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 June 30, 1998

                                       OR

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

For the transition period from ______ to ______

                         Commission file number 2-39458

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

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


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

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


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

        Yes  X        No ___


Indicate the number of shares outstanding of each of the Registrant's classes of
common stock,  as of the latest  practicable  date:  9,450,000  shares of Common
Stock outstanding on July 31, 1998.


                                      1
<PAGE>


                                      INDEX

                       ERIE FAMILY LIFE INSURANCE COMPANY


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

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

        Statements of Operations--three months ended June 30, 1998 and 1997,
          six months ended June 30, 1998 and 1997

        Statements of Comprehensive Income--three months ended June 30, 1998 and
          1997, six months ended June 30, 1998 and 1997

        Statements of Cash Flows--six months ended June 30, 1998 and 1997

        Notes to Financial Statements--June 30, 1998

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


PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES

                                      2
<PAGE>


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

                                                                               June 30,                  December 31,
ASSETS                                                                           1998                         1997
                                                                             (Unaudited)
<S>                                                                  <C>                          <C>
Investments:
      Fixed Maturities available-for-sale, at fair
        value (amortized cost of $589,193,624
        and $535,792,641, respectively)                              $         615,409,210        $         558,177,487
      Equity Securities, at fair value
        (cost of $101,400,114 and $111,786,894,
        respectively)                                                          113,648,093                  120,841,893
      Real Estate                                                                1,582,876                    1,624,306
      Policy Loans                                                               5,557,098                    5,099,671
      Real Estate Mortgage Loans                                                 9,981,163                   10,049,733
      Other Invested Assets                                                     16,390,511                    7,240,282

        Total Investments                                            $         762,568,951         $        703,033,372

Cash and cash equivalents                                                       17,470,343                   42,287,398
Premiums Receivable from Policyholders                                           3,394,569                    3,471,385
Reinsurance Recoverable                                                             86,404                      350,837
Other Receivables                                                                  196,077                      182,711
Accrued Interest and Dividends                                                  10,563,384                   10,273,259
Deferred Policy Acquisition Costs                                               67,379,747                   64,567,085
Prepaid Federal Income Taxes                                                       925,845                      146,984
Reserve Credit For Reinsurance Ceded                                             5,485,953                    5,041,530
Other Assets                                                                     4,796,764                    3,179,302

        Total Assets                                                 $         872,868,037         $        832,533,863

</TABLE>

See notes to financial statements.


                                      3
<PAGE>


                        STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
                                                                              June 30,                    December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY                                            1998                           1997
                                                                             (Unaudited)
<S>                                                                  <C>                          <C>
Liabilities:
      Policy Liabilities and Accruals:
        Future Life Policy Benefits                                  $          61,930,550        $          59,413,782
        Policy and Contract Claims                                               1,078,953                    2,049,677
        Annuity Deposits                                                       506,319,118                  489,444,701
        Universal Life Deposits                                                 75,157,432                   68,890,312
        Supplementary Contracts Not
          including Life Contingencies                                             593,147                      825,927
      Other Policyholder Funds                                                   3,665,428                    6,595,330
      Deferred Federal Income Tax                                               28,728,430                   24,409,317
      Reinsurance Premium Due                                                      211,014                      424,745
      Accounts Payable and Accrued Liabilities                                   3,034,194                    2,668,688
      Note Payable to Affiliate                                                 15,000,000                   15,000,000
      Due to Affiliate                                                           1,557,479                    1,156,431
      Dividends Payable                                                          2,835,000                    1,275,752

        Total Liabilities                                            $         700,110,745        $         672,154,662

Shareholders' Equity:
      Common Stock, $.40 Par Value Per Share;
      Authorized 15,000,000 Shares; 9,450,000
      Shares Issued And Outstanding                                  $           3,780,000        $           3,780,000
      Additional Paid-In Capital                                                   630,000                      630,000
      Accumulated Other Comprehensive Income,
        net of Deferred Tax of $13,463,871
        and $11,003,949, respectively                                           25,004,334                   20,435,901
      Retained Earnings                                                        143,342,958                  135,533,300

        Net Shareholders' Equity                                     $         172,757,292        $         160,379,201

        Total Liabilities and Shareholders'
          Equity                                                     $         872,868,037        $         832,533,863

</TABLE>


See notes to financial statements.

                                      4
<PAGE>


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

                                                                      Three Months Ended                     Six Months Ended
                                                                            June 30                                June 30
<S>                                                         <C>              <C>                   <C>               <C> 
                                                                   1998              1997                 1998            1997
Revenues:
  Policy:
  Life Premiums, net of premiums ceded of
    $971,074, $1,010,431, $1,742,307 and
    $1,721,638, respectively                                $     9,251,146  $      8,264,957      $     17,614,278  $    16,188,741
  Group                                                             582,074           549,381             1,200,120        1,093,623
    Total Policy Revenue                                    $     9,833,220  $      8,814,338      $     18,814,398  $    17,282,364
  Investment Income, Net of Expenses of
    $368,822, $353,852, $726,803 and
    $691,074, respectively                                       12,995,512        12,211,491            25,785,740       24,612,774
  Realized Gains on Investment                                      866,108           746,305             2,702,270        1,368,087
  Other Income                                                      225,625           185,125               389,533          325,424
    Total Revenues                                          $    23,920,465  $     21,957,259      $     47,691,941  $    43,588,649

Benefits and Expenses:
  Death Benefits, net of reinsurance recoveries
    of $53,384, $509,284, $568,735 and
    $515,902, respectively                                        1,760,225         2,220,839             3,238,370        4,652,264
  Interest on Annuity Deposits                                    7,319,108         6,870,451            14,813,290       13,718,676
  Interest on Universal Life Deposits                             1,151,303           941,881             2,237,366        1,844,231
  Surrender and Other Benefits                                      299,884           325,978               565,681          612,746
  Increase in Future Life Policy Benefits, net of
    the increase in reserve credit for reinsurance
    ceded of $192,838, $166,816, $444,423 and
    $720,510, respectively                                        1,139,514           935,151             2,072,345        2,759,929
  Amortization of Deferred Policy
    Acquisition Costs                                             1,350,161           756,093             2,645,951        1,560,404
  Commissions, net of reinsurance reimbursements
    of $414,936, $166,816, $624,246 and $720,510,
    respectively                                                    273,310           640,487               570,151          878,957
  General Expenses                                                1,665,434         1,983,824             3,115,807        3,406,414
  Taxes, Licenses and Fees                                          343,987           285,218              (200,999)         571,673
    Total Benefits and Expenses                             $    15,302,926  $     14,959,922      $     29,057,962  $    30,005,294

Income From Operations                                      $     8,617,539  $      6,997,337      $     18,633,979  $    13,583,355
Federal Income Tax
  Current                                                         2,078,993         1,795,374             4,712,636        3,459,150
  Deferred                                                          974,200           588,700             1,859,188        1,109,878
    Total Federal Income Tax                                      3,053,193         2,384,074             6,571,824        4,569,028

Net Income                                                  $     5,564,346  $      4,613,263      $     12,062,155  $     9,014,327

Net Income Per Share                                        $          0.59  $           0.49      $           1.28  $          0.95

Dividends Declared Per Share                                $          0.30  $           0.27      $           0.45  $         0.405

</TABLE>

See notes to financial statements.
                                      5
<PAGE>


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

                                                                      Three Months Ended                   Six Months Ended
                                                                              June 30                              June 30
                                                                    1998              1997                1998               1997
<S>                                                       <C>              <C>                   <C>               <C>   

Net Income                                                $     5,564,346  $      4,613,263      $     12,062,155  $     9,014,327
Unrealized Gains (Losses) on Securities:
  Unrealized Holding Gains Arising
    During Period                                               4,423,513        16,887,650             9,730,630        1,895,016
  Less:  Reclassification Adjustment for Gains
    Included in Net Income                                       (866,108)         (746,305)           (2,702,270)      (1,368,087)
    Net Unrealized Holding Gains
      Arising During Period                               $     3,557,405  $     16,141,345      $      7,028,360  $       526,929

Income Tax (Expense) Related to
  Unrealized Gains                                             (1,245,092)       (5,647,510)           (2,459,926)        (182,464)

Other Comprehensive Income,
  Net of Tax                                              $     2,312,313  $     10,493,835      $      4,568,434  $       344,465

Comprehensive Income                                      $     7,876,659  $     15,107,098      $     16,630,589  $     9,358,792

</TABLE>


See notes to financial statements.
                                      6
<PAGE>


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

                                                                                  Six Months Ended             Six Months Ended
                                                                                    June 30, 1998                June 30, 1997
<S>                                                                              <C>                         <C>
Cash flows from operating activities:
  Net income                                                                     $       12,062,155          $         9,014,327
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Net amortization of bond and mortgage
        premium and discount                                                                296,516                      617,579
      Amortization of deferred policy acquisition
        costs                                                                             2,645,951                    1,560,404
      Real Estate Depreciation                                                               41,430                       43,200
      Deferred federal income taxes                                                       1,859,188                    1,109,878
      Realized gains on investments                                                      (2,702,270)                  (1,368,087)
  (Increase) decrease in other assets                                                    (1,617,462)                   2,521,206
  Increase in other receivables                                                             (13,366)                    (774,031)
  Decrease (increase) in premium receivable                                                  76,816                      (68,081)
  Increase in reinsurance recoverable
    and reserve credits                                                                    (179,990)                    (471,810)
  Increase in accrued investment income                                                    (290,125)                    (421,614)
  Increase in deferred policy acquisition
    costs                                                                                (5,458,613)                  (5,162,396)
  Increase in future policy benefits and claims                                           1,546,044                    3,235,248
  (Decrease) increase in other policyholder funds                                        (2,929,902)                   1,425,522
  (Decrease) increase in reinsurance premium due                                           (213,731)                      29,915
  Increase in accounts payable and accrued
    liabilities and due to affiliate                                                        766,556                       38,170
  Increase in prepaid federal income tax                                                   (778,861)                  (1,147,064)
      Net cash provided by operating
        activities                                                               $        5,110,336          $        10,182,366

Cash flows from investing activities:
  Purchase of investments:
    Fixed maturities                                                             $     (102,188,874)         $       (36,738,163)
    Equity securities                                                                   (15,978,933)                 (27,607,708)
    Mortgage loans                                                                                0                   (1,086,241)

  Sales/maturities of investments:
    Fixed maturities                                                                     49,554,055                   20,436,815
    Equity securities                                                                    28,009,764                   14,809,173
  Principal payments received on mortgage loans                                              68,747                       63,759
  Loans made to policyholders                                                              (749,872)                    (734,309)
  Payments received on policy loans                                                         292,445                      347,434
  Purchase of other invested assets                                                      (9,579,849)                    (603,581)
  Proceeds from other invested assets                                                       429,621                      284,763
      Net cash used in investing activities                                      $      (50,142,896)         $       (30,828,058)

</TABLE>

                                     7
<PAGE>


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

                                                                                  Six Months Ended              Six Months Ended
                                                                                    June 30, 1998                 June 30, 1997
<S>                                                                              <C>                         <C>
Cash flows from financing activities:
    Increase in annuity and supplementary
      contract deposits                                                          $       16,641,637          $        20,659,289
    Increase in Universal Life Deposits                                                   6,267,120                    6,201,681
    Dividends paid to shareholders                                                       (2,693,252)                  (2,457,004)
        Net cash provided by financing
          activities                                                             $       20,215,505          $        24,403,966
Net increase (decrease) in cash and
   short-term cash investments                                                          (24,817,055)                   3,758,274
Cash and short-term cash investments at
   beginning of year                                                                     42,287,398                    6,284,102
Cash and short-term cash investments at
   end of quarter                                                                $       17,470,343          $        10,042,376


Supplemental  disclosures of cash flow information:
Cash paid during the period for:
    Interest                                                                     $          483,750          $           483,750
    Income taxes                                                                          5,360,000                    4,473,896

</TABLE>
                                      8
<PAGE>


NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

NOTE A -- BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting  principles for interim financial information
and with  the  instructions  to Form  10-Q and  Rule  10-01 of  Regulation  S-X.
Accordingly,  they do not include all of the information and footnotes  required
by generally accepted accounting  principles for complete financial  statements.
In the opinion of management,  all adjustments  (consisting of normal  recurring
accruals)  considered  necessary  for a fair  presentation  have been  included.
Operating  results  for the  six  month  period  ended  June  30,  1998  are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 1998. For further  information,  refer to the financial  statements
and footnotes  thereto  included in the Company's annual report on Form 10-K for
the year ended December 31, 1997.

NOTE B -- INVESTMENTS

The total  invested  assets  of the  Company  consist  of  investments  in fixed
maturities,  preferred  stock,  common stock,  real estate,  mortgage and policy
loans and other  invested  assets.  At June 30,  1998,  80.7% of total  invested
assets were invested in fixed  maturities.  Preferred  stocks  represent 9.4% or
$71.8  million  and  common  stocks  represent  5.5% or $41.9  million  of total
invested  assets at June 30, 1998.  Real estate and mortgage  loans make up only
1.5% of total invested  assets.  Mortgage loan and real estate  investments have
the  potential  for higher  returns  but also carry  more risk,  including  less
liquidity and greater uncertainty of rate of return.

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

The Company's fixed  maturities at June 30, 1998 consist of investments in bonds
of $612 million and  investments  in redeemable  preferred  stock of $3 million.
Consistent with the Company's investment objective, the fixed maturity portfolio
is of very high  quality and well  diversified  within each market  sector.  The
portfolio  is  conservatively  managed  with  the goal of  achieving  reasonable
returns while limiting  exposure to risk. At June 30, 1998, the amortized  cost,
gross unrealized  gains,  gross  unrealized  losses and carrying value for fixed
maturities were as follows:


                                      9
<PAGE>


NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (Continued)

                                               Fixed Maturities at 6-30-98
<TABLE>
<CAPTION>

                                                                             Gross                  Gross
                                                    Amortized              Unrealized             Unrealized            Carrying
                                                       Cost                   Gains                 Losses               Value
<S>                                           <C>                   <C>                   <C>                   <C>
U.S. Treasuries                               $         4,382,143   $           642,644   $                 0   $        5,024,787
U.S. Government Agency                                 17,567,495               647,186               124,068           18,090,613
States & Political Subdivisions                         2,057,557               188,124                     0            2,245,681
Special Revenue                                        11,097,720               902,649                     0           12,000,369
Public Utilities                                       78,563,333             3,460,530               710,168           81,313,695
U.S. Banks, Trusts & Insurance
  Companies                                           118,606,250             7,089,127               850,721          124,844,656
U.S. Industrial & Miscellaneous                       329,048,811            15,350,831               778,408          343,621,234
Foreign Governments-Agency                              2,988,637                     0               564,787            2,423,850
Foreign Banks, Trusts &
  Insurance Companies                                   5,000,000               126,565                     0            5,126,565
Foreign Industrial & Miscellaneous                     19,881,678               836,082                     0           20,717,760
Total Fixed Maturities                        $       589,193,624   $        29,243,738   $         3,028,152   $      615,409,210

</TABLE>

Included in the fixed maturity  category are high-quality  bonds with a carrying
value of  $605,740,100  that are rated at  investment  grade levels  (Baa/BBB or
better).   Included  in  this   investment-grade   category   are  $357  million
characterized as the "highest" quality or "Class 1" securities as defined by the
National Association of Insurance  Commissioners  (NAIC).  Generally,  the fixed
maturity  securities  in the Company's  portfolio  are rated by external  rating
agencies.  If not  externally  rated,  they are rated by the  Company on a basis
consistent with the basis used by the rating agencies.

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

At June 30, 1998, the amortized  cost of the Company's five largest  investments
in corporate debt securities  totaled $35.5 million,  none of which individually
exceeded $8.1 million. These investments had a market value of $36.8 million.

Equity  securities  consist of common and preferred  stocks which are carried on
the balance sheet at market value.  As with the fixed  maturity  portfolio,  the
Company's  preferred  stock  portfolio  provides a source of highly  predictable
current income that is very competitive with high-grade bonds.  These securities
are well diversified within each market sector. The preferred stocks are of very
high-quality (all of the $71.8 million of preferred stock are rated "highest" or
"high"  quality as defined by the NAIC) and extremely  marketable.  There are no
preferred stocks in the Company's portfolio rated in the "low," "lowest," or "in
or near default" quality categories established by the NAIC.

                                      10
<PAGE>


NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (Continued)

                                           Equity Securities at 6-30-98
<TABLE>
<CAPTION>

                                                                         Gross               Gross
                                                                       Unrealized          Unrealized             Market
                                                  Cost                   Gains               Losses               Value
<S>                                       <C>                   <C>                     <C>                <C>
Common Stock
U.S. Industrial & Miscellaneous           $        37,543,241   $         8,464,181     $     4,136,284    $       41,871,138
    Total Common Stock                             37,543,241             8,464,181           4,136,284            41,871,138
Preferred Stocks
  Public Utilities                                  4,000,000                50,080                   0             4,050,080
  U.S. Banks, Trusts &
    Insurance Companies                            41,611,509             7,166,686              22,440            48,755,755
  Foreign Banks, Trusts &
    Insurance Companies                             7,873,364               410,176             206,200             8,077,340
  U.S. Industrial & Miscellaneous                   6,472,000               301,780                   0             6,773,780
  Foreign Industrial &
    Miscellaneous                                   3,900,000               220,000                   0             4,120,000
    Total Preferred Stock                          63,856,873             8,148,722             228,640            71,776,955

Total Equity Securities                   $       101,400,114   $        16,612,903     $     4,364,924    $      113,648,093

</TABLE>

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

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






                                      11

<PAGE>


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

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


OVERVIEW

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

Net income increased to $5,564,346,  or $.59 per share, in the second quarter of
1998 from  $4,613,262  or $.49 per  share,  in the second  quarter  of 1997,  an
increase of 20.6%.  The increase in  nonrecurring  realized gains on investments
from $746,305 in the second quarter of 1997 to $866,108 in the second quarter of
1998 and a decrease in death  benefits from  $2,220,839 in the second quarter of
1997 to  $1,760,225 in the second  quarter of 1998 were the primary  reasons for
the increase in net income.  Operating  results  continued to be strong as total
policy  revenue grew by 11.6% to  $9,833,220 in the current  period.  Investment
income net of expenses rose 6.4% from  $12,211,491 in the second quarter of 1997
to $12,995,512 in the second quarter of 1998.


REVENUES, BENEFITS, AND EXPENSES

Policy  Revenues.  Total policy  revenues  increased  11.6% to $9,833,220 in the
second quarter of 1998 from  $8,814,338 in the second quarter of 1997.  Included
in these totals are first year life policy  revenues of $1,711,421 in the second
quarter of 1998 and  $1,647,211  in the second  quarter of 1997,  an increase of
3.8%.

Group policy  revenues  increased from $549,381 in the second quarter of 1997 to
$582,074 in the second quarter of 1998.

Deposits.  First year and single universal life and annuity  deposits  decreased
12.2% to  $10,111,686  in the second  quarter of 1998 compared to $11,519,126 in
the second quarter of 1997. Included in these amounts are structured  settlement
annuities sold to the Erie Insurance Group property/casualty affiliate companies
which  totaled  $3,693,903 in the second  quarter of 1998 and  $2,417,209 in the
second quarter of 1997.

Net Investment  Income.  Net investment income in the second quarter of 1998 was
$12,995,512  compared to  $12,211,491 in the second quarter of 1997, an increase
of 6.4%.  The  majority of the increase in income  generated  by the  investment
portfolio was due to increased levels of investment from cash flows generated by
the Company's operations and annuity and universal life deposits.

Realized Gain on  Investment.  During the second  quarter of 1998 and 1997,  the
Company generated  realized gains of $866,108 and $746,305,  respectively,  from
the sale of equity and fixed maturity investments.

Death Benefits. Net death benefits on life insurance policies decreased 20.7% in
the second quarter of 1998 to $1,760,225,  compared to $2,220,839,  for the same
period in 1997.  Mortality  experience  should be evaluated  over the long term,
rather than over short  periods  where  unusual  fluctuations  may influence the
results.  This is particularly  true for a company the size of Erie Family Life,
which is growing rapidly.  The Company's mortality experience has been good over
the past several years and management believes that its underwriting  philosophy
and practices are sound.


                                      12
<PAGE>


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

Interest on Annuity and Universal  Life  Deposits.  Interest on deposits held by
the Company for  Policyholders  grew 8.4% to $8,470,411 in the second quarter of
1998 from $7,812,332 in the second quarter of 1997. This increase was due to the
$68 million in deposits made by Policyholders  during the 12-month period ending
June 30, 1998. At June 30, 1998,  annuity deposits  accruing  interest were $506
million and universal life deposits accruing  interest were $75 million.  During
the second  quarter of 1998,  the interest rate  credited on universal  life and
annuity  deposits  remained  unchanged.  The current  interest  rate credited on
universal  life  deposits is in the 6.25% to 7.00% range while the rate credited
on annuity deposits is in the 5.00% to 6.25% range.

Increase in Future Life Policy  Benefits.  The  liability for future life policy
benefits is computed considering various factors such as anticipated  mortality,
future investment  yields,  withdrawals and anticipated  credit for reinsurance.
The 1998 second quarter  increase in future life policy benefits was $1,139,514,
compared  to $935,151  in the second  quarter of 1997 an increase of 21.9%.  The
second quarter 1998 increase in future life policy  benefits is in line with the
$1.1 million average quarterly increase recorded in 1997.

Commission Expense. Direct commission costs include new and renewal commissions,
production bonuses and Company contest awards.  These direct commission expenses
are reduced by commissions  received from reinsurers and the expense is affected
by the amount of commission expenses  capitalized as part of the deferred policy
acquisition  costs  (DAC).  Commission  costs,  which vary with and are  related
primarily  to the  production  of new  business,  have  been  deferred  and  are
capitalized as DAC. Most first-year and bonus  commissions and some  second-year
commissions  qualify for deferral,  i.e.,  additions to the DAC. These costs are
being  amortized  over the  premium  paying  period of the  related  policies in
proportion to the ratio of the annual premium  revenue to the total  anticipated
premium revenue.  During the second quarter of 1998 commission expense decreased
$367,177 to $273,310.  Commission expense was affected by $414,936 in commission
reimbursements  received  under ceded  reinsurance  contracts  during the second
quarter of 1998 compared to $166,816 received during the second quarter of 1997.

General Expenses.  General expenses amounted to $1,665,434 in the second quarter
of 1998 compared to $1,983,824 for the same period in 1997.

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

In accordance  with AICPA  Statement of Position (SOP) 98-1  "Accounting for the
Costs of Computer  Software  Development  or Obtained  for  Internal  Use",  the
Company began capitalizing  internal use software costs during the first quarter
of 1998. This change resulted in a decrease in general  expenses of $326,000 for
the second quarter of 1998.

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

Taxes,  Licenses,  and Fees.  Taxes,  licenses and fees  increased by $58,769 to
$343,987  in the  second  quarter of 1998  compared  ot  $285,218  in the second
quarter of 1997. For the six months ended June 30, 1998 taxes, licenses and fees
amounted to  ($200,999)  compared to $571,673  at June 30,  1997.  The  $772,672
decrease  was  caused by a  $954,000  refund  that is due the  Company  from the
Pennsylvania  Life  and  Health  Insurance  Guaranty  Association  because  of a
recalculation of annuity assessments paid in previous years.

                                      13
<PAGE>


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

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of the  Company's  ability to secure  enough cash to meet
its contractual obligations and operating needs.  Generally,  insurance premiums
and deposits are collected prior to claims and benefit  disbursements  and these
funds  are  invested  to  provide  necessary  cash  flows in future  years.  The
Company's  major sources of cash from  operations are life  insurance  premiums,
annuity and universal life deposits and investment income. The net positive cash
flow is used to fund Company commitments and to build the investment  portfolio,
thereby  increasing  future investment  returns.  Net cash provided by operating
activities  for the six months ended June 30, 1998 was  $5,110,336,  compared to
$10,182,366  for the six months ended June 30,  1997.  The  Company's  liquidity
position  remains strong as invested assets grew by $60 million during the first
six months of 1998 to $763 million at June 30, 1998.

Annuity  and  universal  life  deposits,  which do not  appear as revenue on the
financial statements, provide cash. These deposits do not involve a mortality or
morbidity  risk and are  accounted  for using  methods  applicable to comparable
"interest-bearing  obligations" of other types of financial  institutions.  This
method of accounting  records  deposits as a liability rather than as a revenue.
Annuity and universal  life deposits were  $15,579,401  in the second quarter of
1998 and $17,049,670 in the second quarter of 1997.

The  Company's  current  commitments  for  expenditures  as of June 30, 1998 are
primarily for policy death benefits, policy surrenders and withdrawals,  general
operating expenses,  federal income taxes, and dividends to shareholders.  These
commitments  are met by cash flows from policy  revenue,  annuity and  universal
life  deposits and  investment  income.  Management  believes its cash flow from
operations  and its liquid  assets and  marketable  securities  will  enable the
Company  to meet any  foreseeable  cash  requirements.  As an added  measure  of
liquidity, the Company has in place a $10 million line of credit with a bank. At
June 30, 1998, there were no borrowings on this line of credit.

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

Dividends  declared to shareholders  totaled $2,835,000 in the second quarter of
1998.

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




                                      14
<PAGE>


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

FINANCIAL CONDITION

Reserve Liabilities

The Company's primary commitment is its obligation to meet the payment of future
policy benefits under the terms of its life insurance and annuity contracts.  To
meet these future  obligations,  the Company establishes life insurance reserves
based upon the type of policy,  the age of the insured,  and the number of years
the policy has been in force. The Company also establishes annuity and universal
life reserves  based on the amount of  Policyholder  deposits  (less  applicable
policy charges) plus interest earned on those deposits.  On June 30, 1998, there
was no  material  difference  between the  carrying  value and fair value of the
Company's  investment-type  policies.  These life insurance and annuity reserves
are supported primarily by the Company's long-term, fixed-income investments, as
the underlying policy reserves are generally also of a long-term nature.

Investments

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

The Company's  invested  assets are liquid in order to meet  commitments  to our
Policyholders.  At June 30, 1998, the Company's investment portfolio of cash and
money market  investments,  investment grade bonds, common stocks, and preferred
stocks,  all of which are readily  marketable,  totaled  $746  million or 86% of
total assets. These resources provide the liquidity the Company requires to meet
the unforeseen demands on its funds.


ACCOUNTING PRONOUNCEMENTS

FAS 130

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  130 (FAS  130)  "Reporting  Comprehensive
Income". FAS 130 is effective for fiscal years beginning after December 31, 1997
and requires reporting of comprehensive  income in a full set of general purpose
financial statements. The purpose of reporting comprehensive income is to report
a measure of all  changes in equity of the Company  that result from  recognized
transactions  and other  economic  events of the period.  The two  components of
comprehensive  income for Erie Family Life are net income  from  operations  and
unrealized gain or loss from  investments,  net of tax.  Included in this report
are  statements of  comprehensive  income for the three and six months ended
June 30, 1998 and 1997.

SOP 98-1

During  the first  quarter of 1998,  the  Company  adopted  AICPA  Statement  of
Position (SOP) 98-1 "Accounting for the Costs of Computer Software  Developed or
Obtained  for  Internal  Use".  In  accordance  with SOP 98-1 the Company  began
capitalizing  internal  use  software  costs.  The  adoption  of this  statement
resulted  in an increase  in net income of  $212,000,  or $.02 per share for the
second  quarter of 1998 and  $423,000 or .04 per share for the six months  ended
June 30, 1998.


                                      15
<PAGE>


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

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


Item 6.  Exhibits and Reports on Form 8-K

Exhibit 27 - Financial Data Schedule

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

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




                                      16

<PAGE>


                                   SIGNATURES

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


                                         Erie Family Life Insurance Company
                                                    (Registrant)

Date   August 5, 1998
                                    /s/ Stephen A. Milne
                                (Stephen A. Milne, President & CEO)



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


                                      17