UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             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 30, 1998

                                       OR

[ ] 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)

             PENNSYLVANIA                                25-1186315
  (State or other jurisdiction of                       (I.R.S. Employer
  incorporation or organization)                         Identification No.)


100 Erie Insurance Place, Erie, Pennsylvania                16530
  (Address of principal executive offices)               (Zip Code)

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


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 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 31, 1998.

                                       1

<PAGE>


                                      INDEX

                       ERIE FAMILY LIFE INSURANCE COMPANY


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

        Statements of Financial Position--September 30, 1998 and
        December 31, 1997

        Statements of Operations--three and nine months ended
        September 30, 1998 and 1997

        Statements of Comprehensive Income--three and nine months 
        ended September 30, 1998 and 1997

        Statements of Cash Flows--nine months ended September 30, 1998 and 1997

        Notes to Financial Statements--September 30, 1998

Item 2. Management's Discussion and Analysis of Financial
               Condition and Results of Operations


PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K


SIGNATURES

                                       2                                      
<PAGE>


Part I.  Financial Information
                                           STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>

                                                                            September 30,                 December 31,
ASSETS                                                                          1998                            1997
                                                                     ---------------------             ----------------
                                                                          (Unaudited)
<S>                                                                  <C>                               <C>    
Investments:
      Fixed Maturities available-for-sale, at fair
        value (amortized cost of $570,227,004
        and $535,792,641, respectively)                              $         599,351,459             $    558,177,487
      Equity Securities, at fair value
        (cost of $129,558,063 and $111,786,894,
        respectively)                                                          129,475,091                  120,841,893
      Real Estate                                                                1,562,161                    1,624,306
      Policy Loans                                                               5,767,787                    5,099,671
      Real Estate Mortgage Loans                                                 9,946,716                   10,049,733
      Other Invested Assets                                                     13,598,814                    7,240,282
                                                                     ---------------------             ----------------

        Total Investments                                            $         759,702,028             $    703,033,372

      Cash and cash equivalents                                                 23,207,474                   42,287,398
      Premiums Receivable from Policyholders                                     3,435,467                    3,471,385
      Reinsurance Recoverable                                                      263,039                      350,837
      Other Receivables                                                            263,584                      182,711
      Accrued Interest and Dividends                                            12,218,934                   10,273,259
      Deferred Policy Acquisition Costs                                         68,828,802                   64,567,085
      Prepaid Federal Income Taxes                                               1,825,272                      146,984
      Reserve Credit for Reinsurance Ceded                                       5,672,925                    5,041,530
      Other Assets                                                               4,900,889                    3,179,302
                                                                     ---------------------             ----------------

        Total Assets                                                 $         880,318,414             $    832,533,863
                                                                     =====================             ================
</TABLE>

                                                                  

See notes to financial statements.

                                                                  3
                                                                         
<PAGE>


                                          STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>

                                                                         September 30,                    December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY                                         1998                             1997
                                                                     ---------------------               --------------
                                                                         (Unaudited)
<S>                                                                  <C>                                 <C>    
Liabilities:
      Policy Liabilities and Accruals:
        Future Life Policy Benefits                                  $          63,344,945               $   59,413,782
        Policy and Contract Claims                                               1,406,449                    2,049,677
        Annuity Deposits                                                       511,408,978                  489,444,701
        Universal Life Deposits                                                 78,068,477                   68,890,312
        Supplementary Contracts Not
          including Life Contingencies                                             609,659                      825,927
      Other Policyholder Funds                                                   4,630,987                    6,595,330
      Deferred Federal Income Tax                                               26,806,302                   24,409,317
      Reinsurance Premium Due                                                      272,874                      424,745
      Accounts Payable and Accrued Liabilities                                   5,410,400                    2,668,688
      Note Payable to Affiliate                                                 15,000,000                   15,000,000
      Due to Affiliate                                                           1,649,002                    1,156,431
      Dividends Payable                                                          2,835,000                    1,275,752
                                                                     ---------------------               --------------

        Total Liabilities                                            $         711,443,073               $  672,154,662
                                                                     ---------------------               --------------

      Shareholders' Equity:
      Common Stock, $.40 Par Value Per Share;
      Authorized 15,000,000 Shares; 9,450,000
      Shares Issued And Outstanding                                  $           3,780,000               $    3,780,000
      Additional Paid-In Capital                                                   630,000                      630,000
      Accumulated Other Comprehensive Income,
        net of Deferred Tax of $10,164,520
        and $11,003,949, respectively                                           18,876,966                   20,435,901
      Retained Earnings                                                        145,588,375                  135,533,300
                                                                     ---------------------               --------------

        Net Shareholders' Equity                                     $         168,875,341               $  160,379,201
                                                                     ---------------------               --------------

        Total Liabilities and Shareholders'
          Equity                                                     $         880,318,414               $  832,533,863
                                                                     =====================               ==============
</TABLE>



See notes to financial statements.

                                                                 4 
<PAGE>


                                         STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>

 

                                                                    Three Months Ended                      Nine Months Ended
                                                                       September 30                            September 30
<S>                                                         <C>              <C>                   <C>               <C>
                                                                  1998              1997                  1998             1997
Revenues:
  Policy:
  Life Premiums, net of premiums ceded of
    $887,513, $887,210, $2,629,820 and
    $2,608,848, respectively                                $     8,905,059  $      8,097,260      $     26,519,337  $    24,285,999
  Group                                                             588,617           564,167             1,788,737        1,657,792
                                                            ---------------  ----------------      ----------------  ---------------
    Total Policy Revenue                                    $     9,493,676  $      8,661,427      $     28,308,074  $    25,943,791
  Investment Income, Net of Expenses of
    $328,078, $328,986, $1,054,881 and
    $976,860, respectively                                       12,574,958        12,418,846            38,360,698       37,031,620
  Realized Gains on Investment                                      775,430         2,507,707             3,477,700        3,875,794
  Other Income                                                      237,989           189,902               627,522          515,326
                                                            ---------------  ----------------      ----------------  ---------------
    Total Revenues                                          $    23,082,053  $     23,777,882      $     70,773,994  $    67,366,531
                                                            ---------------  ----------------      ----------------  ---------------

Benefits and Expenses:
  Death Benefits, net of reinsurance recoveries
    of $275,635, $244,888, $844,370 and
    $760,790, respectively                                        2,742,286         2,346,461             5,980,656        6,998,725
  Interest on Annuity Deposits                                    7,690,314         6,851,856            22,503,604       20,570,532
  Interest on Universal Life Deposits                             1,213,658         1,029,153             3,451,024        2,873,383
  Surrender and Other Benefits                                      262,445           269,319               828,126          882,066
  Increase in Future Life Policy Benefits, net of
    the increase in reserve credit for reinsurance
    ceded of $186,972, $166,048, $631,395 and
    $468,728, respectively                                        1,227,423         1,343,157             3,299,768        4,103,086
  Amortization of Deferred Policy
    Acquisition Costs                                             1,069,605           693,000             3,715,556        2,253,404
  Commissions, net of reinsurance reimbursements
    of $328,245, $331,582, $952,491 and $927,307,
    respectively                                                    418,405           327,071               988,556        1,206,028
  General Expenses                                                2,145,078         1,602,345             5,260,885        5,008,760
  Taxes, Licenses and Fees                                          402,953           257,666               201,954          829,338
                                                            ---------------  ----------------      ----------------  ---------------
    Total Benefits and Expenses                             $    17,172,167  $     14,720,028      $     46,230,129  $    44,725,322
                                                            ---------------  ----------------      ----------------  ---------------

Income From Operations                                      $     5,909,886  $      9,057,854      $     24,543,865  $    22,641,209
Federal Income Tax
  Current                                                           869,745         3,146,011             5,582,381        6,605,161
  Deferred                                                        1,377,224           385,172             3,236,412        1,495,050
                                                            ---------------  ----------------      ----------------  ---------------
    Total Federal Income Tax                                      2,246,969         3,531,183             8,818,793        8,100,211
                                                            ---------------  ----------------      ----------------  ---------------

Net Income                                                  $     3,662,917  $      5,526,671      $     15,725,072  $    14,540,998
                                                            ===============  ================      ================  ===============

Net Income Per Share                                        $          0.39  $           0.58      $           1.66  $          1.54
                                                            ===============  ================      ================  ===============

Dividends Declared Per Share                                $          0.15  $          0.135      $           0.60  $          0.54
                                                            ===============  ================      ================  ===============
</TABLE>

See notes to financial statements.
                                                                 5
<PAGE>


                                STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
<TABLE>
<CAPTION>


                                                                    Three Months Ended                      Nine Months Ended
                                                                       September 30                            September 30
<S>                                                         <C>              <C>                   <C>               <C>    

                                                                  1998              1997                  1998             1997


Net Income                                                  $    3,662,917  $      5,526,671      $     15,725,072  $    14,540,998
                                                            ---------------  ----------------      ----------------  ---------------
Unrealized Gains (Losses) on Securities:
  Unrealized Holding (Losses) Gains Arising
    During Period                                               (8,651,292)       18,162,803             1,079,338       20,057,819
  Less:  Reclassification Adjustment for Gains
    Included in Net Income                                        (775,430)       (2,507,707)           (3,477,700)      (3,875,794)
                                                            ---------------  ----------------      ----------------  ---------------
    Net Unrealized Holding Gains (Losses)
      Arising During Period                                 $   (9,426,722) $     15,655,096      $     (2,398,362) $    16,182,025
                                                            ---------------  ----------------      ----------------  ---------------

Income Tax Benefit (Expense) Related to
  Unrealized Gains                                               3,299,353        (5,481,245)              839,427       (5,663,709)
                                                            ---------------  ----------------      ----------------  ---------------

Other Comprehensive (Loss) Income,
  Net of Tax                                                $   (6,127,369) $     10,173,851      $     (1,558,935) $    10,518,316
                                                            ---------------  ----------------      ----------------  ---------------

Comprehensive (Loss) Income                                 $   (2,464,452) $     15,700,522      $     14,166,137  $    25,059,314
                                                            ===============  ================      ================  ===============
</TABLE>



See notes to financial statements.
                                                                 6
<PAGE>


                                       STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>


                                                                                  Nine Months Ended           Nine Months Ended
                                                                                  September 30, 1998          September 30, 1997
                                                                                  ------------------          ------------------
<S>                                                                              <C>                         <C>   
Cash flows from operating activities:
  Net income                                                                     $       15,725,072          $        14,540,998
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Net amortization of bond and mortgage
        premium and discount                                                                370,567                      926,033
      Amortization of deferred policy acquisition
        costs                                                                             3,715,556                    2,253,404
      Real Estate Depreciation                                                               62,145                       64,798
      Deferred federal income taxes                                                       3,236,412                    1,495,050
      Realized gains on investments                                                      (3,477,700)                  (3,875,794)
  (Increase) decrease in other assets                                                    (1,721,587)                   2,264,169
  (Increase) decrease in other receivables                                                  (80,873)                     276,953
  Decrease (increase) in premium receivable                                                  35,918                      (90,322)
  Increase in reinsurance recoverable
    and reserve credits                                                                    (543,597)                    (483,510)
  Increase in accrued investment income                                                  (1,945,675)                  (1,950,862)
  Increase in deferred policy acquisition
    costs                                                                                (7,977,273)                  (7,403,257)
  Increase in future policy benefits and claims                                           3,287,935                    4,859,436
  (Decrease) increase in other policyholder funds                                        (1,964,343)                   1,980,960
  (Decrease) increase in reinsurance premium due                                           (151,871)                      70,021
  Increase (decrease) in accounts payable and accrued
    liabilities and due to affiliate                                                      3,234,283                   (1,228,824)
  Increase in prepaid federal income tax                                                 (1,678,288)                     (67,374)
                                                                                 ------------------          -------------------
      Net cash provided by operating
        activities                                                               $       10,126,681          $        13,631,879
                                                                                 ------------------          -------------------

Cash flows from investing activities:
  Purchase of investments:
    Fixed maturities                                                             $     (110,588,282)         $       (64,669,917)
    Equity securities                                                                   (49,349,639)                 (34,596,577)
  Sales/maturities of investments:
    Fixed maturities                                                                     76,957,477                   36,259,958
    Equity securities                                                                    33,702,953                   38,613,027
  Purchase of mortgage loans                                                                      0                   (1,183,667) 
  Principal payments received on mortgage loans                                             103,284                       95,714
  Loans made to policyholders                                                            (1,120,633)                  (1,053,304)
  Payments received on policy loans                                                         452,517                      518,041
  Purchase of other invested assets                                                      (9,849,688)                    (774,745)
  Proceeds from other invested assets                                                     3,669,984                      475,464
                                                                                 ------------------          -------------------
      Net cash used in investing activities                                      $      (56,022,027)         $       (26,316,006)
                                                                                 ------------------          -------------------
</TABLE>
See notes to financial statements
                                                                 7
<PAGE>


                                 STATEMENTS OF CASH FLOWS--Continued (Unaudited)
<TABLE>
<CAPTION>


                                                                                  Nine Months Ended           Nine Months Ended
                                                                                  September 30, 1998          September 30, 1997
                                                                                  ------------------          ------------------
<S>                                                                              <C>                         <C>   
Cash flows from financing activities:
    Increase in annuity and supplementary
      contract deposits                                                          $       21,748,009          $        27,521,499
    Increase in Universal Life Deposits                                                   9,178,165                    9,283,893
    Dividends paid to shareholders                                                       (4,110,752)                  (3,732,756)
                                                                                 ------------------          -------------------
        Net cash provided by financing
          activities                                                             $       26,815,422          $        33,072,636
                                                                                 ------------------          -------------------
Net (decrease) increase in cash and
   cash equivalents                                                                     (19,079,924)                  20,388,509
Cash and cash equivalents at beginning of year                                           42,287,398                    6,284,102
                                                                                 ------------------          -------------------
Cash and cash equivalents at end of quarter                                      $       23,207,474          $        26,672,611
                                                                                 ==================          ===================


Supplemental  disclosures of cash flow information:
Cash paid during the period for:
    Interest                                                                     $          483,750          $           483,750
    Income taxes                                                                          7,060,000                    6,473,896

</TABLE>
   See notes to the financial statements    
                                                          8
<PAGE>


NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

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, 1998 are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 1998. 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, 1997.

NOTE B -- INVESTMENTS

Invested  assets of the  Company  consist of  investments  in fixed  maturities,
preferred stock, common stock, real estate,  mortgage and policy loans and other
invested  assets.  At September 30, 1998,  78.9% of total  invested  assets were
invested in fixed maturities.  Preferred stocks represent 10.7% or $81.5 million
and common  stocks  represent  6.3% or $48 million of total  invested  assets at
September  30, 1998.  Real estate and mortgage  loans make up only 1.5% of total
invested  assets.  Mortgage loan and real estate  investments have the potential
for  higher  returns  but also carry more risk,  including  less  liquidity  and
greater uncertainty of rate of return.

The  Company  has   classified   all  of  its  fixed   maturity   portfolio   as
available-for-sale  at September 30, 1998.  Management  believes that having all
fixed  maturities  classified as  available-for-sale  securities  will allow the
Company to meet its  liquidity  needs and provide  greater  flexibility  for its
investment  managers to  restructure  the Company's  investments  in response to
changes in market conditions or strategic  direction.  Securities  classified as
available-for-sale  are carried at market value with unrealized gains and losses
included in shareholders' equity.

The Company's  fixed  maturities at September 30, 1998 consist of investments in
bonds of $596.4 million and  investments in redeemable  preferred  stock of $2.9
million.  Consistent with the Company's investment objective, the fixed maturity
portfolio  is of very high  quality  and well  diversified  within  each  market
sector.  The  portfolio  is  conservatively  managed  with the goal of achieving
reasonable  returns while limiting  exposure to risk. At September 30, 1998, the
amortized cost, gross  unrealized  gains,  gross unrealized  losses and carrying
value for fixed maturities were as follows:

                                  Fixed Maturities at 9-30-98  (In Thousands)
<TABLE>
<CAPTION>


                                                                          Gross              Gross 
                                                    Amortized           Unrealized         Unrealized           Carrying
                                                       Cost                Gains             Losses               Value
<S>                                              <C>                 <C>                <C>                 <C> 

U.S. Treasuries                                  $         4,382     $           886    $              0    $         5,268
U.S. Government Agency                                    17,545                 770                  56             18,259
States & Political Subdivisions                            2,057                 132                   0              2,189
Special Revenue                                           11,096                 849                   0             11,945
Public Utilities                                          74,566               3,796               1,103             77,259
U.S. Banks, Trusts & Insurance
  Companies                                              115,514               8,358               1,053            122,819
U.S. Industrial & Miscellaneous Bonds                    315,706              17,213                 575            332,344
Foreign Governments-Agency                                 2,989                   0                 665              2,324
Foreign Industrial & Miscellaneous                        23,372                 999                 373             23,998
                                                 ---------------     ---------------    ----------------    ---------------
     Total Bonds                                         567,227              33,003               3,825            596,405
Redeemable Preferred Stock                                 3,000                   0                  54              2,946
                                                 ---------------     ---------------    ----------------    ---------------
     Total Fixed Maturities                      $       570,227     $        33,003    $          3,879    $       599,351
                                                 ===============     ===============    ================    ===============
</TABLE>
                                                                 9
<PAGE>


NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Included in the fixed maturity  category are high-quality  bonds with a carrying
value of  $590,227,699  that are rated at  investment  grade levels  (Baa/BBB or
better).   Included  in  this   investment-grade   category   are  $350  million
characterized as the "highest" quality or "Class 1" securities as defined by the
National Association of Insurance  Commissioners  (NAIC).  Generally,  the fixed
maturity  securities  in the Company's  portfolio  are rated by external  rating
agencies.  If not  externally  rated,  they are rated by the  Company on a basis
consistent with the basis used by the rating agencies.

If management  determines that any declines in market value of these investments
are other than temporary,  the securities will be written-down to the realizable
value of the investment and the write down reflected in income.  If a bond is in
default of  interest  payments  and it is  determined  that  liquidation  of the
security would be in the Company's  best interest,  the security will be sold to
return the proceeds to income producing assets.

At  September  30,  1998,  the  amortized  cost of the  Company's  five  largest
investments in corporate debt  securities  totaled $35.5 million,  none of which
individually  exceeded $8.1  million.  These  investments  had a market value of
$37.5 million.

Equity securities  consist of common and preferred stocks,  which are carried on
the balance sheet at market value.  As with the fixed  maturity  portfolio,  the
Company's  preferred  stock  portfolio  provides a source of highly  predictable
current income that is very competitive with high-grade bonds.  These securities
are well diversified within each market sector. The preferred stocks are of very
high-quality (all of the $81.5 million of preferred stock are rated "highest" or
"high"  quality as defined by the NAIC) and extremely  marketable.  There are no
preferred stocks in the Company's portfolio rated in the "low," "lowest," or "in
or near  default"  quality  categories  established  by the NAIC.  Common  stock
provides  capital  appreciation  potential  within the  portfolio.  Common stock
investments  inherently provide no assurance of producing income since dividends
are not  guaranteed.  As with all  investments,  the continuing  value of common
stock is subject to change based on the underlying  value of the issuer.  Common
stocks also are subject to valuation  fluctuations  driven by investment  market
conditions.

                               Equity Securities at 9-30-98  (In Thousands)
<TABLE>
<CAPTION>


                                                                    Gross                Gross
                                                                  Unrealized           Unrealized            Market
                                                 Cost               Gains                Losses              Value
<S>                                         <C>                 <C>                 <C>                 <C>   
Common Stock:
  U.S. Banks, Trusts &
    Insurance Companies                     $          3,891    $          3,619    $            15     $         7,495
  U.S. Industrial & Miscellaneous                     43,420               6,276              9,172              40,524
                                            ----------------    ----------------    ---------------     ---------------
    Total Common Stock                                47,311               9,895              9,187              48,019
Preferred Stock:
  Public Utilities                                     4,000                  50                  0               4,050
  U.S. Banks, Trusts &
    Insurance Companies                               43,654               1,333                377              44,610
  Foreign Banks, Trusts &
    Insurance Companies                               12,873                 310                500              12,683
  U.S. Industrial & Miscellaneous                     17,820                 248              1,895              16,173
  Foreign Industrial &
    Miscellaneous                                      3,900                  40                  0               3,940
                                            ----------------    ----------------    ---------------     ---------------
    Total Preferred Stock                             82,247               1,981              2,772              81,456
                                            ----------------    ----------------    ---------------     ---------------

Total Equity Securities                     $        129,558    $         11,876    $        11,959     $       129,475
                                            ================    ================    ===============     ===============
</TABLE>
                                                                 10
<PAGE>


NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (Continued)

Real estate  investments are carried on the statements of financial  position at
cost, less allowances for depreciation and possible losses.  Commercial mortgage
loans  on real  estate  are  carried  at their  unpaid  balances,  adjusted  for
amortization  of premium or discount,  less allowances for possible loan losses.
Policy loans are carried at their unpaid balances.

The fair values of the Company's  investments  in real estate,  mortgage  loans,
policy loans, and other invested assets, approximate the values presented in the
financial  statements. 


                                       11
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
         RESULTS OF OPERATION

The following  discussion and analysis  should be read in  conjunction  with the
financial  statements  and related notes found on pages 3 through 11, since they
contain  important  information  that is helpful  in  evaluating  the  Company's
operating results and financial condition.


OVERVIEW

Erie  Family  Life  Insurance  Company  (the  Company)  is  incorporated  in the
Commonwealth of Pennsylvania.  The Company is engaged  primarily in the business
of underwriting and selling nonparticipating individual and group life insurance
policies,  including  universal  life,  and annuities.  The Company  markets its
products through  independent Agents and operates in eight states in the eastern
United States and the District of Columbia and is subject to the supervision and
regulation  of the states in which it writes  business.  A large  portion of the
Company's business is written in Pennsylvania.

Net income  decreased to $3,662,917,  or $.39 per share, in the third quarter of
1998 from $5,526,671 or $.58 per share, in the third quarter of 1997, a decrease
of 33.7%.  The decrease in realized gains on investments  from $2,507,707 in the
third  quarter of 1997 to $775,430 in the third  quarter of 1998 and an increase
in death benefits from  $2,346,461 in the third quarter of 1997 to $2,742,286 in
the third  quarter of 1998 were the  primary  reasons  for the  decrease  in net
income.  Revenue growth continued to be strong as total policy revenue increased
by 9.6% to $9,493,676 in the current period.


REVENUES, BENEFITS, AND EXPENSES

Policy Revenues. Total policy revenues increased 9.6% to $9,493,676 in the third
quarter of 1998 from $8,661,427 in the third quarter of 1997.  Included in these
totals are  universal  life  premiums of $2,450,144 in the third quarter of 1998
compared to $2,226,773  in the third quarter of 1997, an increase of 10%.  Group
policy revenues increased from $564,167 in the third quarter of 1997 to $588,617
in the third  quarter of 1998.  For the nine months  ended  September  30, 1998,
policy revenue rose 9.1% to $28,308,074 compared to $25,943,791 recorded for the
same period in 1997.

Deposits.  First year and single universal life and annuity  deposits  decreased
23.1% to $8,055,435 in the third quarter of 1998 compared to  $10,480,444 in the
third quarter of 1997. New ordinary annuity sales dropped from $5,602,109 in the
third  quarter of 1997 to $3,999,459 in the third quarter of 1998, a decrease of
28.6%.  Generally,  lower interest  rates and a flattening  interest yield curve
have  made  fixed  annuities  less  attractive   compared  to  other  investment
alternatives. Also included in these amounts are structured settlement annuities
sold to the Erie Insurance  Group  property/casualty  affiliate  companies which
totaled  $3,583,266  in the third  quarter of 1998 and  $4,030,897  in the third
quarter of 1997.

Net Investment  Income.  Net investment  income in the third quarter of 1998 was
$12,574,958  compared to  $12,418,846 in the third quarter of 1997. For the nine
months ended  September 30, 1998,  net  investment  income was  $38,360,698,  an
increase of 3.6% over the $37,031,620  reported for the same period in 1997. The
majority of the increase in income generated by the investment portfolio was due
to increased  levels of  investment  from cash flows  generated by the Company's
operations and annuity and universal life deposits.

Realized Gain on  Investments.  During the third  quarter of 1998 and 1997,  the
Company generated realized gains of $775,430 and $2,507,707,  respectively, from
the sale of equity and fixed maturity investments.

Death Benefits. Net death benefits on life insurance policies increased 16.9% in
the third quarter of 1998 to $2,742,286,  compared to  $2,346,461,  for the same
period in 1997.  For the nine month  period  ended  September  30,  1998,  death
benefits totaled  $5,980,656,  a decrease of 14.5% from the $6,998,725  reported
for the nine months ended  September 30, 1997.  Mortality  experience  should be
evaluated  over the long term,  rather  than over short  periods  where  unusual
fluctuations may influence the results.  This is particularly true for a company
the  size of Erie  Family  Life,  which  is  growing.  The  Company's  mortality
experience  has been good over the past several  years and  management  believes
that its underwriting philosophy and practices are sound.

                                       12
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND 
         RESULTS OF OPERATION (Continued)

Interest on Annuity and Universal  Life  Deposits.  Interest on deposits held by
the Company for Policyholders increased 13.0% to $8,903,972 in the third quarter
of 1998 from  $7,881,009 in the third quarter of 1997.  This increase was due to
the $65 million in deposits  made by  Policyholders  during the 12-month  period
ended  September  30, 1998.  At September 30, 1998,  annuity  deposits  accruing
interest were $511 million and universal  life deposits  accruing  interest were
$78 million.  During the third  quarter of 1998,  the interest  rate credited on
universal life and annuity  deposits  remained  unchanged.  The current interest
rate currently  credited on universal  life deposits  ranges from 6.25% to 7.00%
while the rate  currently  credited  on annuity  deposits  ranges  from 5.00% to
6.25%.

Increase in Future Life Policy  Benefits.  The  liability for future life policy
benefits is computed considering various factors such as anticipated  mortality,
future investment  yields,  withdrawals and anticipated  credit for reinsurance.
The 1998 third quarter  increase in future life policy  benefits was $1,227,423,
compared to  $1,343,157  in the third  quarter of 1997 a decrease  of 8.6%.  The
third  quarter 1998 increase in future life policy  benefits is consistent  with
the $1.1 million average quarterly increase recorded in 1997.

Commission  Expense.  During  the  third  quarter  of  1998  commission  expense
increased $91,334 to $418,405. Direct commission costs include some new and most
renewal commissions, production bonuses and Company contest awards. These direct
commission expenses are reduced by commissions  received from reinsurers and the
expense is affected by the amount of commission expenses  capitalized as part of
the deferred policy  acquisition costs (DAC).  Commission costs, which vary with
and are related primarily to the production of new business,  have been deferred
and are  capitalized  as DAC. Most  first-year  and bonus  commissions  and some
second-year commissions qualify for deferral,  i.e., additions to the DAC. These
costs are being amortized over the premium paying period of the related policies
in  proportion  to the  ratio  of  the  annual  premium  revenue  to  the  total
anticipated premium revenue.

General  Expenses.  General expenses amounted to $2,145,078 in the third quarter
of 1998 compared to  $1,602,345  for the same period in 1997.  General  expenses
include  approximately  $350,000  associated  with the  implementation  of a new
policy  administration  system known as  "Cyberlife".  There were no  comparable
expenses in the 1997 period.

Erie  Indemnity  Company  is a 21.6  percent  shareholder  of Erie  Family  Life
Insurance  Company and the Management  Company for the Erie Insurance  Exchange.
Certain operating expenses of the Company are paid by Erie Indemnity Company and
reimbursed  monthly  by the  Company.  Additionally,  a  portion  of the  common
overhead expenses of the Erie Insurance Group are allocated to Erie Family Life.
These expenses comprise the majority of Company general expenses.

General expenses include wages and salaries,  Employee benefits, data processing
expenses,  occupancy  expenses  and  other  office  and  general  administrative
expenses of the Company. Certain general expenses of the Company are deferred as
policy  acquisition  costs.  Medical  inspection  and exam fees  related  to new
business  production,  wages,  salaries  and Employee  benefits of  underwriting
personnel, and bonuses paid to branch sales Employees for the production of life
and annuity business, are all deferred. Deferred acquisition costs are amortized
over the premium  paying  period of the related  policies in  proportion  to the
ratio of the annual premium revenue to the total anticipated premium revenue.

Taxes,  Licenses,  and Fees.  Taxes,  licenses and fees increased by $145,287 to
$402,953 in the third  quarter of 1998 compared to $257,666 in the third quarter
of 1997.  The  majority of this  increase  was due to a reduction in premium tax
credits in the third  quarter of 1998 when  compared to the same period in 1997.
For the nine months ended  September 30, 1998 taxes,  licenses and fees amounted
to $201,954  compared to $829,338 at September 30, 1997.  The $627,384  decrease
was caused by a $954,000  refund that is due the Company  from the  Pennsylvania
Life and Health  Insurance  Guaranty  Association  because of a recalculation of
annuity assessments paid in previous years.
 
                                      13
<PAGE>                                  


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
         RESULTS OF OPERATION (Continued)

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
and deposits 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,
annuity and universal life deposits and investment income. The net positive cash
flow 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 months ended September 30, 1998 was $10,126,681 compared
to  $13,631,879  for the nine months ended  September  30, 1997.  The  Company's
liquidity  position  remains strong as invested assets  increased by $57 million
during the first nine months of 1998 to $760 million at September 30, 1998.

Annuity  and  universal  life  deposits,  which do not  appear as revenue on the
financial statements, provide cash. 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 a revenue.
Annuity and universal  life deposits  were  $11,730,903  in the third quarter of
1998 and $14,396,286 in the third quarter of 1997.

The Company's current  commitments for expenditures as of September 30, 1998 are
primarily for policy death benefits, policy surrenders and withdrawals,  general
operating expenses,  federal income taxes, and dividends to shareholders.  These
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  enable the
Company  to meet any  foreseeable  cash  requirements.  As an added  measure  of
liquidity, the Company has in place a $10 million line of credit with a bank. At
September 30, 1998, there were no borrowings on this line of credit.

The amount of dividends Erie Family Life, a Pennsylvania-domiciled life insurer,
can pay to its  shareholders  without  the prior  approval  of the  Pennsylvania
Insurance  Commissioner  is limited by statute to the greater of: (a) 10 percent
of its statutory  surplus as regards  policyholders  as shown on its last annual
statement on file with the  commissioner,  or (b) the net income as reported for
the period  covered by such  annual  statement,  but shall not  include pro rata
distributions  of any class of the insurer's own  securities.  Accordingly,  the
maximum  dividend  payout which may be made in 1998 without  prior  Pennsylvania
Insurance Commissioner approval is $12,924,000. 

Dividends declared to shareholders totaled $1,417,500 in the third quarter of 
1998.

The Company's 1997 year-end Risk Based Capital Analysis as reflected in its 1997
statutory  annual  statement  shows total adjusted  capital of  $90,727,646  and
authorized  control level risk based capital of  $15,031,184.  These results are
indicative of the strong capital position of the Company.

                                       
FINANCIAL CONDITION

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
based upon 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  based on the amount of  Policyholder  deposits  (less  applicable
policy charges) plus interest  earned on those deposits.  On September 30, 1998,
there was no material  difference  between the carrying  value and fair value of
the  Company's  investment-type  policies.  These  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.


                                       14
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND 
         RESULTS OF OPERATION (Continued)

Investments

The Company's  investment  strategies are designed and 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  investment  quality,   diversification,   and  superior  investment
returns.  The  Company's  investments  are managed  prudently  on a total return
approach that focuses on current income and capital appreciation.

The Company's  invested  assets are liquid in order to meet  commitments  to our
Policyholders. At September 30, 1998, the Company's investment portfolio of cash
and money  market  investments,  investment  grade  bonds,  common  stocks,  and
preferred stocks, all of which are readily  marketable,  totaled $746 million or
84.7% of total  assets.  These  resources  provide  the  liquidity  the  Company
requires to meet the unforeseen demands on its funds.


ACCOUNTING PRONOUNCEMENTS

SOP 98-1

During  the first  quarter of 1998,  the  Company  adopted  AICPA  Statement  of
Position (SOP) 98-1 "Accounting for the Costs of Computer Software  Developed or
Obtained  for  Internal  Use".  In  accordance  with SOP 98-1 the Company  began
capitalizing  internal  use  software  costs.  The  adoption  of this  statement
resulted  in an increase  in net income of  $292,000,  or $.03 per share for the
third  quarter of 1998 and  $715,000 or $.08 per share for the nine months ended
September 30, 1998.


YEAR 2000 READINESS DISCLOSURE

As a  financial  services  enterprise,  Erie Family  Life  Insurance  Company is
dependent on computer  systems and  applications to conduct  business.  Like all
companies with information and systems dependencies,  the Company is continually
faced with significant information technology challenges. Among these challenges
is the so-called  "Year 2000 Issue," the  inability of many computer  systems to
recognize dates beginning with the year 2000 and subsequent years.

The effect of the Year 2000 Issue cannot be exactly  measured with  certainty at
the present time and any  forecasts  about the effect of the Year 2000 Issue and
remediation  projections  are  necessarily  forward-looking  statements  and are
subject to the risks and uncertainties noted on page 17.

Company's State Of Readiness

The Company is evaluating  it's year 2000  readiness  inclusive of it's existing
legacy systems, it's replacement to the legacy systems, (collectively, "Internal
Systems"),  it's  personal  computer  hardware and  software  and it's  external
business contacts.

Internal Systems:  In 1997, the Company began  implementation of a new, state of
the art, life insurance processing and administrative system known as Cyberlife,
a product of Cybertek  Corporation.  The system is vendor certified as year 2000
compliant.  Applications  are being  implemented  along product  specific  lines
beginning with  traditional life insurance  products  expected to be placed into
production during the first half of 1999. Implementation will extend beyond year
2000 for many of the Cyberlife system  applications.  Consequently,  the Company
will be operating both in the Cyberlife and legacy systems into the year 2000.

As assessment of the state of readiness of those legacy systems and applications
which  will  continue  to  function  into the Year  2000 has been  conducted  by
management. Based on this assessment project plans have been developed inclusive
of programming effort and program testing.  Management  believes the remediation


                                       15
<PAGE>



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATION (Continued)

effort  will  entail less than 1400 hours of  programming  and  program  testing
effort to make legacy systems Year 2000 compliant.  The  remediation  plan calls
for this work to be completed by the end of the first quarter of 1999.

Plans for integrated  business testing will be developed,  including an estimate
of hours,  during the fourth  quarter of 1998.  Integrated  business  testing is
planned for the second quarter of 1999, following  implementation and testing of
traditional life on Cyberlife.

Personal Computer Software and Hardware:  The Company in the conduct of everyday
business uses personal  computers  extensively.  Business  critical uses include
policy issuance,  policy valuation and policy  servicing  functionality  such as
document storage and retrieval.  Use of word processing and other administrative
tools are also prevalent in the Company. The preponderance of personal computers
in use by Company personnel were placed in service as compliant devices over the
past 18  months.  Related  software  applications  are also  relatively  new and
believed to be year 2000 compliant.  An inventory of personal  computer software
was  taken in the  first  quarter  of 1998  and was  used as a basis  to  obtain
certification  from  vendors  as  to  the  year  2000  compliance  of  important
applications.  This  inventory will be reviewed and updated each quarter and any
important applications that are in question will be tested during the first half
of 1999,  if  possible.  To the extent  necessary,  personal  computer  hardware
devices and software  will be replaced  with  alternative  products or available
upgrades will be made, depending on the circumstances.

External Business Contacts:  During the fourth quarter of 1998, the Company will
prioritize an inventory of key outside parties whom management  believes support
mission critical operations of the Company. Dialogue with these vendors has been
ongoing  throughout  1998.  For  this  category  of  outside  party,   extensive
qualification  of their year 2000 readiness will be  established.  Qualification
will include some combination of testing and contingency planning depending upon
management's  relative comfort level with the outside parties state of readiness
and the  availability  of suitable  alternative  providers.  The  qualification
process  will be planned  during the  fourth  quarter of 1998 and  qualification
procedures will be conducted beginning in the first quarter of 1999.

Cost to Address Year 2000 Issues

Based upon known  factors and the measures  taken to date,  management  does not
anticipate  significant  future  costs in order to address  the Year 2000 Issue.
Costs  anticipated  include  personnel  costs  (programming,   testing  internal
systems,  testing external party  interfaces,  developing  contingency plans and
replacing  software and hardware  devices that are not year 2000  compliant) and
purchase  of  personal  computer  software  and  hardware.  Costs that have been
incurred to date have been charged to operations as incurred.  Estimates of both
the cost incurred to date and future costs are  not anticipated to  be  material
to the financial position and results of operations of the Company.

Risk of the Company's Year 2000 Issues

The proper  functioning of the Company's  computer  systems and  applications is
critical to the continued  operations of the Company.  Management  believes that
all  mission  critical  systems  and  applications  will be Year 2000  compliant
sufficiently in advance of January 1, 2000, and,  therefore,  believes Year 2000
will not adversely affect the operations of the Company.

It is possible  that certain key external  parties will certify their systems as
year 2000 compliant but such readiness will not be verifiable.  The inability of
the Company to respond to uncontrollable  circumstances is always a concern. For
example, if numerous key third parties are unable to perform,  operations of the
Company  could be  adversely  affected.  The  Company  as part of  overall  risk
management will be preparing  contingency plans during the first half of 1999 in
response to the  possibility  of key third party  failure.  Management  does not
anticipate,  nor would  management  characterize  these  scenarios,  as having a
greater than remote possibility of occurrence.


                                       16
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND 
         RESULTS OF OPERATION (Continued)

Company's Contingency Plans if a Vendor or the Company fail to Address Year
2000 Issues

This risk described above will be addressed,  as described,  through contingency
planning.  The  level of  contingency  planning  will be  commensurate  with the
relative  importance of the external  party to the operations of the Company and
the  relative  risk that the party will be unable to operate  satisfactorily  in
2000.  Such  contingency  plans  will be  developed  during the first and second
quarter of 1999.
                
The statements herein are forward-looking  statements  containing the beliefs of
management that involve risks and  uncertainties.  These risks and uncertainties
include but are not limited to, human or mechanical  errors in  correcting  Year
2000 Issues; incorrect or improper (intentional or otherwise) representations by
third parties as to their  compliance  or  remediation  efforts;  the failure of
third parties to follow through on their  remediation  efforts and the inability
to  identify  and/or  locate  processing  chips  that are  subject  to Year 2000
problems.





                *********************************************






"Safe Harbor"  Statement Under the Private  Securities  Litigation Reform Act of
1995:  Statements  contained herein expressing the beliefs of management such as
those contained in "Note B to the Financial  Statements",  the "Revenue Benefits
and Expenses - Death  Benefits",  the "Liquidity and Capital  Resources" and the
"Investments" sections hereof, and the other statements which are not historical
facts contained in this report are forward looking statements that involve risks
and uncertainties. These risks and uncertainties include but are not limited to:
legislative,  judicial,  and  regulatory  changes,  the  impact  of  competitive
products  and  pricing,   product   development,   geographic  spread  of  risk,
catastrophic  events,  better (or worse)  mortality  rates,  securities  markets
fluctuations and technological difficulties and advancements.





                                       17
<PAGE>


Item 6.  Exhibits and Reports on Form 8-K

The Company did not file any reports on Form 8-K during the  three-month  period
ending September 30, 1998.

Exhibit 27 - Financial Data Schedule

All other exhibits for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore, have been omitted.
 



                                   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
                                                 (Registrant)

Date:   November 13, 1998

                                      /s/ Stephen A. Milne
                                         (Stephan A. Milne,President & CEO)




                                      /s/ Philip A. Garcia
                                         (Philip A. Garcia, Executive   
                                          Vice President & CFO)


                                       18