2003
Fixed Maturities:
Bonds:
	U.S. Treasuries and Government Agencies			$	43,245	$	1,657	$	0	$	44,902
	Special Revenue				80,052		3,454		45		83,461
	Public Utilities				130,804		8,592		360		139,036
	U.S. Banks, Trusts and Insurance Companies				240,521		16,752		451		256,822
	U.S. Industrial and Miscellaneous				554,796		46,975		1,004		600,767
	Foreign				113,208		12,051		491		124,768
		Total Bonds		$	1,162,626	$	89,481	$	2,351	$	1,249,756
Redeemable Preferred Stock					2,151		145		0		2,296
		Total Fixed Maturities		$	1,164,777	$	89,626	$	2,351	$	1,252,052
Equity Securities:
Nonredeemable Preferred Stock:
	U.S. Banks, Trusts and Insurance Companies			$	7,675	$	755	$	0	$	8,430
	U.S. Industrial and Miscellaneous				9,811		823		0		10,634
	Public Utilities				2,177		88		0		2,265
	Foreign				39,273		4,101		0		43,374
		Total Equity Securities		$	58,936	$	5,767	$	0	$	64,703
			Total Available-for-Sale Securities	$	1,223,713	$	95,393	$	2,351	$	1,316,755

The components of net realized gains on investments as reported in the Statements of Operations are included below.

ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE D — INVESTMENTS (Continued)

									Gross				Gross
		Three Months Ended								Six Months Ended
					Amortized				Unrealized				Unrealized				Estimated
		June 30								June 30
					Cost				Gains				Losses				Fair Value
		2004				2003				2004				2003
December 31, 2002
Fixed maturities:
Fixed Maturities:
Gross realized gains		$	5,744			$	2,258			$	8,674			$	9,263
Bonds:
Gross realized losses			(220	)			(141	)			(313	)			(4,974	)
	U.S. Treasuries and Government Agencies				$	51,268			$	2,607			$	0			$	53,875
Net realized gains			5,524				2,117				8,361				4,289
	Special Revenue					41,010				2,376				0				43,386
Equity securities:
	Public Utilities					103,695				5,567				1,421				107,841
Gross realized gains			32				29				43				29
	U.S. Banks, Trusts and Insurance Companies					180,503				11,751				334				191,920
Gross realized losses			0				(47	)			0				(57	)
	U.S. Industrial and Miscellaneous					501,206				33,305				4,479				530,032
Net realized gains (losses)			32				(18	)			43				(28	)
	Foreign					99,624				5,947				2,393				103,178
Net realized gains on investments		$	5,556			$	2,099			$	8,404			$	4,261
		Total Bonds			$	977,306			$	61,553			$	8,627			$	1,030,232
Redeemable Preferred Stock						8,831				304				0				9,135
		Total Fixed Maturities			$	986,137			$	61,857			$	8,627			$	1,039,367
Equity Securities:
Nonredeemable Preferred Stock:
	U.S. Banks, Trusts and Insurance Companies				$	7,016			$	211			$	0			$	7,227
	U.S. Industrial and Miscellaneous					11,872				773				0				12,645
	Foreign					47,184				2,496				803				48,877
		Total Equity Securities			$	66,072			$	3,480			$	803			$	68,749
			Total Available-for-Sale Securities		$	1,052,209			$	65,337			$	9,430			$	1,108,116

~~Realized~~The ~~gains~~gross ~~and~~unrealized losses onat ~~the~~June 30, ~~sales~~2004 ofspan ~~investments~~the ~~are~~various ~~recognized in income~~investment ~~using~~categories ~~the~~of ~~specific identification method. Investments that have declined in~~fixed ~~value~~maturities ~~below cost~~ and ~~for~~equity ~~which the decline is considered to be other-than-temporary by management are written down to estimated realizable value~~securities. The ~~impairments~~gross ~~are~~unrealized ~~made~~losses ~~on an individual security basis and~~ are ~~recorded~~ asaged ~~a component of net realized gains (losses) on investments in the~~as ~~Statements of Operations.~~follows:

The components of net realized gains (losses) on investments as reported on the Statements of Operations are included below. There were no impairment charges recorded in the third quarter of


						Estimated		Number
	Unrealized			Amortized		Fair		of
	Loss			Cost		Value		Holdings
Six months or less	($	12,947	)	$	473,859	$	460,912		167
Six to 12 months		(2,337	)		31,685		29,348		14
12 to 18 months		(70	)		1,412		1,342		1
Greater than 18 months		(49	)		4,437		4,388		2

	($	15,403	)	$	511,393	$	495,990		184

No investments in an unrealized loss position at June 30, 2004 had a decline in market value that was considered by management to be other-than-temporary, thereby causing the investment to be impaired based on Company policy. There were no market conditions, industry characteristics or fundamental operating results of a specific issuer that suggested impairment of any of the listed investments. However, as interest rates rise, declines in value of the Company’s substantial fixed income portfolio could occur, which may require impairment charges to be made.

The Company participates in a securities lending program whereby certain securities from its portfolio are loaned to other institutions for short periods of time. A fee is paid to the Company by the borrower. Company policy requires collateral equal to 102% of the fair value of the loaned securities. The Company maintains full ownership rights to the securities loaned and continues to earn interest on them. In addition, the Company has the ability to sell the securities while they are on loan. The Company has an indemnification agreement with the lending agent in the event a borrower becomes insolvent or fails to return securities. Securities lending collateral is recorded by the Company as a liability. The proceeds from the collateral are invested in cash and short-term investments and are reported on the Statements of Financial Position as cash and cash equivalents. The Company shares a portion of the interest received on these short-term investments with the lending agent. Revenue received for the three months ended June 30, 2004 and 2003, related to this program totaled $26 and $27, respectively. For the six months ended June 30, 2004 and 2003, revenue received related to this program totaled $54 and $48, respectively.

ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE D — INVESTMENTS (Continued)

~~2003. Included~~The inCompany ~~the~~had ~~third~~loaned ~~quarter~~securities ofwith ~~2002~~a ~~gross~~market ~~realized~~value ~~losses~~of ~~are~~$43.0 million and ~~impairment~~$64.1 million ~~charges~~and secured collateral of $843.18 million and $065.25 million ~~related~~at toJune 30, ~~fixed~~2004 ~~maturities~~ and ~~equity~~December 31, ~~securities~~2003, respectively. ~~Included~~The inCompany records the ~~year-to-date~~loaned securities ~~2003~~on ~~gross realized~~its ~~losses~~Statements ~~are~~of ~~impairment~~Financial ~~charges~~Position onas ~~fixed~~part ~~maturities~~of ~~totaling~~its ~~$3.4~~invested ~~million~~assets. ~~Year-to-date~~The ~~2002~~Company ~~impairments~~has ~~consist~~incurred ofno ~~$17.1 million~~losses inon ~~fixed maturities~~the ~~and~~loan ~~$0.2 million~~program insince ~~equity~~the program’s ~~securities~~inception.

			Three Months Ended						Nine Months Ended
			September 30						September 30
			2003			2002			2003			2002
Fixed maturities:
	Gross realized gains		$	6,224		$	2,755		$	15,294		$	6,427
	Gross realized losses			(1,140	)		(8,150	)		(5,999	)		(17,534	)
		Net realized gains (losses)	$	5,084			($5,395	)	$	9,295			($11,107	)
Equity securities:
	Gross realized gains		$	106		$	535		$	330		$	3,866
	Gross realized losses			(282	)		(375	)		(455	)		(2,387	)
		Net realized (losses) gains		($176	)	$	160			($125	)	$	1,479
Limited partnerships:
	Gross realized gains		$	0		$	0		$	0		$	453
	Gross realized losses			0			0			0			(1,703	)
		Net realized losses	$	0		$	0		$	0			($1,250	)
Net realized gains (losses) on investments			$	4,908			($5,235	)	$	9,170			($10,878	)

Limited partnerships at June 30, 2004 include U.S. and foreign real estate and mezzanine debt investments. Real estate limited partnerships represent 92.5%, while mezzanine debt limited partnerships represent 7.5%, of the total carrying value at June 30, 2004. These partnerships are recorded at fair value using the equity method. The Company has not guaranteed any of the partnership liabilities.

The ~~Company~~components ~~participates in a securities lending program whereby certain securities from its portfolio are loaned to other institutions for short periods~~ of ~~time.~~equity ~~A fee is paid to the Company by the borrower~~ in ~~return. Company~~earnings ~~policy requires collateral equal to 102%~~ of ~~the~~limited ~~fair~~partnerships value of the loaned securities. The Company maintains full ownership rights to the securities loaned and continues to earn interest on the securities. In addition, the Company has the ability to sell the securities while they are on loan. The Company has an indemnification agreement with the lending agent in the event a borrower becomes insolvent or fails to return securities. Securities lending collateral is recorded by the Company as areported ~~liability. The proceeds from the collateral are invested~~ in ~~cash and short-term investments and are reported on~~ the Statements of ~~Financial~~Operations ~~Position~~are as ~~cash and cash~~follows: ~~equivalents. The Company shares a portion of the interest on these short-term~~ ~~investments with the lending agent. Revenue received for the three months ended~~ September 30, 2003 and 2002, related to this program totaled $28 and $13, respectively. For the nine months ended September 30, 2003 and 2002, revenue received related to this program totaled $76 and $64, respectively.

The Company had loaned securities with a market value of $69.0 million and $40.7 million and obtained collateral of $70.1 million and $41.7 million at September 30, 2003 and December 31, 2002, respectively. The Company maintains the loaned securities on its Statements of Financial Position as part of its invested assets. The Company has incurred no losses on the loan program since the program’s inception.


	Three Months Ended				Six Months Ended
	June 30				June 30
	2004		2003		2004		2003
Mezzanine Debt	$	15	$	86	$	35	($	1	)
Real Estate		697		34		832		401

	$	712	$	120	$	867	$	400

NOTE E — DEFERRED POLICY ACQUISITION COST ASSET

The Company incurs significant costs in connection with acquiring new business. Many of these acquisition costs, which vary with and are primarily related to the production of new business, are deferred as an asset and are then amortized over a period of time. The Company periodically reviews the DAC asset to assess recoverability from future income. If less than the full amount of DAC is determined to be recoverable, a portion of such costs are expensed at the time of determination.

The DAC on traditional life insurance products is amortized in relation to estimated gross premiums in accordance with Statement of Financial Accounting Standard No. 60, Accounting and Reporting by Insurance Enterprises. The DAC on the annuity and universal life products is amortized in relation to estimated gross profits in accordance with Statement of Financial Accounting Standard No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments (FAS 97).

During the second quarter of 2004, the Company completed a comprehensive analysis of its deferred acquisition cost asset. As described further in Note B, this analysis resulted in a restatement of previously issued financial statements.

In accordance with FAS 97, the Company periodically evaluates certain assumptions in use to determine DAC and amortization related to its interest sensitive products. In the second quarter 2004 evaluation, the Company modified certain assumptions related to lapse, mortality, interest rates, surrender rates and other factors causing an unlocking as provided under accounting guidance. As a result of unlocking assumptions, DAC as of June 30, 2004 increased by $5.9 million and net income for the second quarter 2004 increased by $3.9 million.

ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE D — INVESTMENTS (Continued)

Limited partnerships at September 30, 2003 include U.S. and foreign real estate and fixed income investments. Real estate limited partnerships represent 97.1% while fixed income limited partnerships represent 2.9% of the total carrying value at September 30, 2003. These partnerships are recorded using the equity method. The Company has not guaranteed any of the partnership liabilities.

The components of equity in earnings of limited partnerships as reported on the Statements of Operations are as follows:

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2003		2002		2003		2002
Fixed Income	$	53	$	38	$	52	$	207
Real Estate		1,341		113		1,742		3,526
	$	1,394	$	151	$	1,794	$	3,733

NOTE E — DEFERRED ACQUISITION COSTS

Product acquisition costs, principally commissions and other underwriting costs that vary with and are primarily related to the production of business, are deferred. Acquisition costs for annuity contracts and universal life insurance policies are amortized over the lives of the contracts or policies in proportion to the present value of estimated future gross profits of each of these product lines. The estimation process requires assumptions as to surrender rates, mortality experience and investment performance. Actual profits can vary from the estimates and can thereby result in increases or decreases to deferred policy acquisition costs (DAC) amortization rates. The Company regularly evaluates the assumptions and, when necessary, revises the estimated gross profits of these contracts resulting in adjustments to DAC amortization. Beginning in the third quarter of 2003, the unamortized balance of DAC has been adjusted for the impact on estimated future gross profits as if net unrealized appreciation and depreciation on investments had been realized as of the balance sheet date. The impact of this adjustment, net of tax, is included in Accumulated Other Comprehensive Income in Shareholders’ Equity. As of September 30, 2003, adjustments to DAC resulting from the cumulative change in net unrealized gains or losses on investment were $11.3 million, net of tax, and are reported directly as a charge to other comprehensive income.

NOTE F — SEGMENT INFORMATION

The Company offers a range of products and services, but operates as one reportable life insurance segment. The Company’s Traditional Life insurance line includes permanent life, endowment life, term life and whole life policies. The Universal Life line includes all fixed universal life products sold by the Company. ~~Variable~~The ~~universal~~Company ~~life~~does ~~products are~~ not ~~sold~~sell byvariable ~~the~~universal life ~~Company~~products. The Fixed Annuities line includes fixed ordinary deferred annuities, tax advantaged deferred annuities, annuities in pay-out and structured settlements. Neither variable nor equity indexed annuity products are sold by the Company. The Group Life and Other line includes group life insurance and disability income products. The Corporate Account line includes investment income earned from surplus not specifically allocable to any one product type. Investment-related income is allocated based on the assumption that the fixed maturities and preferred stock portfolios support the insurance product ~~lines~~ lines and the ~~common stock,~~ limited partnership and remaining fixed maturity investments support ~~the Corporate Account. The Company sold its entire common~~ ~~stock portfolio at~~ the ~~end of 2002, consequently a larger percentage of the fixed maturity portfolio will support the~~ Corporate Account ~~in 2003 and future periods~~.


								Group
Three Months Ended	Traditional		Universal			Fixed		Life &		Corporate
June 30, 2004	Life		Life			Annuities		Other		Account		Total
Total policy revenue, net of reinsurance	$	10,313	$	3,476		$	1	$	835	$	0	$	14,625
Total investment-related and other income		2,169		2,849			17,691		926		2,623		26,258

Total revenues		12,482		6,325			17,692		1,761		2,623		40,883
Less: Total benefits and expenses		9,571		(1,801	)		12,795		451		0		21,016

Income before taxes	$	2,911	$	8,126		$	4,897	$	1,310	$	2,623	$	19,867


Six Months Ended
June 30, 2004
Total policy revenue, net of reinsurance	$	19,957	$	6,944	$	1	$	1,702	$	0	$	28,604
Total investment-related and other income		4,019		5,323		32,899		977		5,116		48,334

Total revenues		23,976		12,267		32,900		2,679		5,116		76,938
Less: Total benefits and expenses		19,866		1,002		24,806		940		0		46,614

Income before taxes	$	4,110	$	11,265	$	8,094	$	1,739	$	5,116	$	30,324

During the second quarter of 2004, the Company unlocked certain assumptions related to determination of DAC for its universal life and fixed annuities. As a result of unlocking these assumptions, DAC was increased and the amortization of DAC was decreased by $5.2 million and $0.7 million for universal life and fixed annuities for the second quarter of 2004, respectively.

ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE F — SEGMENT INFORMATION (Continued)

														Group		~~Group~~
				Traditional				Universal				Fixed				Life &				Corporate
Three Months Ended		Traditional				Universal				Fixed				Life &				Corporate
				Life				Life				Annuities				Other				Account				Total
June 30, 2003		Life				Life				Annuities				Other				Account				Total
Three Months EndedSeptember 30, 2003
(Restated)
Total policy revenue, net of reinsurance		$	10,189	$	~~9,414~~	$	3,340	$	~~3,343~~	$	1	$	3	$	804	$	~~838~~	$	0	$	0	$	14,334	$	~~13,598~~
Total investment-related and other income			1,978		~~2,068~~		2,541		~~2,711~~		15,893		~~16,539~~		42		42		1,825		~~4,138~~		22,279		~~25,498~~
Total revenues		~~Total revenues~~	12,167	$	~~11,482~~		5,881	$	~~6,054~~		15,894	$	~~16,542~~		846	$	~~880~~		1,825	$	~~4,138~~		36,613	$	~~39,096~~
Less: Total benefits and expenses			8,121		~~8,544~~		3,775		~~2,557~~		12,394		~~11,660~~		350		~~1,045~~		0		0		24,640		~~23,806~~
	Income (loss) before taxes			$	2,938			$	3,497			$	4,882				($165	)		$	4,138			$	15,290
Income before taxes		$	4,046			$	2,106			$	3,500			$	496			$	1,825			$	11,973
Nine Months Ended September 30, 2003
Total policy revenue, net of reinsurance				$	28,566			$	9,962			$	5			$	2,487			$	0			$	41,020
Total investment-related and other income					5,938				7,638				47,278				126				8,001				68,981
		Total revenues		$	34,504			$	17,600			$	47,283			$	2,613			$	8,001			$	110,001
Less: Total benefits and expenses					26,770				10,513				34,979				2,205				0				74,467
	Income before taxes			$	7,734			$	7,087			$	12,304			$	408			$	8,001			$	35,534
Three Months Ended September 30, 2002
Total policy revenue, net of reinsurance				$	8,483			$	3,044			$	0			$	784			$	0			$	12,311
Total investment-related and other income					1,142				1,460				8,295				30				645				11,572
		Total revenues		$	9,625			$	4,504			$	8,295			$	814			$	645			$	23,883
Less: Total benefits and expenses					6,987				3,937				11,764				445				0				23,133
	Income (loss) before taxes			$	2,638			$	567				($3,469	)		$	369			$	645			$	750
Nine Months Ended September 30, 2002
Total policy revenue, net of reinsurance				$	26,755			$	9,123			$	2			$	2,278			$	0			$	38,158
Total investment-related and other income					3,739				4,856				26,093				104				6,648				41,440
		Total revenues		$	30,494			$	13,979			$	26,095			$	2,382			$	6,648			$	79,598
Less: Total benefits and expenses					24,594				11,779				32,411				1,820				0				70,604
	Income (loss) before taxes			$	5,900			$	2,200				($6,316	)		$	562			$	6,648			$	8,994

The fixed annuities product line was affected by impairment charges on fixed maturity investments totaling $8.1 million and $17.1 million for the quarter and nine months ended September 30, 2002, respectively. For the quarter ended September 30, 2003, there were no impairment charges recognized. Impairment charges for the nine months ended September 30, 2003 totaled $3.4 million.


Six Months Ended
June 30, 2003
(Restated)
Total policy revenue, net of reinsurance	$	19,152	$	6,619	$	2	$	1,649	$	0	$	27,422
Total investment-related and other income		3,870		4,927		30,739		84		3,863		43,483

Total revenues		23,022		11,546		30,741		1,733		3,863		70,905
Less: Total benefits and expenses		17,067		8,219		24,435		1,160		0		50,881

Income before taxes	$	5,955	$	3,327	$	6,306	$	573	$	3,863	$	20,024

NOTE G — REINSURANCE

The Company has entered into various reinsurance treaties for the purpose of ceding the excess of life insurance face amounts over Company established retention limits. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company considers all of its reinsurance assets to be collectible; therefore, no allowance has been established for uncollectible amounts.

Generally, the Company’s retention limit is $300 per life for individual coverage. For its two newest products, ERIE Flagship Term2 and ERIE Target Term, the Company has first dollar quota share treaties with several unaffiliated reinsurers. The Company reinsures 50% and 90% of the ERIE Flagship Term2 and Erie Target Term products, respectively, subject to the Company’s $300 retention limit. For its disability income product, the Company has a 50% quota share agreement with its reinsurer. As of June 30, 2004 and 2003, $10.6 billion and $8.2 billion, respectively, of life insurance in force was ceded to other companies. The Company’s most significant reinsurance business is with Generali USA Reassurance Company, which reinsures a portion of the Company’s life and accident and health business. At June 30, 2004, the amount of in-force life insurance ceded to Generali totaled approximately $6.1 billion.

NOTE G — REINSURANCE

The Company has entered into various reinsurance treaties for the purpose of ceding the excess of life insurance face amounts over Company established retention limits. Reinsurance contracts do not relieve the Company from its obligations to Policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company considers all of its reinsurance assets to be collectible; therefore, no allowance has been established for uncollectible amounts.

Generally, the Company’s retention limit is $300 per life for individual coverage. For its two newest products, ERIE Flagship Term2 and ERIE Target Term, the Company has first dollar quota share treaties with several unaffiliated reinsurers. The Company reinsures 50% and 90% of the ERIE Flagship Term2 and Erie Target Term products, respectively, subject to the Company’s $300 retention limit. For its disability income product, the Company has a 50% quota share agreement with its reinsurer. As of September 30, 2003, and 2002, $8.7 billion and $5.9 billion, respectively, of life insurance in force was ceded to other companies. The Company’s most significant reinsurance business is with Generali USA Reassurance Company (formerly Business Men’s Assurance Company of America), which reinsures a portion of the Company’s life and accident and health business. At September 30, 2003, the amount of in-force life insurance ceded to Generali totaled approximately $5.2 billion.

ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE G — REINSURANCE (Continued)

The effect of ceded reinsurance in the Statements of Operations is as follows:

		Three Months Ended			~~Three Months Ended~~					Six Months Ended			~~Nine Months Ended~~
					September 30								September 30
(Restated)		June 30								June 30
					2003				2002				2003				2002
		2004				2003				2004				2003
Revenues:
Direct policy revenue	~~Direct policy revenue~~	$	19,651		$	~~17,589~~$	18,427		$	~~15,568~~$	37,674		$	~~52,416~~$	34,827		$	~~45,840~~
Policy revenue ceded	~~Policy revenue ceded~~		(5,026	)		~~3,991~~	(4,093	)		~~3,257~~	(9,070	)		~~11,396~~	(7,405	)		~~7,682~~
Net policy revenue	~~Net policy revenue~~		14,625			~~13,598~~	14,334			~~12,311~~	28,604			~~41,020~~	27,422			~~38,158~~
Net investment income	~~Net investment income~~		19,752			~~18,932~~	19,843			~~16,517~~	38,507			~~57,358~~	38,426			~~48,025~~
	Net realized gains (losses) on investments					4,908				(5,235	)			9,170				(10,878	)
Net realized gains on investments			5,556				2,099				8,404				4,261
Equity in earnings of limited partnerships	~~Equity in earnings of limited partnerships~~		712			~~1,394~~	120			~~151~~	867			~~1,794~~	400			~~3,733~~
Other income	~~Other income~~		238			~~264~~	217			~~139~~	556			~~659~~	396			~~560~~
Total revenues		~~Total revenues~~$	40,883		$	~~39,096~~$	36,613		$	~~23,883~~$	76,938		$	~~110,001~~$	70,905		$	~~79,598~~
Benefits and expenses:
Death benefits	~~Death benefits~~	$	4,420		$	~~5,419~~$	3,511		$	~~5,988~~$	11,046		$	~~14,137~~$	8,718		$	~~14,085~~
Reinsurance recoveries	~~Reinsurance recoveries~~		(941	)		~~963~~	(750	)		~~2,230~~	(2,663	)		~~3,079~~	(2,116	)		~~2,899~~
Net death benefits	~~Net death benefits~~		3,479			~~4,456~~	2,761			~~3,758~~	8,383			~~11,058~~	6,602			~~11,186~~
	Interest on deposits and other Policyholder benefits					12,851				12,177				37,719				35,300
Interest on deposits and other policyholder benefits			13,182				12,880				26,148				24,869
Increases in future life policy benefits	~~Increases in future life policy benefits~~		3,766			~~3,365~~	3,168			~~3,350~~	7,464			~~9,659~~	6,294			~~8,813~~
Reinsurance reserve credits	~~Reinsurance reserve credits~~		(1,982	)		~~1,507~~	(1,659	)		~~1,022~~	(3,433	)		~~4,504~~	(2,997	)		~~1,779~~
Net increases in future life policy benefits	~~Net increases in future life policy benefits~~		1,784			~~1,858~~	1,509			~~2,328~~	4,031			~~5,155~~	3,297			~~7,034~~
Amortization of deferred policy acquisition costs	~~Amortization of deferred policy acquisition costs~~		(3,592	)		~~2,164~~	1,725			~~1,233~~	(3,365	)		~~7,896~~	3,909			~~5,254~~
Commissions	~~Commissions~~		2,945			~~2,153~~	2,827			~~3,007~~	5,108			~~7,875~~	5,721			~~6,951~~
Reinsurance commission allowance	~~Reinsurance commission allowance~~		(1,902	)		~~1,866~~	(1,684	)		~~1,999~~	(3,523	)		~~5,104~~	(3,238	)		~~4,481~~
Net commissions	~~Net commissions~~		1,043			~~287~~	1,143			~~1,008~~	1,585			~~2,771~~	2,483			~~2,470~~
General expenses, taxes, licenses and fees	~~General expenses, taxes, licenses and fees~~		5,120			~~2,190~~	4,622			~~2,629~~	9,832			~~9,868~~	9,721			~~9,360~~
Total benefits and expenses		$	~~Total benefits and expenses~~21,016		$	~~23,806~~$	24,640		$	~~23,133~~$	46,614		$	~~74,467~~$	50,881		$	~~70,604~~
Income before income taxes		$	~~Income before income taxes~~19,867		$	~~15,290~~$	11,973		$	~~750~~$	30,324		$	~~35,534~~$	20,024		$	~~8,994~~

ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE H — NOTES PAYABLE TO ERIE INDEMNITY COMPANY

The Company has a $15,000 surplus note payable to Erie Indemnity Company (EIC). This note bears an annual interest rate of 6.45%. Interest on the surplus note is scheduled to be paid semi-annually, subject to prior approval of the Pennsylvania Insurance Commissioner. The note is payable on demand on or after December 31, 2005, subject to prior approval by the Pennsylvania Insurance Commissioner. The Company paid interest of $0.5 million on this note during the second quarter of 2004 and 2003.

During the third quarter of 2003, the Company issued a $25,000 surplus note to EIC in exchange for $25,000 in cash. This surplus note bears an annual interest rate of 6.70% and is scheduled to be paid semi-annually, subject to prior approval of the Pennsylvania Insurance Commissioner. The surplus note is payable on demand on or after December 31, 2018, subject to prior approval by the Pennsylvania Insurance Commissioner. The Company paid interest of $0.8 million on this note during the second quarter of 2004.

NOTE I — SUPPLEMENTARY DATA ON CASH FLOWS

A reconciliation of net income to net cash provided by (used in) operating activities as presented in the Statements of Cash Flows is as follows:


	Six Months Ended			Six Months Ended
	June 30, 2004			June 30, 2003
				(Restated)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income	$	19,765		$	13,076
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of deferred policy acquisition costs		(3,365	)		3,909
Other amortization		528			318
Deferred federal income tax expense (benefit)		4,410			(971	)
Realized gains on investments		(8,404	)		(4,261	)
Equity in earnings of limited partnerships		(867	)		(400	)
Decrease in premium and other receivables		176			769
Increase in accrued investment income		(369	)		(1,610	)
Policy acquisition costs deferred		(7,316	)		(9,435	)
Increase in other assets		(104	)		0
Increase in reinsurance recoverables and reserve credits		(2,057	)		(2,786	)
Decrease (increase) in prepaid federal income taxes		767			(756	)
Increase in future policy benefits and claims		6,834			6,194
Decrease in other policyholder funds		(4,946	)		(3,671	)
Decrease in reinsurance premium due		(548	)		(519	)
Increase (decrease) in accounts payable and due to affiliates		747			(710	)

Net cash provided by (used in) operating activities	$	5,251		($	853	)

NOTE J — COMMITMENTS

The Company has outstanding commitments to invest up to $3.7 million in real estate limited partnerships at June 30, 2004. These commitments will be funded as required through the end of the respective investment periods, which typically span 3 to 5 years.

ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE HK — ~~COMMITMENTS~~STATUTORY INFORMATION

The ~~Company~~minimum ~~has~~statutory ~~outstanding~~capital ~~commitments~~and tosurplus ~~invest~~requirements upunder toPennsylvania ~~$2.2~~law for stock life insurance companies (Section ~~million~~386 inof ~~real~~the Pennsylvania Insurance ~~estate~~Company ~~limited~~Law) ~~partnerships~~amounts atto ~~September 30~~$1, ~~2003~~650. ~~These~~In ~~commitments~~addition, ~~will~~the ~~be funded~~Company asis ~~required~~subject ~~through~~to ~~the~~certain risk ~~end~~based ofcapital ~~the~~surplus ~~respective~~requirements. ~~investment~~The ~~periods,~~Company’s ~~which~~total statutory capital ~~typically~~and ~~span~~surplus 3significantly toexceed ~~5 years~~these minimum requirements.

NOTE I — STATUTORY INFORMATION

The minimum statutory capital and surplus requirements under Pennsylvania law for stock life insurance companies (Section 386 of the PA Insurance Code) amounts to $1,650. In addition, the Company is subject to certain risk based capital surplus requirements. The Company’s total statutory capital and surplus significantly exceed these minimum requirements.

NOTE J — NOTES PAYABLE TO ERIE INDEMNITY COMPANY

The Company has a $15,000 surplus note payable to the Erie Indemnity Company (EIC). This note bears an annual interest rate of 6.45%. Interest on the surplus note is scheduled to be paid semi-annually, subject to approval of the Pennsylvania Insurance Commissioner. The note will be payable on demand on or after December 31, 2005, subject to approval by the Pennsylvania Insurance Commissioner. The Company accrued interest of $0.2 million in the third quarter of 2003 and 2002.

During the third quarter of 2003, the Company issued a $25,000 surplus note to EIC in exchange for $25,000 in cash. This surplus note bears an annual interest rate of 6.70% and is scheduled to be paid semi-annually, subject to approval of the Pennsylvania Insurance Commissioner. The surplus note will be payable on demand on or after December 31, 2018, subject to approval by the Pennsylvania Insurance Commissioner. The Company accrued interest of $0.2 million in the third quarter of 2003.

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

The following discussion and analysis should be read in conjunction with the historical financial information and related notes found on pages 3 through 17, ~~herein,~~ and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in ~~our~~the Company’s Annual Report on Form 10-K/A for the year ended December 31, ~~2002~~2003, as filed with the Securities and Exchange Commission on ~~March~~on August 2720, ~~2003~~2004. As further described in Note B, the Company has restated its financial statements.

FINANCIAL OVERVIEW

Net income increased to $1013.02 million, or $1.0640 per share, in the ~~third quarter~~second quarter of ~~2003~~2004, compared to $07.58 million, or $0.0583 per share, for the ~~third quarter of~~second ~~2002. This growth was partially the result of net realized capital gains of $4.9 million in the third~~ quarter of 2003 ~~compared to net realized capital losses of $5~~.~~2 million~~ ~~recorded during the same period in 2002.~~ For the ~~nine~~ six months ended ~~September~~June 30, ~~2003~~2004, net income increased to $2319.28 million, or $2.46 09 per share, compared to $513.91 million, or $01.6238 per share for the same period in ~~2002~~ 2003. AnIncreases ~~increase~~ in ~~net~~investment ~~realized~~related ~~capital~~earnings combined ~~gains~~with onthe ~~investments~~unlocking ~~and~~of ~~net investment~~deferred ~~income~~policy ~~were~~acquisition ~~the~~costs ~~principal~~resulted ~~reasons for~~ in the ~~year-to-date~~large increase in earnings.

REVENUES

Analysis of Policy Revenue

Total net policy revenue increased ~~10.5%,~~ to $1314.6 million in the ~~third~~second quarter of 2004 ~~2003~~ from $1214.3 million during the same period in ~~2002~~2003. ~~Contributing~~Although tototal net ~~this~~premiums ~~growth~~are ~~was~~up ~~an increase~~ in ~~net~~2004, ~~premiums~~sales onof ~~both~~new traditional ~~life~~policies ~~insurance~~declined in the ~~and~~second ~~universal~~quarter ~~life~~of ~~products~~2004 when compared to the same period in 2003. ~~Premiums~~Direct new premiums on traditional life insurance policies ~~increased~~ 10decreased 4.30%, to $~~10.~~2.5 million for the quarter ended ~~September~~June 30, ~~2003~~2004, from $2. ~~Universal~~6 million ~~life~~for ~~premiums~~the ~~increased~~quarter ~~9.8%~~ended June 30, ~~to $3~~2003.~~0 million~~ ~~during~~In 2003, management of the ~~same~~Erie ~~period~~Insurance Group enhanced its focus on property/casualty underwriting profitability. As the ~~Total~~Company’s ~~policies~~independent inagents ~~force~~focus on ~~traditional~~underwriting profitability, ~~life~~new ~~insurance~~property and ~~universal~~casualty ~~life~~production and traditional ~~products~~life ~~increased~~policy 7production have declined.9% toIn ~~247~~addition,~~511~~ ateffective ~~September 30~~December 16, 2003, ~~compared~~the toCompany ~~229,413~~restructured its bonus program. Changes atin ~~September 30,~~the ~~2002~~bonus program may be affecting the growth in sales of life and annuity products by ERIE agencies. Total net policy revenue increased $21.92 million, or 7 4.53%, to $4128.06 million for the ~~nine~~six months ended ~~September~~ June 30, ~~2003~~2004.

Analysis of Investment-related Income

Net investment income ~~increased~~decreased $20.41 million, ~~or 14.6%,~~ to $1819.98 million in the ~~third~~ second quarter of ~~2003~~2004 ~~from~~when ~~$16.5 million~~compared ~~for~~to the same period in ~~2002~~2003. The ~~increase~~ slight decrease in net investment income for the ~~third~~second quarter of ~~2003~~2004 compared to the ~~same~~ same period in ~~2002~~2003 is ~~related~~due ~~to larger invested balances~~ in ~~interest~~part ~~bearing fixed maturities in 2003, compared~~ to ~~2002, partially offset by~~ lower ~~investment~~ ~~portfolio~~yielding ~~yields~~fixed inincome ~~2003 due to lower interest rates~~securities. ~~Cash flow~~ ~~from the sale of the Company’s common stock portfolio in 2002 and increases in~~ ~~annuity deposits in 2003 contributed to this increase in the investments in~~ ~~interest bearing bonds.~~

Net realized capital gains on investments were $45.96 million in the ~~third~~second quarter of ~~2003~~2004, compared to net realized capital ~~losses~~gains of $5.2.1 million in the ~~third~~second quarter of ~~2002~~2003. ~~The~~Included ~~2002 net realized capital losses were primarily the result of $8.3 million~~ in ~~impairment charges on fixed maturity and equity security investments recorded during~~ the ~~third~~second quarter of ~~2002.~~2004 ~~For~~was ~~the~~a ~~nine~~gain ~~months~~of ~~ended September 30, 2003, net realized capital gains were~~ $91.24 million ~~compared to~~from ~~net~~the ~~realized~~maturity ~~capital losses~~ of ~~$10.9 million~~a inbond ~~2002.~~that ~~Impairments~~had ~~during the~~been ~~nine~~recognized ~~month~~as ~~period~~impaired in ~~ended September 30, 2003 and~~ 2002 ~~were $3~~.~~4 million and~~ ~~$17.3 million, respectively.~~

The Company recorded earnings in limited partnerships of $1.4 million in the third quarter of 2003, compared to earnings of $0.2 million during the same period in 2002. For the nine months ended September 30, 2003 the Company recorded earnings in limited partnerships of $1.8 million compared

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

to earnings of $3.7 million during the same period in 2002. The 2003 decrease in partnership earnings relates to decreased earnings on real estate partnerships in 2003.

The Company’s performance of its fixed maturities and preferred stock compared to market indices is presented below:

	Two years ended
	Two year period ended
	September 30, 2003
	June 30, 2004
	(Pre-tax annualized returns)
	(Pre-tax annualized returns) (1)
Fixed maturities		8.83	%
Erie Family Life Insurance Company indices:
Preferred stock		12.22	%
Fixed maturities		8.07	%
Market indices:
Preferred stock		10.69
Lehman Global Aggregate Bond Index — Unhedged		10.93	%
Other indices:
Lehman Global Aggregate Bond Index — Hedged		5.82	%
Lehman Brothers U.S. Aggregate		5.24	%

(1) Includes income, realized and unrealized gains and losses.

BENEFITS AND EXPENSES

Analysis of Policy-related Benefits and Expenses

Net death benefits on life insurance policies increased 18$0.6%7 million or 26.0% in the ~~third~~ second quarter of ~~2003~~2004 to $43.5 million. For the ~~nine~~six months ended ~~September~~ June 30, ~~2003~~2004, net death benefits on life insurance policies ~~decreased~~increased ~~slightly~~$1.8 million, or 27.0%, to $118.14 million, from $6.6 million ~~Random~~during ~~fluctuations~~the same period in 2003. Net life insurance inforce has grown from $16.9 billion at June 30, 2003 to $17.8 billion at June 30, 2004, an increase of 5.3%. In addition, random fluctuations in death benefits incurred can be expected when mortality results are measured over a short time period due to the small number of claims ~~involved~~. These short-term fluctuations can influence quarterly or annual results without impacting long-term profitability. Management believes ~~that~~ its underwriting philosophy and practices are sound.

Interest expense incurred on deposits increased $0.75 million, or 63.27%, to $12.69 million in the ~~third~~second quarter of ~~2003~~2004 from $1112.94 million in the ~~third~~second quarter of ~~2002~~of 2003. This increase can be attributed to the growth of annuities on deposit. At ~~September~~June 30, ~~2003~~2004, the balance of annuity deposits totaled $~~922~~962.3 9 million, compared to $~~735~~902.81 million at ~~September~~June 30, ~~2002~~2003, an increase of 256.47%. The Company has lowered its credited interest rates induring ~~both~~the ~~2003~~last ~~and~~two ~~2002~~years to reflect ~~the~~ current market conditions. Interest was credited on annuity and universal life deposits in ~~2003~~2004 and ~~2002~~2003 at the following rates:

	Annuity			Universal Life
	Deposits			Deposits
January 1, 2002 - February 19, 2002		5.00% - 6.00	%		6.00% - 6.75	%
January 1, 2003 – February 24, 2003		4.00%- 4.80	%		5.25% - 6.00	%
February 20, 2002 - October 7, 2002		4.75% - 5.50	%		5.50% - 6.25	%
February 25, 2003 – March 10, 2003		3.75 - 4.70			5.25 - 6.00
October 8, 2002 - December 2, 2002		4.25% - 5.00	%		5.25% - 6.00	%
March 11, 2003 – May 14, 2003		3.75 - 4.70			5.00 - 5.75
December 3, 2002 - February 24, 2003		4.00% - 4.80	%		5.25% - 6.00	%
May 15, 2003 – June 1, 2003		3.50 - 4.70			5.00 - 5.75
February 25, 2003 - March 10, 2003		3.75% - 4.70	%		5.25% - 6.00	%
June 2, 2003 – July 9, 2003		3.50 - 4.70			4.75 - 5.50
March 11, 2003 - May 14, 2003		3.75% - 4.70	%		5.00% - 5.75	%
July 10, 2003 – June 30, 2004		3.00 - 4.70			4.25 - 5.00
May 15, 2003 - June 1, 2003		3.50% - 4.70	%		5.00% - 5.75	%
June 2, 2003 - July 9, 2003		3.50% - 4.70	%		4.75% - 5.50	%
July 10, 2003 - September 30, 2003		3.00% - 4.70	%		4.25% - 5.00	%

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

~~The~~Amortization ~~liability~~of ~~for~~deferred ~~future life~~ policy ~~benefits~~acquisition iscosts ~~computed~~(DAC) was ~~considering~~a ~~various factors~~negative ~~such as anticipated mortality, future investment yields, withdrawals and anticipated credit for reinsurance ceded. Increase in future life policy benefits net of reinsurance ceded totaled~~ $13.9 6 million in the ~~third~~second quarter of ~~2003,~~ 2004 compared to amortization of $21.37 million for in the ~~third~~same ~~quarter~~period ofin ~~2002, a decrease of 20~~2003.~~2%.~~ In ~~the~~accordance ~~third~~with ~~quarter~~FAS ~~of 2002 an adjustment of approximately $0.3 million was made to correct the reserve credit for reinsured life policies which had lapsed~~97, ~~for which~~ the ~~reserve credit had not been reduced. The~~Company ~~effect~~periodically ofevaluates ~~this~~certain ~~adjustment~~assumptions ~~was~~in use to ~~increase~~determine ~~future~~DAC ~~life~~and ~~policy benefit expense by~~related ~~$0.3 million~~amortization ~~in the third quarter of 2002. Expenses~~ related to ~~increase~~its ~~in future~~interest ~~life~~sensitive ~~policy benefits net of reinsurance ceded decreased $1~~products.~~9 million~~ ~~to $5.2 million~~During ~~for~~ the ~~nine~~second quarter ~~months ended September 30~~2004, ~~2003. In addition to~~ the ~~adjustment~~ ~~discussed~~Company ~~above~~modified ~~for~~certain ~~the~~assumptions ~~third~~concerning ~~quarter of 2002~~lapse, ~~a similar adjustment~~ ofmortality, ~~$0.7 million~~interest ~~was~~rates, ~~made~~surrender ~~during~~rates ~~the~~and ~~second~~other ~~quarter of 2002~~factors. ~~Also,~~As ~~the first quarter of 2002 included~~ a ~~$0.4 million~~result ~~reduction in the reserve credit for~~of ~~reinsurance~~unlocking ~~ceded~~these toassumptions, ~~reflect~~DAC awas ~~change~~increased inand the ~~method~~amortization of ~~calculating~~DAC ~~the reserve~~was ~~credit~~decreased ~~for~~by ~~rated business and a~~ $0.5.9 million ~~reduction~~during in the ~~reserve~~second ~~credit~~quarter ~~to update~~of ~~the computation basis for several new term products recently introduced~~2004. ~~The adjustment for rated business was recommended by the Pennsylvania~~ ~~Insurance Department in order to make the calculation basis consistent with the~~ ~~related direct reserves. The adjustment for the new term products was made to~~ ~~properly match the reinsurance reserve credit on these new products with the GAAP reserves.~~

Amortization of deferred policy acquisition costs (DAC) increased $0.9 million to $2.2 million in the third quarter of 2003 when compared to the same period in 2002. For the nine months ended September 30, 2003, compared to the corresponding period in 2002, amortization of DAC increased $2.6 million to $7.9 million. The increased 2003 quarterly and year-to-date amounts result from a recoverability analysis, which indicated that a higher than anticipated portion of acquisition expenses were required to be amortized.

Analysis of Other Expenses

~~General~~Direct ~~expenses~~commissions to independent agents include new and renewal commissions, production ~~decreased~~bonuses ~~$1.2 million,~~and orpromotional 40incentives.~~1%,~~ toThese ~~$1.8~~direct commission ~~million~~expenses ~~for~~are ~~the~~reported ~~third~~on ~~quarter~~the Statements of ~~2003,~~Operations ~~compared~~net toof $3commissions received from reinsurers.~~0 million~~ ~~for~~The reported expense is also affected by the ~~same~~amount ~~period~~of incommission ~~2002,~~expenses ~~and~~capitalized ~~increased~~as $0DAC.~~6 million~~ orCommissions, which vary with and ~~5.9%~~are torelated ~~$10.6 million~~primarily ~~for~~to the ~~nine~~production ~~months~~of ~~ended~~new ~~September 30~~business, ~~2003.~~are ~~General expenses~~deferrable ~~include~~as ~~wages~~DAC. Most first-year and ~~salaries,~~incentive ~~employee~~commissions ~~benefits,~~and ~~data~~some ~~processing~~second-year commissions ~~expenses,~~qualify ~~occupancy~~for ~~expenses~~deferral ~~and~~as ~~other~~DAC. ~~office~~For ~~and~~the ~~general~~second ~~administrative expenses~~quarter of ~~the~~2004, ~~Company~~net commission expense decreased $0.1 million ~~Certain~~to ~~general~~$1.0 million, ~~expenses~~compared ofto $1.1 million for the ~~Company~~second ~~related~~quarter of 2003. This decrease is primarily attributable to the decline ~~acquisition~~in ~~and~~annuity ~~underwriting~~sales. ofAnnuity ~~new~~premiums ~~policies~~for ~~are~~the ~~deferred~~quarter asended ~~DAC.~~June 30, ~~Such~~2004 ~~expenses~~were ~~include~~$15.2 million, ~~medical~~compared ~~inspection~~to ~~and~~$36.1 million ~~exam~~for ~~fees~~the ~~related~~same toperiod ~~new~~in ~~business~~2003. ~~production~~Commissions and bonuses on these premiums, ~~wages~~net of DAC, ~~salaries~~were $0.2 million and $0.7 million ~~employee~~for ~~benefits~~the ofperiods ~~underwriting~~ended ~~personnel~~June 30, 2004 and ~~salaries~~2003, ~~employee~~respectively. ~~benefits~~For the ~~and~~six ~~bonuses~~months ~~paid~~ended toJune 30, ~~sales~~2004, ~~employees~~commission ~~for~~expense ~~the~~decreased $0.9 million ~~production~~to of$1.6 million, ~~life~~which ~~and~~is attributable to the reduction in annuity ~~business~~sales.

General expenses, net of DAC, ~~decreased~~increased $0.52 million, or ~~25.~~4.6%, to $14.51 million for the second quarter ~~ended~~of ~~September 30~~2004, ~~2003.~~compared ~~This~~to ~~decrease~~$3.9 million isfor the ~~result~~same ofperiod ain $02003.~~5 million~~ ~~adjustment~~General to expenses ~~allocated~~include towages ~~the~~and ~~DAC~~salaries, onemployee ~~the~~benefits, ~~traditional~~data ~~life~~processing ~~insurance~~expenses, ~~line~~professional offees, ~~business~~occupancy ~~during~~expenses ~~the~~and ~~third~~other ~~quarter~~office and general administrative expenses of ~~2002~~the Company. ~~For~~Certain ~~the~~general ~~nine~~expenses of ~~months~~the ~~ended~~Company ~~September 30,~~related ~~2003,~~to ~~general~~the ~~expenses,~~acquisition ~~net~~and underwriting of ~~DAC,~~new ~~increased~~policies ~~3.7%,~~are todeferred $7as DAC.~~8 million.~~ InSuch ~~addition~~expenses toinclude ~~the~~medical ~~increase~~inspection inand ~~expenses~~exam ~~relating~~fees related to ~~increased staffing~~new ~~levels~~business production, aand ~~charge~~wages, ~~incurred~~salaries ~~during~~and ~~the~~employee ~~first~~benefits ~~quarter~~ of underwriting ~~2003~~personnel. ~~for~~The increase ~~retirement~~in ~~benefits~~general ofexpenses aincludes ~~retired~~professional ~~executive~~consulting offees related to the strengthening ~~Company~~of ~~contributed~~controls toand ~~this~~increases in allocated information technology ~~increase~~costs of Company projects.

Direct commissions to independent Agents include new and renewal commissions, production bonuses and promotional incentives to Agents. These direct commission expenses are reported on the Statements of Operations net of commissions received from reinsurers. The reported expense is also affected by the amount of commission expenses capitalized as DAC. Commissions, which vary

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

with and are related primarily to the production of new business, are deferrable as DAC. Most first-year and incentive commissions and some second-year commissions qualify for deferral as DAC. For the third quarter of 2003, net commission expense decreased $0.7 million to $0.3 million, compared to $1.0 million for the third quarter of 2002. This decrease is attributable to a $0.5 million credit adjustment made to an expense estimate of the Company’s portion of expenses from a 2002 sales contest for independent agents. For the nine months ended September 30, 2003, commission expense increased $0.3 million to $2.8 million.

The Erie Insurance Group announced several changes to Agent compensation arrangements during the third quarter of 2003. These changes, which will become effective in 2004 and 2005, include modification of the formula used to determine Agent contingency awards and a reduction of commission rates on annuity products. Life production and persistency bonuses have also been modified. The new formula modifies the method used to credit life insurance and annuity production to enhance the property/casualty profitability award. The Company does not expect any material financial impact from the new commission arrangements.

FINANCIAL CONDITION

Investments

The Company’s investment strategies ~~and~~provide that portfolios are structured to match the features of the life insurance and annuity products sold by the Company. Annuities and life insurance policies are long-term products; therefore, the Company’s investment strategy takes a long-term perspective ~~emphasizing~~ emphasizing investment quality, diversification and superior investment returns. The Company’s investments are managed on a total return approach that focuses on current income and capital appreciation.

The Company’s invested assets are sufficiently liquid to meet commitments to ~~our~~its ~~Policyholders~~policyholders. At ~~September~~June 30, ~~2003~~2004, the Company’s investment portfolio consisting of cash, investment grade bonds and investment grade preferred stock, totaled more than $1.43 billion, or 8782.6% of total assets. These resources provide the liquidity the Company requires to meet known and unforeseen demands on its funds.

The Company continually reviews the investment portfolio to evaluate positions that might incur other-than-temporary declines in value. For 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 the Company’s review of investment valuation are the length of time the market value is below cost and the amount the market value is below cost.

For fixed maturity and preferred stock investments, the Company individually analyzes all positions with emphasis on those that, in management’s opinion, have declined ~~more~~significantly ~~than 20%~~ below cost. The Company considers ~~market~~ market conditions, industry characteristics and the fundamental operating results of the issuer to determine if declines in value are due to changes in ~~interest~~ interest rates, changes relating to a decline in credit quality, or other ~~issues~~ issues affecting the investment. Positions that have incurred significant market price declines ~~of over 20%~~ for aextended ~~period greater than six months~~periods, ~~where~~in which the creditworthiness of the issuer or other factors indicate a decline that is other-than-temporary, are ~~either sold or~~ recognized as impaired and reflected as a charge to the Company’s operations.

~~ITEM~~If 2.the ~~MANAGEMENT~~Company’Ss ~~DISCUSSION~~policy ~~AND~~for ~~ANALYSIS~~determining OFthe ~~FINANCIAL~~recognition ~~CONDITION~~of ~~AND~~impaired ~~RESULTS~~positions were OFdifferent, ~~FINANCIAL~~the ~~OPERATIONS~~Company’s ~~(Continued)~~Results of Operations could be significantly impacted. Management believes its investment valuation philosophy and accounting practices result in appropriate and timely measurement of value and recognition of impairment.

IfThe ~~the~~ Company’s ~~policy~~investments ~~for~~are ~~determining~~subject ~~the~~to ~~recognition~~certain risks, including interest rate price risk and credit risk. The Company monitors exposure to interest rate risk through periodic reviews of ~~impaired~~asset and liability positions. Estimates of cash ~~were~~flows ~~different,~~and the impact of interest rate fluctuations relating to the investment portfolio are monitored regularly. The Company’s objective is to earn competitive relative returns by investing in a diverse portfolio of high-quality, liquid securities. Portfolio characteristics are analyzed regularly and market risk is actively managed through a variety of techniques. Portfolio holdings are diversified across industries, and concentrations in any one company or industry are limited by parameters established by Company management and the Board of Directors.

~~Results~~ITEM ~~of Operations could be significantly impacted~~2. ~~Management~~MANAGEMENT’S ~~believes~~DISCUSSION ~~its~~AND ~~investment~~ANALYSIS ~~valuation~~OF ~~philosophy~~FINANCIAL ~~and~~CONDITION AND ~~accounting~~RESULTS ~~practices~~OF ~~result~~FINANCIAL inOPERATIONS ~~appropriate and timely measurement of value and~~(Continued) ~~recognition of impairment.~~

The Company’s investments are subject to certain risks, including interest rate price risk and credit risk. The Company monitors exposure to interest rate risk through periodic reviews of asset and liability positions. Estimates of cash flows and the impact of interest rate fluctuations relating to the investment portfolio are monitored regularly. The Company’s objective is to earn competitive relative returns by investing in a diverse portfolio of high-quality, liquid securities. Portfolio characteristics are analyzed regularly and market risk is actively managed through a variety of techniques. Portfolio holdings are diversified across industries, and concentrations in any one company or industry are limited by parameters established by Company management and the Board of Directors.

Reserve Liabilities

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

Financial Ratings

Insurance companies are rated by rating agencies to provide insurance consumers and investors with meaningful information on the rated companies. Higher ratings generally indicate financial stability and a stronger ability to pay claims. The ratings are generally based upon factors relevant to Policyholders and are not directed toward return to investors.

The Company’s rating from A.M. Best was lowered from A+ (Superior) to A (Excellent) in March 2003. The A (Excellent) rating places the Company in the top 17% of more than 1,000 individual insurers or groups of insurers rated and continues to affirm the Company’s strong financial position. The Company also has a rating of B+ (Good) from Weiss Ratings, Inc. According to Weiss Ratings, the B+ rating indicates that the Company offers good financial security and has the resources necessary to deal with a variety of adverse conditions.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of the Company’s ability to secure enough cash to meet its contractual obligations and operating needs. Generally, insurance premiums are collected prior to claims and benefit disbursements and these funds are invested to provide necessary cash flows in future years. The Company’s major sources of cash from operations are life insurance premiums and investment income. Major cash outflows from operations are for benefits to policyholders and commissions to agents. The net positive cash flow from operations is used to fund Company commitments and to build the investment portfolio, thereby increasing future investment returns. Net cash provided by operating activities for the ~~nine~~three months ended ~~September~~June 30, ~~2003~~ 2004 was $65.3 million. The Company’s liquidity position remains strong. asInvestments ~~invested assets~~ and cash and cash equivalents ~~increased by more than $231.6 million~~ ~~during~~totaled ~~the first nine months of 2003 to~~ $1.5 billion at June 30, 2004.

~~ITEM~~Annuity 2and universal life deposits, which do not appear as revenue on the Statement of Operations, are a source of funds. ~~MANAGEMENT~~These deposits do not involve a mortality or morbidity risk and are accounted for using methods applicable to comparable interest-bearing obligations of other types of financial institutions. This method of accounting records deposits as a liability rather than as revenue. Annuity and universal life deposits were $24.8 million in the second quarter of 2004 and $45.5 million in the second quarter of 2003. The Company’Ss ~~DISCUSSION~~ability ~~AND~~to ~~ANALYSIS~~attract OFdeposits ~~FINANCIAL~~depends ~~CONDITION~~in ~~AND~~large ~~RESULTS~~part OFon ~~FINANCIAL~~the ~~OPERATIONS~~relative attractiveness ~~(Continued)~~of its products compared to other investment alternatives. Annuity deposits began to slow during the second half of 2003 as the Company lowered its credited interest rates and the equity market improved.

~~Annuity~~All ~~and~~Company commitments are met by cash flows from policy revenue, annuity and universal life deposits, ~~which~~and doinvestment ~~not~~income. ~~appear~~Management asbelieves ~~revenue~~its oncash flow ~~the~~from operations and its liquid assets and marketable securities will also ~~Statement~~enable ofthe ~~Operations,~~Company ~~are~~to meet any foreseeable cash requirements. Also available as a source of funds. ~~These~~to ~~deposits~~the doCompany ~~not~~is ~~involve~~ a ~~mortality~~$10.0 million orcommitted ~~morbidity~~line ~~risk~~of credit and ~~are~~letter ~~accounted~~agreement ~~for~~with ~~using~~PNC ~~methods~~Bank, ~~applicable~~N.A. ~~to comparable~~The ~~interest-bearing~~Company ~~obligations~~may use extensions of credit ~~other~~from ~~types~~the bank to fund working capital needs of ~~financial~~the Company and for other ~~institutions~~general corporate purposes. ~~This~~At ~~method~~June 30, of2004 ~~accounting~~and ~~records~~December 31, ~~deposits~~2003, securities held as acollateral ~~liability~~on ~~rather than~~the ascommitted ~~revenue~~line of credit totaled $14.6 million ~~Annuity~~and $15.1 million, respectively. At June 30, 2004 and ~~universal~~December 31, ~~life~~2003, there were no borrowings on this line of credit.

For a complete discussion of the fixed contractual obligations see Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the amended Annual Report on Form 10-K/A for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on August 20, 2004.

~~deposits~~ITEM ~~were $26~~2.~~6 million~~ inMANAGEMENT’S ~~the~~DISCUSSION ~~third~~AND ~~quarter~~ANALYSIS ofOF ~~2003~~FINANCIAL ~~and~~CONDITION ~~$45.2 million in the third quarter of 2002. The~~AND ~~heightened~~RESULTS ~~volatility~~OF inFINANCIAL ~~the~~OPERATIONS ~~equity markets has continued to make annuities an~~(Continued) ~~attractive investment alternative.~~

The Company’s current commitments for expenditures as of September 30, 2003 are primarily for policy death benefits, policy surrenders and withdrawals, general operating expenses, federal income taxes, and dividends to Shareholders. In addition, the Company has outstanding commitments to invest up to $2.2 million in real estate limited partnerships at September 30, 2003. All Company commitments are met by cash flows from policy revenue, annuity and universal life deposits and investment income. Management believes its cash flow from operations and its liquid assets and marketable securities will also enable the Company to meet any foreseeable cash requirements. As an added measure of liquidity, the Company issued a $25 million surplus note to the Erie Indemnity Company in exchange for $25 million in cash during the third quarter of 2003. Also available as a source of funds to the Company is a $10 million committed line of credit and letter agreement with PNC Bank, N.A. The Company shall use line of credit amounts as direct extensions of credit from the bank to fund working capital needs of the Company and other general corporate purposes. At September 30, 2003 and December 31, 2002, securities held as collateral on the committed line of credit totaled $15.2 million and $15.5 million, respectively. At September 30, 2003 and December 31, 2002 there were no borrowings on this line of credit.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Products with Interest Rate Guarantees

Several of the Company’s annuity and universal life products offer guaranteed interest rates to ~~Policyholders~~policyholders. In response to the current interest rate environment, the Company has ~~recently~~ reduced the credited interest rates to historically low levels. Certain products are now ~~within~~at ~~5 basis points of~~ the minimum interest rates guaranteed under these ~~policies~~policy forms.

If the interest rates on fixed income securities continue to decline, the interest rates available in the marketplace may be insufficient to produce ~~our~~ ~~current~~ target profit margins or, in extreme situations, could produce negative ~~profit~~ profit margins on annuity and universal life deposits.

Effective July 10, 2003, the Company revised its current deferred annuity products to lower interest rate guarantees on newly issued policies to 1.5% in all policy years. This change has been approved in all states in which the Company ~~is licensed~~operates.

~~ITEM~~Annuity 2contracts issued between February 25, 2003 and July 9, 2003 have a guaranteed interest rate of 3.0%. ~~MANAGEMENT’S~~Contract ~~DISCUSSION~~forms ~~AND~~issued ~~ANALYSIS~~before OFFebruary 2003 have ~~FINANCIAL~~a ~~CONDITION~~stepped-down ~~AND~~guaranteed ~~RESULTS~~interest OFrate ~~FINANCIAL~~structure. ~~OPERATIONS~~The ~~(Continued)~~guaranteed interest rates and approximate current deposit liabilities for deferred annuity products with credited interest rates subject to change by the Company are as follows:

Annuity contracts issued between February 2003 and July 9, 2003 have a guaranteed interest rate of 3.0%. Contract forms issued before February 2003 have a stepped-down guaranteed interest rate structure. The guaranteed interest rates and current deposit liabilities for deferred annuity products are as follows:


	Initial			Current
Policy	Guaranteed			Guaranteed			Deposit
Years	Interest Rate			Interest Rate			Liabilities
							(in thousands)
1-5		4.5	%		4.5	%	$	263,156
6-10		4.5			4.0			112,689
Over 10		4.5			3.5			171,526
All Years		3.0			3.0			32,089
All Years		1.5			1.5			20,677

The Company has some ability to restrict new deposits on its universal life and annuity policy contracts. New deposits can be limited under the terms of the Company’s universal life and annuity contracts as follows:

	•		Universal life products provide for planned premium amounts. Additional unplanned premium payments may be made at any time during the insured’s lifetime and before the end of the payment period. The amounts of such payments must be acceptable to the Company and be within IRS guidelines. Policies in force at June 30, 2004 have an annualized planned premium of $30.4 million.

	•		Flexible premium deferred annuity (FPDA) contracts allow the Company to limit deposits to a maximum of $25,000 per year. The Company began limiting deposits to the contractual maximum effective July 10, 2003 on products with interest rate guarantees exceeding 3.0% to insure that overall product interest spreads are maintained. Currently, there are 23,833 FPDA contracts in force, of which 20,206 have guarantees in excess of 3.0%. No additional payments are permitted on single premium deferred annuity contracts.

During the second quarter of 2004, the average rate credited on flexible premium deferred annuity and universal life account values was 4.1% and 4.6%, respectively. The current coupon yield on fixed maturities matched against universal life and annuity products at June 30, 2004, is 5.9%.

Initial			Current			Deposit
Guaranteed	Policy		Guaranteed			Liabilities
Rate	Years		Interest Rate			(In millions)
4.5%		1-5		4.5	%	$273.4
4.5%		6-10		4.0	%	113.4
4.5%	Over 10			3.5	%	152.8
3.0%	All Years			3.0	%	30.9
1.5%	All Years			1.5	%	3.1

The Company has some ability in its universal life and annuity policy contracts to restrict new deposits on existing contracts. New deposits are limited under the terms of the Company’s universal life and annuity contracts as follows:

	•		Universal life products provide for planned premium amounts. Additional unplanned premium payments may be made at any time during the insured’s lifetime and before the end of the payment period. The amounts of such payments must be acceptable to the Company and be within IRS guidelines. Policies in force at September 30, 2003, have an estimated annualized planned premium of approximately $28.4 million.
	•		Flexible premium deferred annuity contracts allow the Company to limit deposits to a maximum of $25,000 per year. The Company began limiting deposits to the contractual maximum effective July 10, 2003, on products with interest rate guarantees exceeding 1.5%, to insure that overall product interest spreads are maintained. Currently, there are approximately 23,000 contracts in force.

The recovery of acquisition costs previously capitalized on annuity and universal life products is dependent on the future profitability of this business. Reduced investment margins over an extended period of time could affect the recoverability of the deferred policy acquisition costs asset.

During the third quarter of 2003, the average rates credited on flexible premium deferred annuities and universal life deposits were 4.55% and 4.58%, respectively. The current coupon yield on fixed maturities matched against the Company’s universal life and annuity products at September 30, 2003, was 6.25%.

Investment Market Conditions

The Company’s deposit-type products compete with a wide variety of investment options. Among other factors affecting the investment decisions of Policyholders and potential Policyholders are general investment market conditions, particularly the market interest rate environment. Changes in interest rates affect pricing and the relative attractiveness of interest-sensitive investment options, which bears directly on the ability of the Company to attract new Policyholders and retain existing holders of annuity, universal life and certain permanent life insurance products.

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

~~Terrorist~~Market ~~Actions~~Conditions for Competing Products

The Company’s isdeposit-type ~~exposed~~products tocompete ~~direct~~with ~~losses~~a ~~arising~~wide ~~from~~variety ~~possible~~of ~~future terrorist~~investment ~~actions~~options. ~~Additionally,~~Among ~~current~~other ~~and~~factors ~~future~~affecting ~~proposed~~the ~~federal~~investment ~~measures~~decisions ~~might~~of ~~affect~~policyholders ~~the~~and ~~way~~potential ~~the~~policyholders ~~life~~are ~~insurance~~general ~~industry~~investment ~~handles~~market conditions, ~~losses~~particularly ~~from~~the ~~potential~~market ~~future~~interest rate environment and the ~~terrorist~~performance ~~actions~~of the equity markets. ~~These~~Changes ~~measures~~in ~~may~~interest ~~include~~rates affect pricing and the ~~establishment~~relative attractiveness of ~~a federal~~interest-sensitive ~~reinsurance~~investment ~~program~~options, ~~for~~which bears ~~losses~~directly ~~from~~on ~~terrorist~~the ~~actions~~ability ~~and~~of ~~possible changes~~the Company to ~~the~~attract ~~tax~~new ~~laws~~policyholders ~~governing~~and retain ~~the~~existing ~~taxation~~holders of annuity, universal life and certain permanent life insurance ~~companies~~products.

~~The~~Financial ~~Company’s substantial portfolio of fixed income investments could also be~~Ratings ~~affected by potential future terrorist actions, which may affect the level of economic~~ ~~activity as well as investor~~

The combination of Company growth and declines in investment returns exposes the Company to reduced statutory surplus levels. Surplus levels are an important element of the rating process used by such agencies as A.M. Best and Standard & Poor’s, which are industry-accepted measures of an insurance company’s financial health and ability to meet ongoing obligations to policyholders. These ratings are a factor in establishing the competitive position of insurance companies.

If the Company were to incur reductions in statutory surplus for an extended period of time, the ratings of the Company may be downgraded. Future downgrades in these or other ratings would reduce the competitive position of the Company by making it more difficult to attract business in the highly competitive life insurance industry. In such circumstances, the Company may need to take measures to increase surplus levels in order to maintain adequate ratings. The Company may increase surplus through a variety of means, including the issuance of additional surplus notes.

~~confidence~~ITEM ~~in the U~~2. MANAGEMENT’S. ~~capital~~DISCUSSION ~~markets.~~AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF FINANCIAL OPERATIONS (Continued)

~~Contingencies~~Introduction of ERIEConnection®

AIn ~~civil~~2001, ~~class~~the ~~action~~Erie ~~lawsuit~~Insurance ~~was~~Group, ~~filed~~including inthe ~~April~~Company, began the development of ~~2003~~several eCommerce initiatives in support of the ~~Court~~Group’s ofbusiness ~~Common Pleas~~model of distributing ~~Philadelphia~~insurance ~~County,~~products ~~Pennsylvania.~~exclusively ~~Erie~~through ~~Family~~independent ~~Life~~agents. ~~Insurance Company~~These ~~(EFL) is~~initiatives ~~the~~include ~~named~~customer ~~defendant~~interaction insystems ~~the lawsuit.~~that ~~See~~are ~~the~~intended ~~Legal~~to ~~Proceedings~~improve service ~~section~~and ~~under~~efficiency, ~~Part~~as IIwell ofas ~~this~~result ~~document for~~in ~~further~~increased ~~discussion~~sales.

The implementation of the new system will require a significant investment in training and orientation for the independent agency force. During implementation, as agency resources are dedicated to learning the new system, sales of new business could be adversely affected over the short term. The amount of lost sales will correlate to the timing and duration of the systems rollout effort as well as the number and types of system issues encountered. Precise measurement of the impact on sales is not estimable.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s exposure to market risk is primarily related to fluctuations in prices and interest rates. Quantitative and qualitative disclosures about market risk resulting from changes in prices and interest rates are included in Item 7A in the Company’s ~~2002~~2003 Annual Report on Form 10-K/A. The risks associated with interest rate guarantees on the Company’s universal life and annuity products are discussed in the Company’s Annual Report on Form 10-K/A infor 2003 in Factors That May Affect Future Results ~~on page 27~~. The information contained in the ~~Investments~~ Investments section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2003 Annual Report on Form 10-K/A is incorporated herein by reference.

The Company also has exposure to credit risk through its portfolios of fixed maturity securities, preferred stock, mortgage loans, and to a lesser extent, short-term investments. This risk is defined as the potential loss in market value resulting from adverse changes in the borrower’s ability to repay the debt. The Company’s objective is to earn competitive returns by investing in a diversified portfolio of securities. The Company manages this risk by performing up front underwriting analysis and regular reviews by its investment staff. The fixed maturity investments are also maintained between minimum and maximum percentages of invested assets.

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995: Certain forward-looking statements contained herein involve risks and uncertainties. These statements include certain discussions relating to underwriting, premium and investment income volume, business strategies, profitability and business relationships and the Company’s other business activities during ~~2003~~2004 and beyond. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential” and similar expressions. These forward-looking statements reflect the Company’s current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that may cause results to differ materially from those anticipated in those statements. Many of the factors that will determine future events or achievements are beyond our ability to control or predict.

ITEM 4. CONTROLS AND PROCEDURES

AsIn ofits ~~September 30,~~Form ~~2003,~~10-K ~~the~~Annual Report ~~Company~~for ~~carried~~2003 ~~out~~as anoriginally ~~evaluation,~~filed ~~under~~with the ~~supervision~~ Securities and ~~with~~Exchange Commission (the ~~participation~~“SEC”) ofon ~~the~~March ~~Company’s~~8, ~~management~~2004, ~~including its~~as ~~Chief~~amended ~~Executive~~on ~~Officer~~April ~~and~~1, ~~its~~2004 ~~Chief~~(the “Original ~~Financial Officer~~Filing”), of the ~~design~~Company ~~and operation~~reported ofa ~~the~~weakness ~~Company’s~~in ~~disclosure~~internal control ~~controls~~over ~~and~~the ~~procedures.~~processes ~~Based~~used onto ~~this evaluation,~~determine the ~~Company’s~~recorded ~~Chief~~amount ~~Executive~~of ~~Officer~~deferred acquisition ~~and~~costs ~~Chief~~(“DAC”) ~~Financial~~and ~~Officer concluded~~related ~~that~~DAC ~~the~~amortization. The Company’s ~~disclosure~~independent ~~controls~~auditors, ~~and~~Ernst ~~procedures~~& ~~are~~Young, ~~effective for gathering~~LLP, ~~analyzing~~in ~~and~~conjunction ~~disclosing~~with their ~~the~~audit ~~information~~of the Company’s is2003 ~~required to~~financial ~~disclose~~statements, incharacterized ~~the~~this weakness ~~reports~~as ita ~~files~~material ~~under the Securities Exchange Act of 1934~~weakness, ~~within~~ ~~the~~as ~~time~~defined ~~periods specified~~ in ~~the~~Statement ~~SEC’s~~on ~~rules~~Auditing ~~and~~Standards No. ~~forms~~60. ~~There~~The ~~have been~~material noweakness ~~significant~~was ~~changes~~communicated into the Company’s ~~internal controls or in other~~management ~~factors~~and ~~that~~the ~~could~~Audit ~~significantly~~Committee ~~affect~~of ~~internal controls subsequent to~~ the ~~date~~ Board of ~~this evaluation~~Directors.

As reported in the Original Filing, management developed a plan in collaboration with the Audit Committee of the Board to correct this weakness in internal control during 2004. The plan entails evaluation of DAC accounting issues, implementation of improved procedures and controls over periodic DAC computations and balances, ongoing evaluation of underlying assumptions, monitoring of DAC trends and ratios and the installation of improved valuation systems. The plan has been reviewed with, and progress is being monitored by, the Audit Committee of the Board and Company management, including the Chief Executive Officer and the Chief Financial Officer.

Subsequent to the Original Filing and pursuant to the plan, the Company completed its evaluation of DAC accounting issues and identified adjustments to its previously issued financial statements that required restatement (the “Restatement”). For additional discussion of the Restatement, see the Company’s Form 10-K/A filed August 20, 2004.

The Company has made substantive progress in correcting the material weakness through the date of the filing of this Form 10-Q. An independent consulting actuary engaged by the Company is providing oversight over the team of internal actuarial and accounting personnel implementing the plan, and providing direction and guidance in evaluating past practices and in implementing procedures and controls regarding actuarial functions.

The Company has effected certain improvements to its DAC accounting procedures. For example, actuarial and financial personnel have developed management reports to enable management to better monitor DAC trends and ratios which increase transparency in understanding the periodic results of operations. The Company has also purchased a new valuation system. Installation of this new system began in the second quarter of 2004 and is expected to extend through year-end.

As of the end of the period covered by this Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. In making the evaluation described above, the Company considered matters relating to the Restatement including the above described control weakness.

Based on management’s evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, except for the material weakness described above, the Company’s disclosure controls and procedures are effective for gathering, analyzing and disclosing the information the Company is required to disclose in the reports it files under the Exchange Act within the time periods specified in the SEC’s rules and forms. Other than the improvements made to the Company’s processes and controls over accounting for DAC, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of management’s evaluation.

PART II. OTHER INFORMATION

ITEM 14. ~~LEGAL~~SUBMISSION ~~PROCEEDINGS~~OF MATTERS TO A VOTE OF SECURITY HOLDERS

AOn ~~civil class action lawsuit was filed in~~ April ~~of 2003 in the Court of Common Pleas of Philadelphia County~~ 27, Pennsylvania. Erie Family Life Insurance Company (EFL) is the named defendant in the lawsuit. EFL issued a life insurance policy to the plaintiff. The class action Complaint alleges that EFL charged and collected annual premium for the first year2004, ~~but did not provide 365 days of insurance coverage. The Complaint alleges that~~ the ~~policy~~Registrant ~~forms~~held ~~and applications~~its ~~used~~Annual byMeeting ~~EFL do not disclose “that a portion~~ of ~~the first premium~~Shareholders: ~~will cover a period of time during which EFL does not provide insurance~~ ~~coverage.”~~

The ~~Complaint~~following ~~contains~~directors ~~four~~were ~~counts.~~elected Infor ~~Count I, Plaintiff alleges that the conduct of EFL violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law. Count II of the Complaint alleges~~ a ~~cause~~one-year ofterm ~~action for breach of contract. Count III alleges that EFL breached its duty of good faith~~ and ~~fair~~ ~~dealing.~~until ~~In Count IV of the Complaint, Plaintiff asserts~~ a ~~cause~~successor ~~of action~~is ~~for~~elected ~~unjust enrichment~~ and~~/or~~ ~~restitution. EFL answered the Complaint and denied liability on all counts.~~ qualified:

ItKaj isAhlmann ~~too~~C. ~~early~~Scott toHartz ~~assess~~John ~~the~~T. ~~probable~~Baily ~~outcome~~F. orWilliam ~~the~~Hirt ~~purported~~Samuel ~~amount~~P. ~~of damages~~Black, ofIII ~~this~~Samuel ~~civil~~P. ~~class~~Katz ~~action lawsuit~~J. ~~The~~Ralph ~~Company~~Borneman, ~~believes~~Jr. ~~that~~Claude ~~EFL~~C. ~~has meritorious~~Lilly, ~~legal~~III ~~and~~Wilson ~~factual~~C. ~~defenses~~Cooney toJeffrey ~~the~~A. ~~lawsuit~~Ludrof ~~and~~Patricia ~~these~~Garrison-Corbin ~~defenses~~Jan ~~will be~~R. ~~vigorously~~Van ~~pursued~~Gorder, Esq. John R. Graham Robert C. Wilburn Susan Hirt Hagen

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

Exhibit
Number		Description of Exhibit
31.1		Certification of Chief Executive Officer ~~Pursuant~~pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer ~~Pursuant~~pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		~~Certification~~Statements ~~Pursuant~~of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as ~~Adopted~~adopted ~~Pursuant~~pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Reports on Form 8-K

On ~~July~~May 2427, ~~2003~~2004, the Company filed a report on Form 8-K, reporting under Item 5, 9the resignation, ~~that~~effective aimmediately, ~~press~~of ~~release~~Samuel ~~had~~P. ~~been~~Katz, ~~issued~~President, Wynnefield ~~reporting~~Capital Advisors, Inc. from the Company’s ~~earnings~~Board of Directors for personal reasons. The Nominating and Governance Committee has initiated the process ~~quarter~~to ~~ended~~determine ~~June 30,~~whether ~~2003~~to fill the vacated position prior to the 2005 Annual Shareholders’ Meeting or reduce the number of directors from 15 to 14.

SIGNATURES

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

	Erie Family Life Insurance Company	~~Erie Family Life Insurance Company~~
	(Registrant)	~~(Registrant)~~
Date: October 29, 2003		/s/ Jeffrey A. Ludrof
Date: August 20, 2004	/s/ Jeffrey A. Ludrof
	(Jeffrey A. Ludrof, President & CEO)	~~(Jeffrey A. Ludrof, President & CEO)~~
	/s/ Philip A. Garcia	~~/s/ Philip A. Garcia~~
	(Philip A. Garcia, Executive Vice President & CFO)	~~(Philip A. Garcia, Executive Vice President & CFO)~~

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Filing Compare · ERIE FAMILY LIFE INSURANCE CO