##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarter ended March 31, 2006
 Commission file number 2-39458
 ERIE FAMILY LIFE INSURANCE COMPANY
 
  PENNSYLVANIA
    
    25-1186315(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)100 Erie Insurance Place, Erie, Pennsylvania
    
    16530(Address of principal executive offices)
    
    (Zip code)
  
   
  þ o
  o o þ
 o þ




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##### 



PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Statements of Financial Position  March 31, 2006 and December 31, 2005Statements of Operations  Three months ended March 31, 2006 and 2005Statements of Comprehensive Income  Three months ended March 31, 2006 and 2005Statements of Cash Flows  Three months ended March 31, 2006 and 2005Notes to Financial Statements  March 31, 2006Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of OperationsItem 3.
    
    Quantitative and Qualitative Disclosures About Market RiskItem 4.
    
    Controls and ProceduresPART II. OTHER INFORMATIONItem 1.
    
    Legal ProceedingsItem 6.
    
    ExhibitsSIGNATURESEX-31.1EX-31.2EX-32
  2




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(Dollars in thousands, except per share data)March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSINVESTMENTSFixed maturities at fair value (amortized cost
of $1,370,937 and $1,349,646, respectively)
    
    $
    1,369,733
    
    
    $
    1,378,067Equity securities at fair value
(cost of $71,869 and $78,890, respectively)
    
    
    75,899
    
    
    
    84,545Limited partnerships
(cost of $18,091 and $15,341, respectively)
    
    
    19,189
    
    
    
    16,671Real estate mortgage loans
    
    
    5,879
    
    
    
    5,930Real estate
    
    
    1,212
    
    
    
    1,219Policy loans
    
    
    11,792
    
    
    
    11,667Total investments
    
    
    1,483,704
    
    
    
    1,498,099Cash and cash equivalents
    
    
    534
    
    
    
    18,636Premiums receivable from policyholders
    
    
    128
    
    
    
    180Reinsurance recoverable
    
    
    2,929
    
    
    
    3,770Other receivables
    
    
    294
    
    
    
    406Accrued investment income
    
    
    19,865
    
    
    
    16,715Deferred policy acquisition costs
    
    
    140,859
    
    
    
    133,812Reserve credit for reinsurance ceded
    
    
    42,276
    
    
    
    40,366Securities lending collateral
    
    
    53,240
    
    
    
    59,514Prepaid federal income taxes
    
    
    0
    
    
    
    273Other assets
    
    
    5,713
    
    
    
    4,589Total assets
    
    $
    1,749,542
    
    
    $
    1,776,360
  3




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(Dollars in thousands, except per share data)March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)LIABILITIES AND SHAREHOLDERS EQUITYLIABILITIESPolicy Liabilities and Accruals:Future life and accident and health policy benefits
    
    $
    153,189
    
    
    $
    148,034Policy and contract claims
    
    
    3,656
    
    
    
    5,867Annuity deposits
    
    
    1,018,437
    
    
    
    1,021,442Universal life deposits
    
    
    179,031
    
    
    
    176,569Supplementary contracts not including life contingencies
    
    
    682
    
    
    
    741Other policyholder funds
    
    
    8,190
    
    
    
    8,420Federal income taxes payable
    
    
    783
    
    
    
    0Deferred income taxes
    
    
    26,172
    
    
    
    33,821Reinsurance premium due
    
    
    1,177
    
    
    
    2,357Securities lending collateral
    
    
    53,240
    
    
    
    59,514Accounts payable and accrued expenses
    
    
    12,507
    
    
    
    12,604Notes payable to affiliates
    
    
    45,000
    
    
    
    45,000Due to affiliates
    
    
    2,968
    
    
    
    3,942Dividends payable
    
    
    2,079
    
    
    
    2,079Total liabilities
    
    
    1,507,111
    
    
    
    1,520,390SHAREHOLDERS EQUITYCommon stock, $.40 par value per share;
authorized 15,000,000 shares; 9,450,000 shares
issued and outstanding
    
    
    3,780
    
    
    
    3,780Additional paid-in capital
    
    
    630
    
    
    
    630Accumulated other comprehensive income
    
    
    732
    
    
    
    15,471Retained earnings
    
    
    237,289
    
    
    
    236,089Total shareholders equity
    
    
    242,431
    
    
    
    255,970Total liabilities and shareholders equity
    
    $
    1,749,542
    
    
    $
    1,776,360
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Three Months Ended
    
    
    Three Months EndedMarch 31, 2006
    
    
    March 31, 2005(Dollars in thousands, except per share data)REVENUESNet Policy Revenue:Life premiums
    
    $
    14,190
    
    
    $
    13,502Group life and other premiums
    
    
    928
    
    
    
    906Total net policy revenue
    
    
    15,118
    
    
    
    14,408Net investment income
    
    
    21,278
    
    
    
    20,306Net realized gains (losses) on investments
    
    
    349
    
    
    
    (1,353
    )Equity in earnings of limited partnerships
    
    
    106
    
    
    
    604Other income
    
    
    199
    
    
    
    177Total revenues
    
    
    37,050
    
    
    
    34,142BENEFITS AND EXPENSESDeath benefits
    
    
    5,502
    
    
    
    3,430Interest on annuity deposits
    
    
    11,623
    
    
    
    11,027Interest on universal life deposits
    
    
    1,938
    
    
    
    1,795Interest on surplus notes and
other affiliate interest
    
    
    787
    
    
    
    712Surrender and other benefits
    
    
    396
    
    
    
    337Increase in future life policy benefits
    
    
    3,244
    
    
    
    3,160Amortization of deferred policy acquisition costs
    
    
    3,201
    
    
    
    2,254Commissions
    
    
    423
    
    
    
    400General expenses
    
    
    4,299
    
    
    
    4,611Taxes, licenses and fees
    
    
    1,014
    
    
    
    956Total benefits and expenses
    
    
    32,427
    
    
    
    28,682Income before income taxes
    
    
    4,623
    
    
    
    5,460Provision for income taxes
    
    
    1,344
    
    
    
    1,911Net income
    
    $
    3,279
    
    
    $
    3,549Net income per share
    
    $
    0.35
    
    
    $
    0.38Dividends declared per share
    
    $
    0.22
    
    
    $
    0.22
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Three Months Ended
    
    
    Three Months EndedMarch 31, 2006
    
    
    March 31, 2005(Dollars in thousands)Net income
    
    $
    3,279
    
    
    $
    3,549Unrealized losses on securities:Unrealized holding losses arising during period,
net of adjustments to deferred acquisition
costs and life contingent payout annuities
    
    
    (22,327
    )
    
    
    (22,945
    )Less: (gains) losses included in net income
    
    
    (349
    )
    
    
    1,353Net unrealized holding losses arising
during period, net of adjustments to deferred
acquisition costs and life contingent payout
annuities
    
    
    (22,676
    )
    
    
    (21,592
    )Income tax benefit related to
unrealized losses
    
    
    7,937
    
    
    
    7,557Unrealized depreciation of
investments, net of taxes
    
    
    (14,739
    )
    
    
    (14,035
    )Comprehensive loss
    
    $
    (11,460
    )
    
    $
    (10,486
    )
  6




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Three Months Ended
    
    
    Three Months EndedMarch 31, 2006
    
    
    March 31, 2005(Dollars in thousands)CASH FLOWS (USED IN) PROVIDED BY
OPERATING ACTIVITIES:Premiums collected
    
    $
    13,883
    
    
    $
    14,232Net investment income received
    
    
    18,383
    
    
    
    17,406Limited partnership distributions
    
    
    262
    
    
    
    2,592Miscellaneous income
    
    
    199
    
    
    
    177Benefits to policyholders
    
    
    (21,778
    )
    
    
    (15,470
    )Commissions and bonuses paid to agents
    
    
    (2,822
    )
    
    
    (469
    )Salaries and wages paid
    
    
    (4,112
    )
    
    
    (4,277
    )General operating expenses paid
    
    
    (4,117
    )
    
    
    (4,434
    )Taxes, licenses and fees paid
    
    
    (1,409
    )
    
    
    (1,416
    )Interest paid
    
    
    (51
    )
    
    
    (51
    )Net cash (used in) provided by operating activities
    
    
    (1,562
    )
    
    
    8,290CASH FLOWS USED IN INVESTING ACTIVITIES:Purchase of investments:Fixed maturities
    
    
    (77,441
    )
    
    
    (72,713
    )Equity securities
    
    
    (6,094
    )
    
    
    (464
    )Limited partnerships
    
    
    (2,674
    )
    
    
    (1,390
    )Sales/maturities of investments:Sales of fixed maturities
    
    
    47,759
    
    
    
    35,803Calls/maturities of fixed maturities
    
    
    9,098
    
    
    
    16,734Equity securities
    
    
    13,678
    
    
    
    0Real estate additions
    
    
    (2
    )
    
    
    0Net mortgage loans
    
    
    51
    
    
    
    47Net policy loans
    
    
    (125
    )
    
    
    (183
    )Net cash used in investing activities
    
    
    (15,750
    )
    
    
    (22,166
    )CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES:Annuity and supplementary
contract deposits and interest
    
    
    32,329
    
    
    
    30,702Annuity and supplementary
contract surrenders and withdrawals
    
    
    (33,502
    )
    
    
    (17,700
    )Universal life deposits and interest
    
    
    4,768
    
    
    
    4,749Universal life surrenders
    
    
    (2,306
    )
    
    
    (1,521
    )Decrease in collateral from securities lending
    
    
    (6,274
    )
    
    
    0Redemption of securities lending collateral
    
    
    6,274
    
    
    
    0Dividends paid to shareholders
    
    
    (2,079
    )
    
    
    (2,079
    )Net cash (used in) provided by financing activities
    
    
    (790
    )
    
    
    14,151Net (decrease) increase in cash and cash equivalents
    
    
    (18,102
    )
    
    
    275Cash and cash equivalents at beginning of period
    
    
    18,636
    
    
    
    22,446Cash and cash equivalents at end of period
    
    $
    534
    
    
    $
    22,721
  7




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8




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Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated(in thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueMarch 31, 2006Fixed maturitiesBonds:U.S. treasuries and government agencies
    
    $
    37,096
    
    
    $
    174
    
    
    $
    661
    
    
    $
    36,609Public utilities
    
    
    177,452
    
    
    
    4,896
    
    
    
    3,778
    
    
    
    178,570U.S. banks, trusts and insurance companies
    
    
    243,000
    
    
    
    4,104
    
    
    
    4,705
    
    
    
    242,399U.S. industrial and miscellaneous
    
    
    563,425
    
    
    
    11,629
    
    
    
    11,148
    
    
    
    563,906Mortgage-backed securities
    
    
    172,830
    
    
    
    1,190
    
    
    
    3,899
    
    
    
    170,121Asset-backed securities
    
    
    15,358
    
    
    
    64
    
    
    
    262
    
    
    
    15,160Foreign
    
    
    157,233
    
    
    
    4,849
    
    
    
    3,670
    
    
    
    158,412Total bonds
    
    
    1,366,394
    
    
    
    26,906
    
    
    
    28,123
    
    
    
    1,365,177Redeemable preferred stock
    
    
    4,543
    
    
    
    13
    
    
    
    0
    
    
    
    4,556Total fixed maturities
    
    $
    1,370,937
    
    
    $
    26,919
    
    
    $
    28,123
    
    
    $
    1,369,733Equity securitiesNonredeemable preferred stock:U.S. banks, trusts and insurance companies
    
    
    30,908
    
    
    
    1,551
    
    
    
    462
    
    
    
    31,997U.S. industrial and miscellaneous
    
    
    20,802
    
    
    
    1,307
    
    
    
    58
    
    
    
    22,051Foreign
    
    
    20,159
    
    
    
    1,700
    
    
    
    8
    
    
    
    21,851Total equity securities
    
    $
    71,869
    
    
    $
    4,558
    
    
    $
    528
    
    
    $
    75,899
 9




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Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated(in thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueDecember 31, 2005Fixed maturitiesBonds:U.S. treasuries and government agencies
    
    $
    37,091
    
    
    $
    365
    
    
    $
    261
    
    
    $
    37,195Public utilities
    
    
    183,441
    
    
    
    7,080
    
    
    
    1,589
    
    
    
    188,932U.S. banks, trusts and insurance companies
    
    
    232,128
    
    
    
    6,852
    
    
    
    1,745
    
    
    
    237,235U.S. industrial and miscellaneous
    
    
    560,596
    
    
    
    17,914
    
    
    
    5,991
    
    
    
    572,519Mortgage-backed securities
    
    
    155,603
    
    
    
    2,126
    
    
    
    1,973
    
    
    
    155,756Asset-backed securities
    
    
    15,862
    
    
    
    114
    
    
    
    175
    
    
    
    15,801Foreign
    
    
    162,774
    
    
    
    7,129
    
    
    
    1,427
    
    
    
    168,476Total bonds
    
    
    1,347,495
    
    
    
    41,580
    
    
    
    13,161
    
    
    
    1,375,914Redeemable preferred stock
    
    
    2,151
    
    
    
    2
    
    
    
    0
    
    
    
    2,153Total fixed maturities
    
    $
    1,349,646
    
    
    $
    41,582
    
    
    $
    13,161
    
    
    $
    1,378,067Equity securitiesNonredeemable preferred stock:U.S. banks, trusts and insurance companies
    
    
    33,909
    
    
    
    1,889
    
    
    
    105
    
    
    
    35,693U.S. industrial and miscellaneous
    
    
    20,801
    
    
    
    1,555
    
    
    
    64
    
    
    
    22,292Foreign
    
    
    24,180
    
    
    
    2,421
    
    
    
    41
    
    
    
    26,560Total equity securities
    
    $
    78,890
    
    
    $
    5,865
    
    
    $
    210
    
    
    $
    84,545
 10




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Less than 12 months
    
    
    12 months or longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Number of(in thousands)
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    HoldingsFixed maturitiesBonds:U.S. treasuries and
government agencies
    
    $
    20,849
    
    
    $
    456
    
    
    $
    9,796
    
    
    $
    205
    
    
    $
    30,645
    
    
    $
    661
    
    
    
    13Public utilities
    
    
    94,934
    
    
    
    3,098
    
    
    
    10,999
    
    
    
    680
    
    
    
    105,933
    
    
    
    3,778
    
    
    
    42U.S. banks, trusts and
insurance companies
    
    
    119,886
    
    
    
    3,463
    
    
    
    24,206
    
    
    
    1,242
    
    
    
    144,092
    
    
    
    4,705
    
    
    
    61U.S. industrial and
miscellaneous
    
    
    253,943
    
    
    
    8,553
    
    
    
    49,647
    
    
    
    2,595
    
    
    
    303,590
    
    
    
    11,148
    
    
    
    122Mortgage-backed securities
    
    
    89,737
    
    
    
    2,413
    
    
    
    39,113
    
    
    
    1,486
    
    
    
    128,850
    
    
    
    3,899
    
    
    
    36Asset-backed securities
    
    
    1,943
    
    
    
    57
    
    
    
    2,787
    
    
    
    205
    
    
    
    4,730
    
    
    
    262
    
    
    
    2Foreign
    
    
    75,900
    
    
    
    2,693
    
    
    
    12,885
    
    
    
    977
    
    
    
    88,785
    
    
    
    3,670
    
    
    
    36Total fixed maturities
    
    
    657,192
    
    
    
    20,733
    
    
    
    149,433
    
    
    
    7,390
    
    
    
    806,625
    
    
    
    28,123
    
    
    
    312Equity securitiesNonredeemable preferred
stock
    
    
    8,481
    
    
    
    528
    
    
    
    0
    
    
    
    0
    
    
    
    8,481
    
    
    
    528
    
    
    
    4Total fixed maturity and
equity securities
    
    $
    665,673
    
    
    $
    21,261
    
    
    $
    149,433
    
    
    $
    7,390
    
    
    $
    815,106
    
    
    $
    28,651
    
    
    
    316
     11




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Three Months Ended
    
    
    Three Months Ended(in thousands)
    
    March 31, 2006
    
    
    March 31, 2005Fixed maturities:Gross realized gains
    
    $
    528
    
    
    $
    1,083Gross realized losses
    
    
    (743
    )
    
    
    (2,441
    )Net realized losses
    
    
    (215
    )
    
    
    (1,358
    )Equity securities:Gross realized gains
    
    
    564
    
    
    
    7Gross realized losses
    
    
    0
    
    
    
    (2
    )Net realized gains
    
    
    564
    
    
    
    5Net realized gains (losses) on
investments
    
    $
    349
    
    
    $
    (1,353
    )
   Three Months EndedMarch 31(in thousands)
    
    2006
    
    
    2005Mezzanine debt
    
    $
    32
    
    
    $
    0Real estate
    
    
    306
    
    
    
    604Valuation adjustments
    
    
    (232
    )
    
    
    0Total equity in earnings of limited partnerships
    
    $
    106
    
    
    $
    604
  Accounting and Reporting by Insurance Enterprises
 12




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Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments
    13




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(in thousands)GroupThree Months Ended
    
    Traditional
    
    
    Universal
    
    
    Fixed
    
    
    Life &
    
    
    CorporateMarch 31, 2006
    
    Life(1)
    
    
    Life (2)
    
    
    Annuities(3)
    
    
    Other
    
    
    Account
    
    
    TotalTotal policy revenue, net of
reinsurance
    
    $
    10,459
    
    
    $
    3,731
    
    
    $
    0
    
    
    $
    928
    
    
    $
    0
    
    
    $
    15,118Total net investment and other
income
    
    
    1,904
    
    
    
    2,526
    
    
    
    14,655
    
    
    
    67
    
    
    
    2,431
    
    
    
    21,583Net realized capital gains
    
    
    31
    
    
    
    40
    
    
    
    239
    
    
    
    1
    
    
    
    38
    
    
    
    349Total revenues
    
    
    12,394
    
    
    
    6,297
    
    
    
    14,894
    
    
    
    996
    
    
    
    2,469
    
    
    
    37,050Less: Total benefits and
expenses
    
    
    11,551
    
    
    
    6,302
    
    
    
    13,955
    
    
    
    533
    
    
    
    86
    
    
    
    32,427Income (loss) before income
taxes
    
    $
    843
    
    
    $
    (5
    )
    
    $
    939
    
    
    $
    463
    
    
    $
    2,383
    
    
    $
    4,623
 GroupThree Months Ended
    
    Traditional
    
    
    Universal
    
    
    Fixed
    
    
    Life &
    
    
    CorporateMarch 31, 2005
    
    Life
    
    
    Life
    
    
    Annuities
    
    
    Other
    
    
    Account
    
    
    TotalTotal policy revenue, net of
reinsurance
    
    $
    9,995
    
    
    $
    3,507
    
    
    $
    0
    
    
    $
    906
    
    
    $
    0
    
    
    $
    14,408Total net investment and other
income
    
    
    1,745
    
    
    
    2,304
    
    
    
    14,168
    
    
    
    57
    
    
    
    2,813
    
    
    
    21,087Net realized capital losses
    
    
    (117
    )
    
    
    (146
    )
    
    
    (943
    )
    
    
    (4
    )
    
    
    (143
    )
    
    
    (1,353
    )Total revenues
    
    
    11,623
    
    
    
    5,665
    
    
    
    13,225
    
    
    
    959
    
    
    
    2,670
    
    
    
    34,142Less: Total benefits and
expenses
    
    
    10,133
    
    
    
    4,651
    
    
    
    13,131
    
    
    
    690
    
    
    
    77
    
    
    
    28,682Income before income taxes
    
    $
    1,490
    
    
    $
    1,014
    
    
    $
    94
    
    
    $
    269
    
    
    $
    2,593
    
    
    $
    5,460
 
 (1)
    
    The March 31, 2006 traditional life benefits and expenses include a $2.1 million
increase in death benefits when compared to the same period in 2005.(2)
    
    The March 31, 2006 universal life benefits and expenses were increased by $0.9 million,
compared to a reduction of $0.4 million in the first quarter of 2005, for the unlocking of
certain assumptions related to the amortization of DAC.(3)
    
    The March 31, 2006 fixed annuities benefits and expenses include $0.5 million directly
allocated for annuity related projects.   14




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##### Table of Contents



Three Months Ended
    
    
    Three Months Ended(in thousands)
    
    March 31, 2006
    
    
    March 31, 2005Direct policy revenue
    
    $
    21,228
    
    
    $
    19,286Policy revenue ceded
    
    
    (6,110
    )
    
    
    (4,878
    )Net policy revenue
    
    $
    15,118
    
    
    $
    14,408Death benefits
    
    $
    6,910
    
    
    $
    5,059Reinsurance recoveries*
    
    
    (1,408
    )
    
    
    (1,629
    )Net death benefits
    
    $
    5,502
    
    
    $
    3,430Increases in future life policy benefits
    
    $
    5,154
    
    
    $
    4,231Reinsurance reserve credits
    
    
    (1,910
    )
    
    
    (1,071
    )Net increases in future life policy
benefits**
    
    $
    3,244
    
    
    $
    3,160Commissions
    
    $
    2,214
    
    
    $
    2,162Reinsurance commission allowance
    
    
    (1,791
    )
    
    
    (1,762
    )Net commissions
    
    $
    423
    
    
    $
    400General expenses
    
    $
    4,862
    
    
    $
    4,611Reinsurance expense allowance
    
    
    (563
    )
    
    
    (0
    )Net general expenses
    
    $
    4,299
    
    
    $
    4,611
 
 *
    
    During the first quarter of 2006, three death claims that were outstanding at December
31, 2005 were rescinded. Death benefits and reinsurance recoveries on these policies totaled
$1.5 million and $1.1 million, respectively. Excluding this adjustment, reinsurance recoveries
as a percentage of death benefits for the first quarter of 2006 would have been 30.1%,
compared to 32.2% for the first quarter of 2005.**
    
    The net increase in future life policy benefits in the first quarter of 2005 includes
a $0.7 million charge to earnings related to an adjustment made to correct previously recorded
reinsurance reserve credits, reflecting refinements in the method used to calculate these
credits. 15




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##### Table of Contents



Three Months Ended
    
    
    Three Months Ended(in thousands)
    
    March 31, 2006
    
    
    March 31, 2005CASH FLOWS (USED IN) PROVIDED BY OPERATING
ACTIVITIES:Net income
    
    $
    3,279
    
    
    $
    3,549Adjustments to reconcile net income to net cash
used in operating activities:Amortization of deferred policy acquisition costs
    
    
    3,201
    
    
    
    2,254Other amortization
    
    
    194
    
    
    
    232Deferred federal income tax expense (benefit)
    
    
    288
    
    
    
    (350
    )Realized (gains) losses on investments
    
    
    (349
    )
    
    
    1,353Equity in earnings of limited partnerships
    
    
    (106
    )
    
    
    (604
    )Limited partnership distributions
    
    
    262
    
    
    
    2,592Decrease in premium and other receivables
    
    
    164
    
    
    
    454Increase in accrued investment income
    
    
    (3,150
    )
    
    
    (3,274
    )Policy acquisition costs deferred
    
    
    (3,565
    )
    
    
    (3,547
    )(Increase) decrease in other assets
    
    
    (122
    )
    
    
    2Increase in reinsurance recoverables and reserve credits
    
    
    (1,070
    )
    
    
    (341
    )Decrease in prepaid federal income taxes
    
    
    1,056
    
    
    
    2,261Increase in future policy benefits and claims
    
    
    2,944
    
    
    
    5,629(Decrease) increase in other policyholder funds
    
    
    (230
    )
    
    
    1,043Decrease in reinsurance premium due
    
    
    (1,180
    )
    
    
    (1,674
    )Decrease in accounts payable and due to affiliates
    
    
    (3,178
    )
    
    
    (1,289
    )Net cash (used in) provided by operating activities
    
    $
    (1,562
    )
    
    $
    8,290
 16




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17




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF FINANCIAL
OPERATIONS
  FINANCIAL OVERVIEW
  REVENUES
 Analysis of Policy Revenue
  Analysis of Investment-related Income
   18




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF FINANCIAL
OPERATIONS
  Two year period endedMarch 31, 2006Company performance:Fixed maturities
    
    
    2.06
    %Preferred stock
    
    
    4.48Market index:Lehman Brothers U.S. Aggregate
    
    
    1.7
    %
 BENEFITS AND EXPENSES
 Net death benefits
  Interest expense
  Future life policy benefits
  DAC amortization
  19




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF FINANCIAL
OPERATIONS (Continued)
  Analysis of other expenses
 General expenses
  Federal income taxes
  FINANCIAL CONDITION
 Investments
   20




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
FINANCIAL OPERATIONS
    Reserve Liabilities
  LIQUIDITY AND CAPITAL RESOURCES
   21




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF FINANCIAL
OPERATIONS
    Off-balance sheet arrangements
  FACTORS THAT MAY AFFECT FUTURE RESULTS
 Products with Interest Rate Guarantees
   Initial
    
    
    
    
    
    Current
    
    
    DepositGuaranteed
    
    Policy
    
    
    Guaranteed
    
    
    LiabilitiesInterest Rate
    
    Years
    
    
    Interest Rate
    
    
    (in Thousands)4.5%
    

    1-5

    
    
    4.5
    %
    
    $
    221,6494.5%
    

        6-10

    
    
    4.0
    %
    
    
    110,2124.5%
    
    Over 10
    
    
    3.5
    %
    
    
    200,6033.0%
    
    All Years
    
    
    3.0
    %
    
    
    64,6111.5%
    
    All Years
    
    
    1.5
    %
    
    
    48,375Total
    
    
    
    
    
    
    
    
    
    $
    645,450
  22




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF FINANCIAL
OPERATIONS
   Market Conditions for Competing Products
  Information technology development
   Tender Offer
  23




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995:
 24




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ITEM 4. CONTROLS AND PROCEDURES
 
 25




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ITEM I. LEGAL PROCEEDINGS
       26




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ITEM 6. EXHIBITS
 Exhibits
 ExhibitNumber
    
    Description of Exhibit31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
200232
    
    Statements of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 27




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Erie Family Life Insurance Company(Registrant)/s/ Jeffrey A. Ludrof(Jeffrey A. Ludrof, President & CEO)/s/ Philip A. Garcia(Philip A. Garcia, Executive Vice President & CFO)
  28