##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K/A
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the fiscal year ended December 31, 2004
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission
File Number 2-39458
 ERIE FAMILY LIFE INSURANCE COMPANY
  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)
 (814) 870-2000
   Common Stock, $0.40 par value
 þ o
 o
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE:
 1.
    
    Portions of the Registrants Proxy Statement relating to the Annual Meeting of
Shareholders to be held April 19, 2005 are incorporated by reference into Parts I and
III of this Form 10-K Report.
     1




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INDEX
 ITEM NUMBER AND CAPTION
    
    PAGEPart IItem 1.
    
    Business
    
    
    3Item 2.
    
    Properties
    
    
    8Item 3.
    
    Legal Proceedings
    
    
    8Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    8Part IIItem 5.
    
    Market for the Registrants Common Equity, Related Shareholder Matters and Issuer Repurchases of Equity Securities
    
    
    9Item 6.
    
    Selected Financial Data
    
    
    10Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 8.
    
    Financial Statements and Supplementary Data
    
    
    28Item 9.
    
    Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    61Item 9A.
    
    Controls and Procedures
    
    
    61Item 9B.
    
    Other Information
    
    
    62Part IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    63Item 11.
    
    Executive Compensation
    
    
    65Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    65Item 13.
    
    Certain Relationships and Related Transactions
    
    
    65Item 14.
    
    Principal Accountant Fees and Services
    
    
    65Part IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    66EX-23EX-31.1EX-31.2EX-32
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PART I
 
 ITEM 1. BUSINESS
 Erie Family Life Insurance Company (hereinafter referred to as the Company or Erie Family
Life) is incorporated in the Commonwealth of Pennsylvania and is primarily engaged in the
business of underwriting and selling nonparticipating individual and group life insurance
policies, annuities and disability income products.The Company is owned 21.6% by the Erie Indemnity Company (EIC), 53.5% by the Erie Insurance
Exchange (Exchange) and the remaining 24.9% by public shareholders, who are predominantly
directors, agents and employees of EIC. EIC is a Pennsylvania business corporation formed in
1925 to be the attorney-in-fact for the policyholders of the Exchange, a
Pennsylvania-domiciled reciprocal insurance exchange. EIC, as attorney-in-fact, has a
fiduciary duty to act in this capacity on behalf of the policyholders of the Exchange in
addition to a fiduciary duty to its own shareholders. EIC operates predominantly as a provider
of sales, underwriting and policy issuance services to the Exchange. EIC also is engaged in
the property/casualty insurance business through its wholly owned subsidiaries, Erie Insurance
Company, Erie Insurance Company of New York and Erie Insurance Property & Casualty Company and
through a subsidiary of the Exchange, Flagship City Insurance Company. The Company, EIC, the
Exchange and its subsidiary and affiliates operate collectively under the name Erie Insurance
Group.Members of the Erie Family Life Board of Directors are the same as those of EIC.
 Products
 The Companys portfolio of life insurance includes permanent life, endowment and term
policies, including whole life, mortgage and decreasing term, group, and universal life
insurance. In terms of face value, new life business issued in 2004, 2003 and 2002 had a ratio
of 14:1, 9:1 and 11:1, respectively, of term insurance to whole life insurance coverage.
Contributing to this ratio of term insurance issued to whole life insurance issued has been
the introduction of a new generation of insurance products in recent years. In late 2001, the
Company rolled out its two newest products  ERIE Target Term and ERIE Flagship Term2. The
ERIE Target Term product has a minimum face amount of $100,000 and offers rate guarantees for
10 years on all plans. The ERIE Flagship Term2, now Erie Family Lifes most comprehensive term
insurance plan for individuals desiring substantial coverage, offers a minimum face amount of
$100,000. These plans combined accounted for 84.6%, 86.0%, and 76.0% of the total new direct
premiums on ordinary life insurance for 2004, 2003, and 2002, respectively.Life insurance premiums and annuity deposits have been the primary sources of cash inflows for
the Company. Net life insurance premiums by class, as a percentage of total sales, are as
follows:
 For the year ended December 31,Class
    
    2004
    
    2003
    
    2002
    
    2001
    
    2000Ordinary Life (including Term and
Whole Life) and Universal Life
    
    
    94.1
    %
    
    
    93.1
    %
    
    
    94.0
    %
    
    
    94.0
    %
    
    
    94.2
    %Group Life and Other
    
    
    5.9
    
    
    
    6.9
    
    
    
    6.0
    
    
    
    6.0
    
    
    
    5.8100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 The Company reinsures a portion of its business under a number of different reinsurance
agreements. The purpose of this reinsurance is to enable the Company to write a policy in an
amount larger than the Company is willing to assume for itself. The Company currently
reinsures with other insurance companies the portion of the insurance coverage above desired
retentions. The retention limit on an acceptable risk is $300,000 per life for individual
coverage. For its disability income product, the Company has a 50% coinsurance agreement with
a nonaffiliated reinsurer. The
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Company has a 50% coinsurance agreement, with a maximum retention of $300,000, with
nonaffiliated reinsurers for its ERIE Flagship Term and ERIE Flagship Term2 products. For its
Erie Target Term product, the Company has a 90% coinsurance agreement, with a maximum
retention of $300,000, with nonaffiliated reinsurers.Direct life insurance in-force totaled $30.1 billion, $27.1 billion and $23.2 billion at
December 31, 2004, 2003 and 2002, respectively. As of December 31, 2004, 2003 and 2002, $12.5
billion, $9.8 billion and $7.0 billion, respectively, of life insurance in-force was ceded to
other companies. The Companys most significant reinsurance relationship is with Generali USA
Reassurance Company (Generali), which reinsures a portion of the Companys life and accident
and health business. At December 31, 2004, 2003 and 2002, the amount of in-force life
insurance ceded to Generali totaled approximately $6.7 billion, $5.6 billion and $4.2 billion,
respectively.Certain elements of revenue and expense reflect the requirements of Financial Accounting
Standard (FAS) 97, Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments. FAS
97 prescribes a uniform method by which life insurance companies account for certain long-term
insurance contracts, specifically annuities, universal life, and other interest-sensitive
products. This method involves separating the premium income into the premium portion (shown
in revenue), which represents insurance protection purchased, and the deposit portion, which
represents funds to be held at interest for future uses. Under this standard, the deposit
portion of the premium received is accounted for using methods applicable to comparable
interest bearing obligations of other types of financial institutions.Annuity product offerings compete with other available investment products including, but not
limited to, common and preferred stocks, bonds, mutual funds and other instruments. The
Companys ability to attract policyholders depends in large part on the relative
attractiveness of its products compared to other investment alternatives available. Factors
such as the interest rate environment and the performance of the stock market influence this
ability.The Erie Insurance Group affiliated property and casualty insurance companies periodically
purchase annuities from the Company in connection with the structured settlement of claims.
Considerations recorded as annuity deposits in the Companys Statements of Financial Position
from structured settlement annuities sold to affiliated property/casualty companies totaled
$20.5 million, $20.9 million and $18.6 million in 2004, 2003 and 2002, respectively. Also
included in the annuity deposits are annuity contracts purchased by the Erie Insurance Group
Retirement Plan for Employees. Due to the current interest rate environment, the Erie
Insurance Group Retirement Plan for Employees did not purchase any annuities from the Company
in 2004 or 2003.Deposits by class are as follows:
 For the year ended December 31,(in thousands)Class
    
    2004
    
    2003
    
    2002
    
    2001
    
    2000Universal Life Deposits
    
    $
    12,374
    
    
    $
    13,326
    
    
    $
    12,176
    
    
    $
    12,238
    
    
    $
    11,198Annuity Deposits
    
    
    78,572
    
    
    
    144,202
    
    
    
    175,509
    
    
    
    69,754
    
    
    
    51,060$
    90,946
    
    
    $
    157,528
    
    
    $
    187,685
    
    
    $
    81,992
    
    
    $
    62,258
 Marketing
 The Company markets its products through independent agents in eleven jurisdictions. The 2004
statutory direct premiums and annuity considerations for those jurisdictions is made up of:
Pennsylvania (59.9%), Virginia (7.9%), Maryland (7.6%), Ohio (7.4%) and North Carolina (4.8%).
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West Virginia, Indiana, Tennessee, Illinois, Wisconsin and the District of Columbia
collectively accounted for 10.4% of direct premiums and annuity considerations. The policies
sold are evaluated by the Companys underwriting department which accepts or declines
applicants for insurance. Premium on policies which are accepted may be standard or rated,
depending on the nature of the risk.
 Competition
 The Company operates in a highly competitive industry which consists of numerous stock and
mutual life insurance companies. A large number of established insurance companies compete in
states in which the Company transacts business and many of these companies offer more
diversified lines of insurance coverage and have substantially greater financial resources
than does the Company. Competition is based primarily on price, product features, availability
of insurance products and the financial strength of the Company.
 Insurance Liabilities
 The Company establishes and maintains actuarial reserves to meet its obligations on life
insurance, disability income and annuity policies. These reserves are amounts which, with
additions from premiums to be received on outstanding policies and with interest on such
reserves compounded annually at certain assumed rates, are calculated to be sufficient to meet
policy obligations at death, disability or maturity in accordance with the mortality and
morbidity assumptions employed when the policies are issued.Reserves for life insurance and income-paying annuity future policy benefits have been
computed primarily by the net level premium method with assumptions as to anticipated
mortality, withdrawals, lapses and investment yields. Disability income reserves are
calculated as two-year preliminary term mid-terminal reserves plus unearned premium reserves
plus claim reserves. Deferred annuity future policy benefit liabilities have been established
at accumulated values without reduction for surrender charges. Reserves for universal life and
deposit contracts are based on the contract account balance. Variations are inherent in such
calculations due to the estimates and assumptions necessary in the calculations. Interest rate
assumptions for non-interest sensitive life insurance range from 3.50% to 4.00% on policies
issued in 1980 and prior years and 5.00% to 7.25% on policies issued in 1981 and subsequent
years. Mortality and withdrawal assumptions are based on tables typically used in the
industry, modified to reflect actual experience where appropriate.Universal life and annuity deposits are credited with varying interest rates determined at the
discretion of the Company subject to contractual minimums. During 2004, interest rates
credited ranged from 4.25% to 5.00% on universal life deposits and 3.00% to 4.70% on annuity
deposits.
 Government Regulation
 The Company is subject to the corporate governance standards set forth in the recently enacted
Sarbanes-Oxley Act of 2002 (the Act) and other recent changes to the federal securities laws,
as well as any rules or regulations that may be promulgated by the Securities and Exchange
Commission and the Commonwealth of Pennsylvania. Compliance with these standards, rules and
regulations, that have recently been enacted, impose additional administrative costs and
burdens on the Company.The Company is considered a non-accelerated filer by definition, and is not subject to the
Section 404 requirements of the Act until 2005. The Company is expecting to incur
approximately $1 million of external costs to ensure compliance with this section of the Act.U.S. federal and state laws and regulations require financial institutions, including
insurance companies, to protect the security and confidentiality of consumer financial
information and to notify consumers about their policies and practices relating to their
collection and disclosure of consumer
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information and their policies relating to protecting the security and confidentiality of that
information. Similarly, federal and state laws and regulations also govern the disclosure and
security of consumer health information. In particular, regulations promulgated by the U.S.
Department of Health and Human Services regulate the disclosure and use of protected health
information by health insurers and others, the physical and procedural safeguards employed to
protect the security of that information, and the electronic transmission of such information.
Congress and state legislatures are expected to consider additional legislation relating to
privacy and other aspects of consumer information.The Company is also subject to supervision and regulation by the insurance departments of the
states in which it does business. Although the extent of the regulation varies from state to
state, generally the supervisory agencies are vested with broad regulatory powers relating to
the granting and revocation of licenses to transact business, regulation of trade practices,
licensing of agents, approval of policy forms, deposits of securities as for the benefits of
policy owners, and investments and maintenance of specified reserves and capital, all designed
primarily for the protection of policy owners. In accordance with the rules of the National
Association of Insurance Commissioners (NAIC), the Company is examined periodically by one or
more of the state supervisory agencies. The last completed examination of the Company was
conducted by the Pennsylvania Insurance Department and covered the five years ended December
31, 2000.The Commonwealth of Pennsylvania follows the statutory accounting practices minimum risk-based
capital requirements on domestic insurance companies that were developed by the NAIC.
Companies below specific trigger points or ratios are classified within certain levels, each
of which requires specified corrective action. The formulas for determining the amount of
risk-based capital specify various weighting factors that are applied to financial balances or
various levels of activity based on the perceived degree of risk. These formulas determine a
ratio of the Companys regulatory total adjusted capital to its authorized control level
risk-based capital, as defined by the NAIC.The NAIC levels and ratios are as follows:
 Ratio of Total Adjusted Capital toNAIC Required
    
    Authorized Control Level Risk-BasedRegulatory Event
    
    Capital (Less Than or Equal to)Company action level
    
    2.0 (or 2.5 with negative trends)Regulatory action level
    
    1.5Authorized control level
    
    1.0Mandatory control level
    
    0.7
 Erie Family Life has regulatory total adjusted capital of almost $141.3 million and a ratio of
total adjusted capital to authorized control level risk-based capital of more than 9:1 at
December 31, 2004. The Companys ratios significantly exceed the minimum NAIC risk-based
capital requirements.
 Employees
 Services of 148 full-time employees are provided through EIC. Six of the employees are
officers. Employee expenses along with other operating expenses are paid by EIC and reimbursed
by the Company on a monthly basis. None of the employees are covered by collective bargaining
agreements and the Company believes its employee relations are good.
 Website Access to Company Reports
 The Companys annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and all amendments to those reports are available free of charge on the Companys
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website at http://www.erieinsurance.com as soon as reasonably practicable after such
material is electronically filed with or furnished to the Securities and Exchange Commission.
The Companys Code of Conduct is available on the Companys website and in printed form upon
written request.
 Also copies of the Companys annual report will be made available, free of charge, upon
written request.
 Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
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ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
      
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  8




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PART II
 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
REPURCHASES OF EQUITY SECURITIES
   First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter2004High
    
    $
    33.50
    
    
    $
    36.00
    
    
    $
    35.00
    
    
    $
    32.00Low
    
    
    29.00
    
    
    
    31.00
    
    
    
    31.35
    
    
    
    31.35Dividends declared
    
    $
    0.22
    
    
    $
    0.22
    
    
    $
    0.44
    
    
    $
    0.002003High
    
    $
    22.00
    
    
    $
    22.50
    
    
    $
    23.50
    
    
    $
    29.75Low
    
    
    18.50
    
    
    
    19.25
    
    
    
    22.00
    
    
    
    22.65Dividends declared
    
    $
    0.21
    
    
    $
    0.42
    
    
    $
    0.21
    
    
    $
    0.00
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ITEM 6. SELECTED FINANCIAL DATA
 Years ended December 312004
    
    2003
    
    2002
    
    2001
    
    2000(amounts in thousands, except per share data)Operating dataTotal net policy revenue
    
    $
    56,548
    
    
    $
    55,932
    
    
    $
    51,129
    
    
    $
    46,491
    
    
    $
    44,537Net investment and other income
    
    
    83,881
    
    
    
    80,865
    
    
    
    71,940
    
    
    
    63,844
    
    
    
    65,067Net realized gains (losses) on
investments
    
    
    9,404
    
    
    
    13,176
    
    
    
    (9,610
    )
    
    
    (19,646
    )
    
    
    6,960Total revenues
    
    
    149,833
    
    
    
    149,973
    
    
    
    113,459
    
    
    
    90,689
    
    
    
    116,564Total benefits and expenses
    
    
    104,541
    
    
    
    102,668
    
    
    
    97,238
    
    
    
    85,789
    
    
    
    79,266Income before income taxes
    
    
    45,292
    
    
    
    47,305
    
    
    
    16,221
    
    
    
    4,900
    
    
    
    37,298Provision for federal income taxes
    
    
    15,660
    
    
    
    14,818
    
    
    
    5,636
    
    
    
    1,698
    
    
    
    12,899Net income
    
    $
    29,632
    
    
    $
    32,487
    
    
    $
    10,585
    
    
    $
    3,202
    
    
    $
    24,399Net income per share
    
    $
    3.14
    
    
    $
    3.44
    
    
    $
    1.12
    
    
    $
    0.34
    
    
    $
    2.58Financial positionTotal assets
    
    $
    1,661,440
    
    
    $
    1,629,563
    
    
    $
    1,378,451
    
    
    $
    1,161,846
    
    
    $
    1,015,845Notes payable to affiliate
    
    
    40,000
    
    
    
    40,000
    
    
    
    15,000
    
    
    
    15,000
    
    
    
    15,000Shareholders equity
    
    
    271,528
    
    
    
    255,563
    
    
    
    217,188
    
    
    
    200,822
    
    
    
    192,796Book value per share
    
    
    28.73
    
    
    
    27.04
    
    
    
    22.98
    
    
    
    21.25
    
    
    
    20.40Dividends declared per share
    
    
    0.88
    
    
    
    0.84
    
    
    
    0.84
    
    
    
    0.78
    
    
    
    0.72Average number of shares outstanding
    
    
    9,450
    
    
    
    9,450
    
    
    
    9,450
    
    
    
    9,450
    
    
    
    9,450
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
 General
  Revenues and expenses
  Financial stability
  
    
    Developing and distributing competitive products;
 
    
    Pricing insurance products at a competitive level while enabling the Company to earn a margin over the cost of providing
benefits;
 
    
    Controlling expenses of acquiring policyholders and administering insurance products;
 
    
    Mortality and morbidity experience on individual and group life insurance, annuity and disability income products;
 
    
    Persistency experience, which affects the recovery of the costs of acquiring new business over the lives of the contracts;
 
    
    Returns on investments, including maintaining interest rate spreads over the amounts credited to deposit funds.
 
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Significant Transactions with Related Parties
        Critical Accounting Estimates
  12




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Investment valuation
   Insurance liabilities
 Accounting and Reporting by Insurance Enterprises, Accounting and Reporting by
 13




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Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from
the Sale of Investments.
  Deferred policy acquisition costs (DAC) asset
     14




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Results of Operations
 Financial overview
  Revenues
 Analysis of policy revenue
  2004
    
    2003
    
    2002(dollars in thousands)Direct premiums
    
    $
    79,035
    
    
    $
    72,947
    
    
    $
    63,426Ceded premiums
    
    
    22,487
    
    
    
    17,015
    
    
    
    12,297Net premiums
    
    $
    56,548
    
    
    $
    55,932
    
    
    $
    51,129
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Analysis of investment-related income
    Benefits and expenses
 Analysis of policy-related benefits and expenses
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Annuity
    
    Universal lifedeposits
    
    depositsJanuary 1, 2003February 24, 2003
    
    
    4.00%  4.80
    %
    
    
    5.25%  6.00
    %February 25, 2003March 10, 2003
    
    
    3.75  4.70
    
    
    
    5.25  6.00March 11, 2003May 14, 2003
    
    
    3.75  4.70
    
    
    
    5.00  5.75May 15, 2003June 1, 2003
    
    
    3.50  4.70
    
    
    
    5.00  5.75June 2, 2003July 9, 2003
    
    
    3.50  4.70
    
    
    
    4.75  5.50July 10, 2003July 31, 2004
    
    
    3.00  4.70
    
    
    
    4.25  5.00August 1, 2004December 31, 2004
    
    
    3.50  4.70
    
    
    
    4.25  5.00
   Analysis of other expenses
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Financial Condition
 Investments
    Two years endedDecember 31, 2004(Pre-tax annualized returns) (1)Erie Family Life Insurance Company indices:Fixed maturities
    
    
    7.22
    %Preferred stock
    
    
    10.92
    %Other indices:Lehman Brothers U.S. Aggregate
    
    
    4.22
    %
 
 (1)
    
    Includes investment income, realized and unrealized gains and losses. 18




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Fixed maturities
    Equity securities
  Reserve liabilities
  Liquidity and Capital Resources
 General considerations and analysis
  19




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2004
    
    2003Amount
    
    % of Total
    
    Amount
    
    % of Total(dollars in thousands)Not subject to discretionary
withdrawal provisions
    
    $
    280,243
    
    
    
    28.5
    %
    
    $
    269,156
    
    
    
    28.9
    %Subject to discretionary withdrawal,
with adjustment:With market value adjustment
    
    
    30,226
    
    
    
    3.1
    
    
    
    28,034
    
    
    
    3.0At contract value, less surrender
charge of 5% or more
    
    
    108,567
    
    
    
    11.0
    
    
    
    224,776
    
    
    
    24.1Subtotal
    
    
    419,036
    
    
    
    42.6
    
    
    
    521,966
    
    
    
    56.0Subject to discretionary withdrawal
at contract value with surrender
charges of less than 5%
    
    
    565,834
    
    
    
    57.4
    
    
    
    410,587
    
    
    
    44.0Total annuity reserves and
deposit liabilities
    
    $
    984,870
    
    
    
    100.0
    %
    
    $
    932,553
    
    
    
    100.0
    %
 20




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Contractual obligations
  Payments Due By Period(dollars in thousands)Less than
    
    1-3
    
    3-5Total
    
    1 year
    
    years
    
    years
    
    ThereafterFixed obligations:Limited partnership commitments
    
    $
    11,605
    
    
    $
    0
    
    
    $
    8,755
    
    
    $
    2,850
    
    
    $
    0Principal and interest on
surplus notes (1)
    
    
    64,419
    
    
    
    1,322
    
    
    
    18,834
    
    
    
    3,350
    
    
    
    40,913Fixed contractual obligations
    
    
    76,024
    
    
    
    1,322
    
    
    
    27,589
    
    
    
    6,200
    
    
    
    40,913Gross long-term liabilities (2)
    
    
    3,303,231
    
    
    
    167,626
    
    
    
    333,247
    
    
    
    318,250
    
    
    
    2,484,108Gross contractual obligations (3)
    
    $
    3,379,255
    
    
    $
    168,948
    
    
    $
    360,836
    
    
    $
    324,450
    
    
    $
    2,525,021
 
 (1)
    
    EIC has the option to demand payment on a $15 million surplus note on or after December 31,
2005. However, it is probable that EIC will allow the Company to renew this note with a later
maturity date.(2)
    
    Contractual obligations on gross long-term liabilities represent estimated benefit payments
from insurance policies and annuity contracts. Actual obligations in any single year will vary
based on actual mortality, morbidity, lapse, and withdrawal experience. The sum of these
obligations exceeds the liability on the balance sheet of $1,276,230 due to expected future
premiums and investment income that, along with invested assets backing the liabilities, will
be used to fund these obligations.(3)
    
    Gross contractual obligations net of estimated resinsurance recoverables are as follows: Less than
    
    1-3
    
    3-5(dollars in thousands)
    
    Total
    
    1 year
    
    years
    
    years
    
    ThereafterGross contractual obligations
    
    $
    3,379,255
    
    
    $
    168,948
    
    
    $
    360,836
    
    
    $
    324,450
    
    
    $
    2,525,021Estimated reinsurance recoverables (a)
    
    
    207,908
    
    
    
    7,153
    
    
    
    15,947
    
    
    
    17,723
    
    
    
    167,085Net contractual obligations
    
    $
    3,171,347
    
    
    $
    161,795
    
    
    $
    344,889
    
    
    $
    306,727
    
    
    $
    2,357,936
 
 (a)
    
    Includes estimated amounts recoverable from reinsurers on long-term liabilities
that are subject to the credit worthiness of the reinsurer. Regulatory considerations
  21




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Factors That May Affect Future Results
 Products with interest rate guarantees
     Initial
    
    CurrentPolicy
    
    Guaranteed
    
    Guaranteed
    
    DepositYears
    
    Interest Rate
    
    Interest Rate
    
    Liabilities(in thousands)1-5
    
    
    4.5
    %
    
    
    4.5
    %
    
    $
    254,7896-10
    
    
    4.5
    
    
    
    4.0
    
    
    
    114,289Over 10
    
    
    4.5
    
    
    
    3.5
    
    
    
    182,896All Years
    
    
    3.0
    
    
    
    3.0
    
    
    
    32,205All Years
    
    
    1.5
    
    
    
    1.5
    
    
    
    33,904
  
    
    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 December 31, 2004 have an
annualized planned premium of $30.5 million.
    
    Flexible premium deferred annuity (FPDA) 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 3.0% to
insure that overall product interest spreads are maintained. Currently, there are 24,016
FPDA
 22




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##### Table of Contents



contracts in force, of which 19,763 have guarantees in excess of 3.0%. No
additional payments are permitted on single premium deferred annuity contracts.
  Market conditions for competing products
  Reinsurance
  Financial ratings
    Implementation of new valuation system
  23




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##### Table of Contents



Introduction
of
ErieConnection ®
   Connection ® Connection ®
  Producer compensation practices
  North
Carolina
 24




---



##### Table of Contents



Pennsylvania
 Sarbanes-Oxley Act of 2002Section 404 Internal Control Reporting
  Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995:
 25




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest rate risk
   December 31, 2004(dollars in thousands)Principal
    
    Weighted-averagecash flows
    
    interest rateFixed maturities:2005
    
    $
    32,200
    
    
    
    5.8
    %2006
    
    
    32,917
    
    
    
    5.02007
    
    
    56,000
    
    
    
    5.22008
    
    
    46,081
    
    
    
    5.42009
    
    
    43,900
    
    
    
    5.8Thereafter
    
    
    1,090,527
    
    
    
    6.0Total
    
    $
    1,301,625Market value
    
    $
    1,366,898
 December 31, 2003(dollars in thousands)Principal
    
    Weighted-averagecash flows
    
    interest rateFixed maturities:2004
    
    $
    22,984
    
    
    
    5.2
    %2005
    
    
    30,200
    
    
    
    5.92006
    
    
    42,089
    
    
    
    5.22007
    
    
    57,000
    
    
    
    5.52008
    
    
    57,201
    
    
    
    5.3Thereafter
    
    
    1,001,955
    
    
    
    6.3Total
    
    $
    1,211,429Market value
    
    $
    1,280,327
   26




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##### Table of Contents



Fixed maturity interest rate sensitivity analysis
 As of December 31(dollars in thousands)2004
    
    2003Current market value
    
    $
    1,366,898
    
    
    $
    1,280,327Change in market value (1)
    
    
    (75,587
    )
    
    
    (75,266
    )Pro forma market value
    
    
    1,291,311
    
    
    
    1,205,061Modified duration (2)
    
    
    5.7
    
    
    
    6.0
 
 (1)
    
    The change in market value is calculated by taking the negative of the product obtained by
multiplying (i) modified duration by (ii) change in interest rates by (iii) market value of
the portfolio.(2)
    
    Modified duration is a measure of a portfolios sensitivity to changes in interest rates. It
is interpreted as the approximate percentage change in the market value of a portfolio for a
100 basis point change in interest rates.  Credit risk
   Equity price risk
  27




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 REPORT OF MANAGEMENT
    /s/
    
    Jeffrey A. LudrofJeffrey A. LudrofPresident and Chief Executive Officer/s/
    
    Philip A. GarciaPhilip A. GarciaExecutive Vice President and Chief Financial Officer/s/
    
    Timothy G. NeCastroTimothy G. NeCastroSenior Vice President and Controller
 28




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29




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30




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(dollars in thousands, except per share data)
 Years ended December 312004
    
    2003
    
    2002RevenuesNet policy revenue:Life premiums
    
    $
    53,184
    
    
    $
    52,045
    
    
    $
    48,070Group life and other premiums
    
    
    3,364
    
    
    
    3,887
    
    
    
    3,059Total net policy revenue
    
    
    56,548
    
    
    
    55,932
    
    
    
    51,129Net investment income
    
    
    80,624
    
    
    
    78,725
    
    
    
    67,461Net realized gains (losses) on investments
    
    
    9,404
    
    
    
    13,176
    
    
    
    (9,610
    )Equity in earnings of limited partnerships
    
    
    2,116
    
    
    
    1,296
    
    
    
    3,664Other income
    
    
    1,141
    
    
    
    844
    
    
    
    815Total revenues
    
    
    149,833
    
    
    
    149,973
    
    
    
    113,459Benefits and expensesDeath benefits
    
    
    17,558
    
    
    
    15,197
    
    
    
    15,547Interest on annuity deposits
    
    
    44,276
    
    
    
    42,178
    
    
    
    39,720Interest on universal life deposits
    
    
    7,355
    
    
    
    6,959
    
    
    
    7,249Interest on surplus notes and other affiliate interest
    
    
    2,855
    
    
    
    1,759
    
    
    
    1,175Surrender and other benefits
    
    
    3,267
    
    
    
    1,263
    
    
    
    1,785Increase in future life policy benefits
    
    
    7,265
    
    
    
    7,211
    
    
    
    6,563Amortization of deferred policy acquisition costs
    
    
    813
    
    
    
    7,477
    
    
    
    7,287Commissions
    
    
    1,221
    
    
    
    2,679
    
    
    
    3,806General expenses
    
    
    16,311
    
    
    
    14,881
    
    
    
    10,950Taxes, licenses and fees
    
    
    3,620
    
    
    
    3,064
    
    
    
    3,156Total benefits and expenses
    
    
    104,541
    
    
    
    102,668
    
    
    
    97,238Income before income taxes
    
    
    45,292
    
    
    
    47,305
    
    
    
    16,221Provision for federal income taxes
    
    
    15,660
    
    
    
    14,818
    
    
    
    5,636Net income
    
    $
    29,632
    
    
    $
    32,487
    
    
    $
    10,585Net income per share
    
    $
    3.14
    
    
    $
    3.44
    
    
    $
    1.12
 See accompanying notes to financial statements.
 31




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(dollars in thousands)
 As of December 312004
    
    2003AssetsInvestmentsFixed maturities at fair value (amortized cost of $1,297,913
and $1,203,607, respectively)
    
    $
    1,366,898
    
    
    $
    1,280,327Equity securities at fair value (cost of $59,426 and
$56,608, respectively)
    
    
    66,375
    
    
    
    62,948Limited partnerships (cost of $15,234 and
$12,203, respectively)
    
    
    15,467
    
    
    
    12,241Real estate mortgage loans
    
    
    6,124
    
    
    
    6,305Real estate
    
    
    1,044
    
    
    
    1,127Policy loans
    
    
    10,671
    
    
    
    9,951Total investments
    
    
    1,466,579
    
    
    
    1,372,899Cash and cash equivalents
    
    
    22,446
    
    
    
    26,172Premiums receivable from policyholders
    
    
    7,876
    
    
    
    7,344Reinsurance recoverable
    
    
    2,527
    
    
    
    2,960Other receivables
    
    
    319
    
    
    
    137Accrued investment income
    
    
    16,031
    
    
    
    15,088Deferred policy acquisition costs
    
    
    111,409
    
    
    
    98,207Reserve credit for reinsurance ceded
    
    
    29,420
    
    
    
    20,758Securities lending collateral
    
    
    0
    
    
    
    65,495Prepaid federal income taxes
    
    
    789
    
    
    
    1,983Other assets
    
    
    4,044
    
    
    
    18,520Total assets
    
    $
    1,661,440
    
    
    $
    1,629,563
 See accompanying notes to financial statements.
 32




---



##### Table of Contents



(dollars in thousands)
 As of December 312004
    
    2003Liabilities and shareholders equityLiabilitiesPolicy liabilities and accruals:Future life and accident and health policy benefits
    
    $
    124,016
    
    
    $
    108,089Policy and contract claims
    
    
    3,153
    
    
    
    3,653Annuity deposits
    
    
    984,870
    
    
    
    932,553Universal life deposits
    
    
    163,489
    
    
    
    150,421Supplementary contracts not including life contingencies
    
    
    702
    
    
    
    579Other policyholder funds
    
    
    6,048
    
    
    
    9,856Deferred income taxes
    
    
    48,066
    
    
    
    46,813Reinsurance premium due
    
    
    2,581
    
    
    
    1,875Securities lending collateral
    
    
    0
    
    
    
    65,495Accounts payable and accrued expenses
    
    
    10,581
    
    
    
    9,239Notes payable to Erie Indemnity Company
    
    
    40,000
    
    
    
    40,000Due to affiliates
    
    
    4,327
    
    
    
    3,442Dividends payable
    
    
    2,079
    
    
    
    1,985Total liabilities
    
    
    1,389,912
    
    
    
    1,374,000Shareholders equityCommon stock, $.40 par value per share; authorized 15,000,000 shares;
9,450,000 shares issued and outstanding
    
    
    3,780
    
    
    
    3,780Additional paid-in capital
    
    
    630
    
    
    
    630Accumulated other comprehensive income
    
    
    39,252
    
    
    
    44,603Retained earnings
    
    
    227,866
    
    
    
    206,550Total shareholders equity
    
    
    271,528
    
    
    
    255,563Total liabilities and shareholders equity
    
    $
    1,661,440
    
    
    $
    1,629,563
 See accompanying notes to financial statements.
 33




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##### Table of Contents



(dollars in thousands)
 Years ended December 312004
    
    2003
    
    2002Cash flows from operating activitiesPremiums collected
    
    $
    52,721
    
    
    $
    51,942
    
    
    $
    55,077Net investment income received
    
    
    83,792
    
    
    
    78,295
    
    
    
    68,096Miscellaneous income
    
    
    1,141
    
    
    
    844
    
    
    
    814Benefits to policyholders
    
    
    (72,991
    )
    
    
    (65,485
    )
    
    
    (63,548
    )Commissions paid to agents
    
    
    (6,013
    )
    
    
    (14,300
    )
    
    
    (12,398
    )Salaries and wages paid
    
    
    (12,663
    )
    
    
    (11,408
    )
    
    
    (11,485
    )General operating expenses paid
    
    
    (12,223
    )
    
    
    (11,358
    )
    
    
    (10,607
    )Taxes, licenses and fees paid
    
    
    (3,455
    )
    
    
    (2,934
    )
    
    
    (3,300
    )Interest paid
    
    
    (2,850
    )
    
    
    (1,757
    )
    
    
    (1,175
    )Income taxes (paid) recovered
    
    
    (10,332
    )
    
    
    (12,426
    )
    
    
    1,329Net cash provided by operating activities
    
    
    17,127
    
    
    
    11,413
    
    
    
    22,803Cash flows from investing activitiesPurchase of investments:Fixed maturities
    
    
    (297,259
    )
    
    
    (554,355
    )
    
    
    (551,582
    )Equity securities
    
    
    (9,444
    )
    
    
    (13,675
    )
    
    
    (31,246
    )Limited partnerships
    
    
    (5,913
    )
    
    
    (2,560
    )
    
    
    (6,199
    )Sales/maturities of investments:Sales of fixed maturities
    
    
    179,894
    
    
    
    228,277
    
    
    
    152,474Calls/maturities of fixed maturities
    
    
    43,624
    
    
    
    111,713
    
    
    
    115,099Equity securities
    
    
    6,650
    
    
    
    20,841
    
    
    
    59,963Limited partnerships
    
    
    5,036
    
    
    
    7,965
    
    
    
    10,952(Decrease) increase in collateral from securities lending
    
    
    (65,495
    )
    
    
    23,826
    
    
    
    (7,290
    )Purchase of computer software
    
    
    (188
    )
    
    
    0
    
    
    
    0Net mortgage loans
    
    
    181
    
    
    
    871
    
    
    
    182Net policy loans
    
    
    (720
    )
    
    
    (435
    )
    
    
    (637
    )Net cash used in investing activities
    
    
    (143,634
    )
    
    
    (177,532
    )
    
    
    (258,284
    )Cash flows from financing activitiesAnnuity and supplementary contract deposits and interest
    
    
    123,019
    
    
    
    186,379
    
    
    
    215,255Annuity and supplementary contract surrenders and
withdrawals
    
    
    (70,579
    )
    
    
    (57,547
    )
    
    
    (48,410
    )Universal life deposits and interest
    
    
    19,729
    
    
    
    20,285
    
    
    
    19,426Universal life surrenders
    
    
    (6,661
    )
    
    
    (5,415
    )
    
    
    (5,434
    )Proceeds from issuance of long-term debt
    
    
    0
    
    
    
    25,000
    
    
    
    0Dividends paid to shareholders
    
    
    (8,222
    )
    
    
    (7,938
    )
    
    
    (7,796
    )Net cash provided by financing activities
    
    
    57,286
    
    
    
    160,764
    
    
    
    173,041Net decrease in cash and cash equivalents
    
    
    (69,221
    )
    
    
    (5,355
    )
    
    
    (62,440
    )Cash and cash equivalents at beginning of year
    
    
    91,667
    
    
    
    97,022
    
    
    
    159,462Cash and cash equivalents at end of year
    
    $
    22,446
    
    
    $
    91,667
    
    
    $
    97,022
 See accompanying notes to financial statements.
 34




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(dollars in thousands, except per share data)
 AccumulatedTotal
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    AdditionalShareholders
    
    Comprehensive
    
    Retained
    
    Comprehensive
    
    Common
    
    Paid-inEquity
    
    Income
    
    Earnings
    
    Income
    
    Stock
    
    CapitalBalance, December 31, 2001
    
    $
    200,822
    
    
    
    
    
    
    $
    179,354
    
    
    $
    17,058
    
    
    $
    3,780
    
    
    $
    630Comprehensive income:Net income
    
    
    10,585
    
    
    $
    10,585
    
    
    
    10,585Unrealized appreciation
of investments, net of tax
and adjustments to
deferred acquisition costs
    
    
    13,719
    
    
    
    13,719
    
    
    
    
    
    
    
    13,719Comprehensive income
    
    
    
    
    
    $
    24,304Dividends declared, $0.84 per
share
    
    
    (7,938
    )
    
    
    
    
    
    
    (7,938
    )Balance, December 31, 2002
    
    
    217,188
    
    
    
    
    
    
    
    182,001
    
    
    
    30,777
    
    
    
    3,780
    
    
    
    630Comprehensive income:Net income
    
    
    32,487
    
    
    $
    32,487
    
    
    
    32,487Unrealized appreciation
of investments, net of tax and adjustments to
deferred acquisition costs
    
    
    13,826
    
    
    
    13,826
    
    
    
    
    
    
    
    13,826Comprehensive income
    
    
    
    
    
    $
    46,313Dividends declared, $0.84 per
share
    
    
    (7,938
    )
    
    
    
    
    
    
    (7,938
    )Balance, December 31, 2003
    
    
    255,563
    
    
    
    
    
    
    
    206,550
    
    
    
    44,603
    
    
    
    3,780
    
    
    
    630Comprehensive income:Net income
    
    
    29,632
    
    
    $
    29,632
    
    
    
    29,632Unrealized depreciation
of investments, net of tax
and adjustments to
deferred acquisition costs
    
    
    (5,351
    )
    
    
    (5,351
    )
    
    
    
    
    
    
    (5,351
    )Comprehensive income
    
    
    
    
    
    $
    24,281Dividends declared, $0.88 per
share
    
    
    (8,316
    )
    
    
    
    
    
    
    (8,316
    )Balance, December 31, 2004
    
    $
    271,528
    
    
    
    
    
    
    $
    227,866
    
    
    $
    39,252
    
    
    $
    3,780
    
    
    $
    630
 See accompanying notes to financial statements.
 35




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NOTE 1. NATURE OF BUSINESS
   NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
  2003
    
    2002(dollars in thousands, except per share data)As originally reported:Net income
    
    $
    34,346
    
    
    $
    8,840Net income per share
    
    $
    3.63
    
    
    $
    0.94As restated:Net income
    
    $
    32,487
    
    
    $
    10,585Net income per share
    
    $
    3.44
    
    
    $
    1.12
 36




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December 31,
    
    December 31,2003
    
    2002(dollars in thousands)As originally reported:Deferred policy acquisition costs
    
    $
    103,874
    
    
    $
    104,065Shareholders equity
    
    $
    259,247
    
    
    $
    224,447As restated:Deferred policy acquisition costs
    
    $
    98,207
    
    
    $
    92,897Shareholders equity
    
    $
    255,563
    
    
    $
    217,188
 NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentation
  Reclassifications
  Use of estimates
  Investments
  37




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Deferred policy acquisition costs (DAC) asset
  38




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Insurance liabilities
   39




---



##### Table of Contents



2004
    
    2003
    
    2002Annuity
    
    
    3.00%4.70
    %
    
    
    3.00%4.80
    %
    
    
    4.00%6.00
    %Universal Life
    
    
    4.25%5.00
    %
    
    
    4.25%6.00
    %
    
    
    5.25%6.75
    %
 Liability for guaranty fund assessments
    Recognition of premium revenues and losses
  Reinsurance
  40




---



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Income taxes
  Software development costs
  Earnings per share
  41




---



##### Table of Contents



NOTE 4. INVESTMENTS
  Gross
    
    Gross(in thousands)
    
    Amortized
    
    Unrealized
    
    Unrealized
    
    EstimatedDecember 31, 2004
    
    Cost
    
    Gains
    
    Losses
    
    Fair ValueFixed maturitiesBonds:U.S. treasuries and government agencies
    
    $
    60,126
    
    
    $
    1,048
    
    
    $
    98
    
    
    $
    61,076Public utilities
    
    
    160,516
    
    
    
    11,313
    
    
    
    219
    
    
    
    171,610U.S. banks, trusts and insurance companies
    
    
    193,461
    
    
    
    9,148
    
    
    
    709
    
    
    
    201,900U.S. industrial and miscellaneous
    
    
    566,633
    
    
    
    34,721
    
    
    
    976
    
    
    
    600,378Mortgage-backed securities
    
    
    157,289
    
    
    
    3,713
    
    
    
    609
    
    
    
    160,393Asset-backed securities
    
    
    10,946
    
    
    
    348
    
    
    
    77
    
    
    
    11,217Foreign
    
    
    141,926
    
    
    
    12,080
    
    
    
    686
    
    
    
    153,320Total bonds
    
    
    1,290,897
    
    
    
    72,371
    
    
    
    3,374
    
    
    
    1,359,894Redeemable preferred stock
    
    
    7,016
    
    
    
    94
    
    
    
    106
    
    
    
    7,004Total fixed maturities
    
    
    1,297,913
    
    
    
    72,465
    
    
    
    3,480
    
    
    
    1,366,898Equity securitiesNonredeemable preferred stock:U.S. banks, trusts and insurance companies
    
    
    19,909
    
    
    
    2,078
    
    
    
    2
    
    
    
    21,985U.S. industrial and miscellaneous
    
    
    18,801
    
    
    
    1,873
    
    
    
    0
    
    
    
    20,674Foreign
    
    
    20,716
    
    
    
    3,000
    
    
    
    0
    
    
    
    23,716Total equity securities
    
    
    59,426
    
    
    
    6,951
    
    
    
    2
    
    
    
    66,375Total fixed maturities and equity securities
    
    $
    1,357,339
    
    
    $
    79,416
    
    
    $
    3,482
    
    
    $
    1,433,273
 42




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Gross
    
    Gross(in thousands)
    
    Amortized
    
    Unrealized
    
    Unrealized
    
    EstimatedDecember 31, 2003
    
    Cost
    
    Gains
    
    Losses
    
    Fair ValueFixed maturitiesBonds:U.S. treasuries and government agencies
    
    $
    61,176
    
    
    $
    1,543
    
    
    $
    37
    
    
    $
    62,682Public utilities
    
    
    141,154
    
    
    
    10,377
    
    
    
    528
    
    
    
    151,003U.S. banks, trusts and insurance companies
    
    
    158,731
    
    
    
    9,358
    
    
    
    836
    
    
    
    167,253U.S. industrial and miscellaneous
    
    
    547,363
    
    
    
    41,077
    
    
    
    776
    
    
    
    587,664Mortgage-backed securities
    
    
    145,394
    
    
    
    3,622
    
    
    
    182
    
    
    
    148,834Asset-backed securities
    
    
    5,032
    
    
    
    330
    
    
    
    0
    
    
    
    5,362Foreign
    
    
    137,741
    
    
    
    13,314
    
    
    
    933
    
    
    
    150,122Total bonds
    
    
    1,196,591
    
    
    
    79,621
    
    
    
    3,292
    
    
    
    1,272,920Redeemable preferred stock
    
    
    7,016
    
    
    
    391
    
    
    
    0
    
    
    
    7,407Total fixed maturities
    
    
    1,203,607
    
    
    
    80,012
    
    
    
    3,292
    
    
    
    1,280,327Equity securitiesNonredeemable preferred stock:Public utilities
    
    
    1,864
    
    
    
    136
    
    
    
    0
    
    
    
    2,000U.S. banks, trusts and insurance companies
    
    
    13,909
    
    
    
    1,921
    
    
    
    0
    
    
    
    15,830U.S. industrial and miscellaneous
    
    
    17,119
    
    
    
    1,775
    
    
    
    20
    
    
    
    18,874Foreign
    
    
    23,716
    
    
    
    2,528
    
    
    
    0
    
    
    
    26,244Total equity securities
    
    
    56,608
    
    
    
    6,360
    
    
    
    20
    
    
    
    62,948Total fixed maturities and equity securities
    
    $
    1,260,215
    
    
    $
    86,372
    
    
    $
    3,312
    
    
    $
    1,343,275
  (in thousands)
    
    2004
    
    2003
    
    2002Fixed maturities
    
    $
    75,078
    
    
    $
    72,139
    
    
    $
    58,933Equity securities
    
    
    4,539
    
    
    
    5,323
    
    
    
    5,999Cash equivalents and other
    
    
    1,847
    
    
    
    2,051
    
    
    
    3,296Total investment income
    
    
    81,464
    
    
    
    79,513
    
    
    
    68,228Less: Investment expense
    
    
    840
    
    
    
    788
    
    
    
    767Net investment income
    
    $
    80,624
    
    
    $
    78,725
    
    
    $
    67,461
  43




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(in thousands)
    
    2004
    
    2003
    
    2002Fixed maturities:Gross realized gains
    
    $
    10,200
    
    
    $
    19,411
    
    
    $
    10,008Gross realized losses
    
    
    (855
    )
    
    
    (6,081
    )
    
    
    (26,400
    )Net realized gains (losses)
    
    
    9,345
    
    
    
    13,330
    
    
    
    (16,392
    )Equity securities:Gross realized gains
    
    
    176
    
    
    
    379
    
    
    
    13,308Gross realized losses
    
    
    (117
    )
    
    
    (533
    )
    
    
    (5,276
    )Net realized gains (losses)
    
    
    59
    
    
    
    (154
    )
    
    
    8,032Limited partnerships:Gross realized gains
    
    
    0
    
    
    
    0
    
    
    
    452Gross realized losses
    
    
    0
    
    
    
    0
    
    
    
    (1,702
    )Net realized losses
    
    
    0
    
    
    
    0
    
    
    
    (1,250
    )Net realized gains (losses) on investments
    
    $
    9,404
    
    
    $
    13,176
    
    
    ($
    9,610
    )
  (in thousands)
    
    2004
    
    2003Real estate
    
    $
    14,346
    
    
    $
    11,250Mezzanine debt
    
    
    1,121
    
    
    
    991Total limited partnerships
    
    $
    15,467
    
    
    $
    12,241
  (in thousands)
    
    2004
    
    2003
    
    2002Real estate
    
    $
    2,012
    
    
    $
    2,790
    
    
    $
    4,136Mezzanine debt
    
    
    104
    
    
    
    (1,494
    )
    
    
    (472
    )Equity in earnings of limited partnerships
    
    $
    2,116
    
    
    $
    1,296
    
    
    $
    3,664
 44




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Amortized
    
    Estimated(in thousands)
    
    Cost
    
    Fair ValueDue in one year or less
    
    $
    30,259
    
    
    $
    30,452Due after one year through five years
    
    
    180,380
    
    
    
    187,126Due after five years through 10 years
    
    
    631,685
    
    
    
    667,218Due after 10 years through 20 years
    
    
    242,995
    
    
    
    254,047Due after 20 years
    
    
    212,594
    
    
    
    228,055Total fixed maturities
    
    $
    1,297,913
    
    
    $
    1,366,898
  Unrealized
    
    Amortized
    
    Estimated
    
    Number of(dollars in thousands)
    
    Loss
    
    Cost
    
    Fair Value
    
    HoldingsSix months or less
    
    ($
    962
    )
    
    $
    133,012
    
    
    $
    132,050
    
    
    
    47Six to 12 months
    
    
    (1,515
    )
    
    
    86,470
    
    
    
    84,955
    
    
    
    3012 to 18 months
    
    
    (997
    )
    
    
    29,638
    
    
    
    28,641
    
    
    
    13Greater than 18 months
    
    
    (8
    )
    
    
    1,820
    
    
    
    1,812
    
    
    
    1($
    3,482
    )
    
    $
    250,940
    
    
    $
    247,458
    
    
    
    91
   45




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(in thousands)
    
    2004
    
    2003
    
    2002Fixed maturities
    
    ($
    7,735
    )
    
    $
    3,663
    
    
    ($
    14,240
    )Equity securities
    
    
    609
    
    
    
    23,490
    
    
    
    41,460Limited partnerships
    
    
    194
    
    
    
    338
    
    
    
    143Deferred policy acquisition costs
    
    
    (1,300
    )
    
    
    (6,219
    )
    
    
    (6,256
    )Deferred federal income tax
    
    
    2,881
    
    
    
    (7,446
    )
    
    
    (7,388
    )(Decrease) increase in net unrealized gains
    
    ($
    5,351
    )
    
    $
    13,826
    
    
    $
    13,719
    46




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NOTE 5. DEFERRED POLICY ACQUISITION COSTS
  (in thousands)
    
    2004
    
    2003
    
    2002Balance at beginning of year
    
    $
    98,207
    
    
    $
    92,897
    
    
    $
    84,419Additions:Commissions
    
    
    5,935
    
    
    
    9,448
    
    
    
    10,894General expenses
    
    
    9,308
    
    
    
    9,503
    
    
    
    10,909Taxes, licenses and fees
    
    
    72
    
    
    
    55
    
    
    
    21815,315
    
    
    
    19,006
    
    
    
    22,021Amortization
    
    
    (813
    )
    
    
    (7,477
    )
    
    
    (7,287
    )Effect of unrealized investment
gains
    
    
    (1,300
    )
    
    
    (6,219
    )
    
    
    (6,256
    )Balance at end of year
    
    $
    111,409
    
    
    $
    98,207
    
    
    $
    92,897
   NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS
  Cash and cash equivalents:
 Fixed maturities and equity securities:
 47




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Limited partnerships:
 Policy loans and real estate mortgage loans:
 Trading assets and trading liabilities:
 Annuity deposits:
 Annuity payouts:
 Universal life deposits:
 NOTE 7. COMPREHENSIVE INCOME
   (in thousands)
    
    2004
    
    2003
    
    2002Unrealized holding gains arising
during period, net of offsets to
shadow deferred acquisition costs
    
    $
    1,172
    
    
    $
    34,448
    
    
    $
    11,497Less: (gains) losses included in net income
    
    
    (9,404
    )
    
    
    (13,176
    )
    
    
    9,610Net unrealized holding (losses) gains
arising during period, net of offsets to
shadow deferred acquisition costs
    
    
    (8,232
    )
    
    
    21,272
    
    
    
    21,107Income tax benefit (expense) related to
unrealized (losses) gains
    
    
    2,881
    
    
    
    (7,446
    )
    
    
    (7,388
    )Changes in other comprehensive income, net of tax
    
    ($
    5,351
    )
    
    $
    13,826
    
    
    $
    13,719
  48




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NOTE 8. LIABILITY FOR UNPAID POLICY AND CONTRACT CLAIMS
  (in thousands)
    
    2004
    
    2003
    
    2002Balance at January 1
    
    $
    3,653
    
    
    $
    2,362
    
    
    $
    1,950Less reinsurance recoverables
    
    
    (2,106
    )
    
    
    (915
    )
    
    
    (1,022
    )Net balance at January 1
    
    
    1,547
    
    
    
    1,447
    
    
    
    928Total death claims incurred
    
    
    17,558
    
    
    
    15,197
    
    
    
    15,547Total death claims paid, net of reinsurance recoveries
    
    
    17,449
    
    
    
    15,097
    
    
    
    15,027Net balance at December 31
    
    
    1,656
    
    
    
    1,547
    
    
    
    1,448Plus reinsurance recoverables
    
    
    1,497
    
    
    
    2,106
    
    
    
    914Balance at December 31
    
    $
    3,153
    
    
    $
    3,653
    
    
    $
    2,362
 NOTE 9. ANNUITY AND UNIVERSAL LIFE DEPOSITS
  (in thousands)
    
    2004
    
    2003
    
    2002Universal life
    
    $
    12,374
    
    
    $
    13,326
    
    
    $
    12,176Annuity
    
    
    78,572
    
    
    
    144,202
    
    
    
    175,509Total
    
    $
    90,946
    
    
    $
    157,528
    
    
    $
    187,685
  NOTE 10. FEDERAL INCOME TAXES
  (in thousands)
    
    2004
    
    2003
    
    2002Currently due
    
    $
    11,526
    
    
    $
    13,118
    
    
    $
    4,504Deferred
    
    
    4,134
    
    
    
    1,700
    
    
    
    1,132Total
    
    $
    15,660
    
    
    $
    14,818
    
    
    $
    5,636
 49




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(in thousands)
    
    2004
    
    2003
    
    2002Federal income taxes at statutory rates
    
    $
    15,852
    
    
    $
    16,557
    
    
    $
    5,677Dividends received deduction and tax-exempt interest
    
    
    (1
    )
    
    
    (3
    )
    
    
    (18
    )Other
    
    
    (191
    )
    
    
    (1,736
    )
    
    
    (23
    )Provision for federal income taxes
    
    $
    15,660
    
    
    $
    14,818
    
    
    $
    5,636
   (in thousands)
    
    2004
    
    2003Deferred tax assets:Liabillity for future life and annuity policy benefits
    
    ($
    9,464
    )
    
    ($
    9,656
    )Write-down of investments
    
    
    (509
    )
    
    
    (2,242
    )Deferred compensation
    
    
    (1,462
    )
    
    
    (1,245
    )IRS audit adjustments of prior years
    
    
    (1,252
    )
    
    
    (0
    )Total deferred tax assets
    
    
    (12,687
    )
    
    
    (13,143
    )Deferred tax liabilities:Deferred policy acquisition costs
    
    
    38,284
    
    
    
    33,717Unrealized gains on investments
    
    
    21,136
    
    
    
    23,982Other
    
    
    1,333
    
    
    
    2,257Total deferred tax liabilities
    
    
    60,753
    
    
    
    59,956Net deferred income tax liability
    
    $
    48,066
    
    
    $
    46,813
 NOTE 11. RELATED PARTY TRANSACTIONS
 Expense allocations
   50




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Notes payable to EIC
   Real estate
   Year ending December 31
    
    (in thousands)2005
    
    $
    3312006
    
    
    3372007
    
    
    3412008
    
    
    114Total
    
    $
    1,123
 Software and equipment
  51




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Annuities sold to affiliates
    NOTE 12. REINSURANCE
    52




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##### Table of Contents



(in thousands)
    
    2004
    
    2003
    
    2002Direct life insurance in force
    
    $
    30,086,967
    
    
    $
    27,077,945
    
    
    $
    23,198,178Amounts ceded to other companies
    
    
    (12,478,433
    )
    
    
    (9,788,882
    )
    
    
    (7,043,035
    )Net in force
    
    $
    17,608,534
    
    
    $
    17,289,063
    
    
    $
    16,155,143
   53




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(in thousands)
    
    2004
    
    2003
    
    2002RevenuesDirect policy revenue
    
    $
    79,035
    
    
    $
    72,947
    
    
    $
    63,426Policy revenue ceded
    
    
    (22,487
    )
    
    
    (17,015
    )
    
    
    (12,297
    )Net policy revenue
    
    
    56,548
    
    
    
    55,932
    
    
    
    51,129Net investment income
    
    
    80,624
    
    
    
    78,725
    
    
    
    67,461Net realized gains (losses) on investments
    
    
    9,404
    
    
    
    13,176
    
    
    
    (9,610
    )Equity in earnings of limited partnerships
    
    
    2,116
    
    
    
    1,296
    
    
    
    3,664Other income
    
    
    1,141
    
    
    
    844
    
    
    
    815Total revenues
    
    
    149,833
    
    
    
    149,973
    
    
    
    113,459Benefits and ExpensesDeath benefits
    
    
    23,731
    
    
    
    19,933
    
    
    
    18,462Reinsurance recoveries
    
    
    (6,173
    )
    
    
    (4,736
    )
    
    
    (2,915
    )Net death benefits
    
    
    17,558
    
    
    
    15,197
    
    
    
    15,547Interest on deposits and other policyholder benefits
    
    
    54,898
    
    
    
    50,400
    
    
    
    48,754Other interest
    
    
    2,855
    
    
    
    1,759
    
    
    
    1,175Increase in future life policy benefits
    
    
    15,927
    
    
    
    13,846
    
    
    
    8,566Reinsurance reserve credits
    
    
    (8,662
    )
    
    
    (6,635
    )
    
    
    (2,003
    )Net increase in future life policy benefits
    
    
    7,265
    
    
    
    7,211
    
    
    
    6,563Amortization of deferred policy acquistion costs
    
    
    813
    
    
    
    7,477
    
    
    
    7,287Commissions
    
    
    10,035
    
    
    
    10,316
    
    
    
    10,839Reinsurance commission allowance
    
    
    (8,814
    )
    
    
    (7,637
    )
    
    
    (7,033
    )Net commissions
    
    
    1,221
    
    
    
    2,679
    
    
    
    3,806General expenses, taxes, licenses, and fees
    
    
    19,931
    
    
    
    17,945
    
    
    
    14,106Total benefits and expenses
    
    
    104,541
    
    
    
    102,668
    
    
    
    97,238Income before income tax
    
    $
    45,292
    
    
    $
    47,305
    
    
    $
    16,221
 54




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NOTE 13. SUPPLEMENTARY DATA ON CASH FLOWS
  (in thousands)
    
    2004
    
    2003
    
    2002Cash flows from operating activitiesNet income
    
    $
    29,632
    
    
    $
    32,487
    
    
    $
    10,585Adjustments to reconcile net income to net cash
provided by operating activities:Amortization of deferred policy acquisition costs
    
    
    813
    
    
    
    7,477
    
    
    
    7,287Other amortization
    
    
    984
    
    
    
    790
    
    
    
    311Deferred federal income tax expense
    
    
    4,134
    
    
    
    1,700
    
    
    
    1,132Realized (gains) losses on investments
    
    
    (9,404
    )
    
    
    (13,176
    )
    
    
    9,610Equity in earnings of limited partnerships
    
    
    (2,116
    )
    
    
    (1,296
    )
    
    
    (3,664
    )Increase in premiums receivable
    
    
    (532
    )
    
    
    (1,120
    )
    
    
    (1,135
    )(Increase) decrease in other receivables
    
    
    (182
    )
    
    
    1,351
    
    
    
    (1,114
    )Increase in accrued investment income
    
    
    (943
    )
    
    
    (1,735
    )
    
    
    (1,833
    )Policy acquisition costs deferred
    
    
    (15,315
    )
    
    
    (19,006
    )
    
    
    (22,021
    )Decrease in other assets
    
    
    2,538
    
    
    
    69
    
    
    
    1,719Decrease in prepaid federal income taxes
    
    
    1,194
    
    
    
    692
    
    
    
    5,834Increase in reinsurance recoverables and reserve
credits
    
    
    (8,229
    )
    
    
    (8,041
    )
    
    
    (1,941
    )Increase in future policy benefits and claims
    
    
    15,427
    
    
    
    15,296
    
    
    
    8,983(Decrease) increase in other policyholder funds
    
    
    (3,807
    )
    
    
    (4,479
    )
    
    
    6,361Increase (decrease) in reinsurance premium due
    
    
    706
    
    
    
    283
    
    
    
    (150
    )Increase in accounts payable and due to affiliates
    
    
    2,227
    
    
    
    121
    
    
    
    2,839Net cash provided by operating activities
    
    $
    17,127
    
    
    $
    11,413
    
    
    $
    22,803
 NOTE 14. COMMITMENTS AND CONTINGENCIES
 Commitments
  Contingencies
  55




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NOTE 15. SEGMENT INFORMATION
     Traditional
    
    Universal
    
    Fixed
    
    Group Life
    
    Corporate(in thousands)
    
    Life
    
    Life
    
    Annuities
    
    & Other
    
    Account
    
    Total2004Total policy revenue, net of
reinsurance
    
    $
    39,003
    
    
    $
    14,181
    
    
    $
    2
    
    
    $
    3,362
    
    
    $
    0
    
    
    $
    56,548Total net investment income
and other income
    
    
    6,922
    
    
    
    9,432
    
    
    
    56,460
    
    
    
    205
    
    
    
    10,862
    
    
    
    83,881Net realized capital gains
    
    
    810
    
    
    
    995
    
    
    
    6,583
    
    
    
    25
    
    
    
    991
    
    
    
    9,404Total revenues
    
    
    46,735
    
    
    
    24,608
    
    
    
    63,045
    
    
    
    3,592
    
    
    
    11,853
    
    
    
    149,833Less: Total benefits and
expenses
    
    
    37,767
    
    
    
    8,630
    
    
    
    52,595
    
    
    
    5,239
    
    
    
    310
    
    
    
    104,541Income (loss) before income
taxes
    
    $
    8,968
    
    
    $
    15,978
    
    
    $
    10,450
    
    
    ($
    1,647
    )
    
    $
    11,543
    
    
    $
    45,292
 56




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Traditional
    
    Universal
    
    Fixed
    
    Group Life
    
    Corporate(in thousands)
    
    Life
    
    Life
    
    Annuities
    
    & Other
    
    Account
    
    Total2003Total policy revenue, net of
reinsurance
    
    $
    38,695
    
    
    $
    13,350
    
    
    $
    5
    
    
    $
    3,882
    
    
    $
    0
    
    
    $
    55,932Total net investment income
and other income
    
    
    7,014
    
    
    
    9,084
    
    
    
    55,568
    
    
    
    171
    
    
    
    9,028
    
    
    
    80,865Net realized capital gains
    
    
    1,191
    
    
    
    1,421
    
    
    
    9,417
    
    
    
    29
    
    
    
    1,118
    
    
    
    13,176Total revenues
    
    
    46,900
    
    
    
    23,855
    
    
    
    64,990
    
    
    
    4,082
    
    
    
    10,146
    
    
    
    149,973Less: Total benefits and
expenses
    
    
    34,488
    
    
    
    16,090
    
    
    
    48,670
    
    
    
    3,247
    
    
    
    173
    
    
    
    102,668Income before income taxes
    
    $
    12,412
    
    
    $
    7,765
    
    
    $
    16,320
    
    
    $
    835
    
    
    $
    9,973
    
    
    $
    47,3052002Total policy revenue, net of
reinsurance
    
    $
    35,860
    
    
    $
    12,209
    
    
    $
    3
    
    
    $
    3,057
    
    
    $
    0
    
    
    $
    51,129Total net investment income
and other income
    
    
    6,495
    
    
    
    8,361
    
    
    
    47,120
    
    
    
    159
    
    
    
    9,805
    
    
    
    71,940Net realized capital (losses)
gains
    
    
    (1,547
    )
    
    
    (1,819
    )
    
    
    (11,198
    )
    
    
    (38
    )
    
    
    4,992
    
    
    
    (9,610
    )Total revenues
    
    
    40,808
    
    
    
    18,751
    
    
    
    35,925
    
    
    
    3,178
    
    
    
    14,797
    
    
    
    113,459Less: Total benefits and
expenses
    
    
    33,574
    
    
    
    16,998
    
    
    
    44,285
    
    
    
    2,282
    
    
    
    99
    
    
    
    97,238Income (loss) before income
taxes
    
    $
    7,234
    
    
    $
    1,753
    
    
    ($
    8,360
    )
    
    $
    896
    
    
    $
    14,698
    
    
    $
    16,221
 NOTE 16. STATUTORY INFORMATION
  57




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(in thousands)
    
    2004
    
    2003
    
    2002Statutory net income (loss)
    
    $
    20,524
    
    
    $
    15,404
    
    
    
    ($8,625
    )Reconciling items:Policy liabilities and accruals
    
    
    1,435
    
    
    
    1,224
    
    
    
    3,568Deferred policy acquisition costs,
net of amortization
    
    
    14,502
    
    
    
    11,529
    
    
    
    14,734Investment valuation differences
    
    
    1,494
    
    
    
    6,747
    
    
    
    3,372GAAP deferred taxes
    
    
    (4,134
    )
    
    
    (1,700
    )
    
    
    (1,132
    )Deferred and uncollected premiums
    
    
    (4,793
    )
    
    
    (1,764
    )
    
    
    (2,034
    )Limited partnership income
    
    
    856
    
    
    
    1,295
    
    
    
    950Other
    
    
    (252
    )
    
    
    (248
    )
    
    
    (248
    )GAAP net income
    
    $
    29,632
    
    
    $
    32,487
    
    
    $
    10,585
  (in thousands)
    
    2004
    
    2003Statutory shareholders equity
    
    $
    136,021
    
    
    $
    124,633Reconciling items:Asset valuation and interest maintenance reserves
    
    
    34,277
    
    
    
    30,836Investment valuation differences
    
    
    75,932
    
    
    
    83,060Deferred policy acquisition costs
    
    
    111,409
    
    
    
    98,207Surplus notes
    
    
    (40,000
    )
    
    
    (40,000
    )Policy liabilities and accruals
    
    
    20,283
    
    
    
    18,848Difference between statutory and GAAP deferred taxes
    
    
    (50,276
    )
    
    
    (48,759
    )Deferred and uncollected premiums
    
    
    (17,490
    )
    
    
    (12,697
    )Capitalized computer software, net of amortization
    
    
    1,372
    
    
    
    1,435GAAP shareholders equity
    
    $
    271,528
    
    
    $
    255,563
  58




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##### Table of Contents



NOTE 17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
  First
    
    Second
    
    Third
    
    Fourth(in thousands, except per share data)
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter2004Total net policy revenue
    
    $
    13,979
    
    
    $
    14,625
    
    
    $
    14,277
    
    
    $
    13,667Net investment income
    
    
    19,472
    
    
    
    20,464
    
    
    
    19,705
    
    
    
    20,983Net realized gains (losses) on investments
    
    
    2,848
    
    
    
    5,556
    
    
    
    1,103
    
    
    
    (104
    )Equity in earnings of limited partnerships
    
    
    155
    
    
    
    712
    
    
    
    203
    
    
    
    1,047Other income
    
    
    318
    
    
    
    238
    
    
    
    203
    
    
    
    382Total revenues
    
    
    36,772
    
    
    
    41,595
    
    
    
    35,491
    
    
    
    35,975Total benefits and expenses
    
    
    26,316
    
    
    
    21,728
    
    
    
    27,874
    
    
    
    28,624Income before income taxes
    
    
    10,456
    
    
    
    19,867
    
    
    
    7,617
    
    
    
    7,351Provision for federal income taxes
    
    
    3,940
    
    
    
    6,620
    
    
    
    2,618
    
    
    
    2,481Net income
    
    $
    6,516
    
    
    $
    13,247
    
    
    $
    4,999
    
    
    $
    4,870Net income per share
    
    $
    0.69
    
    
    $
    1.40
    
    
    $
    0.53
    
    
    $
    0.52Comprehensive income (loss)
    
    $
    21,482
    
    
    ($
    27,619
    )
    
    $
    25,454
    
    
    $
    4,964
 59




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##### Table of Contents



First
    
    Second
    
    Third
    
    Fourth(in thousands, except per share data)
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter2003Total net policy revenue
    
    $
    13,089
    
    
    $
    14,334
    
    
    $
    13,598
    
    
    $
    14,911Net investment income
    
    
    18,878
    
    
    
    20,136
    
    
    
    19,391
    
    
    
    20,320Net realized gains on investments
    
    
    2,162
    
    
    
    2,099
    
    
    
    4,908
    
    
    
    4,007Equity in earnings (losses) of limited partnerships
    
    
    280
    
    
    
    120
    
    
    
    1,394
    
    
    
    (498
    )Other income
    
    
    177
    
    
    
    217
    
    
    
    264
    
    
    
    186Total revenues
    
    
    34,586
    
    
    
    36,906
    
    

    
    39,555
    
    
    
    38,926Total benefits and expenses
    
    
    26,534
    
    
    
    24,933
    
    
    
    24,738
    
    
    
    26,463Income before income taxes
    
    
    8,052
    
    
    
    11,973
    
    
    
    14,817
    
    
    
    12,463Provision for federal income taxes
    
    
    2,793
    
    
    
    4,155
    
    
    
    5,140
    
    
    
    2,730Net income
    
    $
    5,259
    
    
    $
    7,818
    
    
    $
    9,677
    
    
    $
    9,733Net income per share
    
    $
    0.56
    
    
    $
    0.83
    
    
    $
    1.02
    
    
    $
    1.03Comprehensive income (loss)
    
    $
    12,533
    
    
    $
    33,296
    
    
    ($
    4,379
    )
    
    $
    4,8622002Total net policy revenue
    
    $
    12,329
    
    
    $
    13,518
    
    
    $
    12,311
    
    
    $
    12,971Net investment income
    
    
    14,804
    
    
    
    17,292
    
    
    
    16,811
    
    
    
    18,555Net realized gains (losses) on investments
    
    
    2,054
    
    
    
    (7,698
    )
    
    
    (5,235
    )
    
    
    1,269Equity in earnings (losses) of limited partnerships
    
    
    1,069
    
    
    
    2,513
    
    
    
    151
    
    
    
    (69
    )Other income
    
    
    244
    
    
    
    177
    
    
    
    139
    
    
    
    255Total revenues
    
    
    30,500
    
    
    
    25,802
    
    
    
    24,177
    
    
    
    32,981Total benefits and expenses
    
    
    24,007
    
    
    
    23,181
    
    
    
    22,573
    
    
    
    27,478Income before income taxes
    
    
    6,493
    
    
    
    2,621
    
    
    
    1,604
    
    
    
    5,503Provision for federal income taxes
    
    
    2,245
    
    
    
    912
    
    
    
    558
    
    
    
    1,921Net income
    
    $
    4,248
    
    
    $
    1,709
    
    
    $
    1,046
    
    
    $
    3,582Net income per share
    
    $
    0.45
    
    
    $
    0.18
    
    
    $
    0.11
    
    
    $
    0.38Comprehensive income (loss)
    
    ($
    4,637
    )
    
    $
    7,037
    
    
    ($
    14,319
    )
    
    $
    7,585
 2004:
    During the second quarter, the Company unlocked certain assumptions related to
determination of DAC for its universal life and fixed annuities. As a result of unlocking
these assumptions, amortization of DAC was decreased by $6.5 million in the second quarter.
See Note 12 for a discussion on the charge against income during the fourth quarter of 2004
relating to the PEGLI pool.2003:
    The Company recorded an adjustment to deferred income taxes during the fourth quarter of
2003. Deferred tax liabilities established in previous years to reflect potential income tax
exposures were determined to be unnecessary and the amounts provided were reversed during the
fourth quarter. The one-time non-cash reduction in deferred taxes increased fourth quarter earnings
by $0.14 per share.
 60




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
     61




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
  62




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  http://www.erieinsurance.com
 Ageas of
    
    Principal Occupation for Past Five Years andName
    
    12/31/04
    
    Positions with Erie Insurance GroupPresident and ChiefExecutive OfficerJeffrey A. Ludrof
    
    
    45
    
    
    President and Chief Executive Officer of the Company, Erie Insurance Company, Erie
Indemnity Company, Flagship City Insurance Company, Erie Insurance Property & Casualty
Company, and Erie Insurance Company of New York since May 8, 2002; Executive Vice
PresidentInsurance Operations of the Company 1999May 8, 2002; Senior Vice President
of the Company 19941999.Executive Vice
PresidentsJan R. Van Gorder, Esq.
    
    
    57
    
    
    Senior Executive Vice President, Secretary and General Counsel of the Company, Erie
Indemnity Company, and Erie Insurance Company since 1990 and of Flagship City Insurance
Company and Erie Insurance Property & Casualty Company since 1992 and 1993,
respectively, and of Erie Insurance Company of New York since 1994. Senior Vice
President, Secretary and General Counsel of the Company, Erie Indemnity Company and
Erie Insurance Company for more than five years prior thereto; Directorthe Company,
Erie Insurance Company, Flagship City Insurance Company, Erie Insurance Property &
Casualty Company, Erie Insurance Company of New York and Erie Indemnity Company.
 63




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##### Table of Contents



Ageas of
    
    Principal Occupation for Past Five Years andName
    
    12/31/04
    
    Positions with Erie Insurance GroupJohn J. Brinling, Jr.
    
    
    57
    
    
    Executive Vice President of the Company since December 1990. Division Officer
1984present. Director-Erie Insurance Company of New York.Philip A. Garcia
    
    
    48
    
    
    Executive Vice President and Chief Financial Officer since 1997; Senior Vice President and
Controller 19931997. Director-Flagship City Insurance Company, Erie Insurance Property &
Casualty Company and Erie Insurance Company of New York.Michael J. Krahe
    
    
    51
    
    
    Executive Vice PresidentHuman Development and Leadership since January 2003; Senior Vice
President 1999December 2002; Vice President 19941999.Senior Vice
PresidentsDouglas F. Ziegler
    
    
    54
    
    
    Senior Vice President, Treasurer and Chief Investment Officer of the Company since 1993.Timothy G. NeCastro
    
    
    44
    
    
    Senior Vice President and Controller of the Company, Erie Insurance Company, Erie
Indemnity Company, Flagship City Insurance Company, Erie Insurance Property & Casualty
Company and Erie Insurance Company of New York since 1997. Department Manager  Internal
Audit 1996  1997.
 64




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##### Table of Contents



ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  65




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##### Table of Contents



Part IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (1)
    
    The following financial statements of the Company and the reports of independent
certified public accountants are incorporated herein by reference to Item 8 of this Form
10-K/A.
 
 (2)
    
    The following financial statement schedules are included herein:
 PageSchedule I  Summary of Investments Other Than
Investments in Related Parties
    
    
    68Schedule III  Supplementary Insurance Information
    
    
    69Schedule IV  Reinsurance
    
    
    71
 All other schedules 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.(3)
    
    ExhibitsSee Exhibit Index on Page 72 hereof.All exhibits for which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission are not required under the related instructions or are
inapplicable, and therefore, have been omitted.
 66




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##### Table of Contents



SIGNATURES
  
 /s/ Jeffrey A. LudrofJeffrey A. Ludrof, President & CEO(principal executive officer)/s/ Jan R. Van GorderJan R. Van Gorder, Executive Vice President, Secretary & General Counsel/s/ Philip A. GarciaPhilip A. Garcia, Executive Vice President & CFO(principal financial officer)/s/ Timothy G. NeCastroTimothy G. NeCastro, Senior Vice President & Controller(principal accounting officer)
 67




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##### Table of Contents



SCHEDULE I  SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
 December 31, 2004Cost or
    
    
    
    
    
    Amount at whichAmortized
    
    Market
    
    Shown in theType of Investment
    
    Cost
    
    Value
    
    Balance Sheet(in thousands)Fixed Maturities Available-for-SaleU.S. Treasuries and Government Agencies
    
    $
    60,126
    
    
    $
    61,076
    
    
    $
    61,076Public Utilities
    
    
    160,516
    
    
    
    171,610
    
    
    
    171,610U.S. Banks, Trusts, and Insurance Companies
    
    
    193,461
    
    
    
    201,900
    
    
    
    201,900U.S. Industrial and Miscellaneous
    
    
    573,649
    
    
    
    607,382
    
    
    
    607,382Mortgage-Backed Securities
    
    
    157,289
    
    
    
    160,393
    
    
    
    160,393Asset-Backed Securities
    
    
    10,946
    
    
    
    11,217
    
    
    
    11,217Foreign Governments
    
    
    7,966
    
    
    
    8,131
    
    
    
    8,131Foreign Banks, Trusts, and Insurance Companies
    
    
    32,192
    
    
    
    32,542
    
    
    
    32,542Foreign Industrial and Miscellaneous
    
    
    100,913
    
    
    
    111,007
    
    
    
    111,007Foreign Public Utilities
    
    
    855
    
    
    
    1,640
    
    
    
    1,640Total Fixed Maturities Available-for-Sale
    
    $
    1,297,913
    
    
    $
    1,366,898
    
    
    $
    1,366,898Equity SecuritiesNonredeemable Preferred Stocks:U.S. Banks, Trusts, and Insurance Companies
    
    $
    19,909
    
    
    $
    21,985
    
    
    $
    21,985U.S. Industrial and Miscellaneous
    
    
    18,801
    
    
    
    20,674
    
    
    
    20,674Foreign Banks, Trusts and Insurance Companies
    
    
    17,716
    
    
    
    19,771
    
    
    
    19,771Foreign Industrial and Miscellaneous
    
    
    3,000
    
    
    
    3,945
    
    
    
    3,945Total Equity Securities
    
    $
    59,426
    
    
    $
    66,375
    
    
    $
    66,375Limited Partnerships
    
    $
    15,234
    
    
    $
    15,467
    
    
    $
    15,467Mortgage Loans
    
    
    6,124
    
    
    
    6,124
    
    
    
    6,124Real Estate Investment Property
    
    
    1,044
    
    
    
    1,044
    
    
    
    1,044Policy Loans
    
    
    10,671
    
    
    
    10,671
    
    
    
    10,671Total Investments
    
    $
    1,390,412
    
    
    $
    1,466,579
    
    
    $
    1,466,579
 68




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##### Table of Contents



SCHEDULE III  SUPPLEMENTARY INSURANCE INFORMATION
 At December 31,Deferred
    
    FuturePolicy
    
    Policy
    
    
    
    
    
    OtherAcquisition
    
    Benefits &
    
    Unearned
    
    PolicySegment
    
    Costs
    
    Deposits
    
    Premium
    
    Claims(in thousands)2004Ordinary Life Insurance
    
    $
    107,821
    
    
    $
    283,861
    
    
    $
    310
    
    
    $
    2,866Accident & Health
    
    
    0
    
    
    
    766
    
    
    
    0
    
    
    
    0Group Life & Other
    
    
    0
    
    
    
    3,580
    
    
    
    6
    
    
    
    287Annuities
    
    
    3,588
    
    
    
    984,870
    
    
    
    0
    
    
    
    0Corporate
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    111,409
    
    
    $
    1,273,077
    
    
    $
    316
    
    
    $
    3,1532003Ordinary Life Insurance
    
    $
    91,328
    
    
    $
    255,843
    
    
    $
    251
    
    
    $
    3,406Accident & Health
    
    
    0
    
    
    
    338
    

    
    
    0
    
    
    
    0Group Life & Other
    
    
    0
    
    
    
    2,908
    
    
    
    5
    
    
    
    247Annuities
    
    
    6,879
    
    
    
    932,553
    
    
    
    0
    
    
    
    0Corporate
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    98,207
    
    
    $
    1,191,642
    
    
    $
    256
    
    
    $
    3,6532002Ordinary Life Insurance
    
    $
    83,263
    
    
    $
    228,032
    
    
    $
    202
    
    
    $
    2,111Accident & Health
    
    
    0
    
    
    
    148
    
    
    
    0
    
    
    
    0Group Life & Other
    
    
    0
    
    
    
    2,239
    
    
    
    2
    
    
    
    251Annuities
    
    
    9,634
    
    
    
    803,675
    
    
    
    0
    
    
    
    0Corporate
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    92,897
    
    
    $
    1,034,094
    
    
    $
    204
    
    
    $
    2,362
 69




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##### Table of Contents



SCHEDULE III  SUPPLEMENTARY INSURANCE INFORMATION
 For the Years Ended December 31,AmortizationNet
    
    Benefits,
    
    of DeferredPolicy
    
    Investment
    
    Claims
    
    Acquisition
    
    OperatingSegment
    
    Revenues (a)
    
    Income (b)
    
    & Losses
    
    Costs
    
    Expenses(in thousands)2004Ordinary Life Insurance
    
    $
    53,184
    
    
    $
    15,017
    
    
    $
    30,964
    
    
    ($
    2,026
    )
    
    $
    17,459Accident & Health
    
    
    299
    
    
    
    16
    
    
    
    274
    
    
    
    0
    
    
    
    297Group Life & Other
    
    
    3,063
    
    
    
    185
    
    
    
    4,275
    
    
    
    0
    
    
    
    393Annuities
    
    
    2
    
    
    
    54,774
    
    
    
    44,209
    
    
    
    2,839
    
    
    
    5,547Corporate
    
    
    0
    
    
    
    10,632
    
    
    
    0
    
    
    
    0
    
    
    
    310Total
    
    $
    56,548
    
    
    $
    80,624
    
    
    $
    79,722
    
    
    $
    813
    
    
    $
    24,0062003Ordinary Life Insurance
    
    $
    52,045
    
    
    $
    15,128
    
    
    $
    27,906
    
    
    $
    5,597
    
    
    $
    17,075Accident & Health
    
    
    254
    
    
    
    8
    
    
    
    123
    
    
    
    0
    
    
    
    150Group Life & Other
    
    
    3,628
    
    
    
    161
    
    
    
    2,670
    
    
    
    0
    
    
    
    304Annuities
    
    
    5
    
    
    
    54,528
    
    
    
    42,109
    
    
    
    1,880
    
    
    
    4,681Corporate
    
    
    0
    
    
    
    8,900
    
    
    
    0
    
    
    
    0
    
    
    
    173Total
    
    $
    55,932
    
    
    $
    78,725
    
    
    $
    72,808
    
    
    $
    7,477
    
    
    $
    22,3832002Ordinary Life Insurance
    
    $
    48,070
    
    
    $
    13,359
    
    
    $
    29,265
    
    
    $
    6,336
    
    
    $
    14,971Accident & Health
    
    
    167
    
    
    
    3
    
    
    
    62
    
    
    
    0
    
    
    
    87Group Life & Other
    
    
    2,889
    
    
    
    147
    
    
    
    1,852
    
    
    
    0
    
    
    
    281Annuities
    
    
    3
    
    
    
    44,453
    
    
    
    39,684
    
    
    
    951
    
    
    
    3,650Corporate
    
    
    0
    
    
    
    9,499
    
    
    
    0
    
    
    
    0
    
    
    
    99Total
    
    $
    51,129
    
    
    $
    67,461
    
    
    $
    70,863
    
    
    $
    7,287
    
    
    $
    19,088
 
 (a)
    
    Net of reinsurance ceded(b)
    
    Net investment income is allocated based on average reserves 70




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##### Table of Contents



SCHEDULE IV  REINSURANCE
 Ceded toGross
    
    Other
    
    NetAmount
    
    Companies
    
    Amount(in thousands)December 31, 2004Life insurance in force
    
    $
    30,086,966
    
    
    $
    12,478,433
    
    
    $
    17,608,533Premiums for the year:Life Insurance
    
    
    75,367
    
    
    
    22,184
    
    
    
    53,183Annuities
    
    
    2
    
    
    
    0
    
    
    
    2Accident & Health
    
    
    602
    
    
    
    303
    
    
    
    299Group Life & Other
    
    
    3,064
    
    
    
    0
    
    
    
    3,064Total Premiums
    
    $
    79,035
    
    
    $
    22,487
    
    
    $
    56,548December 31, 2003Life insurance in force
    
    $
    27,077,945
    
    
    $
    9,788,882
    
    
    $
    17,289,063Premiums for the year:Life Insurance
    
    
    68,777
    
    
    
    16,732
    
    
    
    52,045Annuities
    
    
    5
    
    
    
    0
    
    
    
    5Accident & Health
    
    
    537
    
    
    
    283
    
    
    
    254Group Life & Other
    
    
    3,628
    
    
    
    0
    
    
    
    3,628Total Premiums
    
    $
    72,947
    
    
    $
    17,015
    
    
    $
    55,932December 31, 2002Life insurance in force
    
    $
    23,198,178
    
    
    $
    7,043,035
    
    
    $
    16,155,143Premiums for the year:Life Insurance
    
    
    60,132
    
    
    
    12,063
    
    
    
    48,069Annuities
    
    
    3
    
    
    
    0
    
    
    
    3Accident & Health
    
    
    402
    
    
    
    234
    
    
    
    168Group Life & Other
    
    
    2,889
    
    
    
    0
    
    
    
    2,889Total Premiums
    
    $
    63,426
    
    
    $
    12,297
    
    
    $
    51,129
  71




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##### Table of Contents



SequentiallyExhibit
    
    
    
    NumberedNumber
    
    Description of Exhibit
    
    Page3.1*
    
    Amended and Restated By-laws of Registrant10.1**
    
    1997 Annual Incentive Plan of Erie Indemnity Company10.2**
    
    Erie Indemnity Company Long-Term Incentive Plan10.3**
    
    Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Stephen A. Milne10.4**
    
    Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Jan R. Van Gorder10.5**
    
    Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and Philip A. Garcia10.6**
    
    Employment Agreement effective December 16, 1997 by and
between Erie Indemnity Company and John J. Brinling, Jr.10.7***
    
    Employment Agreement effective June 30, 1999 by and
between Erie Indemnity Company and Jeffrey A. Ludrof10.8***
    
    Employment Agreement effective December 15, 1999 by and
between Erie Indemnity Company and Douglas F. Ziegler10.9***
    
    Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Stephen A. Milne10.10***
    
    Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Jan R. Van Gorder10.11***
    
    Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Philip A. Garcia10.12***
    
    Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and John J. Brinling, Jr.10.13***
    
    Addendum to Employment Agreement effective December 15, 1999
by and between Erie Indemnity Company and Jeffrey A. Ludrof10.14****
    
    Addendum to Employment Agreement effective December 15, 2000
by and between Erie Indemnity Company and Stephen A. Milne10.15****
    
    Addendum to Employment Agreement effective December 15, 2000
by and between Erie Indemnity Company and Jan R. Van Gorder10.16****
    
    Addendum to Employment Agreement effective December 15, 2000
by and between Erie Indemnity Company and Philip A. Garcia
 72




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##### Table of Contents



SequentiallyExhibit
    
    
    
    NumberedNumber
    
    Description of Exhibit
    
    Page10.17****
    
    Addendum to Employment Agreement effective December 15, 2000
by and between Erie Indemnity Company and John J. Brinling, Jr.10.18****
    
    Addendum to Employment Agreement effective December 15, 2000
by and between Erie Indemnity Company and Jeffrey A. Ludrof10.19****
    
    Addendum to Employment Agreement effective December 15, 2000
by and between Erie Indemnity Company and Douglas F. Ziegler10.20*****
    
    Addendum to Employment Agreement effective December 12, 2001
by and between Erie Indemnity Company and Stephen A. Milne10.21*****
    
    Addendum to Employment Agreement effective December 12, 2001
by and between Erie Indemnity Company and Jan R. Van Gorder10.22*****
    
    Addendum to Employment Agreement effective December 12, 2001
by and between Erie Indemnity Company and Philip A. Garcia10.23*****
    
    Addendum to Employment Agreement effective December 12, 2001
by and between Erie Indemnity Company and John J. Brinling, Jr.10.24*****
    
    Addendum to Employment Agreement effective December 12, 2001
by and between Erie Indemnity Company and Jeffrey A. Ludrof10.25*****
    
    Addendum to Employment Agreement effective December 12, 2001
by and between Erie Indemnity Company and Douglas F. Ziegler10.26*****
    
    Summary of termination benefits provided Stephen A. Milne upon
voluntary termination from active employment on January 18, 200210.27#
    
    Employment Agreement effective May 9, 2002 by and between
Erie Indemnity Company and Jeffrey A. Ludrof10.28#
    
    Addendum to Employment Agreement effective December 12, 2002
by and between Erie Indemnity Company and Jan R. Van Gorder10.29#
    
    Addendum to Employment Agreement effective December 12, 2002
by and between Erie Indemnity Company and Philip A. Garcia10.30#
    
    Addendum to Employment Agreement effective December 12, 2002
by and between Erie Indemnity Company and John J. Brinling, Jr.10.31#
    
    Addendum to Employment Agreement effective December 12, 2002
by and between Erie Indemnity Company and Douglas F. Ziegler10.32#
    
    Employment Agreement effective December 15, 2002 by and
between Erie Indemnity Company and Michael J. Krahe
 73




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##### Table of Contents



SequentiallyExhibit
    
    
    
    NumberedNumber
    
    Description of Exhibit
    
    Page10.33#
    
    Employment Agreement effective December 15, 2002 by and
between Erie Indemnity Company and Thomas B. Morgan10.34##
    
    Addendum to Employment Agreement effective December 12, 2003
by and between Erie Indemnity Company and Jeffrey A. Ludrof10.35##
    
    Addendum to Employment Agreement effective December 12, 2003
by and between Erie Indemnity Company and Jan R. Van Gorder10.36##
    
    Addendum to Employment Agreement effective December 12, 2003
by and between Erie Indemnity Company and Philip A. Garcia10.37##
    
    Addendum to Employment Agreement effective December 12, 2003
by and between Erie Indemnity Company and John J. Brinling, Jr.10.38##
    
    Addendum to Employment Agreement effective December 12, 2003
by and between Erie Indemnity Company and Douglas F. Ziegler10.39##
    
    Addendum to Employment Agreement effective December 12, 2003
by and between Erie Indemnity Company and Michael J. Krahe10.40##
    
    Addendum to Employment Agreement effective December 12, 2003
by and between Erie Indemnity Company and Thomas B. Morgan10.41##
    
    Insurance bonus agreement effective December 23, 2003 by
and between Erie Indemnity Company and Jeffrey A. Ludrof10.42##
    
    Insurance bonus agreement effective December 23, 2003 by
and between Erie Indemnity Company and Jeffrey A. Ludrof10.43##
    
    Insurance bonus agreement effective December 23, 2003 by
and between Erie Indemnity Company and Jan R. Van Gorder10.44##
    
    Insurance bonus agreement effective December 23, 2003 by
and between Erie Indemnity Company and Philip A. Garcia10.45##
    
    Insurance bonus agreement effective December 23, 2003 by
and between Erie Indemnity Company and John J. Brinling, Jr.10.46##
    
    Insurance bonus agreement effective December 23, 2003 by
and between Erie Indemnity Company and Michael J. Krahe10.47##
    
    Insurance bonus agreement effective December 23, 2003 by
and between Erie Indemnity Company and Thomas B. Morgan10.48###
    
    Annual Incentive Plan effective March 2, 200410.49###
    
    Long-Term Incentive Plan effective March 2, 2004
 74




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##### Table of Contents



SequentiallyExhibit
    
    
    
    NumberedNumber
    
    Description of Exhibit
    
    Page14##
    
    Code of Conduct16#
    
    Letter Regarding Change in Certifying Accountant23
    
    Consent of Independent Registered Public Accounting Firm
    
    
    7631.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    7731.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    7832
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes  Oxley Act of 2002
    
    
    79
 
 99.1****
    
    Audit Committee Charter
 *
    
    Such exhibit is incorporated by reference to the like titled exhibit in the Registrants Form
10-K Annual Report for the year ended December 31, 1998 that was filed with the Commission on
March 9, 1999.**
    
    Such exhibit is incorporated by reference to the like titled exhibit in the Registrants Form
10-K Annual Report for the year ended December 31, 1997 that was filed with the Commission on
March 11, 1998.***
    
    Such exhibit is incorporated by reference to the like titled exhibit in the Registrants Form
10-K Annual Report for the year ended December 31, 1999 that was filed with the Commission on
March 28, 2000.****
    
    Such exhibit is incorporated by reference to the like titled exhibit in the Registrants Form
10-K Annual Report for the year ended December 31, 2000 that was filed with the Commission on
March 19, 2001.*****
    
    Such exhibit is incorporated by reference to the like titled exhibit in the Registrants
Form 10-K Annual Report for the year ended December 31, 2001 that was filed with the
Commission on March 15, 2002.#
    
    Such exhibit is incorporated by reference to the like titled exhibit
in the Registrants Form 10-K Annual Report for the year ended
December 31, 2002 that was filed with the Commission on March 27,
2003.##
    
    Such exhibit is incorporated by reference to the like titled exhibit
in the Registrants Original Form 10-K Annual Report for the year
ended December 31, 2003 that was filed with the Commission on March 8,
2004.###
    
    Such exhibit is incorporated by reference to the like titled exhibit in the Registrants
Original Form 10-K Annual Report for the year ended December 31, 2004 that was filed with the
Commission on February 24, 2005.
 75