##### Table of Contents



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, 2003

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
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

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

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

|                                                                                 | 
|-------------------------------------------------------------------------------- | 
|Not applicable                                                                   | 
|                                                                                 | 
|Former name, former address and former fiscal year, if changed since last report | 

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

Yes X     No

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

Yes         No X

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

1



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TABLE OF CONTENTS



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



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##### Table of Contents



INDEX

ERIE FAMILY LIFE INSURANCE COMPANY

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

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION

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

See notes to financial statements

3



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##### Table of Contents






ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION

|                                     |                                                                                                              |                                                          |                                            |         |                        |           |              |         |         |           | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------- | ------------------------------------------ | ------- | ---------------------- | --------- | ------------ | ------- | ------- | --------- | 
|                                     |                                                                                                              |                                                          |                                            |         | (Dollars in thousands)
|                                     |                                                                                                              |                                                          |                                            |         | September 30,          |           | December 31,
|                                     |                                                                                                              | 2003                                                     |                                            | 2002   
|                                     |                                                                                                              |                                                          |                                            |        
|                                     |                                                                                                              |                                                          |                                            |         | (Unaudited)            |           |              |         |        
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                              |                                                          |                                            |         |                        |           |              |        
|Liabilities:                         |                                                                                                              |                                                          |                                            |         |                        |           |              |        
|                                    
|                                    
|                                    
|                                    
|                                     | Policy Liabilities and Accruals:                                                                             |                                                          |                                            |         |                        |           |              |         |        
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                              | Future Policy Benefits                                   |                                            | $       | 103,902                |           |              | $       | 94,243  |          
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                              | Policy and Contract Claims                               |                                            |         | 2,274                  |           |              |         | 2,362   |          
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                              | Annuity Deposits                                         |                                            |         | 922,299                |           |              |         | 803,675 |          
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                              | Universal Life Deposits                                  |                                            |         | 147,163                |           |              |         | 135,551 |          
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                              | Supplementary Contracts Not
Including Life Contingencies |                                            |         | 584                    |           |              |         | 625     |          
|                                    
|                                    
|                                    
|                                    
|                                     | Other Policyholder Funds                                                                                     |                                                          |                                            | 9,953   |                        |           |              | 14,335  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred Income Taxes                                                                                        |                                                          |                                            | 49,678  |                        |           |              | 41,577  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Reinsurance Premium Due                                                                                      |                                                          |                                            | 795     |                        |           |              | 1,591   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Securities Lending Collateral                                                                                |                                                          |                                            | 70,058  |                        |           |              | 41,669  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts Payable and Accrued Expenses                                                                        |                                                          |                                            | 13,881  |                        |           |              | 9,673   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Notes Payable to Erie Indemnity Company                                                                      |                                                          |                                            | 40,000  |                        |           |              | 15,000  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Due to Affiliates                                                                                            |                                                          |                                            | 1,933   |                        |           |              | 2,886   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Dividends Payable                                                                                            |                                                          |                                            | 3,969   |                        |           |              | 1,985   |        
|                                     |                                                                                                              |                                                          |                                            |         |                        |           |              |        
|                                     |                                                                                                              |                                                          | Total Liabilities                          |         | $                      | 1,366,489 |              |         | $       | 1,165,172 | 
|                                     |                                                                                                              |                                                          |                                            |         |                        |           |              |        
|Shareholders Equity:                |                                                                                                              |                                                          |                                            |         |                        |           |              |        
|                                    
|                                    
|                                    
|                                    
|                                     | Common Stock, $.40 Par Value Per Share; Authorized15,000,000 Shares; 9,450,000
Shares Issued and Outstanding |                                                          | $                                          | 3,780   |                        |           | $            | 3,780   |        
|                                    
|                                    
|                                    
|                                    
|                                     | Additional Paid-In Capital                                                                                   |                                                          |                                            | 630     |                        |           |              | 630     |        
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated Other Comprehensive Income                                                                       |                                                          |                                            | 48,951  |                        |           |              | 36,145  |        
|                                    
|                                    
|                                    
|                                    
|                                     | Retained Earnings                                                                                            |                                                          |                                            | 199,158 |                        |           |              | 183,892 |        
|                                     |                                                                                                              |                                                          |                                            |         |                        |           |              |        
|                                     |                                                                                                              |                                                          | Total Shareholders Equity                 |         | $                      | 252,519   |              |         | $       | 224,447   | 
|                                     |                                                                                                              |                                                          |                                            |         |                        |           |              |        
|                                     |                                                                                                              |                                                          | Total Liabilities and Shareholders Equity |         | $                      | 1,619,008 |              |         | $       | 1,389,619 | 
|                                     |                                                                                                              |                                                          |                                            |         |                        |           |              |        

See notes to financial statements

4



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##### Table of Contents






ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS (Unaudited)

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

See notes to financial statements

5



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##### Table of Contents






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

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

See notes to financial statements

6



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##### Table of Contents






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

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

See notes to financial statements

7



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##### Table of Contents






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

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

See notes to financial statements

8



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##### Table of Contents






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

NOTE A  BASIS OF PRESENTATION

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

NOTE B  RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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

NOTE C  RECLASSIFICATIONS

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

NOTE D  INVESTMENTS

At September 30, 2003 marketable equity securities consist of nonredeemable
preferred stock while fixed maturities consist of bonds, notes and redeemable
preferred stock. The Company sold its entire

9



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##### Table of Contents



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

NOTE D  INVESTMENTS (Continued)

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

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

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

10



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##### Table of Contents



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

NOTE D  INVESTMENTS (Continued)

|                               |                                            |                         |                                     |         |           |           |            |        |            |        |            |       |       |       |       |         |           |           | 
|------------------------------ | ------------------------------------------ | ----------------------- | ----------------------------------- | ------- | --------- | --------- | ---------- | ------ | ---------- | ------ | ---------- | ----- | ----- | ----- | ----- | ------- | --------- | --------- | 
|                               |                                            |                         |                                     |         |           |           |            |        | Gross      |        | Gross      |       |       |       |      
|                               |                                            |                         |                                     |         | Amortized |           | Unrealized |        | Unrealized |        | Estimated 
|                               |                                            |                         |                                     |         | Cost      |           | Gains      |        | Losses     |        | Fair Value
|                               |                                            |                         |                                     |         |           |           |            |        |            |        |           
|December 31, 2002              |                                            |                         |                                     |         |           |           |            |        |            |        |            |       |       |       |       |        
|                              
|                              
|                              
|                              
|Fixed Maturities:              |                                            |                         |                                     |         |           |           |            |        |            |        |            |       |       |       |       |        
|                              
|                              
|                              
|                              
|Bonds:                         |                                            |                         |                                     |         |           |           |            |        |            |        |            |       |       |       |       |        
|                              
|                              
|                              
|                              
|                               | U.S. Treasuries and Government
Agencies    |                         | $                                   | 51,268  |           |           | $          | 2,607  |            |        | $          | 0     |       |       | $     | 53,875  |          
|                              
|                              
|                              
|                              
|                               | Special Revenue                            |                         |                                     | 41,010  |           |           |            | 2,376  |            |        |            | 0     |       |       |       | 43,386  |          
|                              
|                              
|                              
|                              
|                               | Public Utilities                           |                         |                                     | 103,695 |           |           |            | 5,567  |            |        |            | 1,421 |       |       |       | 107,841 |          
|                              
|                              
|                              
|                              
|                               | U.S. Banks, Trusts and Insurance
Companies |                         |                                     | 180,503 |           |           |            | 11,751 |            |        |            | 334   |       |       |       | 191,920 |          
|                              
|                              
|                              
|                              
|                               | U.S. Industrial and Miscellaneous          |                         |                                     | 501,206 |           |           |            | 33,305 |            |        |            | 4,479 |       |       |       | 530,032 |          
|                              
|                              
|                              
|                              
|                               | Foreign                                    |                         |                                     | 99,624  |           |           |            | 5,947  |            |        |            | 2,393 |       |       |       | 103,178 |          
|                               |                                            |                         |                                     |         |           |           |            |        |            |        |            |       |       |       |       |        
|                               |                                            | Total Bonds             |                                     | $       | 977,306   |           |            | $      | 61,553     |        |            | $     | 8,627 |       |       | $       | 1,030,232 |          
|                              
|                              
|                              
|                              
|Redeemable Preferred Stock     |                                            |                         | 8,831                               |         |           |           | 304        |        |            |        | 0          |       |       |       | 9,135 |        
|                               |                                            |                         |                                     |         |           |           |            |        |            |        |            |       |       |       |       |        
|                               |                                            | Total Fixed Maturities  |                                     | $       | 986,137   |           |            | $      | 61,857     |        |            | $     | 8,627 |       |       | $       | 1,039,367 |          
|                               |                                            |                         |                                     |         |           |           |            |        |            |        |            |       |       |       |       |        
|Equity Securities:             |                                            |                         |                                     |         |           |           |            |        |            |        |            |       |       |       |       |        
|                              
|                              
|                              
|                              
|Nonredeemable Preferred Stock: |                                            |                         |                                     |         |           |           |            |        |            |        |            |       |       |       |       |        
|                              
|                              
|                              
|                              
|                               | U.S. Banks, Trusts and
Insurance Companies |                         | $                                   | 7,016   |           |           | $          | 211    |            |        | $          | 0     |       |       | $     | 7,227   |          
|                              
|                              
|                              
|                              
|                               | U.S. Industrial and Miscellaneous          |                         |                                     | 11,872  |           |           |            | 773    |            |        |            | 0     |       |       |       | 12,645  |          
|                              
|                              
|                              
|                              
|                               | Foreign                                    |                         |                                     | 47,184  |           |           |            | 2,496  |            |        |            | 803   |       |       |       | 48,877  |          
|                               |                                            |                         |                                     |         |           |           |            |        |            |        |            |       |       |       |       |        
|                               |                                            | Total Equity Securities |                                     | $       | 66,072    |           |            | $      | 3,480      |        |            | $     | 803   |       |       | $       | 68,749    |          
|                               |                                            |                         |                                     |         |           |           |            |        |            |        |            |       |       |       |       |        
|                               |                                            |                         | Total Available-for-Sale
Securities |         | $         | 1,052,209 |            |        | $          | 65,337 |            |       | $     | 9,430 |       |         | $         | 1,108,116 | 
|                               |                                            |                         |                                     |         |           |           |            |        |            |        |            |       |       |       |       |        

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

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

11



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##### Table of Contents



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

NOTE D  INVESTMENTS (Continued)

2003.     Included in the third quarter of 2002 gross realized losses are
impairment charges of $8.1 million and $0.2 million related to fixed maturities
and equity securities, respectively. Included in the year-to-date 2003 gross
realized losses are impairment charges on fixed maturities totaling $3.4
million. Year-to-date 2002 impairments consist of $17.1 million in fixed
maturities and $0.2 million in equity securities.

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

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

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

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##### Table of Contents



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

NOTE D  INVESTMENTS (Continued)

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

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

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

NOTE E  DEFERRED ACQUISITION COSTS

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

NOTE F  SEGMENT INFORMATION

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

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##### Table of Contents



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

NOTE F  SEGMENT INFORMATION (Continued)

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

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

14



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##### Table of Contents



NOTE G  REINSURANCE

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

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

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##### Table of Contents



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

NOTE G  REINSURANCE (Continued)

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

|                       |                                                      |                |                             |        |                    |        |                   |        |        |        |      |        |         |        |   |         |        |        | 
|---------------------- | ---------------------------------------------------- | -------------- | --------------------------- | ------ | ------------------ | ------ | ----------------- | ------ | ------ | ------ | ---- | ------ | ------- | ------ | - | ------- | ------ | ------ | 
|                       |                                                      |                |                             |        | Three Months Ended |        | Nine Months Ended
|                       |                                                      |                |                             |        | September 30       |        | September 30     
|                       |                                                      |                |                             |        |                    |        |                  
|                       |                                                      |                |                             |        | 2003               |        | 2002              |        | 2003   |        | 2002
|                       |                                                      |                |                             |        |                    |        |                   |        |        |        |     
|Revenues:              |                                                      |                |                             |        |                    |        |                   |        |        |        |      |        |         |        |   |        
|                      
|                      
|                      
|                      
|                       | Direct policy revenue                                |                | $                           | 17,589 |                    |        | $                 | 15,568 |        |        | $    | 52,416 |         |        | $ | 45,840  |       
|                      
|                      
|                      
|                      
|                       | Policy revenue ceded                                 |                |                             | 3,991  |                    |        |                   | 3,257  |        |        |      | 11,396 |         |        |   | 7,682   |       
|                       |                                                      |                |                             |        |                    |        |                   |        |        |        |      |        |         |        |   |        
|                       | Net policy revenue                                   |                |                             | 13,598 |                    |        |                   | 12,311 |        |        |      | 41,020 |         |        |   | 38,158  |       
|                      
|                      
|                      
|                      
|                       | Net investment income                                |                |                             | 18,932 |                    |        |                   | 16,517 |        |        |      | 57,358 |         |        |   | 48,025  |       
|                      
|                      
|                      
|                      
|                       | Net realized gains (losses)
on investments           |                |                             | 4,908  |                    |        |                   | (5,235 | )      |        |      | 9,170  |         |        |   | (10,878 | )     
|                      
|                      
|                      
|                      
|                       | Equity in earnings of limited
partnerships           |                |                             | 1,394  |                    |        |                   | 151    |        |        |      | 1,794  |         |        |   | 3,733   |       
|                      
|                      
|                      
|                      
|                       | Other income                                         |                |                             | 264    |                    |        |                   | 139    |        |        |      | 659    |         |        |   | 560     |       
|                       |                                                      |                |                             |        |                    |        |                   |        |        |        |      |        |         |        |   |        
|                       |                                                      | Total revenues |                             | $      | 39,096             |        |                   | $      | 23,883 |        |      | $      | 110,001 |        |   | $       | 79,598 |       
|                      
|                      
|                      
|                      
|Benefits and expenses: |                                                      |                |                             |        |                    |        |                   |        |        |        |      |        |         |        |   |        
|                      
|                      
|                      
|                      
|                       | Death benefits                                       |                | $                           | 5,419  |                    |        | $                 | 5,988  |        |        | $    | 14,137 |         |        | $ | 14,085  |       
|                      
|                      
|                      
|                      
|                       | Reinsurance recoveries                               |                |                             | 963    |                    |        |                   | 2,230  |        |        |      | 3,079  |         |        |   | 2,899   |       
|                       |                                                      |                |                             |        |                    |        |                   |        |        |        |      |        |         |        |   |        
|                       | Net death benefits                                   |                |                             | 4,456  |                    |        |                   | 3,758  |        |        |      | 11,058 |         |        |   | 11,186  |       
|                      
|                      
|                      
|                      
|                       | Interest on deposits and
other Policyholder benefits |                |                             | 12,851 |                    |        |                   | 12,177 |        |        |      | 37,719 |         |        |   | 35,300  |       
|                      
|                      
|                      
|                      
|                       | Increases in future life policy
benefits             |                |                             | 3,365  |                    |        |                   | 3,350  |        |        |      | 9,659  |         |        |   | 8,813   |       
|                      
|                      
|                      
|                      
|                       | Reinsurance reserve credits                          |                |                             | 1,507  |                    |        |                   | 1,022  |        |        |      | 4,504  |         |        |   | 1,779   |       
|                       |                                                      |                |                             |        |                    |        |                   |        |        |        |      |        |         |        |   |        
|                       | Net increases in future life policy
benefits         |                |                             | 1,858  |                    |        |                   | 2,328  |        |        |      | 5,155  |         |        |   | 7,034   |       
|                      
|                      
|                      
|                      
|                       | Amortization of deferred policy
acquisition costs    |                |                             | 2,164  |                    |        |                   | 1,233  |        |        |      | 7,896  |         |        |   | 5,254   |       
|                      
|                      
|                      
|                      
|                       | Commissions                                          |                |                             | 2,153  |                    |        |                   | 3,007  |        |        |      | 7,875  |         |        |   | 6,951   |       
|                      
|                      
|                      
|                      
|                       | Reinsurance commission allowance                     |                |                             | 1,866  |                    |        |                   | 1,999  |        |        |      | 5,104  |         |        |   | 4,481   |       
|                       |                                                      |                |                             |        |                    |        |                   |        |        |        |      |        |         |        |   |        
|                       | Net commissions                                      |                |                             | 287    |                    |        |                   | 1,008  |        |        |      | 2,771  |         |        |   | 2,470   |       
|                      
|                      
|                      
|                      
|                       | General expenses, taxes,
licenses and fees           |                |                             | 2,190  |                    |        |                   | 2,629  |        |        |      | 9,868  |         |        |   | 9,360   |       
|                       |                                                      |                |                             |        |                    |        |                   |        |        |        |      |        |         |        |   |        
|                       |                                                      |                | Total benefits and expenses |        | $                  | 23,806 |                   |        | $      | 23,133 |      |        | $       | 74,467 |   |         | $      | 70,604 | 
|                       |                                                      |                |                             |        |                    |        |                   |        |        |        |      |        |         |        |   |        
|                       |                                                      |                | Income before income taxes  |        | $                  | 15,290 |                   |        | $      | 750    |      |        | $       | 35,534 |   |         | $      | 8,994  | 
|                       |                                                      |                |                             |        |                    |        |                   |        |        |        |      |        |         |        |   |        

16



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##### Table of Contents



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

NOTE H  COMMITMENTS

The Company has outstanding commitments to invest up to $2.2 million in real
estate limited partnerships at September 30, 2003. These commitments will be
funded as required through the end of the respective investment periods, which
typically span 3 to 5 years.

NOTE I  STATUTORY INFORMATION

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

NOTE J  NOTES PAYABLE TO ERIE INDEMNITY COMPANY

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

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

17



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##### Table of Contents






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

The following discussion and analysis should be read in conjunction with the
historical financial information and related notes found on pages 3 through 17,
herein, and Managements Discussion and Analysis of Financial Condition and
Results of Operations contained in our Annual Report on Form 10-K for the year
ended December 31, 2002 as filed with the Securities and Exchange Commission on
March 27, 2003.

FINANCIAL OVERVIEW

Net income increased to $10.0 million, or $1.06 per share, in the third quarter
of 2003, compared to $0.5 million or $0.05 per share, for the third quarter of
2002. This growth was partially the result of net realized capital gains of
$4.9 million in the third quarter of 2003 compared to net realized capital
losses of $5.2 million recorded during the same period in 2002. For the nine
months ended September 30, 2003 net income increased to $23.2 million, or $2.46
per share, compared to $5.9 million, or $0.62 per share for the same period in
2002. An increase in net realized capital gains on investments and net
investment income were the principal reasons for the year-to-date increase in
earnings.

REVENUES

Analysis of Policy Revenue

Total net policy revenue increased 10.5%, to $13.6 million in the third quarter
of 2003 from $12.3 million during the same period in 2002. Contributing to
this growth was an increase in net premiums on both traditional life insurance
and universal life products. Premiums on traditional life insurance policies
increased 10.3%, to $10.2 million for the quarter ended September 30, 2003.
Universal life premiums increased 9.8%, to $3.0 million during the same period.
Total policies in force on traditional life insurance and universal life
products increased 7.9% to 247,511 at September 30, 2003, compared to 229,413
at September 30, 2002. Total net policy revenue increased $2.9 million, or
7.5%, to $41.0 million for the nine months ended September 30, 2003.

Analysis of Investment-related Income

Net investment income increased $2.4 million, or 14.6%, to $18.9 million in the
third quarter of 2003 from $16.5 million for the same period in 2002. The
increase in net investment income for the third quarter of 2003 compared to the
same period in 2002 is related to larger invested balances in interest bearing
fixed maturities in 2003, compared to 2002, partially offset by lower
investment portfolio yields in 2003 due to lower interest rates. Cash flow
from the sale of the Companys common stock portfolio in 2002 and increases in
annuity deposits in 2003 contributed to this increase in the investments in
interest bearing bonds.

Net realized capital gains on investments were $4.9 million in the third
quarter of 2003, compared to net realized capital losses of $5.2 million in the
third quarter of 2002. The 2002 net realized capital losses were primarily the result
of $8.3 million in impairment charges on fixed maturity and equity security
investments recorded during the third quarter of 2002. For the nine months
ended September 30, 2003, net realized capital gains were $9.2 million compared
to net realized capital losses of $10.9 million in 2002. Impairments during
the nine month period ended September 30, 2003 and 2002 were $3.4 million and
$17.3 million, respectively.

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

18



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##### Table of Contents



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

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

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

|                                              |  |                              |       |  
|--------------------------------------------- |  | ---------------------------- | ----- | -
|                                              |  | Two years ended             
|                                              |  | September 30, 2003          
|                                              |  | (Pre-tax annualized returns)
|Fixed maturities                              |  |                              | 8.83  | %
|                                             
|                                             
|                                             
|                                             
|Preferred stock                               |  |                              | 12.22 | %
|                                             
|                                             
|                                             
|                                             
|Market indices:                               |  |                              |       |  
|                                             
|                                             
|                                             
|                                             
|Lehman Global Aggregate Bond Index  Unhedged |  |                              | 10.93 | %
|                                             
|                                             
|                                             
|                                             
|Lehman Global Aggregate Bond Index  Hedged   |  |                              | 5.82  | %

BENEFITS AND EXPENSES

Analysis of Policy-related Benefits and Expenses

Net death benefits on life insurance policies increased 18.6% in the third
quarter of 2003 to $4.5 million. For the nine months ended September 30, 2003,
death benefits on life
insurance policies decreased slightly to $11.1 million. Random fluctuations in
death benefits incurred can be expected when mortality results are measured
over a short time period due to the small number of claims involved. These
short-term fluctuations can influence quarterly or annual results without
impacting long-term profitability. Management believes that its underwriting
philosophy and practices are sound.

Interest expense incurred on deposits increased $0.7 million, or 6.2%, to $12.6
million in the third quarter of 2003 from $11.9 million in the third quarter of
2002. This increase can be attributed to the growth of annuities on deposit.
At September 30, 2003, the balance of annuity deposits totaled $922.3 million,
compared to $735.8 million at September 30, 2002, an increase of 25.4%. The
Company has lowered its credited interest rates in both 2003 and 2002 to
reflect the current market conditions. Interest was credited on annuity and
universal life deposits in 2003 and 2002 at the following rates:

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

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##### Table of Contents



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

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 ceded. Increase in future life policy
benefits net of reinsurance ceded totaled $1.9 million in the third quarter of
2003, compared to $2.3 million in the third quarter of 2002, a decrease of
20.2%. In the third quarter of 2002 an adjustment of approximately $0.3
million was made to correct the reserve credit for reinsured life policies
which had lapsed, for which the reserve credit had not been reduced. The
effect of this adjustment was to increase future life policy benefit expense by
$0.3 million in the third quarter of 2002. Expenses related to increase in
future life policy benefits net of reinsurance ceded decreased $1.9 million to
$5.2 million for the nine months ended September 30, 2003. In addition to the
adjustment discussed above for the third quarter of 2002, a similar adjustment
of $0.7 million was made during the second quarter of 2002. Also, the first
quarter of 2002 included a $0.4 million reduction in the reserve credit for
reinsurance ceded to reflect a change in the method of calculating the reserve
credit for rated business and a $0.5 million reduction in the reserve credit to
update the computation basis for several new term products recently introduced.
The adjustment for rated business was recommended by the Pennsylvania
Insurance Department in order to make the calculation basis consistent with the
related direct reserves. The adjustment for the new term products was made to
properly match the reinsurance reserve credit on these new products with the
GAAP reserves.

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

Analysis of Other Expenses

General expenses and commissions decreased $1.2 million, or 40.1%, to $1.8
million for the third quarter of 2003, compared to $3.0 million for the same
period in 2002, and increased $0.6 million or
5.9% to $10.6 million for the nine months ended September 30, 2003. 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 related to
the acquisition and underwriting of new policies are deferred as DAC. Such
expenses include medical inspection and exam fees related to new business
production, wages, salaries and employee benefits of underwriting personnel,
and salaries, employee benefits and bonuses paid to sales employees for the
production of life and annuity business.

General expenses, net of DAC, decreased $0.5 million, or 25.4%, to $1.5 million
for the quarter ended September 30, 2003. This decrease is the result of a
$0.5 million adjustment to expenses allocated to the DAC on the traditional
life insurance line of business during the third quarter of 2002. For the nine
months ended September 30, 2003, general expenses, net of DAC, increased 3.7%,
to $7.8 million. In addition to the increase in expenses relating to increased
staffing levels, a charge incurred during the first quarter of 2003 for
retirement benefits of a retired executive of the Company contributed to this
increase.

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

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

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

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

FINANCIAL CONDITION

Investments

The Companys investment strategies and 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 on a total return approach that focuses on
current income and capital appreciation.

The Companys invested assets are sufficiently liquid to meet commitments to
our Policyholders. At September 30, 2003, the Companys investment portfolio
consisting of cash, investment grade bonds and investment grade preferred
stock, totaled more than $1.4 billion or 87.6% of total assets. These
resources provide the liquidity the Company requires to meet known and
unforeseen demands on its funds.

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

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

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

If the Companys policy for determining the recognition of impaired positions
were different, the Companys

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##### Table of Contents



Results of Operations could be significantly impacted. Management believes its investment valuation philosophy and
accounting practices result in appropriate and timely measurement of value and
recognition of impairment.

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

Reserve Liabilities

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

Financial Ratings

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

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

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of the Companys ability to secure enough cash to meet
its contractual obligations and operating needs. Generally, insurance premiums
are collected prior to claims and benefit disbursements and these funds are
invested to provide necessary cash flows in future years. The Companys major
sources of cash are life insurance premiums 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, 2003
was $6.3 million. The Companys liquidity position remains strong as invested
assets and cash and cash equivalents increased by more than $231.6 million
during the first nine months of 2003 to $1.5 billion.

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

Annuity and universal life deposits, which do not appear as revenue on the
Statement of Operations, are a source of funds. These deposits do not involve
a mortality or morbidity risk and are accounted for using methods applicable to
comparable interest-bearing obligations of other types of financial
institutions. This method of accounting records deposits as a liability rather
than as revenue. Annuity and universal life

22



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##### Table of Contents



deposits were $26.6 million in the third quarter of 2003 and $45.2 million in the third quarter of 2002. The
heightened volatility in the equity markets has continued to make annuities an
attractive investment alternative.

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

FACTORS THAT MAY AFFECT FUTURE RESULTS

Products with Interest Rate Guarantees

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

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

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

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

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

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##### Table of Contents



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

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





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

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

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

Investment Market Conditions

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

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

Terrorist Actions

The Company is exposed to direct losses arising from possible future terrorist
actions. Additionally, current and future proposed federal measures might
affect the way the life insurance industry handles losses from potential future
terrorist actions. These measures may include the establishment of a
federal reinsurance program for losses from terrorist actions and possible
changes to the tax laws governing the taxation of insurance companies.

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

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confidence in the U.S. capital markets.

Contingencies

A civil class action lawsuit was filed in April of 2003 in the Court of Common
Pleas of Philadelphia County, Pennsylvania. Erie Family Life Insurance Company
(EFL) is the named defendant in the
lawsuit. See the Legal Proceedings section under Part II of this document
for further discussion.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

















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

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ITEM 4. CONTROLS AND PROCEDURES

As of September 30, 2003, the Company carried out an evaluation, under the
supervision and with the participation of the Companys management, including
its Chief Executive Officer and its Chief Financial Officer, of the design and
operation of the Companys disclosure controls and procedures. Based on this
evaluation, the Companys Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are effective
for gathering, analyzing and disclosing the information the Company is required
to disclose in the reports it files under the Securities Exchange Act of 1934,
within the time periods specified in the SECs rules and forms. There have
been no significant changes in the Companys internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of this evaluation.

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PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

A civil class action lawsuit was filed in April of 2003 in the Court of Common
Pleas of Philadelphia County, Pennsylvania. Erie Family Life Insurance Company
(EFL) is the named defendant in the
lawsuit. EFL issued a life insurance policy to the plaintiff. The class
action Complaint alleges that EFL charged and collected annual premium for the
first year, but did not provide 365 days of
insurance coverage. The Complaint alleges that the policy forms and
applications used by EFL do not disclose that a portion of the first premium
will cover a period of time during which EFL does not provide insurance
coverage.

The Complaint contains four counts. In Count I, Plaintiff alleges that the
conduct of EFL violated the Pennsylvania Unfair Trade Practices and Consumer
Protection Law. Count II of the Complaint alleges a cause of action for breach
of contract. Count III alleges that EFL breached its duty of good faith and
fair dealing. In Count IV of the Complaint, Plaintiff asserts a cause of
action for unjust enrichment and/or restitution. EFL answered the Complaint
and denied liability on all counts.

It is too early to assess the probable outcome or the purported amount of
damages of this civil class action lawsuit. The Company believes that EFL has
meritorious, legal and factual defenses to the lawsuit and these defenses will
be vigorously pursued.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

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

Reports on Form 8-K

On July 24, 2003, the Company filed a report on Form 8-K, reporting under Item
9, that a press release had been issued reporting the Companys earnings for
the quarter ended June 30, 2003.

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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: October 29, 2003 |  | /s/ Jeffrey A. Ludrof
|                       |  |                       |  |                                                   
|                       |  |                       |  | (Jeffrey A. Ludrof, President & CEO)              
|                       |  |                       |  |                                                   
|                       |  |                       |  | /s/ Philip A. Garcia                              
|                       |  |                       |  |                                                   
|                       |  |                       |  | (Philip A. Garcia, Executive Vice President & CFO)

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