INCORPORATED BY REFERENCE, PAGE 21 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS

SELECTED FINANCIAL DATA
(All amounts in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                   Years Ended December 31
                                        1999               1998               1997               1996               1995
<S>                                  <C>                <C>                <C>                <C>                <C>
OPERATING DATA

Total policy revenue                 $   41,686         $   38,239         $   35,194         $   31,116         $   28,074
Net investment & other income            56,905             53,088             50,642             46,617             41,519
Net realized gains on investments         4,333              4,883              5,201              4,987              7,484

Total revenues                       $  102,924         $   96,210         $   91,037         $   82,720         $   77,077

Total benefits & expenses                67,998             62,269             60,834             56,077             50,673

Income from operations               $   34,926         $   33,941         $   30,203         $   26,643         $   26,404

Provision for federal income taxes       11,601             11,856             10,643              8,977              8,522

Net income                           $   23,325         $   22,085         $   19,560         $   17,666         $   17,882

Net income per share                 $     2.47         $     2.34         $     2.07         $     1.87         $     1.89


FINANCIAL POSITION

Total assets                         $  954,532         $  917,606         $  832,534         $  740,651         $  673,794

Shareholders' equity                 $  171,103         $  182,531         $  160,380         $  132,631         $  128,905

Book value per share                 $    18.11         $    19.32         $    16.97         $    14.03         $    13.64

Dividends declared per share         $     0.66         $     0.60         $     0.54         $     0.50         $    0.453

Average number of
  shares outstanding                      9,450              9,450              9,450              9,450              9,450

<FN>
All per share data has been adjusted to give retroactive effect for the three-for-one common stock split effective May 2, 1996.
</FN>
</TABLE>






                                       66
<PAGE>


INCORPORATED BY REFERENCE, PAGE  22 OF THE COMPANY'S 1999 ANNUAL REPORT TO
 SHAREHOLDERS

                       ERIE FAMILY LIFE INSURANCE COMPANY

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                   FINANCIAL CONDITION & RESULTS OF OPERATION


The following  discussion and analysis  should be read in  conjunction  with the
financial  statements  and related  notes found on pages 30-43,  as they contain
important  information  that is helpful in evaluating  the  Company's  operating
results and financial condition.

OVERVIEW

Erie  Family  Life  Insurance  Company  (the  Company)  is a  Pennsylvania  life
insurance company formed to underwrite and sell nonparticipating  individual and
group life insurance policies,  including universal life. The Company also sells
individual  and group  annuities.  The  Company  markets  its  products  through
independent  Agents  throughout  nine states and the District of  Columbia.  The
Company is owned 21.63  percent by Erie  Indemnity  Company and 53.2  percent by
Erie Insurance Exchange.

RESULTS OF OPERATIONS

FINANCIAL OVERVIEW

Net  income  increased  to  $23,324,697,  or  $2.47  per  share,  in  1999  from
$22,085,479,  or $2.34 per share,  in 1998,  an increase of 5.6  percent.  Solid
premium growth and investment gains  contributed to the strong financial results
in 1999.  Life insurance in force  increased by more than $1.2 billion to almost
$14.4 billion at December 31, 1999.

REVENUES

Analysis of Policy Revenue

Total policy revenue increased by $3,447,080,  or 9.0 percent, to $41,685,636 in
1999. Premiums on traditional life insurance policies increased  $2,430,867,  or
8.2  percent,  for the year  ended  December  31,  1999 and  $2,349,619,  or 8.6
percent,  for the year ended  December  31,  1998.  The growth in ordinary  life
premiums in 1999 was largely due to growth in the renewal of policies written in
prior years.  Renewal  premiums  increased  9.5 percent in 1999 to  $27,319,929.
Policies in force on  traditional  products  increased 4.6 percent to 199,842 in
1999 from  191,046 in 1998.  Universal  life  products  generated  premiums  and
deposits, net of reinsurance, of $9,522,851,  $8,657,657 and $7,741,194 in 1999,
1998 and  1997,  respectively.  Policies  in force on  universal  life  products
increased  5.3  percent to 40,716 in 1999 from  38,657 in 1998.  Group  premiums
increased  5.1 percent to  $2,633,872  in 1999 and 5.9 percent to  $2,505,972 in
1998.

Total annuity and universal  life deposits  were  $78,906,813,  $67,420,294  and
$69,040,378  in  1999,  1998  and  1997,  respectively.  First-year  and  single
universal  life and annuity  deposits  increased  18.9 percent to $60,419,179 in
1999 and 0.3  percent to  $50,820,133  in 1998.  Annuity  deposits  recorded  in
connection  with  annuity  contracts  purchased  by  the  Erie  Insurance  Group
Retirement Plan for retired vested Employees receiving benefits were $5,321,738,
$6,413,460 and $1,992,060 for the years ended December 31, 1999,  1998 and 1997,
respectively.  Also  included in annuity  deposits  are  annuities  purchased by
affiliated  property/casualty insurance companies for use in connection with the
structured  settlement  of  insurance  claims.   Structured  settlement  annuity
deposits sold to Erie Insurance Group affiliate  companies totaled  $23,312,225,
$17,883,171 and $17,780,582 in 1999, 1998 and 1997, respectively.

Analysis of Investment-related Income

Net investment income increased  $3,883,554,  or 7.4 percent, for the year ended
December 31, 1999 and  $2,415,051,  or 4.8 percent,  for the year ended December
31, 1998. The ratio of net investment  income to mean invested  assets  remained
the same at 7.2 percent in 1999 and 1998,  and 7.5 percent in 1997. The majority
of the  increase in income  generated  by the  investment  portfolio  was due to
increased  levels of investment from cash flows of the Company's  operations and
by cash flows of annuity and universal life deposits. Net cash  provided in 1999
from  annuity   deposits  and  universal  life  deposits  was   $45,069,558  and
$13,285,885, respectively.

During  1999,  1998 and  1997,  the  Company  generated  net  realized  gains on
investments of $4,333,318,  $4,882,586 and $5,201,365,  respectively,  primarily
from the sale of equity securities and fixed maturity investments.






                                       67
<PAGE>


INCORPORATED BY REFERENCE, PAGE 22 AND 23 OF THE COMPANY'S 1999 ANNUAL REPORT TO
 SHAREHOLDERS


BENEFITS AND EXPENSES

Analysis of  Policy-related  Benefits and  Expenses

Net death benefits on life insurance  policies increased 21.0 percent in 1999 to
$10,231,135  compared to  $8,459,035  in 1998 and  $11,117,175  in 1997.  Random
fluctuations in death benefits  incurred can be expected when mortality  results
are  measured  over a short  time  period  due to the  small  number  of  claims
involved.  These  short-term  fluctuations  can  influence  quarterly  or annual
results without impacting long-term  profitability.  Company management believes
that  its  underwriting  philosophy and  practices  continue to be sound.

Total  interest  credited  on annuity  and  universal  life  deposits  increased
$1,968,737, or 5.7 percent, for the year ended December 31, 1999 and $2,936,673,
or 9.3 percent,  for the year ended December 31, 1998. This increase in interest
expense  was  primarily  due to new  annuity  and  universal  life  deposits  of
$78,906,813  received from  Policyholders  during 1999 and $67,420,294  received
during 1998. At December 31, 1999,  annuity deposits accruing interest were $569
million,  an increase of 8.6 percent from December 31, 1998,  and universal life
deposits  accruing  interest were $95 million,  an increase of 16.3 percent from
December 31, 1998. The interest rate credited on universal life deposits  ranged
from 6.25 percent to 7.00 percent in 1999 and 1998. The rate credited on annuity
deposits  ranged from 5.00  percent to 5.75  percent in 1999 and 5.00 percent to
6.00 percent in 1998.

Surrender  and other  benefits  decreased  by $155,614 to $660,394  for the year
ended December 31, 1999 and increased by $512,690 to $816,008 for the year ended
December 31, 1998. Surrender and other benefits include life surrender benefits,
matured endowments,  disability benefits, interest on death benefits and changes
in the  Company's  share of the  Pennsylvania  Employees  Group  Life  Insurance
(PEGLI) pool. PEGLI is a voluntary  reinsurance  pool that provides  reinsurance
coverage to primary insurers who insure  Commonwealth of Pennsylvania  employees
upon  their  retirement.  The  CIGNA  group  administers  the plan and  provides
information to determine each company's  share of pool assets and liabilities on
a yearly basis. During 1999, the change in the Company's share of the PEGLI pool
resulted in a decrease in benefits of $467,133 compared to decreases of $279,584
in 1998 and  $904,897 in 1997.  The change in the  Company's  share of the PEGLI
pool is subject to fluctuations  inherent in the  underwriting of life insurance
products.

The liability for future life policy  benefits is computed  considering  various
factors such as anticipated mortality, future investment yields, withdrawals and
anticipated  credit for  reinsurance.  The 1999  increase  in future life policy
benefits  totaled  $4,857,577  compared to $4,172,578 in 1998 and  $4,538,298 in
1997.

Generally,  the costs  incurred  by the Company to acquire  business,  including
underwriting,  commission and bonus costs,  are  capitalized  and deferred.  For
traditional  products,  these costs are amortized and charged  against  earnings
over the premium  paying  period of the related  policies in  proportion  to the
ratio of the annual premium revenue to the total  anticipated  premium  revenue.
For  interest-sensitive  products such as universal  life and  annuities,  these
costs are  amortized  in  proportion  to  future  anticipated  profits  on these
products.  The amortization of deferred policy acquisition costs (DAC) increased
$417,024,  or 9.5 percent, for the year ended December 31, 1999 and $700,589, or
19.0 percent,  for the year ended December 31, 1998. The growth in  amortization
expense in 1999 and 1998 was affected by a decrease in underlying  interest rate
assumptions.

Analysis of Other Expenses

Total operating expenses, excluding taxes, licenses and fees, increased slightly
to $9,330,979 in 1999 compared to $9,322,391 in 1998 and $8,124,173 in 1997.

Certain  operating  expenses of the Company are paid by Erie Indemnity  Company,
the management company of the Erie Insurance Exchange, and reimbursed monthly by
the Company.  Additionally,  a portion of Erie Insurance  Group common  overhead
expenses attributable to the Company are also reimbursed monthly. These expenses
comprise a majority of the Company's general expenses.

General  expenses,  a component of total operating  expenses,  include wages and
salaries,  Employee benefits,  data processing expenses,  occupancy expenses and
other office and general administrative expenses of the Company. Certain general
expenses of the Company,  related to the  acquisition  and  underwriting  of new
policies,  are deferred as policy acquisition costs. Medical inspection and exam
fees related to new business production,  wages,  salaries and Employee benefits
of  underwriting  personnel,  and bonuses paid to branch sales Employees for the
production of life and annuity business, are all deferred.






                                       68
<PAGE>


INCORPORATED BY REFERENCE, PAGE 23 AND 24 OF THE COMPANY'S 1999 ANNUAL REPORT TO
 SHAREHOLDERS

General expenses decreased $428,083, or 5.7 percent, for the year ended December
31, 1999 and increased $1,186,485,  or 18.7 percent, for the year ended December
31,  1998.  In  1999,  the  CyberLife  policy  administration  system  became  a
production  system.  The costs  associated  with the  system  will be charged to
operations  over the  expected  useful life of the system.  Such charges will be
comprised of amortization expense of software development costs and intercompany
reimbursements  related to property  and  equipment  charges that will amount to
approximately  $850,000  annually.   Once  placed  into  production,   CyberLife
amortization  and  intercompany  charges  amounted to  $215,000 in 1999,  as the
system was in production  only part of the year.  CyberLife  project charges not
capitalized  in 1999 and 1998  and  charged  to  operations  were  approximately
$500,000 and $680,000,  respectively.  There were no CyberLife  system  expenses
charged to operations in 1997.

Another  component of total  operating  expenses is  commissions  to independent
Agents. Direct commission costs include new and renewal commissions,  production
bonuses and promotional  incentives to Agents.  These direct commission expenses
are reported on the Statements of Operations  net of  commissions  received from
reinsurers.  The reported  expense is also  affected by the amount of commission
expenses  capitalized to the DAC.  Commissions,  which vary with and are related
primarily  to the  production  of new  business,  have  been  deferred  and  are
capitalized  as  DAC.  Most  first-year  and  incentive   commissions  and  some
second-year   commissions  qualify  for  deferral  as  DAC.

Commission expense increased  $437,198,  or 24.6 percent,  to $2,213,775 in 1999
from $1,776,577 in 1998. Total renewal premiums, on which commissions are based,
most of which are not capitalized as DAC, increased $3,700,505,  or 7.2 percent,
in 1999. Ceded  reinsurance  commissions,  netted against this expense,  totaled
$1,566,702  in 1999,  $1,653,737  in 1998  and  $1,462,295  in 1997.  Commission
expense increased only slightly in 1998 from $1,765,563 in 1997.

Taxes, licenses and fees increased $1,032,638 to $1,613,991 in 1999 and declined
$889,231  to $581,353  in 1998.  Included  in 1998 is a $954,000  refund due the
Company from the  Pennsylvania  Life and Health Insurance  Guaranty  Association
resulting from a recalculation of annuity assessments paid in previous years.

FINANCIAL CONDITION

RESERVE LIABILITIES

The Company's primary commitment is its obligation to meet the payment of future
policy benefits under the terms of its life insurance and annuity contracts.  To
meet these future  obligations,  the Company establishes life insurance reserves
based upon the type of policy,  the age of the insured,  and the number of years
the policy has been in force. The Company also establishes annuity and universal
life reserves  based on the amount of  Policyholder  deposits  (less  applicable
policy charges) plus interest  earned on those  deposits.  At December 31, 1999,
there was no material  difference  between the carrying  value and fair value of
the  Company's  investment-type  policies.  These  life  insurance  and  annuity
reserves  are  supported  primarily  by the  Company's  long-term,  fixed income
investments as the underlying  policy reserves are generally also of a long-term
nature.

INVESTMENTS

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

At  December  31,  1999,  the  Company's   investment  portfolio  consisting  of
marketable  short-term  investments,  investment-grade  bonds, common stocks and
preferred stocks totaled $777 million, or 81.4 percent,  of total assets.  These
resources  provide  the  liquidity  the  Company  requires  to  meet  known  and
unforeseen  demands on its funds.  At December 31,  1999,  76.9 percent of total
invested assets were invested in fixed  maturities.  Preferred stock  represents
7.2 percent,  or $59 million,  and common stock represents 10.2 percent,  or $83
million,  of total  invested  assets at December  31,  1999,  while real estate,
policy loans,  mortgage loans and other  invested  assets  (investments  in real
estate and private  equity  limited  partnerships)  make up 5.7 percent of total
invested  assets.  Mortgage loans and limited  partnership  investments have the
potential for higher returns but also carry more risk,  including less liquidity
and greater uncertainty of rate of return. Consequently,  these investments have
been kept to a minimum.







                                       69
<PAGE>


INCORPORATED BY REFERENCE, PAGE 24 TO 26 OF THE COMPANY'S 1999 ANNUAL REPORT TO
 SHAREHOLDERS


Distribution  of Invested Assets
at December 31,

                                             Carrying Value
                                             (In thousands)
                                        1999                1998
                                       ------              ------
Fixed maturities available-
 for-sale                            $ 628,877           $ 605,523
Equity securities:
Preferred  stock                        58,700              78,479
Common stock                            83,395              57,315
Other invested  assets                  46,488              33,565
                                     ---------           ---------
Total invested assets                $ 817,460           $ 774,882
                                     =========           =========




Fixed Maturities

The Company's  fixed  maturities  consist of investments in bonds and redeemable
preferred stock. It is the Company's objective that the fixed maturity portfolio
be of very high  quality and well  diversified  within each market  sector.  The
portfolio  is  managed  with  the goal of  achieving  reasonable  returns  while
limiting exposure to risk.


Diversification of Fixed Maturities
at December 31, 1999
<TABLE>
<CAPTION>

                                                                            Gross                 Gross
                                                    Amortized             Unrealized            Unrealized             Carrying
                                                       Cost                 Gains                 Losses                Value

(In Thousands)
<S>                                                 <C>                     <C>                  <C>                 <C>
U. S. treasuries and
    government agencies                             $   9,390               $    75              $     63            $    9,402
States, political subdivisions
    and special revenue                                 8,915                   265                     0                 9,180
Public utilities                                       61,886                   765                 2,939                59,712
U. S. banks, trusts and
     insurance companies                              115,616                   693                 4,740               111,569
U. S. industrial and
     miscellaneous                                    396,128                 2,257                16,077               382,308
Foreign issuers, dollar
      denominated                                      59,724                   295                 3,313                56,706

                                                    ---------               -------              --------            ----------
Total fixed maturities                              $ 651,659               $ 4,350              $ 27,132            $  628,877
                                                    =========               =======              ========            ==========
</TABLE>

Fixed maturity  investments  consist of  high-quality,  marketable  bonds,  98.4
percent, or $616 million, of which are rated at investment-grade levels (Baa/BBB
or better). Included in this investment-grade category are $351 million of bonds
characterized as of the "highest"  quality or "Class 1" securities as defined by
the   National    Association   of   Insurance    Commissioners    (NAIC).   The
below-investment-grade  category  consisted  of $20 million of "medium"  quality
bonds,  and $1 million of "low" quality  bonds.  Generally,  the fixed  maturity
securities in the Company's portfolio are rated by external rating agencies.  If
not externally  rated,  they are rated by the Company on a basis consistent with
the basis used by the rating agencies.

Management   believes   that   having  all  fixed   maturities   classified   as
available-for-sale securities will allow the Company to meet its liquidity needs
and  provide  greater  flexibility  for its  investment  managers  to respond to
changes in market conditions or strategic  direction.  Securities  classified as
available-for-sale  are carried at market value with unrealized gains and losses
included in shareholders'  equity. At December 31, 1999 and 1998, net unrealized
(losses)  gains on  fixed  maturities  available-for-sale  amounted  to  $(14.8)
million  and  $18.9  million,   respectively,  net  of  deferred  taxes.







                                       70
<PAGE>


INCORPORATED BY REFERENCE, PAGE 26 OF THE COMPANY'S 1999 ANNUAL REPORT TO
 SHAREHOLDERS


Equity Securities

Equity securities consist of common and nonredeemable preferred stocks which are
carried on the Statements of Financial Position at market value. At December 31,
1999 and 1998, common and nonredeemable  preferred stock held by the Company had
net  unrealized  gains of $11.3 million and $7.3 million,  respectively,  net of
deferred  taxes.  As  with  the  bond  portfolio,  the  Company's  nonredeemable
preferred stock portfolio provides a source of highly predictable current income
that is very  competitive  with  high-grade  bonds.  These  securities  are well
diversified within each market sector and support the investment return provided
to  Policyholders.  The  nonredeemable  preferred stocks are of the "highest" or
"high"  quality,  as defined by the NAIC.  The common stock  portfolio  provides
liquidity,  diversification  and  income  opportunities  to  meet  the  earnings
objectives of the Company.

Diversification of Equity Securities
at December 31, 1999
<TABLE>
<CAPTION>

                                                                            Gross                 Gross
                                                                         Unrealized            Unrealized             Carrying
                                                       Cost                 Gains                 Losses                Value

(In Thousands)
<S>                                                <C>                    <C>                   <C>                  <C>
Common stock:
U. S. banks, trusts and
     insurance companies                           $    9,188             $   2,150             $     561            $   10,777
U. S. industrial and
     miscellaneous                                     50,646                26,021                 4,985                71,682
Foreign industrial and
     miscellaneous                                      1,241                     0                   305                   936
Preferred stock:
U. S. banks, trusts and
     insurance companies                               25,889                   274                 1,814                24,349
U. S. industrial and
     miscellaneous                                     24,837                     0                 2,390                22,447
Foreign banks, trusts and
     insurance companies                               12,873                     0                   969                11,904
                                                   ----------             ---------             ---------            ----------

Total equities maturities                          $  124,674             $  28,445             $  11,024            $  142,095
                                                   ==========             =========             =========            ==========
</TABLE>






                                       71
<PAGE>


INCORPORATED BY REFERENCE, PAGE 27 OF THE COMPANY'S 1999 ANNUAL REPORT TO
 SHAREHOLDERS


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

The  Company's  exposure  to  market  risk  for  changes  in  interest  rates is
concentrated  in the investment  portfolio.  The Company  monitors this exposure
through  periodic  reviews of asset and liability  positions.  Estimates of cash
flows and the impact of interest rate  fluctuations  relating to the  investment
portfolio are monitored regularly.

Principal  cash flows and related  weighted-average  interest  rates by expected
maturity  dates for  financial  instruments  sensitive to interest  rates are as
follows:

December 31,1999                      Principal            Weighted-average
(Dollars in thousands)                cash flows            interest rate
                                     ------------          ------------------
Fixed maturities and
short-term bonds:
2000                                  $    7,654                 7.2%
2001                                      30,925                 6.1%
2002                                      56,105                 7.0%
2003                                      60,293                 7.1%
2004                                      34,270                 7.8%
Thereafter                               460,606                 7.9%
                                      ----------
Total                                 $  649,853
                                      ==========
Market Value                          $  628,877
                                      ==========

December 31,1998                      Principal            Weighted-Average
(Dollars in thousands)                Cash Flows            Interest Rate
                                     ------------         ------------------
Fixed maturities and
short-term bonds:
1999                                  $   31,985                 5.5%
2000                                      11,808                 7.1%
2001                                      26,500                 6.1%
2002                                      44,116                 6.7%
2003                                      55,375                 7.0%
Thereafter                               414,365                 7.9%
                                      ==========
Total                                 $  584,149
                                      ----------
Market Value                          $  616,508
                                      ==========

Actual  cash  flows  may  differ  from  those  stated  as a result  of calls and
prepayments.



EQUITY PRICE RISK

The Company's portfolio of marketable equity securities, which is carried on the
Statements of Financial  Position at estimated fair value, has exposure to price
risk.  This risk is  defined  as the  potential  loss in  estimated  fair  value
resulting from an adverse change in prices.  The Company's  objective is to earn
competitive   relative   returns  by  investing   in  a  diverse   portfolio  of
high-quality,   liquid  securities.   Portfolio   characteristics  are  analyzed
regularly and market risk is actively  managed  through a variety of techniques.
The Company's holdings are diversified across industries,  and concentrations in
any one company or industry  are limited by  parameters  established  by Company
management and Board of Directors.







                                       72
<PAGE>


INCORPORATED BY REFERENCE, PAGE 27 AND 28 OF THE COMPANY'S 1999 ANNUAL REPORT TO
 SHAREHOLDERS


LIQUIDITY AND CAPITAL RESOURCES

GENERAL CONSIDERATIONS & ANALYSIS

Liquidity is a measure of the  Company's  ability to secure  enough cash to meet
its contractual obligations and operating needs.  Generally,  insurance premiums
are  collected  prior to claims and  benefit  disbursements  and these funds are
invested to provide  necessary cash flows in future years.  The Company's  major
sources of cash from  operations  are life  insurance  premiums  and  investment
income.  The net positive cash flow is used to fund Company  commitments  and to
build the investment  portfolio,  thereby increasing future investment  returns.
Net cash provided by operating  activities in 1999 was $12.8 million compared to
$19.8  million in 1998,  and $15.0  million  in 1997.  The  Company's  liquidity
position remains strong as invested assets increased 5.5 percent to $817 million
at December 31, 1999.

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

The Company's commitments for expenditures as of December 31, 1999 are primarily
for policy death benefits, policy surrenders and withdrawals,  general operating
expenses, federal income taxes and dividends to shareholders.  These commitments
are met by cash flows from policy  revenue,  annuity and universal life deposits
and investment income. Management believes its cash flow from operations and its
liquid  assets  and  marketable  securities  will  enable  the  Company  to meet
foreseeable cash requirements. As an added measure of liquidity, the Company has
arranged for a $10 million line of credit with a commercial  bank. There were no
borrowings under this credit line in 1999, 1998 or 1997.

REGULATORY CONSIDERATIONS

Risk-Based Capital

The  Commonwealth of  Pennsylvania  follows the statutory  accounting  practices
minimum Risk-Based  Capital (RBC) requirements for domestic insurance  companies
that were  developed by the NAIC.  The NAIC  standard set for measuring RBC is a
method of calculating the minimum amount of capital appropriate for an insurance
company to support its overall business  operations in consideration of its size
and risk profile.  The RBC formula is used by the state insurance  regulators as
an early  warning tool to  identify,  for the purpose of  initiating  regulatory
action,  insurance companies that potentially are inadequately  capitalized.  In
addition, the formula defines minimum capital standards that will supplement the
current  system of low fixed  minimum  capital  and  surplus  requirements  on a
state-by-state basis. At December 31, 1999, the Company  substantially  exceeded
the minimum risk-based capital levels that require regulatory action.

Surplus Note

A surplus  note in the amount of $15  million  was issued by the  Company to the
Erie  Indemnity  Company  during  1995.  Interest  on this note is charged at an
annual rate of 6.45 percent.

All  payments of interest  and  principal  on the note may be repaid only out of
unassigned  surplus of the  Company,  subject to  approval  of the  Pennsylvania
Insurance Commissioner.  The note will be payable on demand on or after December
31, 2005. Payment of principal and/or interest is subordinated to payment of all
other liabilities of the Company.

YEAR 2000

The computer systems of the Company successfully made the transition to the Year
2000.  The  Company's   internal  operating  systems  (hardware  and  software),
infrastructure elements,  communications systems, and personal computer hardware
and software  continued  to function  properly  into the Year 2000.  No external
vendor  or  business  partner   experienced   century  change  disruptions  that
materially  affected the Company.  The Company did not  experience  any business
interruptions  related to the Year 2000.  The  Company's  total cost of testing,
contingency  planning and  administrative  support,  including cost of personnel
involved,  cost  to  construct  the  technical  test  environment  and  cost  of
consulting  resources  totaled  $180,000 and $5,000 for the years ended December
31, 1999 and 1998, respectively.






                                       73
<PAGE>


INCORPORATED BY REFERENCE, PAGE 28 AND 29 OF THE COMPANY'S 1999 ANNUAL REPORT TO
 SHAREHOLDERS

FACTORS THAT MAY AFFECT FUTURE RESULTS

GEOGRAPHIC EXPANSION

The  Company  continues  to seek  quality  growth  by  expanding  its  operating
territories. The expansion into new operating territories offers the opportunity
for growth in premiums.  Over the last several years,  geographic  expansion has
made a  contribution  to the  premium  growth rate of the  Company.  In 1999 the
Company  began  operations  in the state of Illinois and expanded its  operating
territory westward in the state of Tennessee.  The Company anticipates that such
expansion   will   continue  to   contribute   positively   to  its  growth  and
profitability.

FINANCIAL SERVICES REFORM

Federal  legislative  initiatives on financial  services reform,  begun in 1997,
culminated  in the  enactment  of Senate Bill 900, the  Financial  Modernization
Reform Act, which significantly  changes the way insurance companies,  banks and
securities firms are regulated.  The elimination of some regulatory  barriers to
banks entering the insurance market, privacy initiatives concerning the consumer
data held by financial  institutions and the interjection of federal  government
agencies  into  the  traditionally   state-regulated   insurance   industry  may
materially change the ground rules under which insurance  products are marketed.
Additionally,  current and proposed  future federal  measures may affect the way
the life insurance  industry  distributes,  prices, and services their products.
These  proposals  may include  possible  changes to the tax laws  governing  the
taxation of insurance companies and life insurance products.


MARKETING CONSIDERATIONS

The Company offers  insurance  products  that  include  investment features that
compete with numerous other investment alternatives  commercially available. The
Company's ability to attract policyholders depends in large part on the relative
attractiveness  of its  products  compared  to those other  available  products.
Factors such as the  interest rate  environment and the performance of the stock
market  influence this ability but are not  controllable  by  management.

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


MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS

Currently  there is no market on which the  Registrant's  stock is  traded.  The
Company had 1,057 shareholders of record of common stock on December 31, 1999.

Date Dividends Declared                           Dividends Declared per Share

March 4, 1999                                                $ .165
April 27, 1999                                                 .165
June 15, 1999                                                  .165
September 14, 1999                                             .165
                                                             ------
                                                             $ .660

February 17, 1998                                            $ .150
April 28, 1998                                                 .150
June 5, 1998                                                   .150
September 16, 1998                                             .150
                                                             ------
                                                             $ .600






                                       74
<PAGE>


                       Index to Graphs included in the Investment Section
                          of The Management's Discussion and Analysis

Graph #1               DISTRIBUTION OF INVESTED ASSETS
                       AT DECEMBER 31, 1999


                       Fixed Maturities - Available For Sale           77%
                       Common Stock                                    10%
                       Preferred Stock                                  7%
                       Other Invested Assets                            6%


Graph #2               DIVERSIFICATION OF FIXED MATURITIES
                       AT DECEMBER 31, 1999 - CARRYING/MARKET VALUE

                       U.S. Industrial & Miscellaneous                 61%
                       U.S. Banks, Trusts and Insurance Companies      18%
                       Public Utilities                                10%
                       Foreign                                          9%
                       States Political Subdivisions &
                        Special Revenue                                 1%
                       U.S. Treasuries                                  1%


Graph #3               QUALITY* OF BOND PORTFOLIO
                       AT DECEMBER 31, 1999 - CARRYING/MARKET VALUE

                        Aaa/AAA                                         5%
                        Aa/AA                                          17%
                        A/A                                            39%
                        Baa/BBB                                        37%
                        Ba/BB                                           2%

        * As rated by Standard & Poor's or Moody's Investor's Service, Inc.


Graph #4               DIVERSIFICATION OF EQUITY SECURITIES
                       AT DECEMBER 31, 1999 - CARRYING/MARKET VALUE


                       (1) U.S. Industrial & Miscellaneous             50%
                       (2) U.S. Banks & Insurance                      17%
                       (2) U.S. Industrial & Miscellaneous             16%
                       (1) U.S. Banks & Insurance                       8%
                       (2) Foreign Banks & Insurance                    8%
                       (1) Foreign Industrial & Miscellaneous           1%


                       (1)  Common Stock
                       (2)  Preferred Stock






                                       75
<PAGE>


INCORPORATED BY REFERENCE, PAGE 30 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS


                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders
Erie Family Life Insurance Company
Erie, Pennsylvania

We have audited the accompanying statements of financial position of Erie Family
Life  Insurance  Company  as of  December  31,  1999 and 1998,  and the  related
statements of operations,  shareholders'  equity, and cash flows for each of the
three years in the period ended December 31, 1999.  These  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of Erie Family Life  Insurance
Company as of December 31, 1999 and 1998,  and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1999
in conformity with generally accepted accounting principles.




/s/ Brown Schwab Bergquist & Co.




Erie, Pennsylvania
February 11, 2000






                                       76
<PAGE>


INCORPORATED BY REFERENCE, PAGE 32 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS



                       ERIE FAMILY LIFE INSURANCE COMPANY

                        STATEMENTS OF FINANCIAL POSITION
                        As of December 31, 1999 and 1998
                             (Dollars in thousands)




   ASSETS                                                  1999           1998
                                                         --------       --------
Invested assets:
   Fixed maturities at fair value
     (amortized cost of $651,659
     and $576,475, respectively)                         $628,877       $605,523
   Equity securities, at fair value
     (cost of $124,674 and
     $124,610, respectively)                              142,095        135,794
   Real estate                                              1,458          1,541
   Policy loans                                             6,724          6,013
   Real estate mortgage loans                               9,975         10,070
   Other invested assets                                   28,331         15,941
                                                         --------       --------
       Total invested assets                             $817,460       $774,882

Cash and cash equivalents                                  27,358         44,808
Premiums receivable from policyholders                      4,056          3,831
Reinsurance recoverable                                       464            569
Other receivables                                             171            355
Accrued investment income                                  10,896         10,282
Deferred policy acquisition costs                          77,588         70,916
Reserve credit for reinsurance ceded                        6,927          5,995
Prepaid federal income taxes                                  758              0
Other assets                                                8,854          5,968
                                                         --------       --------
       Total assets                                      $954,532       $917,606
                                                         ========       ========






                                       77
<PAGE>


INCORPORATED BY REFERENCE, PAGE 32 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS



   LIABILITIES AND SHAREHOLDERS' EQUITY                    1999           1998
                                                         --------       --------
LIABILITIES

   Policy liabilities and accruals:
     Future life policy benefits                         $ 70,329       $ 64,539
     Policy and contract claims                             1,305          1,801
     Annuity deposits                                     569,218        524,123
     Universal life deposits                               94,640         81,354
     Supplementary contracts not
       including life contingencies                           581            607
   Other policyholder funds                                 5,623          8,166
   Federal income taxes payable                                 0            612
   Deferred income taxes                                   17,853         31,252
   Reinsurance premium due                                    692            302
   Accounts payable and accrued expenses                    5,116          4,215
   Note payable to Erie Indemnity Company                  15,000         15,000
   Due to affiliate                                         1,513          1,686
   Dividends payable                                        1,559          1,418
                                                         --------       --------
       Total liabilities                                 $783,429       $735,075
                                                         --------       --------


SHAREHOLDERS' EQUITY
   Common stock, $.40 par value per share;
     authorized 15,000,000 shares;
     9,450,000 shares issued and outstanding             $  3,780       $  3,780
   Additional paid-in capital                                 630            630
   Accumulated other comprehensive (loss) income        (   2,344)        26,172
   Retained earnings                                      169,037        151,949
                                                         --------       --------
       Total shareholders' equity                        $171,103       $182,531
                                                         --------       --------
       Total liabilities and shareholders' equity        $954,532       $917,606
                                                         ========       ========





See accompanying notes to financial statements.






                                       78
<PAGE>


INCORPORATED BY REFERENCE, PAGE 31 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS



                       ERIE FAMILY LIFE INSURANCE COMPANY

                            STATEMENTS OF OPERATIONS
                  Years Ended December 31, 1999, 1998 and 1997
                 (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>


                                                           1999              1998              1997
                                                         --------          --------          --------
<S>                                                      <C>               <C>               <C>
Revenues
   Policy
     Life premiums                                       $ 39,052          $ 35,733          $ 32,827
     Group premiums                                         2,634             2,506             2,367
                                                         --------          --------          --------
       Total policy revenue                              $ 41,686          $ 38,239          $ 35,194

   Net investment income                                   56,213            52,329            49,914
   Net realized gains on investments                        4,333             4,883             5,201
   Other income                                               692               759               728
                                                         --------          --------          --------
       Total revenues                                    $102,924          $ 96,210          $ 91,037

Benefits and expenses
   Death benefits                                        $ 10,231          $  8,459          $ 11,117
   Interest on annuity deposits                            31,202            29,870            27,663
   Interest on universal life deposits                      5,289             4,652             3,922
   Surrender and other benefits                               660               816               303
   Increase in future life policy benefits                  4,858             4,173             4,538
   Amortization of deferred policy
     acquisition costs                                      4,813             4,396             3,695
   Commissions                                              2,214             1,777             1,766
   General expenses                                         7,117             7,545             6,359
   Taxes, licenses and fees                                 1,614               581             1,471
                                                         --------          --------          --------
       Total benefits and expenses                       $ 67,998          $ 62,269          $ 60,834
                                                         --------          --------          --------
       Income from operations                            $ 34,926          $ 33,941          $ 30,203

Provision for federal income taxes                         11,601            11,856            10,643
                                                         --------          --------          --------
       Net income                                        $ 23,325          $ 22,085          $ 19,560
                                                         --------          --------          --------
       Net income per share                              $   2.47          $   2.34          $   2.07
                                                         ========          ========          ========





<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>






                                       79
<PAGE>


INCORPORATED BY REFERENCE, PAGE 34 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS



                       ERIE FAMILY LIFE INSURANCE COMPANY

                       STATEMENTS OF SHAREHOLDERS' EQUITY
                  Years Ended December 31, 1999, 1998 and 1997
                 (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>

                                                     Total
                                                  Shareholder        Comprehensive         Retained
                                                     Equity          Income (Loss)         Earnings
                                                  -----------        -------------         --------
<S>                                               <C>                 <C>                <C>
Balance, January 1, 1997                           $132,631                               $121,077
Comprehensive income
   Net income                                        19,560            $19,560              19,560
   Other comprehensive income, net of tax            13,292             13,292
                                                                       -------
Comprehensive income                                                   $32,852
                                                                       -------
Dividends declared,
   $.54 per share                                 (   5,103)                             (   5,103)
                                                   --------                               --------
Balance, December 31, 1997                         $160,380                               $135,534
                                                   --------                               --------

Comprehensive income
   Net income                                      $ 22,085            $22,085            $ 22,085
   Other comprehensive income, net of tax             5,736              5,736
                                                                       -------
Comprehensive income                                                   $27,821
                                                                       -------
Dividends declared,
   $.60 per share                                 (   5,670)                             (   5,670)
                                                   --------                               --------
Balance, December 31, 1998                         $182,531                               $151,949
                                                   --------                               --------
Comprehensive loss
   Net income                                      $ 23,325            $23,325            $ 23,325
   Other comprehensive loss, net of tax           (  28,516)          ( 28,516)
                                                                       -------
Comprehensive loss                                                    ($ 5,191)
                                                                       -------
Dividends declared,
   $.66 per share                                 (   6,237)                             (   6,237)
                                                   --------                               --------
Balance, December 31, 1999                         $171,103                               $169,037
                                                   ========                               ========

</TABLE>






                                       80
<PAGE>


INCORPORATED BY REFERENCE, PAGE 34 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS



                       ERIE FAMILY LIFE INSURANCE COMPANY

                 STATEMENTS OF SHAREHOLDERS' EQUITY - CONTINUED
                  Years Ended December 31, 1999, 1998 and 1997
                 (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>

                                                 Accumulated
                                                    Other
                                                Comprehensive          Common          Additional
                                                 Income (Loss)          Stock        Paid-in Capital
                                                --------------         ------        ---------------
<S>                                               <C>                 <C>               <C>
Balance, January 1, 1997                           $ 7,144            $3,780            $630
Comprehensive income
   Net income
   Other comprehensive income, net of tax           13,292

Comprehensive income

Dividends declared,
   $.54 per share
                                                   -------            ------            ----
Balance, December 31, 1997                         $20,436            $3,780            $630
                                                   -------            ------            ----

Comprehensive income
   Net income
   Other comprehensive income, net of tax            5,736

Comprehensive income

Dividends declared,
   $.60 per share
                                                   -------            ------            ----
Balance, December 31, 1998                         $26,172            $3,780            $630
                                                   -------            ------            ----

Comprehensive loss
   Net income
   Other comprehensive loss, net of tax

Comprehensive loss                                ( 28,516)

Dividends declared,
   $.66 per share
                                                   -------            ------            ----
Balance, December 31, 1999                        ($ 2,344)           $3,780            $630
                                                   -------            ------            ----





<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>






                                       81
<PAGE>


INCORPORATED BY REFERENCE, PAGE 33 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS



                       ERIE FAMILY LIFE INSURANCE COMPANY

                           STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 1999, 1998 and 1997
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                           1999              1998              1997
                                                         --------          --------          --------
<S>                                                     <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                            $23,325           $22,085           $19,560
   Adjustments to reconcile net income to net
     cash provided by operating activities:
     Net amortization of bond and mortgage
       premium                                               273               453             1,294
     Amortization of deferred policy acquisition
       costs                                               4,813             4,396             3,695
     Real estate depreciation                                 83                83                86
     Deferred federal income tax expense                   1,955             3,755             1,638
     Realized gains on investments                      (  4,333)         (  4,883)         (  5,201)
   Increase in premiums receivable                      (    225)         (    359)         (    497)
   Decrease (increase) in other receivables                  184          (    172)              385
   Increase in accrued investment income                (    614)         (      9)         (    481)
   Policy acquisition costs deferred                    ( 11,485)         ( 10,745)         ( 10,236)
   (Increase) decrease in other assets                  (  2,886)         (  2,789)            1,498
   Increase in reinsurance recoverables and
     reserve credits                                    (    828)         (  1,171)         (    980)
   Increase in future life policy benefits and
     claims                                                5,294             4,877             5,726
   (Decrease) increase in other policyholder funds      (  2,543)            1,571               832
   Increase (decrease) in reinsurance premium
     due                                                     390          (    123)              222
   (Decrease) increase in federal income taxes
     payable                                            (  1,370)              759          (    833)
   Increase (decrease) in accounts payable and
     due to affiliate                                        728             2,076          (  1,745)
                                                         -------           -------           -------
       Net cash provided by operating activities         $12,761           $19,804           $14,963
                                                         -------           -------           -------





<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>






                                       82
<PAGE>


INCORPORATED BY REFERENCE, PAGE 33 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS



                       ERIE FAMILY LIFE INSURANCE COMPANY

                      STATEMENTS OF CASH FLOWS - CONTINUED
                  Years Ended December 31, 1999, 1998 and 1997
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                           1999              1998              1997
                                                         --------          --------          --------
<S>                                                     <C>               <C>               <C>
CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of investments:
     Fixed maturities                                   ($181,008)        ($138,282)        ($76,211)
     Equity securities                                  (  52,798)        (  61,358)        ( 38,955)
     Mortgage loans                                     (      66)        (     160)        (  1,223)
     Other invested assets                              (  12,618)        (   9,537)        (    857)
   Sales/maturities of investments:
     Fixed maturities                                     108,947            98,877           49,663
     Equity securities                                     53,672            51,509           42,921
     Other invested assets                                  1,950             1,048              404
   Principal payments received on mortgage loans              162               139              129
   Loans made to policyholders                          (   1,568)        (   1,549)        (  1,374)
   Payments received on policy loans                          857               636              656
                                                         --------          --------          -------
       Net cash used in investing activities            ($ 82,470)        ($ 58,677)        ($24,847)
                                                         --------          --------          -------


CASH FLOWS FROM FINANCING ACTIVITIES
   Increase in annuity deposits and supplementary
     contracts                                           $ 45,069          $ 34,459          $38,861
   Increase in universal life deposits                     13,286            12,464           12,034
   Dividends paid to shareholders                       (   6,096)        (   5,529)        (  5,008)
                                                         --------          --------          -------
       Net cash provided by financing activities         $ 52,259          $ 41,394          $45,887
                                                         --------          --------          -------

Net (decrease) increase in cash and cash
   equivalents                                          ($ 17,450)         $  2,521          $36,003
Cash and cash equivalents at beginning of year             44,808            42,287            6,284
                                                         --------          --------          -------
Cash and cash equivalents at end of year                 $ 27,358          $ 44,808          $42,287
                                                         --------          --------          -------


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the year for:
     Interest                                            $  1,199          $  1,115          $   968
     Income taxes                                          11,016             7,342            9,838





<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>






                                       83
<PAGE>


INCORPORATED BY REFERENCE, PAGE 35 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS


                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS
                  Dollars  in  thousands,  except  per  share data.

NOTE 1.         NATURE OF BUSINESS

                    Erie Family   Life   Insurance   Company   (the    Company),
                    a   Pennsylvania-domiciled   insurer,  is  engaged  in   the
                    business  of  underwriting   and  selling   nonparticipating
                    individual and  group  life  insurance  policies,  including
                    universal life and annuity products. The Company markets its
                    products through independent agents in nine states  and  the
                    District  of Columbia  and is  subject  to  supervision  and
                    regulations of the states in which it operates.  A  majority
                    of the  Company's business is written in Pennsylvania, Ohio,
                    Maryland and Virginia. See also Note 6.

                    The  Company is  owned 21.6% by  the Erie  Indemnity Company
                    (EIC) and 53.2% by the Erie Insurance  Exchange  (Exchange).
                    In  1999,  the  Exchange  purchased  92,677  shares  of  the
                    Company's common stock increasing its ownership to 5,025,577
                    shares.

                    EIC is the attorney-in-fact for the Exchange. As  management
                    company of the Erie Insurance Group of  companies,  EIC pays
                    operating  expenses  of the Company. The Company  reimburses
                    EIC for direct expenses and its  share of  common  expenses.
                    The Company also sells a significant   amount  of  annuities
                    to affiliated companies of the Erie Insurance Group.

NOTE 2.         SIGNIFICANT ACCOUNTING POLICIES

                Basis of presentation

                    The accompanying  financial statements have been prepared in
                    conformity  with generally  accepted  accounting  principles
                    that differ from statutory  accounting  practices prescribed
                    or  permitted   for   insurance   companies  by   regulatory
                    authorities.

                Use of estimates

                    The  preparation of financial  statements in conformity with
                    generally accepted accounting principles requires management
                    to make estimates and  assumptions  that affect the reported
                    amounts  of  assets  and   liabilities   and  disclosure  of
                    contingent  assets  and  liabilities  at  the  date  of  the
                    financial  statements  and the reported  amounts of revenues
                    and expenses  during the reporting  period.  Actual  results
                    could differ from those estimates.

                    The  development of liabilities  for future policy  benefits
                    for  the  Company's  products  requires  management  to make
                    estimates and assumptions  regarding  mortality,  morbidity,
                    lapse,  expense, and investment  experience.  Such estimates
                    are primarily  based on historical  experience  and,  future
                    expectations of mortality,  morbidity, expense, persistency,
                    and  investment  assumptions.  Actual  results  could differ
                    materially from those estimates.  Management monitors actual
                    experience,  and where  circumstances  warrant,  revises its
                    assumptions and the related future policy benefit estimates.






                                       84
<PAGE>


INCORPORATED BY REFERENCE, PAGES 35 AND 36 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS


                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 2.         SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                Investments

                    Fixed  maturities  and  marketable   equity  securities  are
                    classified as available-for-sale.  Equity securities consist
                    of common and  nonredeemable  preferred  stock  while  fixed
                    maturities consist of bonds, notes and redeemable  preferred
                    stock.  Available-for-sale  securities  are  stated  at fair
                    value,  with the  unrealized  gains and losses,  net of tax,
                    reported as a separate component of comprehensive income and
                    shareholders'  equity. There are no securities classified as
                    "trading" securities or "held-to-maturity" securities.

                    Realized gains and losses on sales of investments, including
                    losses  from  declines  in  value  of  specific   securities
                    determined  by management  to be  other-than-temporary,  are
                    recognized in income on the specific  identification method.
                    Interest and dividend income is recorded as earned.

                    Mortgage  loans on  commercial  real estate are  recorded at
                    unpaid  balances,  adjusted for  amortization  of premium or
                    discount.  A  valuation  allowance  would  be  provided  for
                    impairment  in  net  realizable   value  based  on  periodic
                    valuations.

                    Other invested assets include  investments in U.S.  domestic
                    and  foreign   private   equity  and  real  estate   limited
                    partnerships. The private equity limited partnerships invest
                    in  small-to  medium-sized  companies.  The  private  equity
                    limited  partnerships  are  carried  at their  equity in the
                    estimated  market values.  Real estate limited  partnerships
                    are recorded using the equity method, which approximates the
                    Company's  share of the  carrying  value of the real  estate
                    investments held by the partherships.

                    The  Company  has not held or  issued  derivative  financial
                    instruments.

                Financial instruments

                    Fair values of  available-for-sale  securities  are based on
                    quoted market prices, where available, or dealer quotations.
                    The carrying value of receivables and liabilities arising in
                    the  ordinary  course of  business  approximates  their fair
                    values.

                Cash equivalents

                    The  Company   considers  all  highly   liquid   investments
                    purchased with an original  maturity of three months or less
                    to be cash  equivalents.  Carrying amounts  approximate fair
                    value   because  of  the   short-term   maturity   of  these
                    investments.

                Deferred policy acquisition costs

                    The costs of acquiring new business, principally commissions
                    and certain  costs of issuing  policies,  are  deferred  for
                    traditional   life   insurance.   These   costs,   including
                    underwriting  and medical  examinations,  are amortized over
                    the  premium  paying  period  of  the  related  policies  in
                    proportion to the total anticipated  premium revenue stream.
                    Anticipated  premium  revenue  is  estimated  using the same
                    assumptions  as were  used  for  computing  liabilities  for
                    future policy  benefits.  The amount of costs to be deferred
                    would be reduced to the extent  future  policy  premiums and
                    anticipated  investment  income  would  not  exceed  related
                    costs.






                                       85
<PAGE>


INCORPORATED BY REFERENCE, PAGE 36 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS


                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 2.         SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                    Universal life and annuity  deferred  acquisition  costs are
                    amortized  in  relation to the  present  value of  estimated
                    future gross profits on the contracts over a 20-year period.

                    Deferred policy acquisition costs are summarized as follows:
<TABLE>
<CAPTION>

                                                          1999              1998              1997
                                                        --------          --------          --------
                    <S>                                 <C>               <C>               <C>
                    Balance at beginning of year         $70,916           $64,567           $58,026
                    Additions                             11,485            10,745            10,236
                    Amortization                        (  4,813)         (  4,396)         (  3,695)
                                                         -------           -------           -------
                    Balance at end of year               $77,588           $70,916           $64,567
                                                         =======           =======           =======
</TABLE>

                Insurance liabilities

                    Liabilities  for life  insurance and  income-paying  annuity
                    future  policy  benefits are  computed  primarily by the net
                    level  premium  method with  assumptions  as to  anticipated
                    mortality,   withdrawals,   lapses  and  investment  yields.
                    Deferred  annuity  future  policy  benefit  liabilities  are
                    established  at  accumulated  values  without  reduction for
                    surrender   charges.   Reserves  for   universal   life  and
                    investment  contracts  are  based  on the  contract  account
                    balance, if future benefit payments in excess of the account
                    balance are not  guaranteed,  or the present value of future
                    benefit   payments  when  such   payments  are   guaranteed.
                    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 3.5% to 4% on policies  issued in 1980
                    and prior years and 6% to 7.25% on  policies  issued in 1981
                    and subsequent years.  Mortality and withdrawal  assumptions
                    are based on tables typically used in the industry.

                    Annuities   are  credited   with  varying   interest   rates
                    determined  at the  discretion  of the  Company  subject  to
                    certain  minimums.   During  1999,  deposits  to  individual
                    annuities earned interest at rates ranging from 5% to 5.75%.
                    Management  believes the fair value of annuity and universal
                    life  deposits  approximates  the  amounts  recorded  in the
                    financial statements,  since these obligations are generally
                    subject to fluctuating interest rates.

                Liability for guaranty fund assessments

                    The Company may be required,  under the solvency or guaranty
                    laws of the various  states in which it is licensed,  to pay
                    assessments  up to  prescribed  limits to fund  policyholder
                    losses or liabilities of insolvent life insurance companies.
                    Certain  states  permit  these  assessments,  or  a  portion
                    thereof,  to be  recovered  as an offset  to future  premium
                    taxes.

                    Assessments   are  recognized   when  they  are  imposed  or
                    information  indicates  it is probable  one will be imposed,
                    and an event  obligating  the Company has  occurred  and the
                    amount  is  reasonably  estimated.  When the  assessment  is
                    subject to credit against future premium taxes and judged to
                    be  recoverable,  it may be  capitalized  and amortized on a
                    basis  consistent  with the  credits  to be  realized  under
                    applicable state law. The Company's  estimated liability for
                    guaranty fund and other  assessments was $14 at December 31,
                    1999 and 1998.






                                       86
<PAGE>


INCORPORATED BY REFERENCE, PAGES 36 AND 37 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS


                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 2.         SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


                Recognition of premium revenues and losses

                    Premiums  on  traditional   life  insurance   contracts  are
                    reported as earned  revenue  when due.  Reserves  for future
                    policy benefits are established as premiums are earned.  For
                    universal life and annuity contracts,  deposits are recorded
                    in  a   policyholder   account  which  is  classified  as  a
                    liability.  Revenue is  recognized  as amounts are  assessed
                    against the policyholder  account for mortality coverage and
                    contract expenses.

                Reinsurance

                    The   Statements   of   Operations   are  reflected  net  of
                    reinsurance  activities.  Gross  revenue  and  benefits  and
                    expenses  incurred  are reduced  for amounts  expected to be
                    recovered   under   reinsurance   agreements.    Reinsurance
                    transactions  are  recorded  "gross"  on the  Statements  of
                    Financial Position.

                Income taxes

                    Provisions for income taxes include deferred taxes resulting
                    from changes in cumulative temporary differences between the
                    tax  bases  and  financial  statement  bases of  assets  and
                    liabilities.  Deferred  taxes are  provided  on a  liability
                    method  whereby  deferred  tax  assets  are  recognized  for
                    deductible   temporary    differences   and   deferred   tax
                    liabilities    are   recognized   for   taxable    temporary
                    differences.   Deferred  tax  assets  and   liabilities  are
                    adjusted for the effects of changes in tax laws and rates on
                    the date of enactment.

                Software development costs

                    In March of 1998, the American Institute of Certified Public
                    Accountants   issued   Statement  of  Position  (SOP)  98-1,
                    "Accounting for the Costs of Computer Software  Developed or
                    Obtained  for Internal  Use." This SOP provided  guidance on
                    accounting for the costs of computer  software  developed or
                    obtained for internal  use. The Company  adopted this SOP in
                    the  first  quarter  of 1998.  Software  development  costs,
                    principally  related  to  the  CyberLife  project,  totaling
                    $2,495   and   $1,541  at   December   31,   1999  and  1998
                    respectively,  are capitalized and included in other assets.
                    These costs are being  amortized  on a  straight-line  basis
                    over the expected useful life of the asset.

                Earnings per share

                    Earnings per share amounts are based on the weighted average
                    number  of  common  shares  outstanding  during  each of the
                    respective years.






                                       87
<PAGE>


INCORPORATED BY REFERENCE, PAGE 37 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS


                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 3.         INVESTMENTS

                The  following  tables  summarize  the cost and market  value of
                securities at December 31, 1999 and 1998.
<TABLE>
<CAPTION>

                                                                       Gross            Gross
                                                    Amortized        Unrealized       Unrealized       Estimated
                                                       Cost            Gains            Losses         Fair Value
                                                    --------          -------          -------          --------
December 31, 1999
<S>                                                 <C>               <C>              <C>              <C>
Fixed Maturities:
Bonds:
   U. S. treasuries and
     government agencies                            $  9,390          $    75          $    63          $  9,402
   States and political
     subdivisions                                      2,055               45                0             2,100
   Special revenue                                     6,860              220                0             7,080
   Public utilities                                   61,886              765            2,939            59,712
   U. S. banks, trusts
     and insurance companies                         113,616              615            4,740           109,491
   U. S. industrial
     and miscellaneous                               396,128            2,257           16,077           382,308
   Foreign governments- agency                         2,991                0              111             2,880
   Foreign banks, trusts and
     insurance companies                               9,981                0              443             9,538
   Foreign industrial and miscellaneous               46,752              295            2,759            44,288
                                                    --------          -------          -------          --------
       Total bonds                                   649,659            4,272           27,132           626,799

Redeemable preferred stock:
   U.S. banks, trusts and
     insurance companies                               2,000               78                0             2,078
                                                    --------          -------          -------          --------
       Total fixed maturities                       $651,659          $ 4,350          $27,132          $628,877
                                                    ========          =======          =======          ========

Equity Securities:
Common stock:
   U. S. banks, trusts
     and insurance companies                        $  9,188          $ 2,150          $   561          $ 10,777
   U. S. industrial and miscellaneous                 50,646           26,021            4,985            71,682
   Foreign industrial and miscellaneous                1,241                0              305               936
Non-redeemable preferred stock:
   U. S. banks, trusts and
     insurance companies                              25,889              274            1,814            24,349
   U. S. industrial and miscellaneous                 24,837                0            2,390            22,447
   Foreign banks, trusts and
     insurance companies                              12,873                0              969            11,904
                                                    --------          -------          -------          --------
       Total equity securities                      $124,674          $28,445          $11,024          $142,095
                                                    ========          =======          =======          ========

       Total available-for-sale securities          $776,333          $32,795          $38,156          $770,972
                                                    ========          =======          =======          ========

</TABLE>






                                       88
<PAGE>


INCORPORATED BY REFERENCE, PAGE 38 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS


                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 3.         INVESTMENTS (CONTINUED)

<TABLE>
<CAPTION>

                                                   Amortized         Unrealized       Unrealized       Estimated
                                                      Cost             Gains            Losses         Fair Value
                                                    --------          --------         --------         --------
December 31, 1998
<S>                                                 <C>               <C>              <C>              <C>
Fixed Maturities:
U. S. treasuries and
   government agencies                              $ 20,431          $ 1,360          $    27          $ 21,764
States and political
   subdivisions                                        2,056              107                0             2,163
Special revenue                                       11,065              783                0            11,848
Public utilities                                      70,265            3,731              455            73,541
U. S. banks, trusts
   and insurance companies                           113,543            8,531            1,086           120,988
U. S. industrial
   and miscellaneous                                 331,432           17,019            1,202           347,249
Foreign governments- agency                            2,990                0              308             2,682
Foreign industrial and miscellaneous                  24,693              908              313            25,288
                                                    --------          -------          -------          --------
       Total fixed maturities                       $576,475          $32,439          $ 3,391          $605,523
                                                    ========          =======          =======          ========

Equity Securities:
Common stock:
   U. S. banks, trusts
     and insurance companies                        $  7,254          $ 4,523          $   172          $ 11,605
   U. S. industrial and miscellaneous                 40,574           11,751            6,615            45,710
Non-redeemable preferred stock:
   Public utilities                                    4,000               40                0             4,040
   U. S. banks, trusts and
     insurance companies                              43,057            1,864              151            44,770
   U. S. industrial and miscellaneous                 12,951              216              529            12,638
   Foreign banks, trusts and
     insurance companies                              12,874              441              384            12,931
   Foreign industrial and miscellaneous                3,900              200                0             4,100
                                                    --------          -------          -------          --------
       Total equity securities                      $124,610          $19,035          $ 7,851          $135,794
                                                    ========          =======          =======          ========

       Total available-for-sale securities          $701,085          $51,474          $11,242          $741,317
                                                    ========          =======          =======          ========

</TABLE>






                                       89
<PAGE>


INCORPORATED BY REFERENCE, PAGE 38 AND 39 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS


                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 3.       INVESTMENTS (CONTINUED)

              Sources  of net  investment  income  follow  for the  years  ended
              December 31:
<TABLE>
<CAPTION>

                                                      1999             1998             1997
                                                    -------          -------          -------
              <S>                                   <C>              <C>              <C>
              Fixed maturities                      $47,068          $42,068          $39,466
              Equity securities                       7,134            8,120            8,942
              Other                                   3,706            3,668            2,919
                                                    -------          -------          -------
              Total investment income               $57,908          $53,856          $51,327
              Investment expense                      1,695            1,527            1,413
                                                    -------          -------          -------
              Net investment income                 $56,213          $52,329          $49,914
                                                    =======          =======          =======

</TABLE>

              Sources of realized gains and losses on  investments  reflected in
              operations follow for the years ended December 31:
<TABLE>
<CAPTION>
                                                      1999             1998             1997
                                                    -------          -------          -------
              <S>                                   <C>              <C>              <C>
              Realized gains:
                Fixed maturities                    $1,755           $1,936           $1,264
                Equity securities                    5,218            3,657            4,466
                Other, net                               0              180                0
                                                    ------           ------           ------
              Total gains                           $6,973           $5,773           $5,730
                                                    ------           ------           ------
              Realized losses:
                Fixed maturities                    $  360           $  207           $  353
                Equity securities                    2,280              683              176
                                                    ------           ------           ------
              Total losses                          $2,640           $  890           $  529
                                                    ------           ------           ------
              Net realized gains on investments     $4,333           $4,883           $5,201
                                                    ======           ======           ======

</TABLE>

              The  following  is a summary of fixed  maturities  at December 31,
              1999, by remaining term to contractual maturity:
<TABLE>
<CAPTION>

                                                                    Amortized        Estimated
                                                                       Cost          Fair Value
                                                                    ---------        ----------
              <S>                                                    <C>              <C>
              Due in one year or less                                $  7,662         $  7,649
              Due after one year through five years                   217,826          213,038
              Due after five years through ten years                  110,620          106,160
              Due after ten years                                     315,551          302,030
                                                                     --------         --------
                                                                     $651,659         $628,877
                                                                     ========         ========

</TABLE>






                                       90
<PAGE>


INCORPORATED BY REFERENCE, PAGE 39 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS


                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 3.         INVESTMENTS (CONTINUED)


                Bonds having a fair value of $1,898 at December 31, 1999 were on
                deposit with various regulatory  authorities as required by law.
                Fixed  maturities  (bonds)  having a fair value of  $15,019  are
                pledged as  collateral  on a $10,000 line of credit with a bank.
                There were no borrowings on the line during 1999 and 1998.

                Net unrealized  gains and losses on investments  are credited or
                charged directly to other comprehensive  income. At December 31,
                1999, net unrealized  losses on investment  securities of $2,344
                consisted  of  $34,652  in  unrealized  gains  less  $38,258  in
                unrealized losses and a deferred tax benefit of $1,262.

                Changes in unrealized  (losses)  gains include the following for
                the years ended December 31:
<TABLE>
<CAPTION>

                                                                         1999             1998             1997
                                                                        ------           ------           ------
                 <S>                                                  <C>              <C>              <C>
                 Equity securities                                     $ 6,237          $ 2,129          $ 3,966
                 Fixed maturities                                     ( 51,830)           6,664           16,482
                 Other invested assets                                   1,723               31                0
                 Deferred federal income tax
                    benefit (expense)                                   15,354         (  3,088)        (  7,156)
                                                                       -------          -------          -------
                (Decrease) increase in
                    unrealized (losses) gains                         ($28,516)         $ 5,736          $13,292
                                                                       =======          =======          =======

</TABLE>


NOTE 4.         COMPREHENSIVE INCOME

                The Company adopted the provisions of the Statement of Financial
                Accounting  Standards  (FAS) No. 130,  "Reporting  Comprehensive
                Income," in 1998.  Comprehensive income is defined as any change
                in equity from  transactions  and other events  originating from
                nonowner sources.  The components of other comprehensive  income
                follow for the years ended December 31:
<TABLE>
<CAPTION>

                                                                        1999             1998             1997
                                                                      --------         --------         --------
                <S>                                                   <C>              <C>              <C>
                Unrealized holding (losses) gains arising
                  during period                                       ($48,203)         $13,707          $25,649
                Less:  reclassification adjustment for gains
                  included in net income                                 4,333            4,883            5,201
                                                                       -------          -------          -------
                Net unrealized holdings (losses) gains
                  arising during period                               ($43,870)         $ 8,824          $20,448
                                                                       -------          -------          -------
                Income tax benefit (expense) related to
                  unrealized (losses) or gains                         $15,354         ($ 3,088)        ($ 7,156)
                                                                       -------          -------          -------
                Other comprehensive (loss) income, net
                  of tax                                              ($28,516)         $ 5,736          $13,292
                                                                       =======          =======          =======

</TABLE>






                                       91
<PAGE>


INCORPORATED BY REFERENCE, PAGES 39 AND 40 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS


                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 5.         LIABILITY FOR UNPAID POLICY AND CONTRACT CLAIMS

                Activity in the liability for unpaid policy and contract  claims
                is as follows:
<TABLE>
<CAPTION>

                                                                         1999            1998             1997
                                                                      --------         -------          --------
                <S>                                                   <C>              <C>              <C>
                Balance at January 1                                   $ 1,801          $2,050           $ 1,703
                Less reinsurance recoverables                         (    449)        (   163)         (    133)
                                                                       -------          ------           -------
                Net balance at January 1                               $ 1,352          $1,887           $ 1,570

                Total death claims incurred                             10,231           8,459            11,117
                Total death claims paid,
                  net of reinsurance recoveries                         10,462           8,994            10,800
                                                                       -------          ------           -------
                Net balance at December 31                             $ 1,121          $1,352           $ 1,887
                Plus reinsurance recoverables                              184             449               163

                Balance at December 31                                 $ 1,305          $1,801           $ 2,050
                                                                       =======          ======           =======

</TABLE>


NOTE 6.         LIFE PREMIUMS AND ANNUITY & UNIVERSAL LIFE DEPOSITS


                The  Company  offers  a range  of  products  and  services,  but
                operates as one reportable life insurance segment. 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. The face value of new
                life  business  issued  in  1999  had a  ratio  of 5:1  of  term
                insurance to whole life insurance coverage.
<TABLE>
<CAPTION>

                                                                       1999             1998             1997
                                                                      -------          -------          -------
                <S>                                                   <C>              <C>              <C>
                Life Insurance Premiums earned:
                  Term                                                $27,256          $25,258          $23,168
                  Whole life                                            5,092            4,781            4,637
                  Universal life                                       10,625            9,748            8,783
                  Other                                                 2,508            2,405            2,255
                                                                      -------          -------          -------
                Total direct premiums earned                           45,481           42,192           38,843
                  Reinsurance, net                                      3,795            3,953            3,649
                                                                      -------          -------          -------
                                                                      $41,686          $38,239          $35,194
                                                                      =======          =======          =======
                Deposits:
                  Universal life                                      $11,792          $10,692          $10,734
                  Annuity                                              67,115           56,728           58,306
                                                                      -------          -------          -------
                                                                      $78,907          $67,420          $69,040
                                                                      =======          =======          =======

</TABLE>

                Annuity deposits in 1999, 1998 and 1997 included $5,322,  $6,413
                and  $1,992,  respectively,  of  deposits  on annuity  contracts
                purchased  by the  Erie  Insurance  Group  Retirement  Plan  for
                Employees.  Structured  settlement  annuities sold to affiliated
                property and  casualty  companies  of the Erie  Insurance  Group
                totaled  $23,312,  $17,883 and $17,781,  in 1999, 1998 and 1997,
                respectively.






                                       92
<PAGE>


INCORPORATED BY REFERENCE, PAGE 40 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS


                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 7.         FEDERAL INCOME TAXES

                The provision for federal income taxes consists of the following
                for the years ended December 31:
<TABLE>
<CAPTION>
                                                                       1999             1998             1997
                                                                      -------          -------          -------
                  <S>                                                 <C>              <C>              <C>
                  Current                                             $ 9,646          $ 8,101          $ 9,005
                  Deferred                                              1,955            3,755            1,638
                                                                      -------          -------          -------
                                                                      $11,601          $11,856          $10,643
                                                                      =======          =======          =======

</TABLE>


                A reconciliation  of the provision for income taxes with amounts
                determined by applying the statutory federal income tax rates to
                pre-tax income is as follows:
<TABLE>
<CAPTION>


                                                                         1999            1998             1997
                                                                       -------         -------          -------
                <S>                                                   <C>              <C>              <C>
                Federal income taxes at statutory rates                $12,224          $11,879          $10,571
                Dividends received deduction and
                  tax-exempt interest                                 (     85)        (    182)        (    299)
                Other                                                 (    538)             159              371
                                                                       -------          -------          -------
                Provision for federal income taxes                     $11,601          $11,856          $10,643
                                                                       =======          =======          =======

</TABLE>



                Temporary  differences  between the financial statement carrying
                amounts and tax bases of assets and  liabilities  that give rise
                to deferred tax liabilities are as follows:
<TABLE>
<CAPTION>

                                                                                              December 31,
                                                                                         1999             1998
                                                                                       --------         --------
                <S>                                                                    <C>              <C>
                Deferred policy acquisition costs                                       $23,538          $21,523
                Liability for future life and annuity policy benefits                  (  5,577)        (  6,117)
                Unrealized (losses) gains                                              (  1,262)          14,092
                Other                                                                     1,154            1,754
                                                                                        -------          -------
                      Deferred income tax liability                                     $17,853          $31,252
                                                                                        =======          =======
</TABLE>


NOTE 8.         RELATED PARTY TRANSACTIONS

                Expense reimbursements

                    Reimbursements to EIC for operating  expenses paid on behalf
                    of the  Company are made on a monthly  basis.  The amount of
                    these   reimbursements  for  the  Company  totaled  $14,740,
                    $14,305 and $13,038 in 1999, 1998 and 1997, respectively.

                    The Employees of the Company  participate in the pension and
                    other Employee  benefit plans of EIC. The benefits are based
                    on years of service and salary.  Pension costs are funded by
                    EIC in amounts  sufficient  to at least  meet ERISA  minimum
                    funding  requirements.   Pension  and  other  benefit  costs
                    reimbursed by the Company to EIC equaled $115, $181 and $183
                    in 1999, 1998 and 1997, respectively.


                                        93
<PAGE>


INCORPORATED BY REFERENCE, PAGES 40 AND 41 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS


                    ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 8.         RELATED PARTY TRANSACTIONS (CONTINUED)

                Annuities purchased by affiliates

                    The Erie Insurance  Group  affiliated  property and casualty
                    insurance companies periodically purchase annuities from the
                    Company in  connection  with the  structured  settlement  of
                    claims.  Also, the Erie Insurance Group  Retirement Plan for
                    Employees purchases from the Company,  individual  annuities
                    for  some  terminated   vested  Employees  or  beneficiaries
                    receiving benefits  (excluding  disabled and deferred vested
                    participants). These are non-participating annuity contracts
                    under which the Company has  unconditionally  contracted  to
                    provide specified  benefits to beneficiaries in return for a
                    fixed premium from the plan.

                    Annuity  deposit  balances  outstanding  relating to pension
                    annuities sold to the Erie Insurance  Group  Retirement Plan
                    are  $42,131  and  $38,774 at  December  31,  1999 and 1998,
                    respectively.  The reserves held for  structured  settlement
                    annuities  sold  to the  affiliated  property  and  casualty
                    insurance  companies equal $149,920 and $128,382 at December
                    31, 1999 and 1998, respectively. See also Note 6.

                Note payable to EIC

                    The  $15,000  note  payable to EIC bears an annual  interest
                    rate of 6.45% and all payments of interest and  principal of
                    the note may be repaid only out of unassigned surplus of the
                    Company,  subject  to  prior  approval  of the  Pennsylvania
                    Insurance  Commissioner.  Interest  on the  surplus  note is
                    scheduled to be paid semi-annually. The note will be payable
                    on demand on or after December 31, 2005.  During 1999,  1998
                    and 1997,  the Company paid interest to EIC totaling $968 in
                    each year.

                Property and equipment

                    The Company  owns  certain real estate it leases to EIC. The
                    real estate is recorded net of accumulated  depreciation  of
                    $1,362  and   $1,279  at   December   31,   1999  and  1998,
                    respectively.  Rentals paid to the Company  under this lease
                    agreement  totaled  $303 in 1999 and  $343 in  1998.  Future
                    minimum rentals under this agreement are as follows:

                    2000                            $  309
                    2001                               312
                    2002                               318
                    2003                               321
                    2004                               328
                    Thereafter                       1,122
                                                    ------
                    Total                           $2,710
                                                    ======

                    EIC purchases  certain software and equipment for use by the
                    Company. Depreciation and applicable interest are charged to
                    the  Company  throughout  the  estimated  useful life of the
                    asset and  included in general  expenses.  Depreciation  and
                    interest  charged the  Company in 1999 and 1998  amounted to
                    $574 and $384, respectively.






                                       94
<PAGE>


 INCORPORATED BY REFERENCE, PAGE 41 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS


                      ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 9.         REINSURANCE

                The Company  cedes  insurance to other  insurers and  reinsurers
                under  individual  risk  contracts.   Reinsurance   arrangements
                mitigate losses arising from large risks.

                Amounts recoverable or credited under reinsurance  contracts are
                included in total assets as  reinsurance  recoverable or reserve
                credit for reinsurance ceded. The cost of reinsurance related to
                long-duration  contracts is  accounted  for over the life of the
                reinsured policies using assumptions  consistent with those used
                to account for the underlying policies.

                A  contingent  liability  exists  with  respect  to  reinsurance
                receivables and the reserve credit for  reinsurance  ceded which
                would become a liability in the event such reinsurance companies
                are  unable  to  meet  their   obligations  under  the  existing
                reinsurance  agreements.  These  agreements  do not  relieve the
                Company of its primary obligation to its Policyholders.

                Policy  revenues,   benefits  and  expenses   reflected  in  the
                Statements  of  Operations  have been  reduced by the  following
                amounts due to reinsurance cessions:
<TABLE>
<CAPTION>

                                                                       1999             1998             1997
                                                                      ------           ------           ------
                <S>                                                   <C>              <C>              <C>
                Policy revenue                                        $3,920           $4,054           $3,761

                Death benefits                                         1,766            1,490            1,319

                Future life policy benefits                              932              953              842

                Commissions                                            1,567            1,654            1,462

</TABLE>

                The Company has an insignificant  amount of assumed  reinsurance
                activity.

NOTE 10.        STATUTORY INFORMATION

                The Company  prepares  its  statutory  financial  statements  in
                accordance   with   accounting   practices   prescribed  by  the
                Pennsylvania Insurance Department. Accounting principles used to
                prepare  statutory  financial  statements  differ from financial
                statements   prepared  on  the  basis  of   generally   accepted
                accounting principles.






                                       95
<PAGE>


INCORPORATED BY REFERENCE, PAGES 41 AND 42 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS


                       ERIE FAMILY LIE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 10.        STATUTORY INFORMATION (CONTINUED)

                A  reconciliation   of  net  income  as  filed  with  regulatory
                authorities to net income reported in the accompanying financial
                statements for the years ended December 31, 1999, 1998 and 1997,
                follows:
<TABLE>
<CAPTION>

                                                                         1999             1998             1997
                                                                       -------          -------          -------
                <S>                                                   <C>              <C>              <C>
                Statutory net income                                   $14,372          $13,787          $12,924

                Reconciling items:
                  Policy liabilities and accruals                        3,743            2,344            1,024
                  Deferred policy acquisition costs,
                    net of amortization                                  6,672            6,349            6,540
                  Investment valuation differences                         349            2,360            1,015
                  Deferred taxes                                      (  1,955)        (  3,755)        (  1,638)
                  Capitalized salaries and benefits                        953            1,541                0
                  Other                                               (    809)        (    541)        (    305)
                                                                       -------          -------          -------
                GAAP net income                                        $23,325          $22,085          $19,560
                                                                       =======          =======          =======

</TABLE>

                A  reconciliation   of   shareholders'   equity  as  filed  with
                regulatory  authorities to shareholders'  equity reported in the
                accompanying  financial  statements  as of December 31, 1999 and
                1998, follows:
<TABLE>
<CAPTION>

                                                                                          1999             1998
                                                                                        --------         --------
                <S>                                                                    <C>              <C>
                Statutory shareholders' equity                                          $ 99,181         $ 85,907

                Reconciling items:
                  Asset valuation and interest
                    maintenance reserves                                                  45,084           37,324
                  Investment valuation differences                                     (  25,824)          30,745
                  Deferred policy acquisition costs                                       77,588           70,916
                  Surplus note                                                         (  15,000)       (  15,000)
                  Policy liabilities and accruals                                         10,190            6,447
                  Deferred taxes                                                       (  17,853)       (  31,252)
                  Deferred and uncollected premiums                                    (   5,458)       (   4,807)
                  Capitalized salaries and benefits, net of amortization                   2,495            1,541
                  Other                                                                      700              710
                                                                                        --------         --------
                GAAP shareholders' equity                                               $171,103         $182,531
                                                                                        ========         ========

</TABLE>

                The amount of dividends the Company can pay to its  shareholders
                without  the  prior  approval  of  the  Pennsylvania   Insurance
                Commissioner  is limited by  statute to the  greater  of: (a) 10
                percent of its  statutory  surplus as regards  policyholders  as
                shown  on  its  last   annual   statement   on  file   with  the
                commissioner,  or (b) the net income as reported  for the period
                covered by such annual statement, but shall not include pro rata
                distribution  of any  class  of the  insurer's  own  securities.
                Accordingly,  the maximum  dividend  payout which may be made in
                2000  without  prior  Pennsylvania   Commissioner   approval  is
                $14,372.  Dividends  declared to shareholders  totaled $6,237 in
                1999, and $5,670 in 1998.






                                       96
<PAGE>


INCORPORATED BY REFERENCE, PAGE 42 AND 43 OF THE COMPANY'S 1999 ANNUAL
 REPORT TO SHAREHOLDERS


                       ERIE FAMILY LIFE INSURANCE COMPANY

                          NOTES TO FINANCIAL STATEMENTS


NOTE 11.        QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

                  The  following  results are  unaudited.  In the opinion of the
                  Company's  management,  all  adjustments - consisting  only of
                  normal recurring  accruals - necessary for a fair presentation
                  of the interim periods presented have been included.
<TABLE>
<CAPTION>

                                                      First            Second            Third           Fourth
                                                     Quarter           Quarter          Quarter          Quarter
                                                     -------           -------          -------          -------
<S>                                                 <C>               <C>              <C>              <C>
1999

Total policy revenue                                 $ 9,844           $10,978          $10,176          $10,688
Net investment income                                 13,370            13,930           14,139           14,774
Net realized gains (losses) on investments               825             1,826            2,236         (    554)
Other income                                             237               135              219              101
                                                     -------           -------          -------          -------
  Total revenues                                     $24,276           $26,869          $26,770          $25,009
                                                     =======           =======          =======          =======

Income from operations                               $ 7,433           $ 9,339          $ 9,450          $ 8,704
Provision for federal income taxes                     2,551             3,460            2,718            2,872
                                                     -------           -------          -------          -------
   Net income                                        $ 4,882           $ 5,879          $ 6,732          $ 5,832
                                                     =======           =======          =======          =======
   Net income per share                              $  0.52           $  0.62          $  0.71          $  0.62
                                                     =======           =======          =======          =======
Comprehensive (loss) income                         ($ 2,086)         ($ 4,831)        ($ 4,162)         $ 5,888
                                                     =======           =======          =======          =======
1998

Total policy revenue                                 $ 8,981           $ 9,833          $ 9,494          $ 9,931
Net investment income                                 12,790            12,996           12,575           13,968
Net realized gains on investments                      1,836               866              775            1,406
Other income                                             164               226              238              131
                                                     -------           -------          -------          -------
  Total revenues                                     $23,771           $23,921          $23,082          $25,436
                                                     =======           =======          =======          =======

Income from operations                               $10,017           $ 8,617          $ 5,910          $ 9,397
Provision for federal income taxes                     3,519             3,053            2,247            3,037
                                                     -------           -------          -------          -------
  Net income                                         $ 6,498           $ 5,564          $ 3,663          $ 6,360
                                                     =======           =======          =======          =======
  Net income per share                               $  0.69           $  0.59          $  0.39          $  0.67
                                                     =======           =======          =======          =======
Comprehensive income (loss)                          $ 8,754           $ 7,877         ($ 2,464)         $13,654
                                                     =======           =======          =======          =======
1997

Total policy revenue                                 $ 8,468           $ 8,814          $ 8,661          $ 9,251
Net investment income                                 12,401            12,211           12,419           12,883
Net realized gains on investments                        622               746            2,508            1,325
Other income                                             140               186              190              212
                                                     -------           -------          -------          -------
   Total revenues                                    $21,631           $21,957          $23,778          $23,671
                                                     =======           =======          =======          =======

Income from operations                               $ 6,586           $ 6,997          $ 9,058          $ 7,562
Provision for federal income taxes                     2,185             2,384            3,531            2,543
                                                     -------           -------          -------          -------
   Net income                                        $ 4,401           $ 4,613          $ 5,527          $ 5,019
                                                     =======           =======          =======          =======
   Net income per share                              $  0.47           $  0.49          $  0.58          $  0.53
                                                     =======           =======          =======          =======
Comprehensive (loss) income                         ($ 5,748)          $15,107          $15,701          $ 7,792
                                                     =======           =======          =======          =======

</TABLE>
                                       97