1




                                  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 March 31, 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 April 30, 1998.



<PAGE>


                                      INDEX

                       ERIE FAMILY LIFE INSURANCE COMPANY


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

        Statements of Financial Position--March 31, 1998 and December 31, 1997

        Statements of Operations--three months ended March 31, 1998 and 1997

        Statements of Comprehensive Income--three months ended March 31, 1998
        and 1997

        Statements of Cash Flows--three months ended March 31, 1998 and 1997

        Notes to Financial Statements--March 31, 1998

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


PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K

SIGNATURES

                                       2
<PAGE>


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

                                                                         March 31,                 December 31,
ASSETS                                                                      1998                       1997
                                                                     --------------              ---------------
                                                                        (Unaudited)
<S>                                                                  <C>                         <C>    

Investments:
      Fixed Maturities available-for-sale, at fair
        value (amortized cost of $563,862,789
        and $535,792,641, respectively)                              $  585,805,804              $  558,177,487
      Equity Securities, at fair value
        (cost of $106,879,850 and $111,786,894,
        respectively)                                                   119,846,559                 120,841,893
      Real Estate                                                         1,603,591                   1,624,306
      Policy Loans                                                        5,261,975                   5,099,671
      Real Estate Mortgage Loans                                         10,014,951                  10,049,733
      Other Invested Assets                                              11,101,531                   7,240,282
                                                                     --------------              --------------

        Total Investments                                            $  733,634,411              $  703,033,372

Cash and cash equivalents                                                32,827,451                  42,287,398
Premiums Receivable        from Policyholders                             3,174,793                   3,471,385
Reinsurance Recoverable                                                     475,504                     350,837
Other Receivables                                                           226,378                     182,711
Accrued Interest and Dividends                                           11,901,193                  10,273,259
Deferred Policy Acquisition Costs                                        65,873,928                  64,567,085
Prepaid Federal Income Taxes                                                      0                     146,984
Reserve Credit For Reinsurance Ceded                                      5,293,115                   5,041,530
Other Assets                                                              4,220,672                   3,179,302
                                                                     --------------              --------------

        Total Assets                                                 $  857,627,445              $  832,533,863
                                                                     ==============              ==============
</TABLE>


See notes to financial statements.

                                       3

<PAGE>


                                           STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>

                                                                          March 31,               December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY                                         1998                      1997
                                                                     --------------              -------------
                                                                        (Unaudited)
<S>                                                                  <C>                         <C>   

Liabilities:
      Policy Liabilities and Accruals:
        Future Life Policy Benefits                                  $   60,598,198              $  59,413,782
        Policy and Contract Claims                                        1,851,557                  2,049,677
        Annuity Deposits                                                501,827,915                489,444,701
        Universal Life Deposits                                          72,149,710                 68,890,312
        Supplementary Contracts Not
          including Life Contingencies                                      627,901                    825,927
      Other Policyholder Funds                                            4,531,251                  6,595,330
      Current Federal Income Tax                                          2,120,911                          0
      Deferred Federal Income Tax                                        26,509,139                 24,409,317
      Reinsurance Premium Due                                               236,258                    424,745
      Accounts Payable and Accrued Liabilities                            2,114,049                  2,668,688
      Note Payable to Affiliate                                          15,000,000                 15,000,000
      Due to Affiliate                                                      927,424                  1,156,431
      Dividends Payable                                                   1,417,500                  1,275,752
                                                                     --------------              -------------

        Total Liabilities                                            $  689,911,813              $ 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 $12,218,780
        and $11,003,949, respectively                                    22,692,021                 20,435,901
      Retained Earnings                                                 140,613,611                135,533,300
                                                                     --------------              -------------
        Net Shareholders' Equity                                     $  167,715,632              $ 160,379,201
                                                                     --------------              -------------

        Total Liabilities and Shareholders'
          Equity                                                     $  857,627,445              $ 832,533,863
                                                                     ==============              =============
</TABLE>



See notes to financial statements.

                                       4
<PAGE>


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


                                                                     Three Months Ended          Three Months Ended
                                                                        March 31, 1998             March 31, 1997
                                                                     ------------------          ------------------
<S>                                                                  <C>                         <C>    

Revenues:
  Policy:
  Life Premiums, net of premiums ceded of
    $771,233 and $711,207, respectively                              $    8,363,132              $   7,923,783
  Group                                                                     618,046                    544,242
                                                                     --------------              -------------
    Total Policy Revenue                                             $    8,981,178              $   8,468,025
  Investment Income, Net of Expenses of
    $337,266 and $337,222, respectively                                  12,790,228                 12,401,283
  Realized Gains on Investment                                            1,836,161                    621,782
  Other Income                                                              163,909                    140,299
                                                                     --------------              -------------
    Total Revenues                                                   $   23,771,476              $  21,631,389
                                                                     --------------              -------------

Benefits and Expenses:
  Death Benefits, net of reinsurance recoveries
    of $515,351 and $6,654, respectively                                  1,478,145                  2,431,425
  Interest on Annuity Deposits                                            7,494,182                  6,848,225
  Interest on Universal Life Deposits                                     1,086,063                    902,349
  Surrender and Other Benefits                                              265,797                    286,768
  Increase in Future Life Policy
  Benefits, net of the increase in reserve
    credit for reinsurance ceded of $175,028,
    and $135,864 respectively                                               932,831                  1,824,778
  Amortization of Deferred Policy
    Acquisition Costs                                                     1,295,790                    804,311
  Commissions, net of reinsurance reimbursements
    of $209,310 and $287,873, respectively                                  296,841                    238,470
  General Expenses                                                        1,450,373                  1,422,590
  Taxes, Licenses and Fees                                                 (544,986)                   286,455
                                                                     --------------              -------------
    Total Benefits and Expenses                                      $   13,755,036              $  15,045,371
                                                                     --------------              -------------

Income From Operations                                               $   10,016,440              $   6,586,018
Federal Income Tax
  Current                                                                 2,633,643                  1,663,776
  Deferred                                                                  884,988                    521,178
                                                                     --------------              -------------
    Total Federal Income Tax                                              3,518,631                  2,184,954
                                                                     --------------              -------------
Net Income                                                           $    6,497,809              $   4,401,064
                                                                     ==============              =============
Net Income Per Share                                                 $         0.69              $        0.47
                                                                     ==============              =============
Dividends Declared Per Share                                         $         0.15              $       0.135
                                                                     ==============              =============
</TABLE>


See notes to financial statements.

                                       5
<PAGE>


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


                                                                     Three Months Ended          Three Months Ended
                                                                       March 31, 1998              March 31, 1997
                                                                     ------------------          ------------------
<S>                                                                  <C>                         <C>    


Net Income                                                           $    6,497,809              $   4,401,064
                                                                     --------------              -------------
Unrealized Gains (Losses) on Securities:
  Unrealized Holding Gains (Losses) Arising
    During Period                                                         5,307,116                (14,992,635)
  Less:  Reclassification Adjustment for Gains
    Included in Net Income                                               (1,836,161)                  (621,782)
                                                                     --------------              -------------
    Net Unrealized Holding Gains (Losses)
      Arising During Period                                          $    3,470,955              $ (15,614,417)

Income Tax (Expense) Benefit Related to
  Unrealized Gains (Losses)                                              (1,214,834)                 5,465,046
                                                                     --------------              -------------

Other Comprehensive Income (Loss), Net of
  Tax                                                                $    2,256,121              $ (10,149,371)
                                                                     --------------              -------------

Comprehensive Income (Loss)                                          $    8,753,930              $  (5,748,307)
                                                                     ==============              =============
</TABLE>


See notes to financial statements.
                                       6

<PAGE>


                      Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>


                                                                     Three Months Ended           Three Months Ended
                                                                       March 31, 1998               March 31, 1997
                                                                     ------------------          -------------------
<S>                                                                  <C>                         <C>    

  Cash flows from operating activities:
  Net income                                                         $    6,497,809              $   4,401,064
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Net amortization of bond and mortgage
        premium and discount                                                155,949                    318,308
    Amortization of deferred policy acquisition
      costs                                                               1,295,790                    804,311
      Real Estate Depreciation                                               20,715                     21,600
      Deferred federal income taxes                                         884,988                    521,178
      Realized gains on investments                                      (1,836,161)                  (621,782)
    (Increase) decrease in other assets                                  (1,041,368)                 2,528,345
    (Increase) decrease in other receivables                                (43,666)                   282,226
    Decrease in premium receivable                                          296,592                    117,089
    (Increase) decrease in reinsurance recoverable
      and reserve credits                                                  (376,252)                    19,837
    Increase in accrued investment income                                (1,627,934)                (1,849,956)
    Increase in deferred policy acquisition
      costs                                                              (2,602,633)                (2,870,221)
    Increase in future policy benefits and claims                           986,296                  2,065,176
    Decrease in other policyholder funds                                 (2,064,079)                (2,237,607)
    Decrease in reinsurance premium due                                    (188,487)                    (7,144)
    Decrease in accounts payable and accrued
      liabilities and due to affiliate                                     (783,648)                (1,621,958)
    Increase in Federal income taxes currently payable                    2,267,895                    379,103
                                                                     --------------              -------------
        Net cash provided by operating
          activities                                                 $    1,841,806              $   2,249,569
                                                                     --------------              -------------

  Cash flows from investing activities:
    Purchase of investments:
      Fixed maturities                                               $  (41,709,780)             $ (17,547,090)
      Equity securities                                                  (6,215,468)                (6,891,650)
      Mortgage loans                                                              0                   (747,801)

    Sales/maturities of investments:
      Fixed maturities                                                   13,952,283                  7,680,529
      Equity securities                                                  12,491,060                  6,336,822
    Principal payments received on mortgage loans                            34,870                     32,413
    Loans made to policyholders                                            (294,345)                  (320,749)
    Payments received on policy loans                                       132,041                    175,916
    Purchase of other invested assets                                    (4,009,279)                  (125,026)
    Proceeds from other invested assets                                     148,031                     33,778
                                                                     --------------              -------------
  Net cash used in investing activities                              $  (25,470,587)             $ (11,372,858)
                                                                     --------------              -------------
</TABLE>
                                       7


<PAGE>


                 Statements of Cash Flows--Continued (Unaudited)
<TABLE>
<CAPTION>


                                                                     Three Months Ended          Three Months Ended
                                                                       March 31, 1998              March 31, 1997
                                                                     ------------------          ------------------
<S>                                                                  <C>                         <C>   
       

Cash flows from financing activities:
    Increase in annuity and supplementary
      contract deposits                                              $   12,185,188              $  11,446,250
    Increase in Universal Life Deposits                                   3,259,398                  3,276,528
    Dividends paid to shareholders                                       (1,275,752)                (1,181,252)
                                                                     --------------              -------------
        Net cash provided by financing
          Activities                                                 $   14,168,834              $  13,541,526
                                                                     --------------              -------------
Net increase (decrease) in cash and
   short-term cash investments                                            9,459,947                 (4,418,237)
Cash and short-term cash investments at
   beginning of year                                                     42,287,398                  6,284,102
                                                                     --------------              -------------
Cash and short-term cash investments at
   end of quarter                                                    $   32,827,451              $  10,702,339
                                                                     ==============              =============


Supplemental  disclosures  of cash flow  information:  Cash paid during the year
for:
    Interest                                                         $             0             $           0
    Income taxes                                                             300,000                 1,223,896
</TABLE>
                                       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 three  month  period  ended  March 31,  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

The total  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 March 31, 1998,  79.8% of total  invested
assets were invested in fixed  maturities.  Preferred  stocks represent 11.7% or
$85.9  million  and  common  stocks  represent  4.6% or $34.0  million  of total
invested  assets at March 31, 1998.  Real estate and mortgage loans make up only
1.6% 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.  Consequently  these
investments have been kept to a minimum.

The Company has classified all of its fixed maturity  portfolio as available-for
sale at March 31, 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 March 31, 1998 consist of  investments  in
bonds.  Consistent with the Company's investment  objective,  the fixed maturity
portfolio is comprised of bonds 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 March 31, 1998
the  carrying  value of fixed  maturities  was  $585,805,804,  or 79.8% of total
invested assets.  At March 31, 1998, the amortized cost, gross unrealized gains,
gross unrealized losses and carrying value for fixed maturities were as follows:

                                 
                                       9
<PAGE>


NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (Continued)

                           Fixed Maturities at 3-31-98
<TABLE>
<CAPTION>

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


U.S. Treasuries                               $         4,266,482   $           537,636   $                 0   $        4,804,118
U.S. Government Agency                                 27,494,700               688,437                77,330           28,105,807
States & Political Subdivisions                         2,057,946               188,708                     0            2,246,654
Special Revenue                                        11,114,226               797,313                     0           11,911,539
Public Utilities                                       76,559,242             2,797,611               578,869           78,777,984
U.S. Banks, Trusts & Insurance
  Companies                                           104,466,324             5,739,319               289,558          109,916,085
U.S. Industrial & Miscellaneous                       314,024,791            12,598,820               663,111          325,960,500
Foreign Governments-Agency                              2,988,202                     0               355,552            2,632,650
Foreign Banks, Trusts &
  Insurance Companies                                   5,000,000                     0                28,125            4,971,875
Foreign Industrial & Miscellaneous                     15,890,876               587,716                     0           16,478,592
                                              -------------------   -------------------   -------------------   ------------------
Total Fixed Maturities                        $       563,862,789   $        23,935,560   $         1,992,545   $      585,805,804
</TABLE>


Included in the fixed maturity  category are high-quality  bonds with a carrying
value of  $581,113,654  that are rated at  investment  grade levels  (Baa/BBB or
better).   Included  in  this   investment-grade   category   are  $370  million
characterized as of 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 March 31, 1998, the amortized cost of the Company's five largest  investments
in corporate debt securities  totaled $34.5 million,  none of which individually
exceeded $8.0 million. These investments had a market value of $36.0 million.

Equity  securities  consist of common and preferred  stocks which are carried on
the balance sheet at market value. At March 31, 1998, common and preferred stock
held  by  the  Company  had a  cost  of  $106,879,850  and  a  market  value  of
$119,846,559,  representing an unrealized gain of $12,966,709. 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 and extremely  marketable,  95.2% or
$81.7 million of which are of the "highest" or "high" quality, as defined by the
NAIC.  The  remaining  $4.1  million of  preferred  stocks have a "medium"  NAIC
rating.  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.

                                       10
<PAGE>


NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (Continued)

                          Equity Securities at 3-31-98
<TABLE>
<CAPTION>


                                                                         Gross               Gross
                                                                        Unrealized          Unrealized             Market
                                                     Cost                Gains               Losses                Value
<S>                                      <C>                    <C>                     <C>                <C>    


Common Stock
U.S. Industrial & Miscellaneous           $        30,106,514   $         6,580,728     $     2,724,426    $       33,962,816
                                          -------------------   -------------------     ---------------    ------------------
    Total Common Stock                             30,106,514             6,580,729           2,724,426            33,962,816
Preferred Stocks
  Public Utilities                                  4,000,000                20,000                   0             4,020,000
  U.S. Banks, Trusts &
    Insurance Companies                            48,667,465             8,038,935             143,645            56,562,755
  Foreign Banks, Trusts &
    Insurance Companies                             7,765,000               393,880             175,000             7,983,880
  U.S. Industrial & Miscellaneous                  12,440,871               848,862              32,625            13,257,108
  Foreign Industrial &
    Miscellaneous                                   3,900,000               160,000                   0             4,060,000
                                          -------------------   -------------------     ---------------    ------------------
    Total Preferred Stock                          76,773,336             9,461,677             351,270            85,883,743

Total Equity Securities                   $       106,879,850   $        16,042,405     $     3,075,696    $      119,846,559
</TABLE>


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  increased to $6,497,809,  or $.69 per share, in the first quarter of
1998 from  $4,401,064  or $.47 per  share,  in the  first  quarter  of 1997,  an
increase of 47.6%.  The increase in  nonrecurring  realized gains on investments
from $621,782 in the first quarter of 1997 to $1,836,161 in the first quarter of
1998 and a decrease in death  benefits  from  $2,431,425 in the first quarter of
1997 to $1,478,145 in the first quarter of 1998 were the primary reasons for the
increase in net income. Operating results continued to be strong as total policy
revenue grew by 6% to $8,981,178 in the current period. Investment income net of
expenses rose 3.1% from  $12,401,283 in the first quarter of 1997 to $12,790,228
in the first quarter of 1998.


REVENUES, BENEFITS, AND EXPENSES

Policy Revenues. Total policy revenues increased 6.1% to $8,981,178 in the first
quarter of 1998 from $8,468,025 in the first quarter of 1997.  Included in these
totals are first year life policy revenues of $1,621,867 in the first quarter of
1998 and  $1,887,123  in the first  quarter of 1997, a decrease of 14.1%.  First
year policy revenues in 1997 were bolstered by the Company's participation in an
Erie Insurance Group multi-line sales promotion.

Group policy  revenues  increased  from $544,242 in the first quarter of 1997 to
$618,046 in the first quarter of 1998.

Deposits.  First year and single  universal life and annuity  deposits  remained
steady with  $14,696,826 in the first quarter of 1998 compared to $14,599,707 in
the first quarter of 1997.  Included in these amounts are structured  settlement
annuities sold to the Erie Insurance Group property/casualty affiliate companies
which  totaled  $5,968,760  in the first  quarter of 1998 and  $5,363,165 in the
first quarter of 1997.

Net Investment  Income.  Net investment  income in the first quarter of 1998 was
$12,790,228 compared to $12,401,283 in the first quarter of 1997, an increase of
3.1%.  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  Investment.  During the first  quarter of 1998 and 1997,  the
Company generated realized gains of $1,836,161 and $621,782,  respectively, from
the sale of equity and fixed maturity investments.

                                       12
<PAGE>


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

Death Benefits. Net death benefits on life insurance policies decreased 39.2% in
the first quarter of 1998 to $1,478,145,  compared to  $2,431,425,  for the same
period in 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 rapidly.  The Company's mortality experience has been good over
the past several years and management believes that its underwriting  philosophy
and practices are sound.

Interest on Annuity and Universal  Life  Deposits.  Interest on deposits held by
the Company for Policyholders grew 10.7% from $7,750,574 in the first quarter of
1997 to $8,580,245  in the first  quarter of 1998.  This increase was due to the
$69 million in deposits made by Policyholders  during the 12-month period ending
March 31, 1998. At March 31, 1998,  annuity deposits accruing interest were $502
million and universal life deposits accruing  interest were $72 million.  During
the first  quarter of 1998,  the interest  rate  credited on universal  life and
annuity  deposits  remained  unchanged.  The current  interest  rate credited on
universal  life  deposits is in the 6.25% to 7.00% range while the rate credited
on annuity deposits is in the 5.00% to 6.25% range.

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 first  quarter  increase in future life policy  benefits was  $932,831,
compared to  $1,824,778  in the first  quarter of 1997.  In the first quarter of
1997, the increase in future life policy benefits was due to the large amount of
insurance placed in-force from a Company sales promotion. The first quarter 1998
increase in future life policy benefits is in line with the $1.1 million average
quarterly increase recorded in 1997.

Commission  Expense.  Commission  Expense  increased  $58,371 to $296,841 in the
first quarter of 1998. That portion of commission costs, which vary with and are
primarily related to the production of new business,  have been deferred.  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 $1,450,373 in the first quarter
of 1998 compared to  $1,422,590  for the same period in 1997.  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.

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. Erie Indemnity
Company is a 21.6 percent  shareholder of Erie Family Life Insurance Company and
the Management Company for the Erie Insurance Exchange.

Taxes,  Licenses,  and Fees.  Taxes,  licenses and fees decreased by $831,441 to
$(544,986) in the first quarter of 1998.  The decrease in taxes,  licenses,  and
fees  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 three months ended March 31, 1998 was $1,841,806, compared to
$2,249,569  for the three months ended March 31, 1997.  The Company's  liquidity
position  remains strong as invested assets grew by $31 million during the first
three months of 1998 to $734 million at March 31, 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  $19,492,758  in the first quarter of
1998 and $19,318,567 in the first quarter of 1997.

The Company's  current  commitments  for  expenditures as of March 31, 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
March 31, 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
Commissioner approval is $12,924,000.

Dividends to shareholders totaled $1,417,500 in the first 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
demonstrate a strong capital position for the Company.



                                       14

<PAGE>


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

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 March 31, 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.

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 also exceptionally liquid in order to meet the
short and long-term  commitments  to our  Policyholders.  At March 31, 1998, the
Company's investment portfolio of cash and money market investments,  investment
grade bonds,  common stocks,  and preferred  stocks,  all of which are extremely
marketable, totaled $738 million or 86% of total assets. These resources provide
the liquidity the Company requires to meet the unforeseen demands on its funds.


ACCOUNTING PRONOUNCEMENTS

FAS 130

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  130 (FAS  130)  "Reporting  Comprehensive
Income". FAS 130 is effective for fiscal years beginning after December 31, 1997
and requires reporting of comprehensive  income in a full set of general purpose
financial statements. The purpose of reporting comprehensive income is to report
a measure of all  changes in equity of the Company  that result from  recognized
transactions  and other  economic  events of the period.  The two  components of
comprehensive  income for Erie Family Life are net income  from  operations  and
unrealized gain or loss from  investments,  net of tax.  Included in this report
are statements of comprehensive income for the three months ended March 31, 1998
and 1997.

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. A change in accounting  estimate was
recognized to reflect the adoption of this  statement,  resulting in an increase
in net income of $211,000, or $.02 per share for the first quarter of 1998.

                                       15
<PAGE>


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

 "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.


Item 4.  Submission of Matters to a Vote of Security Holders

On April 28, 1998, the Registrant held its Annual Meeting of Shareholders:

A.   The following  Directors were elected at the Annual Meeting of Shareholders
     for a one-year term and until a successor is elected and qualified:

                                          Peter B. Bartlett
                                          Samuel P. Black, III
                                          J. Ralph Borneman, Jr.
                                          Patricia A. Goldman
                                          Susan Hirt Hagen
                                          F. William Hirt
                                          Edmund J. Mehl
                                          Stephen A. Milne
                                          John M. Petersen
                                          Seth E. Schofield
                                          Jan R. Van Gorder, Esq.
                                          Harry H. Weil, Esq.

B.   The following  other matter was voted upon at the meeting and the following
     number of affirmative votes were cast with respect to such matter:

         The  proposal to ratify the  selection  of Brown,  Schwab,  Bergquist &
         Company as  independent  public  accountants  to examine the  financial
         statements  and  perform  the annual  audit of the Company for the year
         ending December 31, 1998 was ratified. This proposal received 9,027,351
         affirmative votes, 1,559 negative votes with 10,741 abstentions.

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 March 31, 1998.


                                       16



<PAGE>


                                   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      May 6, 1998
                                              /s/ Stephen A. Milne
                                        (Stephen A. Milne, President & CEO)



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

                                       17