INCORPORATED BY REFERENCE, PAGE 12 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS

SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

                                                          Years Ended December 31
<S>                              <C>              <C>              <C>              <C>              <C>            
                                      1995             1994             1993             1992             1991
Policy Revenue                   $  28,073,997    $  24,893,483    $  22,156,822    $  19,415,368    $  16,845,423
Investment & Other Income           50,275,954       41,875,339       42,630,274       39,107,928       22,436,810

Total Revenue                    $  78,349,951    $  66,768,822    $  64,787,096    $  58,523,296    $  39,282,233

Benefits & Expenses                 51,946,079       40,289,316       36,910,821       33,181,761       28,276,198

Operating Income Before Taxes       26,403,872       26,479,506       27,876,275       25,341,535       11,006,035

Federal Income Tax (Benefit):
     Current                         7,607,573        8,179,901        8,275,631        7,791,598        3,923,121
     Deferred                          914,707        1,469,927        1,496,402        1,655,339         (538,121)
Total Federal Income Tax             8,522,280        9,649,828        9,772,033        9,446,937        3,385,000

Cumulative effect on years prior 
to 1993 on changing the method of
accounting for income taxes                  0                0         (567,610)               0                0

Net Income                       $  17,881,592    $  16,829,678    $  17,536,632    $  15,894,598    $   7,621,035

Earnings per share               $        5.68    $        5.34    $        5.57    $        5.05    $        2.42
Cash dividends declared per share$        1.36    $        1.20    $        1.10    $        1.00    $        0.92
Total Assets                     $ 673,794,161    $ 528,632,132    $ 455,135,563    $ 376,485,292    $ 297,626,775
Shareholders Equity              $ 128,905,402    $  90,855,581    $  89,744,886    $  75,427,308    $  63,388,207
Book Value per share             $       40.92    $       28.84    $       28.49    $       23.95    $       20.12
Average Number of
     Shares Outstanding              3,150,000        3,150,000        3,150,000        3,150,000        3,150,000

</TABLE>
<PAGE>
INCORPORATED BY REFERENCE, PAGE 13 OF THE COMPANY'S 1995 ANNUAL
                    REPORT TO SHAREHOLDERS

                 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 21 - 28,  since  they
contain  important  information  that is helpful  in  evaluating  our  operating
results and financial condition. (Note: A glossary of certain terms used in this
discussion can be found on page 19. The terms are italicized the first time they
appear in the text.)



OVERVIEW

Erie  Family  Life  Insurance  Company  (the  Company)  is  incorporated  in the
Commonwealth of Pennsylvania.  The Company is primarily  engaged in the business
of  underwriting  and  selling  non-participating   individual  and  group  life
insurance policies,  including universal life and annuity products.  The Company
markets its products through independent Agents and is licensed in 10 states and
the District of Columbia in the Eastern U.S. and is subject to  supervision  and
regulations  of the  states in which it does  business.  A large  portion of the
Company's business is written in Pennsylvania.

Net  Income  increased  to  $17,881,592,  or  $5.68  per  share,  in  1995  from
$16,829,678,  or $5.34 per share in 1994,  a  increase  of 6.3  percent.  Policy
revenues grew by 12.8 percent in 1995 and life insurance in force grew by almost
$1.1  billion  during 1995,  with total life  insurance in force at December 31,
1995 growing to almost $9.6 billion. Investment income, net of expenses, grew by
15.2  percent to  $40,962,812  in 1995 from  $35,566,249  in 1994.  Total assets
increased by 27.5 percent to $673,794,161.



REVENUES

Policy Revenues

Life premiums  increased 12.4 percent to $25,764,413 in 1995 from $22,931,783 in
1994 and $20,440,636 in 1993. New life insurance coverage placed in force during
1995 was  $1,877,983,000,  compared to $1,884,722,000 in 1994 and $1,580,014,000
in 1993.  This  represents  a decrease of 0.4 percent in 1995 and an increase of
19.3 percent in 1994.  First year life  insurance  premiums  were  $5,624,117 in
1995,  $5,563,765 in 1994 and  $4,567,631 in 1993, an increase of 1.1 percent in
1995 and 21.8 percent in 1994. Renewal premium increased 16.0 percent in 1995 as
the overall company lapse ratio  continued to decline.  Group premiums rose 17.7
percent to $2,309,584 in 1995 from $1,961,700 as new competitive  rates on group
products increased sales.

First-year and single  universal life and annuity  deposits were  $57,606,715 in
1995,  $53,965,315 in 1994 and $42,602,356 in 1993,  representing an increase of
6.7 percent in 1995 and 26.7 percent in 1994.  Total annuity and universal  life
deposits were $74,541,897, $69,530,697, and $56,680,713 in 1995, 1994, and 1993,


<PAGE>
INCORPORATED BY REFERENCE, PAGE 13 OF THE COMPANY'S 1995 ANNUAL
                    REPORT TO SHAREHOLDERS


respectively.  Annuity  deposits  recorded in connection with annuity  contracts
purchased  by the  Erie  Insurance  Group  Retirement  Plan for  retired  vested
employees receiving benefits were $6,024,125,  $8,880,714,  and $0 for the years
ended December 31, 1995, 1994, and 1993, respectively.  Also included in annuity
deposits are annuities purchased by affiliated  property/casualty  companies for
use in connection with the structured settlement of insurance claims. Structured
settlement  annuity  deposits sold to Erie Insurance Group  affiliate  companies
totalled  $22,018,313,  $11,431,965,  and  $7,516,908  in 1995,  1994 and  1993,
respectively.

The Company's lapse ratio, as reported to the Pennsylvania Insurance Department,
fell to 7.9 percent in 1995, a positive  trend which has  continued  for several
years.  The lapse  ratio was 8.4  percent in 1994 and 9.1  percent in 1993.  The
lapse ratio is an important  measure of the success of the  Company's  sales and
service efforts.  Consequently, it is closely monitored as a barometer of future
life  insurance  product  profitability  and  premium  growth.  The 6.0  percent
improvement  in the lapse ratio in 1995 is  reflective  of  management's  policy
conservation  efforts  and the  Company's  sales  practices.  The decline in the
policy lapse ratio  contributed to the growth in Company  renewal life insurance
premiums in 1995.



Investment Income, Net of Expenses

Net investment  income in 1995 was  $40,962,812  compared to $35,566,249 in 1994
and $30,928,611 in 1993, an increase of 15.2 percent in 1995 and 15.0 percent in
1994. The ratio of net investment income to mean invested assets during 1995 was
7.78  percent  compared  to 8.33  percent  in 1994  and  8.67  percent  in 1993.
Investment  yields  declined  in 1995  coinciding  with the  general  decline in
interest rates during the year.  Fueling the growth in investment income was the
Company's  cash flows  generated  from annuity and  universal  life deposits and
operating income.



Realized Gain on Investments

During 1995 and 1994,  the Company  generated  realized  gains of $7,483,798 and
$4,411,334  respectively,   consisting  entirely  of  gains  from  the  sale  of
securities.   In  1993,  the  Company  had  realized  gains  on  investments  of
$10,433,318.  This  amount  consisted  of  gains on the  sale  and  maturity  of
securities  of  $12,408,318  net of  $1,200,000  in losses for a write-down of a
limited  partnership  interest  and  $775,000  in losses for a  write-down  of a
mortgage loan that became impaired during the period.


BENEFITS AND EXPENSES

Death Benefits

Net death benefits on life insurance  policies increased 82.8 percent in 1995 to
$7,438,758,  compared to $4,068,876 in 1994 and $4,639,349 in 1993. Although the
rise in death  benefits in 1995 was  dramatic,  from 1992 through 1995 net death
benefits  increased  by about 56 percent  which was in line with the increase in
the  Company's  life  insurance  in force of 52 percent,  over the same  period.
Mortality experience should be


<PAGE>
INCORPORATED BY REFERENCE, PAGE 14 OF THE COMPANY'S 1995 ANNUAL
                    REPORT TO SHAREHOLDERS


analyzed  for  long-term  trends,   rather  than  short  periods  where  unusual
fluctuations may influence the results.  This is particularly true for a company
the size of Erie Family Life,  which is growing.  The Company  believes that its
underwriting philosophy and practices are sound and positively contribute to the
mortality results experienced over the last several years.

During 1995, the Company introduced its new "Accelerated  Benefits Option" which
allows  terminally  ill   Policyholders  to  access  life  insurance   benefits.
Policyholders  who qualify may  receive up to 50 percent of their  policy  death
benefit, not to exceed $250,000 per person, while they are still alive. This new
rider was made available on most new and existing life insurance  policies at no
additional  premium.  Administrative  fees and interest charges are applied only
when death benefits are advanced.

Interest on Annuity and Universal Life Deposits

Total  interest  credited  on deposits  rose 25.8  percent to  $25,347,183  from
$20,145,355  in 1994.  This increase in interest  expense was due to new annuity
and universal life deposits of $74,541,897 made by Policyholders during 1995. At
December  31, 1995  annuity  deposits  accruing  interest  were $405 million and
universal  life deposits  accruing  interest were $46 million.  During 1995, the
interest rate credited on universal life deposits dropped from a 6.50 percent to
7.25 percent range on January 1, 1995 to a 6.25 percent to 7.00 percent range on
December 31, 1995.  The rates credited on annuity  deposits  dropped from a 5.35
percent to 6.50 percent  range at the  beginning  of 1995,  to a 5.00 percent to
6.00 percent range at the end of 1995.

On January 1, 1996,  a "10 Percent  Preferred  Withdrawal"  feature was added to
Erie Family Life annuity policies. This feature allows Policyholders to withdraw
up to 10 percent of their value without incurring a surrender charge,  once each
policy year.

Increase in Future Life Policy Benefits

The liability for future life policy  benefits is computed  considering  various
factors such as anticipated mortality, future investment yields, withdrawals and
anticipated  credit for  reinsurance.  The 1995  increase  in future life policy
benefits  equalled  $4,619,996  compared to $2,611,084 in 1994 and $2,300,681 in
1993.  The  increase  in 1995 is due to a  reduction  in  estimated  reinsurance
credits  against the liability for future policy life  benefits,  an increase in
the provision for future life benefits on disabled  lives,  along with a general
increase in the provision due to the increased life insurance in force.

Beginning  January  1,  1995,  the  retention  limit on an  acceptable  risk was
increased to $300,000 on each individual life written. Prior to January 1, 1995,
the limit was $225,000.

Amortization of Deferred Policy Acquisition Costs

Generally,  the costs  incurred  by the Company to acquire  business,  including
underwriting,  commission  and  bonus  costs,  are  deferred.  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.  The  amortization of deferred  acquisition
costs (DAC) rose 19.1 percent to $2,358,127 in 1995 from $1,979,765 in 1994. The
growth in  amortization  expense  was  affected  by changes  in premium  revenue
patterns and policy persistency.


<PAGE>
INCORPORATED BY REFERENCE, PAGE 14 AND 15 OF THE COMPANY'S 1995 ANNUAL
                    REPORT TO SHAREHOLDERS


Commissions

In 1995, commission expenses increased 22.3 percent to $2,804,328.  Most of this
commission  increase was due to an increase in life  insurance  premiums of 12.4
percent  along with an  increase  in the average  commission  rate.  The average
commission  rate  increased  due to an increase in  persistency  for policies in
their  second  policy  year as well as  changes  in the mix of life and  annuity
business sold.  Second year renewal  commission  rates are higher than third and
subsequent year commission  rates and increases in second year  persistency will
result in an increase in the average commission rate.

Commission costs, which vary with and are primarily related to the production of
new business, have been deferred and are capitalized as DAC. Most first year and
some  second  year  commissions  qualify  for  deferral.  These  costs are being
amortized over the premium  paying period of the related  policies in proportion
to the ratio of the  annual  premium  revenue to the total  anticipated  premium
revenue (see Note 3 of the Notes to Financial Statements).

General Expenses

General  expenses  amounted to  $5,802,088  compared to  $5,775,026  in 1994 and
$5,120,063  in 1993.  General  expenses  include  wages and  salaries,  employee
benefits,  data  processing  expenses,  occupancy  expenses and other office and
general administrative expenses of the Company.  Certain general expenses of the
Company are deferred as policy  acquisition  costs.  Medical inspection and exam
fees related to new business production,  wages,  salaries and employee benefits
of  underwriting  personnel,  and bonuses paid to branch sales employees for the
production of life and annuity business, are all deferred.  Deferred acquisition
costs are amortized  over the premium  paying period of the related  policies in
proportion to the ratio of the annual premium  revenue to the total  anticipated
premium revenue.

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

Taxes, Licenses and Fees

Taxes,  licenses and fees increased  $46,374 to $2,854,187 in 1995. The increase
was due to  increased  assessments  made by the state  life  insurance  guaranty
associations.  These assessments totaled $1,251,000 in 1995,  $1,072,000 in 1994
and $604,000 in 1993.  The  assessments  are mandated by statute and are used by
the various state life insurance  guaranty  associations  to guarantee the life,
annuity and health insurance  policies of companies that have become  insolvent.
About $340,000 of the 1995  assessments,  $300,000 of the 1994  assessments  and
$330,000 of the 1993  assessments  can be recovered as credits on the  Company's
state premium tax returns. These credits have generally remained available,  but
are not guaranteed by the states. In 1991, the Pennsylvania  legislature enacted
a new law that  imposed a 2 percent  premium  tax on all  non-qualified  annuity
premiums.  This tax increased  the Company's  premium taxes by $686,000 in 1995,
$522,000  in 1994 and  $500,000  in 1993.  On June 30,  1995,  Pennsylvania  Act
21-1995 was signed into law which  repeals  the tax on  non-qualified  annuities
beginning January 1, 1996.


<PAGE>
INCORPORATED BY REFERENCE, PAGE 15 OF THE COMPANY'S 1995 ANNUAL
                    REPORT TO SHAREHOLDERS



Federal Income Taxes

Federal income tax expense amounted to $8,522,280 in 1995 compared to $9,649,828
in 1994.  Income from operations  decreased 0.3 percent in 1995 when compared to
1994,  while the federal income tax provision  decreased by 11.7 percent for the
same period. Part of this difference was caused by the prior year federal income
tax  provision  being  adjusted  to  actual.  This  adjustment  caused  the 1995
provision  to  decrease  by  $425,000  and the 1994  provision  to  increase  by
$123,000.



LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of an entity's  ability to secure enough cash to meet its
contractual  obligation 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 1995 was $8,297,378, compared to $12,805,742
in 1994, and $5,270,735 in 1993. The Company's liquidity position remains strong
as invested  assets grew by 23.9 percent during 1995 to $569 million at December
31, 1995. The majority of invested assets are liquid marketable securities.

Premium  from the sale of new  policies  combined  with the  premium on existing
policies accounted for approximately 35.8 percent of total revenue in 1995, 37.3
percent in 1994, and 34.2 percent in 1993.  Investment  income, net of expenses,
generated  52.3 percent of total revenue in 1995,  53.3 percent in 1994 and 47.7
percent in 1993.  Also,  the Company had a realized  gain on  investments  which
generated  9.6  percent of total  revenue in 1995,  6.6 percent in 1994 and 16.1
percent in 1993.

Annuity  and  universal  life  deposits,  which do not  appear as revenue on the
financial  statements,  also  generate  cash.  These  deposits  do not involve a
mortality or morbidity  risk and are accounted  for using methods  applicable to
comparable   "interest-bearing   obligations"   of  other  types  of   financial
institutions.  This method of accounting  records deposits as a liability rather
than as a revenue. Annuity and universal life deposits were $74,541,897 in 1995,
$69,530,697 in 1994, and $56,680,713 in 1993.

The Company's current  commitments for expenditures as of December 31, 1995, are
primarily for policy death benefits, policy surrenders and withdrawals,  general
operating  expense,  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,  its liquid assets and marketable securities, and its line of credit
with PNC Bank will enable the Company to meet any foreseeable cash requirements.
At December 31,  1995,  the  Company's  line of credit with PNC Bank totaled $10
million, none of which was outstanding.

The amount of dividends Erie Family Life, a Pennsylvania-domiciled life insurer,
can pay to its  shareholders  without  the prior  approval  of the  Pennsylvania
Insurance  Commissioner  is limited by statute to not more than the  greater of:
(a) 10 percent of its statutory surplus as regards  policyholders as reported on
its last annual


<PAGE>
INCORPORATED BY REFERENCE, PAGE 15 AND 16 OF THE COMPANY'S 1995 ANNUAL
                    REPORT TO SHAREHOLDERS



statement,  or (b) the net income of the  insurer as reported on its last annual
statement,  not  including  any  pro  rata  distributions  of any  class  of the
insurer's own securities.  Accordingly, the maximum dividend payout which may be
made in 1996 without prior Pennsylvania commissioner approval is $9,373,000.

The Commonwealth of Pennsylvania has adopted the statutory  accounting practices
(SAP) minimum risk-based capital  requirements for domestic insurance companies
that were  developed by the  National  Association  of  Insurance  Commissioners
(NAIC).  The formulas for determining  the amount of risk-based  capital specify
various  weighing  factors  that are  applied to  financial  balances or various
levels  of  activity  based on the  perceived  degree  of risk.  These  formulas
determine a ratio of the  Company's  regulatory  total  adjusted  capital to its
authorized control level risk-based capital,  as defined by the NAIC.  Companies
below specific  trigger points or ratios are classified  within certain  levels,
each of which requires specified corrective action. The levels and ratios are as
follows:


                                    Ratio of Total Adjusted Capital to
                                    Authorized Control Level Risk-Based
  Regulatory Event                  Capital (Less than or Equal to)

Company action level                2 (or 2.5 with negative trends)
Regulatory action level             1.5
Authorized control level            1
Mandatory control level              .7


Erie Family Life has regulatory  total  adjusted  capital of $76 million and $56
million at  December  31,  1995,  and 1994,  respectively,  and a ratio of total
adjusted capital to authorized  control level risk-based  capital of 7.1 and 5.8
at  December  31,  1995,  and 1994,  respectively.  These  levels far exceed the
minimum risk-based capital requirements.

On  December  29,  1995 a Note in the amount of $15  million,  was issued by the
Company in accordance with Section 322.1 of the Pennsylvania  Insurance  Company
Law of 1921 as amended by the Act of December  18,  1992,  P.L.  792 No. 178 (40
P.S. ss.445.1) to the Erie Indemnity Company (EIC) in exchange for a cash sum of
$15  million.  Interest  on this Note will be charged at an annual  rate of 6.45
percent (%).

Notwithstanding  any other  provision  in this  Note,  no  payment of all or any
portion of the  principal  amount of this Note shall be demanded by EIC prior to
December 31, 2005,  provided  that the Company may pay upon ten (10) days' prior
written  notice to EIC, the Interest on, or all or any portion of the  principal
of,  this Note at any time  without  premium  of  penalty,  subject to the prior
consent of the Insurance  Commissioner of the Commonwealth of Pennsylvania  (the
"Commissioner")  to such repayment in accordance  with the provisions of Section
322.1 of the Insurance Company Law of 1921 (40 P.S. ss.445.1).

Commencing on December 31, 2005 the outstanding  principal  balance of this Note
(including  all accrued  Interest)  shall be repayable on demand by EIC or under
such terms as EIC may elect, subject to the prior consent of the Commissioner to
such repayment in accordance  with the  provisions of law.  Payment of principal
and/or  interest  is  subordinated  to payment of all other  liabilities  of the
Company.


<PAGE>
INCORPORATED BY REFERENCE, PAGE 16 OF THE COMPANY'S 1995 ANNUAL
                    REPORT TO SHAREHOLDERS



During  1994,   Pennsylvania  adopted  the  NAIC  Model  Actuarial  Opinion  and
Memorandum Regulation. As a result, the Company's actuarial opinion for 1995 and
1994 included the results of an asset adequacy analysis, based primarily on cash
flow testing.  The testing consisted of 20-year projections of existing business
under  each of ten  different  interest  rate  scenarios.  The  cash  flows  and
projected market value surplus results were positive under all ten scenarios.



RESERVE LIABILITIES

The Company's primary commitment is its obligation to meet the payment of future
policy benefits under the terms of its life insurance and annuity contracts.  To
meet these future  obligations,  the Company establishes life insurance reserves
based upon the type of policy,  the age of the insured,  and the number of years
the policy has been in force. The Company also establishes annuity and universal
life reserves  based on the amount of  Policyholder  deposits  (less  applicable
policy charges) plus interest  earned on those  deposits.  On December 31, 1995,
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  because the  underlying  policy  reserves are  generally  also of a
long-term nature.



INVESTMENTS

The Company's  investment  strategies and portfolios are structured to match the
features of the life  insurance and annuity  products sold by the Company.  Erie
Family Life's  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  prudently  managed on a total return
approach that focuses on current income and capital appreciation.

The Company's  invested  assets also are liquid in order to meet the  short-term
and long-term  commitments  to  Policyholders.  At December 31, 1995 Erie Family
Life's  investment  portfolio of cash and money market  investments,  investment
grade bonds,  common stocks,  and preferred  stocks,  all of which are extremely
marketable,  totaled  $580  million  or 86.1  percent  of  total  assets.  These
resources provide the liquidity the Company requires to meet unforeseen  demands
on its funds.

The total  invested  assets  of the  Company  consist  of  investments  in fixed
maturities,  preferred  stock,  common stock,  real estate,  mortgage and policy
loans and other  invested  assets.  At December 31, 1995,  74.9 percent of total
invested assets were invested in fixed  maturities.  Preferred  stocks represent
21.6  percent or $123  million  and common  stocks  represent  0.6 percent or $3
million of total  invested  assets at December 31,  1995,  while real estate and
mortgage loans make up only 1.6 percent of total invested assets.  Mortgage loan
and real estate investments have the potential for higher returns but also carry
more risk,  including less liquidity and greater  uncertainty of rate of return.
Consequently these investments have been kept to a minimum.
Invested assets at December 31, 1995 and 1994 consisted of the following:



<PAGE>
INCORPORATED BY REFERENCE, PAGE 16 AND 17 OF THE COMPANY'S 1995 ANNUAL
                    REPORT TO SHAREHOLDERS




                                        Invested Assets
                                           Thousands

                                       1995         1994

Fixed Maturities
         Held-to-Maturity            $      0    $160,445
         Available-for-Sale           426,381     175,852
Equity Securities
         Preferred Stock              122,910     100,236
         Common Stock                   3,415       8,126
Real Estate                             1,796       1,899
Mortgage Loans                          7,063       7,633
Policy Loans                            3,694       3,181
Other Invested Assets                   4,166       2,257
Total Invested Assets                $569,425    $459,629


Fixed Maturities

The Company's  fixed  maturities at December 31, 1995 consist of  investments in
bonds of $424.5 million and  investments in redeemable  preferred  stock of $1.9
million.  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 conservatively  managed with the goal of achieving  reasonable  returns while
limiting exposure to risk.

At December 31, 1995 the carrying value of fixed maturities was $426,381,008, or
74.9 percent of total invested assets. At December 31, 1995, the amortized cost,
carrying/market  values,  gross unrealized gains and gross unrealized losses for
fixed maturities were as follows:

                                                Fixed Maturities at 12-31-95
<TABLE>
<CAPTION>

                                               Amortized       Carrying/     Unrealized     Unrealized
                                                  Cost       Market Values     Gains         Losses
<S>                                          <C>            <C>            <C>            <C>

U.S. Treasuries ..........................   $  6,568,499   $  7,442,496   $    874,234   $        237
Political
  subdivisions ...........................      2,063,013      2,310,929        247,916              0
Special revenue ..........................     50,683,120     52,853,098      2,861,312        691,334
Public utilities .........................    101,653,629    105,456,784      4,289,346        486,191
Industrial and
  miscellaneous ..........................    240,803,281    258,317,701     18,138,568        624,148
                                             ------------   ------------   ------------   ------------

Total fixed
  maturities
  available-for-
  sale ...................................   $401,771,542   $426,381,008   $ 26,411,376   $  1,801,910
                                             ============   ============   ============   ============
</TABLE>


<PAGE>
INCORPORATED BY REFERENCE, PAGE 17 AND 18 OF THE COMPANY'S 1995 ANNUAL
                    REPORT TO SHAREHOLDERS



The  bond  investments  included  in the  fixed  maturity  category  consist  of
high-quality,  marketable  securities,  98.2 percent or $416.9 million of which,
are rated at  investment-grade  levels  (Baa/BBB  or  better).  Included in this
investment-grade  category are $282.1 million of bonds  characterized  as of the
"highest"  quality  or "Class  1"  securities  as  defined  by the  NAIC.  Below
investment-grade  bonds totaled $7.6 million at December 31, 1995 and are a very
manageable  1.3  percent  of  total  invested  assets.  Included  in  the  below
investment-grade category are $7.6 million of "medium" quality bonds and none of
the bonds are  considered  "low" quality.  All of the  securities  classified as
below-investment-grade  are current and in good standing.  Generally,  the fixed
maturity  securities  in the Company's  portfolio  are rated by external  rating
agencies.  If not  externally  rated,  they are rated by the  Company on a basis
consistent with the basis used by the rating agencies.

If management  determines that any declines in market value of these investments
are other than temporary,  the securities will be written-down to the realizable
value of the investment and reflected in the statement of operations.  If a bond
is in default of interest  payments and it is determined that liquidation of the
security would be in the Company's  best interest,  the security will be sold to
return the  proceeds  to  income-producing  assets.  During  1993,  the  Company
recorded  provisions  for loss on  other-than-temporary  declines  in the market
values of  investment  securities  and  losses  on  mortgage  loans and  limited
partnership of $1.5 million.

At December 31, 1995, the Company's  five largest  investments in corporate debt
securities  totaled  $28,885,008,  none  of  which  individually  exceeded  $6.3
million. These investments had a market value of $29.9 million.

During the fourth  quarter of 1995,  the Financial  Accounting  Standards  Board
(FASB) released a special report on FAS 115,  Accounting for Certain Investments
in Debt and Equity  Securities.  The special  report was  prepared as a guide in
helping  companies  understand  and comply with the  provisions  of FAS 115. The
special report also included important transition provisions that gave reporting
enterprises  a limited  period  to  reassess  and  reclassify  their  securities
holdings into FAS 115's three reporting categories. This "fresh start" provision
allowed  reporting  enterprises to reclassify  "held-to-maturity"  securities to
either of the two other categories without restriction. Any security transferred
from held-to-maturity to the available-for-sale or trading  classifications were
to be  marked-to-market  at the time of  transfer.  At December  15,  1995,  the
Company reclassified  $152,135,307 or 100 percent of its held-to-maturity  fixed
maturity securities to available-for-sale  pursuant to the transition provisions
of the FASB's Special Report. As a result, the Company recognized  $1,455,550 of
unrealized  gains,  net of deferred  income  taxes,  at December 15, 1995, as an
adjustment to shareholders' equity related to this reclassification.  Management
believes  that  having all fixed  maturities  classified  as  available-for-sale
securities  will  allow the  Company  to meet its  liquidity  needs and  provide
greater  flexibility  for its investment  managers to restructure  the Company's
investments in response to changes in market conditions or strategic  direction.
Securities  classified  as  available-for-sale  are carried at market value with
unrealized  gains and losses included in shareholders'  equity.  At December 31,
1995 and 1994, unrealized gains (losses) on fixed maturities  available-for-sale
amounted to $15,996,153 and ($2,879,044),  respectively,  net of deferred taxes.
Prior to the adoption of FAS 115 in 1994,  gains and losses on fixed  maturities
were not recognized in the Company's  financial  statements until they were sold
or became impaired.  Fixed maturities classified as held-to-maturity in 1994 are
carried  at the  lower of cost or  market  value.  (See  Note 3 of the  Notes to
Financial Statements). At December 31, 1995, fixed maturities available-for-sale
had a cost of $401,771,542 and a market value of  $426,381,008,  representing an
unrealized gain of $24,609,466.


<PAGE>
INCORPORATED BY REFERENCE, PAGE 18 OF THE COMPANY'S 1995 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 current  market  value.  At
December 31, 1995, common and nonredeemable  preferred stock held by the Company
had a cost of $125,763,874 and a market value of  $126,324,721,  representing an
unrealized  gain  of  $560,847.  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 very high
quality and extremely marketable, 97.2 percent or $119.5 million of which are of
the "highest" or "high"  quality,  as defined by the NAIC.  The  remaining  $3.4
million of nonredeemable preferred stocks have a "medium" NAIC rating. There are
no  nonredeemable  preferred stocks in Erie Family Life's portfolio rated in the
"low," "lowest," or "in or near default" quality  categories  established by the
NAIC.

                                              Equity Securities at 12-31-95
<TABLE>
<CAPTION>

                                                                                        Carrying/       Unrealized     Unrealized
                                                                         Actual Cost  Market Values       Gains         Losses
<S>                                                                   <C>            <C>            <C>            <C>

Common stock:
  Industrial and
    miscellaneous .................................................   $  3,500,006   $  3,414,640   $          0   $     85,366
Preferred stock:
  Public utilities ................................................      5,273,282      5,299,712         26,430              0
  Banks, trusts
    and insurance
    companies .....................................................     83,749,715     84,656,625      3,036,760      2,129,850
  Industrial and
    miscellaneous .................................................     33,240,871     32,953,744      1,615,500      1,902,627
                                                                      ------------   ------------   ------------   ------------

Total equity
  securities ......................................................   $125,763,874   $126,324,721   $  4,678,690   $  4,117,843
                                                                      ============   ============   ============   ============
</TABLE>


Other Investments

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

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

At December 31, 1995, the Company did not own any derivatives.


<PAGE>
INCORPORATED BY REFERENCE, PAGE 18 OF THE COMPANY'S 1995 ANNUAL
                    REPORT TO SHAREHOLDERS



MANAGEMENT CHANGES

At the Board of  Directors  meeting on  February  12,  1996,  the Board  elected
Stephen A. Milne  President  and Chief  Executive  Officer of Erie  Family  Life
Insurance Company,  Erie Indemnity Company and Erie Insurance Company.  On March
11,  1996,  Mr.  Milne was  elected  President  and Chief  Executive  Officer of
Flagship City Insurance Company, Erie Insurance Property & Casualty Company, and
Erie  Insurance  Company of New York.  Mr.  Milne has served as  Executive  Vice
President of Insurance  Operations  since 1993.  Mr. Milne began his career with
the Erie Indemnity  Company (EIC) in 1973 and has held several  positions in the
claims and sales functions of the EIC. In 1984 he became a Vice President and in
1987 was named Senior Vice President of the EIC's Marketing  Services  Division.
Mr. Milne also was an ERIE Agent for three years.

The former President and CEO and previous Chief  Investment  Officer of the Erie
Insurance  Group of Companies,  John M. Petersen,  who retired as an employee of
EIC on  December  31,  1995,  entered  into a  consulting  arrangement  with EIC
effective  January 2, 1996. Under the terms of the arrangement,  EIC engaged Mr.
Petersen as a consultant to furnish the company and its pension trust,  the Erie
Insurance  Exchange,  and Erie Family Life Insurance  Company,  with  investment
services with respect to their investments in common stocks.



MARKET FOR THE REGISTRANT'S
COMMON STOCK AND RELATED SECURITY HOLDER MATTERS

Currently  there is no market on which the  Registrant's  stock is  traded.  The
Company had 1,145 shareholders of common stock on December 31, 1995.

                      Date Dividends Declared     Dividends per Share Declared

                      March 1, 1994                          .30
                      March 1, 1994                          .30
                      July 21, 1994                          .30
                      September 29, 1994                     .30
                      March 2, 1995                          .34
                      April 25, 1995                         .34
                      June 22, 1995                          .34
                      September 21, 1995                     .34

"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" and the  "Liquidity  and Capital
Resources"  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)  morbidity  rates,  securities  market
fluctuations and technological difficulties and advancements.



<PAGE>
INCORPORATED BY REFERENCE, PAGE 19 OF THE COMPANY'S 1995 ANNUAL
                    REPORT TO SHAREHOLDERS

GLOSSARY OF SELECTED INSURANCE TERMS


Annuity - Contract  which  provides  for a series of fixed or variable  periodic
payments from a stated or contingent date for a specified period,  such as for a
number of years or for life.

Carrying Value - The amount  reported for an asset or liability in the financial
statements in conformity with generally accepted accounting  principles ("GAAP")
or  statutory  accounting  practices  ("SAP"),  whichever is  applicable  in the
circumstances.

Deferred Policy  Acquisition  Costs (DAC) - The costs of acquiring new business,
principally  commissions  and  certain  costs  of  issuing  policies,  including
underwriting salaries and medical  examinations,  all of which vary with and are
primarily  related to the  production of new business.  These costs are deferred
and  amortized  over the  premium  paying  period  on the  related  policies  in
proportion to the ratio of the annual premium  revenue to the total  anticipated
premium revenue.

Future Policy  Benefits - Liabilities  established on a GAAP basis whose minimum
levels are determined by law and which are established to adequately provide for
benefits ultimately payable to policyholders.


Interest  Rate  Credited - Interest  rate  applied  to funds  accumulated  under
annuity and universal life contracts,  whether  guaranteed or currently declared
by the insurer.

In Force - Total amount of  insurance  coverage or number of policies or annuity
contracts that are in effect.

Independent Agents - Independent  contractors who represent one or more insurers
and are licensed to sell the insurers' products.

National  Association of Insurance  Commissioners (NAIC) - an association of the
top regulatory officials of all 50 states and the District of Columbia organized
to  promote  consistency  of  regulatory   practices  and  statutory  accounting
practices throughout the United States.

Premiums  - Money  paid  by the  policyholder  to an  insurance  company  for an
insurance policy or annuity.

Statutory Accounting  Practices (SAP) - SAP provides for recording  transactions
and preparing  financial  statements in accordance with the rules and procedures
prescribed  or  permitted  by state  statute  or  regulatory  authorities.  Such
practices generally reflect a liquidating, rather than a going concern basis, of
accounting. The principal difference between SAP and GAAP are as follows:

(a) under SAP,  certain assets  ("nonadmitted"  assets) are eliminated  from the
statements of financial  position;  (b) under SAP, policy  acquisition costs are
expensed as incurred, while under GAAP, they are deferred and amortized over the
premium paying period of the related  policies sold; (c) under SAP, no provision
is made for  deferred  income  taxes and (d) under  SAP,  certain  reserves  are
recognized which are not recognized for GAAP.

Statutory  Capital and Surplus - Statutory  Capital is the amount  received from
the sale of shares of stock in the Company.  Statutory  Surplus is the excess of
assets over liabilities and capital,  as determined in accordance with statutory
accounting practices.


<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, 1995

            Fixed Maturities - Available For Sale    74.9%
            Nonredeemable Preferred Stocks           21.6%
            Mortgage Loans                            1.2%
            Other Invested Assets                     0.8%
            Common Stocks                             0.6%
            Policy Loans                              0.6%
            Real Estate                               0.3%
                                            
                                            
Graph #2    DIVERSIFICATION OF FIXED MATURITIES
              at December 31, 1995 - Carrying/Market Value

            Industrial & Miscellaneous         60.6%
            Public Utilities                   24.8%
            Special Revenue                    12.4%
            U.S. Treasuries                     1.7%
            Political Subdivision               0.5%
                                            
                                            

Graph #3           QUALITY*  OF BOND PORTFOLIO
              at December 31, 1995 - Carrying/Market Value

                    A/A         $178.6 Million    42.1%
                  BBB/Baa       $107.2 Million    25.2%
                  AAA/Aaa        $77.9 Million    18.4%
                   AA/Aa         $53.2 Million    12.5%
                   BB/Ba          $7.6 Million     1.8%
                                            
  * As rated by Standard & Poor's or Moody's Investor's Service, Inc.


Graph #4    DIVERSIFICATION OF EQUITY SECURITIES
              at December 31, 1995 - Carrying/Market Value


            (2) Banks & Insurance              67.0%
            (2) Industrial & Miscellaneous     26.1%
            (2) Public Utilities                4.2%
            (1) Industrial & Miscellaneous      2.7%
                                            
                                            
            (1)  Common Stock
            (2)  Preferred Stock

<PAGE>


    INCORPORATED BY REFERENCE, PAGE 20 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS


                                          INDEPENDENT AUDITORS' REPORT


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, 1995 and 1994,
and the related statements of operations,  shareholders'  equity, and cash flows
for each of the  three  years in the  period  ended  December  31,  1995.  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, 1995 and 1994, and the results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1995 in conformity with generally accepted accounting principles.

                  As  described  in  Note 3 to  the  financial  statements,  the
Company changed its method of accounting for debt and equity securities in 1994.
In 1993,  the  Company  changed  its method of  accounting  for income  taxes as
described in Note 5.



                          /s/ Brown Schwab Bergquist & Co.




Erie, Pennsylvania
February 16, 1996




<PAGE>
    INCORPORATED BY REFERENCE, PAGE 22 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                             ERIE FAMILY LIFE INSURANCE COMPANY

                                              STATEMENTS OF FINANCIAL POSITION
                                              As of December 31, 1995 and 1994
<TABLE>
<CAPTION>

   ASSETS                                                                                  1995                    1994
                                                                                       ------------            ------------
<S>                                                                                    <C>                     <C>


Investments
  Fixed maturities:
    Held-to-maturity, at amortized cost
      (fair value of $142,544,015)                                                     $                       $160,445,072
    Available-for-sale, at fair value
      (amortized cost of $401,771,542
      and $180,281,163)                                                                 426,381,008             175,851,865
  Equity securities, at fair value
    (cost of $125,763,874 and
    $116,380,818)                                                                       126,324,721             108,361,616
  Real estate                                                                             1,796,395               1,898,628
  Policy loans                                                                            3,694,530               3,181,311
  Mortgage loans on real estate                                                           7,062,742               7,633,399
  Other invested assets                                                                   4,165,721               2,257,143
                                                                                       ------------            ------------

          Total investments                                                            $569,425,117            $459,629,034

Cash, including short-term
  investments of $35,230,606
  and $7,262,914, respectively                                                           34,847,347               6,559,213
Premiums receivable                                                                       2,701,578               2,300,721
Reinsurance recoverable                                                                     265,514                 312,249
Other receivables                                                                           254,674                 261,578
Accrued investment income                                                                 9,044,136               8,388,301
Deferred policy acquisition costs                                                        50,762,292              44,951,795
Reserve credit for reinsurance ceded                                                      3,484,190               3,385,623
Prepaid federal income taxes                                                                                        851,320
Other assets                                                                              3,009,313               1,992,298
                                                                                       ------------            ------------    

          Total assets                                                                 $673,794,161            $528,632,132
                                                                                       ============            ============
</TABLE>
<PAGE>
   INCORPORATED BY REFERENCE, PAGE 22 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS


<TABLE>
<CAPTION>

   LIABILITIES AND SHAREHOLDERS' EQUITY                                           1995                     1994
                                                                              ------------             ------------
<S>                                                                           <C>                      <C>

LIABILITIES
  Policy liabilities and accruals:
    Future life policy benefits                                               $ 48,768,739             $ 44,050,175
    Policy and contract claims                                                     897,026                  797,485
    Annuity deposits                                                           405,346,808              341,242,154
    Universal life deposits                                                     45,971,842               36,107,402
    Supplementary contracts not
      including life contingencies                                                 872,745                  767,456
  Other policyholder funds                                                       5,238,897                6,352,476
  Current federal income taxes
    payable                                                                        261,471
  Deferred federal income taxes                                                 16,979,255                2,897,964
  Reinsurance premium due                                                          360,478                  193,135
  Accounts payable and accrued
    liabilities                                                                  2,728,133                3,186,617
  Note payable to affiliate                                                     15,000,000
  Due to affiliate                                                               1,392,365                1,236,687
  Dividends payable                                                              1,071,000                  945,000
                                                                              ------------             ------------

                  Total liabilities                                           $544,888,759             $437,776,551
                                                                              ------------             ------------


SHAREHOLDERS' EQUITY
  Common stock, $1.10 par value
    per share; authorized
    5,000,000 shares;
    3,150,000 shares issued
    and outstanding                                                           $  3,465,000             $  3,465,000
  Additional paid-in capital                                                       945,000                  945,000
  Net unrealized appreciation
    (depreciation) on investment
    securities, net of deferred
    taxes of $8,809,609 and
    ($4,356,975), respectively                                                  16,360,704            (   8,091,525)
  Retained earnings                                                            108,134,698               94,537,106
                                                                              ------------             ------------

                  Net shareholders' equity                                    $128,905,402             $ 90,855,581
                                                                              ------------             ------------

                  Total liabilities and
                    shareholders' equity                                      $673,794,161             $528,632,132
                                                                              ============             ============
</TABLE>


See Notes to Financial Statements.                            


<PAGE>
   INCORPORATED BY REFERENCE, PAGE 21 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                         ERIE FAMILY LIFE INSURANCE COMPANY

                                              STATEMENTS OF OPERATIONS
                                    Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>

                                                              1995                   1994                   1993
                                                          -----------            -----------            -----------
<S>                                                       <C>                    <C>                    <C>

Revenues
  Policy
    Life premiums                                         $25,764,413            $22,931,783            $20,440,636
    Group                                                   2,309,584              1,961,700              1,716,186
                                                          -----------            -----------            -----------

                  Total policy
                    revenues                              $28,073,997            $24,893,483            $22,156,822

  Investment income, net
    of expenses                                            40,962,812             35,566,249             30,928,611
  Realized gains on
    investments                                             7,483,798              4,411,334             10,433,318
  Other income                                              1,829,344              1,897,756              1,268,345
                                                          -----------            -----------            -----------

                  Total revenues                          $78,349,951            $66,768,822            $64,787,096
                                                          -----------            -----------            -----------

Benefits and expenses
  Death benefits                                          $ 7,438,758            $ 4,068,876            $ 4,639,349
  Interest on annuity
    deposits                                               22,718,786             18,163,588             16,302,627
  Interest on universal
    life deposits                                           2,628,397              1,981,767              1,529,950
  Surrender and other
    benefits                                                  721,412                607,947              1,104,047
  Increase in future life
    policy benefits                                         4,619,996              2,611,084              2,300,681
  Amortization of deferred
    policy acquisition
    costs                                                   2,358,127              1,979,765              2,092,764
  Commissions                                               2,804,328              2,293,450              1,794,610
  General expenses                                          5,802,088              5,775,026              5,120,063
  Taxes, licenses,
    and fees                                                2,854,187              2,807,813              2,026,730
                                                          -----------            -----------            -----------

                  Total benefits
                    and expenses                          $51,946,079            $40,289,316            $36,910,821
                                                          -----------            -----------            -----------

                  Income from
                    operations                            $26,403,872            $26,479,506            $27,876,275
                                                          -----------            -----------            -----------

</TABLE>


See Notes to Financial Statements.                               


<PAGE>
   INCORPORATED BY REFERENCE, PAGE 21 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                         ERIE FAMILY LIFE INSURANCE COMPANY

                                        STATEMENTS  OF  OPERATIONS  -  CONTINUED
                                    Years Ended December 31, 1995, 1994 and 1993

<TABLE>
<CAPTION>

                                                              1995                   1994                   1993
                                                          -----------            -----------            -----------
<S>                                                       <C>                    <C>                    <C>


Federal income taxes
  Current                                                 $ 7,607,573            $ 8,179,901            $ 8,275,631
  Deferred                                                    914,707              1,469,927              1,496,402
                                                          -----------            -----------            -----------

                  Total federal
                    income taxes                          $ 8,522,280            $ 9,649,828            $ 9,772,033
                                                          -----------            -----------            -----------

Income before cumulative
  effect of accounting
  change                                                  $17,881,592            $16,829,678            $18,104,242

Cumulative effect on
  years prior to 1993 on
  changing the method
  of accounting for
  income taxes                                                                                         (    567,610)
                                                          -----------            -----------            -----------

                  Net income                              $17,881,592            $16,829,678            $17,536,632
                                                          ===========            ===========            ===========

Earnings per share:
  Income before cumulative
    effect of accounting
    change                                                $      5.68            $      5.34            $      5.75

Cumulative effect of
  accounting change                                                                                    (        .18)
                                                          -----------            -----------            -----------

                  Net income per
                    share                                 $      5.68            $      5.34            $      5.57
                                                          ===========            ===========            ===========

</TABLE>



See Notes to Financial Statements.                               


<PAGE>
   INCORPORATED BY REFERENCE, PAGE 24 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS


                                         ERIE FAMILY LIFE INSURANCE COMPANY

                                         STATEMENTS OF SHAREHOLDERS' EQUITY
                                    Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>

                                                                             Net
                                                                          Unrealized
                                                                         Appreciation
                                                                        (Depreciation)                                     Net
                                                  Additional            on Available-                                     Share-
                                 Common            Paid-In                 for-Sale               Retained               holders'
                                  Stock            Capital                Securities              Earnings                Equity
<S>                            <C>                <C>                  <C>                     <C>                   <C>

Balance at
 December 31,
 1992                          $3,465,000         $945,000              $ 3,601,503             $ 67,415,805          $ 75,427,308

 Net income                                                                                       17,536,632            17,536,632
 Net change
  during year                                                               245,955                                        245,955
 Dividends
  declared,
  $1.10 per
  share                                                                                        (   3,465,009)        (   3,465,009)
                               ----------         --------              -----------             ------------          ------------

Balance at
 December 31,
 1993                          $3,465,000         $945,000              $ 3,847,458             $ 81,487,428          $ 89,744,886

 Net income                                                                                       16,829,678            16,829,678
 Net change
  during year                                                          ( 21,437,365)                                 (  21,437,365)
 FAS 115
  cumulative
  effect,
  net of
  deferred
  taxes                                                                   9,498,382                                      9,498,382
 Dividends
  declared,
  $1.20 per
  share                                                                                        (   3,780,000)        (   3,780,000)
                               ----------         --------              -----------             ------------          ------------

Balance at
 December 31,
 1994                          $3,465,000         $945,000             ($ 8,091,525)            $ 94,537,106          $ 90,855,581

 Net income                                                                                       17,881,592            17,881,592
 Net change
  during year                                                            24,452,229                                     24,452,229
 Dividends
  declared,
  $1.36 per
  share                                                                                        (   4,284,000)        (   4,284,000)
                               ----------         --------              -----------             ------------          ------------

Balance at
 December 31,
 1995                          $3,465,000         $945,000              $16,360,704             $108,134,698          $128,905,402
                               ==========         ========              ===========             ============          ============
</TABLE>



See Notes to Financial Statements.                                           


<PAGE>
   INCORPORATED BY REFERENCE, PAGE 23 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                       ERIE FAMILY LIFE INSURANCE COMPANY

                            STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>


                                                                1995                    1994                    1993
                                                            ------------            -----------             -----------
<S>                                                        <C>                     <C>                     <C>    

CASH FLOWS FROM OPERATING ACTIVITIES
 Net income                                                 $ 17,881,592            $16,829,678             $ 17,536,632
 Cumulative effect of
  accounting change                                                                                              567,610
 Adjustments to reconcile
  net income to net cash
  provided by operating
  activities:
   Net amortization of
    bond and mortgage
    premium and discount                                         129,922                 55,548            (     110,504)
   Amortization of deferred
    policy acquisition
    costs                                                      2,358,127              1,979,765                2,092,764
   Real estate depreciation                                      102,233                103,697                  103,697
   Deferred federal
    income taxes                                                 914,707              1,469,927                1,496,402
   Realized gain on
    investments                                            (   7,483,798)          (  4,411,334)           (  10,433,318)
 Increase in premiums
  receivable                                               (     400,857)          (    320,456)           (      58,835)
 (Increase) decrease in
  other receivables                                                6,904                 57,007            (     152,775)
 (Increase) decrease in
  accrued investment
  income                                                   (     655,835)          (  2,478,420)                 191,202
 Increase in deferred
  policy acquisition costs                                 (   8,168,624)          (  8,448,722)           (   6,892,375)
 (Increase) decrease in
  other assets                                             (   1,017,015)          (    320,519)                  16,554
 Increase in reinsurance
  recoverables and reserve
  credits                                                  (      51,832)          (  1,064,706)            (    693,648)
 Increase in future life
  policy benefits and
  claims                                                       4,818,105              3,373,539                2,695,932
 Increase (decrease) in
  other policyholder funds                                 (   1,113,579)             4,703,564                  211,168
 Increase (decrease) in
  reinsurance premium due                                        167,343                 62,937            (     201,771)
 Increase (decrease) in
  federal income taxes
  currently payable                                            1,112,791                112,759            (   1,100,744)
 Increase (decrease) in
  accounts payables and
  due to affiliate                                         (     302,806)             1,101,478                    2,744
                                                            ------------            -----------             ------------

    Net cash provided by
      operating activities                                  $  8,297,378            $12,805,742             $  5,270,735
                                                            ------------            -----------             ------------
</TABLE>


See Notes to Financial Statements.                               


<PAGE>
 INCORPORATED BY REFERENCE, PAGE 23 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                       ERIE FAMILY LIFE INSURANCE COMPANY

                                      STATEMENTS  OF CASH FLOWS - CONTINUED
                                  Years Ended  December 31, 1995,  1994 and 1993
<TABLE>
<CAPTION>

                                                                1995                    1994                    1993
                                                            ------------            -----------             -----------
<S>                                                        <C>                     <C>                     <C>    

CASH FLOWS FROM INVESTING ACTIVITIES
 Fixed maturity securities:
  Held-to-maturity:
   Maturities                                               $  7,948,330            $11,255,303             $ 88,310,672
   Sales                                                                                                      45,579,973
   Purchases                                                                       ( 40,754,128)           ( 151,500,059)
  Available-for-sale:
   Maturities                                                  6,764,396              3,107,563
   Sales                                                      45,479,179             36,191,487
   Purchases                                               ( 119,758,853)          ( 95,059,515)
 Equity securities:
  Sales                                                       37,486,994             18,402,366               67,925,034
  Purchases                                                (  40,995,932)          ( 26,662,706)           (  99,291,194)
 Purchase of mortgage loans                                                        (  2,000,000)           (   3,981,471)
 Principal payments received
  on mortgage loans                                              572,056              5,991,967                2,041,570
 Loans made to
  policyholders                                            (     999,584)          (    821,201)           (     698,874)
 Payments received on
  policy loans                                                   486,365                449,806                  507,962
 Purchase of other
  invested assets                                          (   2,510,832)          (  1,644,339)           (   4,121,771)
 Sale of other invested
  assets                                                         602,254              6,172,966                1,270,754
                                                            ------------            -----------             ------------

    Net cash used in
     investing activities                                  ($ 64,925,627)          ($85,370,431)           ($ 53,957,404)
                                                            ------------            -----------             ------------

CASH FLOWS FROM FINANCING ACTIVITIES
 Increase in annuity
  deposits and
  supplementary contracts                                   $ 64,209,943            $59,661,171             $ 53,511,342
 Increase in universal
  life deposits                                                9,864,440              8,363,194                6,832,482
 Borrowed money                                               15,000,000                                   (   1,290,000)
 Dividends paid to
  shareholders                                             (   4,158,000)          (  3,701,253)           (   3,386,256)
                                                            ------------            -----------             ------------

    Net cash provided by
     financing activities                                   $ 84,916,383            $64,323,112             $ 55,667,568
                                                            ------------            -----------             ------------

Net increase (decrease) in
 cash and short-term cash
 investments                                                $ 28,288,134           ($ 8,241,577)            $  6,980,899

Cash and short-term cash
 investments at beginning
 of year                                                       6,559,213             14,800,790                7,819,891
                                                            ------------            -----------             ------------

Cash and short-term cash
 investments at end of year                                 $ 34,847,347            $ 6,559,213             $ 14,800,790
                                                            ============            ===========             ============
</TABLE>

See Notes to Financial Statements.                               


<PAGE>
 INCORPORATED BY REFERENCE, PAGE 23 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                       ERIE FAMILY LIFE INSURANCE COMPANY

                                      STATEMENTS  OF CASH FLOWS - CONTINUED
                                  Years Ended  December 31, 1995,  1994 and 1993
<TABLE>
<CAPTION>

                                                                1995                  1994                     1993
                                                            ------------           ------------             -----------
<S>                                                         <C>                     <C>                     <C>  

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the
    year for:
    Interest                                                $        632            $    37,580             $     46,293
    Income taxes                                               6,494,782              8,067,142                9,376,375

</TABLE>









See Notes to Financial Statements.                               


<PAGE>
INCORPORATED BY REFERENCE, PAGE 25 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                           ERIE FAMILY LIFE INSURANCE COMPANY

                                              NOTES TO FINANCIAL STATEMENTS
                                            December 31, 1995, 1994 and 1993

Note 1.  Nature of Business

                Erie  Family  Life   Insurance   Company   (the   Company)   was
                incorporated  in the  Commonwealth  of  Pennsylvania  on May 23,
                1967. The Company 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
                eleven states and is subject to supervision  and  regulations of
                the  states  in  which  it  does  business.  A  majority  of the
                Company's  business is written in Pennsylvania,  Ohio,  Maryland
                and  Virginia.  The Company also sells a  significant  amount of
                annuities  to its  affiliated  companies  of the Erie  Insurance
                Group.  Approximately  31% of annuity  deposits at December  31,
                1995 relate to business with Erie  Insurance  Group  affiliates.
                See also Note 6.


Note 2.  Basis of Presentation

                The  accompanying  financial  statements  have been  prepared in
                conformity with generally accepted accounting principles (GAAP).
                Such basis of presentation includes the following:

                (a)      Policy reserves are computed according to the Company's
                         estimates  of  mortality,  investment  yields,  lapses,
                         withdrawals, and other benefits and expenses.

                (b)      Commissions  and other costs of acquiring  new business
                         are recognized as deferred policy acquisition costs and
                         are amortized  over either the premium paying period of
                         policies  and  contracts  or in relation to the present
                         value of  estimated  gross profit on the  policies,  as
                         applicable.

                (c)      Income tax effects of temporary differences between tax
                         basis  and  financial  statement  basis of  assets  and
                         liabilities,  relating primarily to policy reserves,
                         investments and acquisition costs, are provided.

                (d)      The effect of revaluing  available-for-sale  securities
                         to their respective fair values, net of deferred taxes,
                         is reflected as a separate  component of  shareholders'
                         equity.



                                                                 


<PAGE>
INCORPORATED BY REFERENCE, PAGE 25 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                              NOTES TO FINANCIAL STATEMENTS

Note 2.  Basis of Presentation (Continued)

                (e)      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.


Note 3.  Significant Accounting Policies

                (a)      Investments

                         Investments are shown on the following bases:

                         Fixed maturities  available-for-sale  which consists of
                         bonds, notes, and redeemable  preferred stock - at fair
                         value.

                         Equity   securities   which   consists  of  common  and
                         nonredeemable preferred stocks - at fair value.

                         Fixed  maturities  held-to-maturity  which  consists of
                         bonds,  notes,  and  redeemable  preferred  stocks - at
                         cost,  adjusted for amortization of premium or discount
                         and other-than-temporary market value declines.

                         Fair values are  determined by quoted market prices for
                         those instruments that are actively traded in financial
                         markets.  In cases where quoted  market  prices are not
                         available,  the  Company  uses the  services of various
                         brokerage companies to assist in pricing.

                         No securities are held for trading purposes.

                         Realized gains and losses on sales of  investments  are
                         recognized on a specific identification basis.

                         In May 1993, the Financial  Accounting  Standards Board
                         issued Statement of Financial  Accounting Standards No.
                         115,  "Accounting  for Certain  Investments in Debt and
                         Equity  Securities"  (FAS 115). The Company adopted the
                         provisions of the new standard for investments  held as
                         of  January  1,  1994.  The  cumulative  effect,  as of
                         January  1,  1994,   of  adopting  FAS  115   increased
                         shareholders'  equity by $9,498,382  (net of $5,114,513
                         in deferred income taxes) to reflect the net unrealized
                         gains on securities  classified  as  available-for-sale
                         previously  carried at amortized  cost or lower of cost
                         or market  value.  Adoption of FAS 115 did not have any
                         effect on deferred policy acquisition costs.


                                                              


<PAGE>
INCORPORATED BY REFERENCE, PAGE 25 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                              NOTES TO FINANCIAL STATEMENTS

Note 3.  Significant Accounting Policies (Continued)

                         FAS 115 requires management to determine the 
                         appropriate classification  of  securities at the date
                         of adoption, and  thereafter  at  the  date  individual
                         investment securities are acquired. The appropriateness
                         of such classification is also reassessed at each 
                         statements of financial position date.

                         Prior to the  adoption of FAS 115,  the Company  stated
                         its fixed  maturities at the lower of amortized cost or
                         fair value. Marketable equity securities were stated at
                         fair  value.  Under both the newly  adopted  accounting
                         standard and the Company's former accounting practices,
                         premiums   and   discounts  on   investments   in  debt
                         securities are amortized over their contractual  lives.
                         Realized  gains  and  losses,   including  losses  from
                         declines in value of specific securities  determined by
                         management to be other-than-temporary,  are included in
                         income.

                         During 1995, the Financial  Accounting  Standards Board
                         (FASB) allowed a one-time  reclassification of held-to-
                         maturity securities to  available-for-sale  securities.
                         At  December   15,  1995,   the  Company   reclassified
                         $152,135,307 or 100% of its held-to-maturity securities
                         to  available-for-sale,   pursuant  to  the  transition
                         provisions of the FASB's special report on FAS 115. The
                         Company  recognized  $1,455,550 of unrealized gains net
                         of deferred  income  taxes at December 15, 1995 related
                         to this reclassification.

                (b)      Deferred Policy Acquisition Costs

                         The  costs  of  acquiring  new  business,   principally
                         commissions  and  certain  costs of  issuing  policies,
                         including    underwriting    salaries    and    medical
                         examinations,  all of which vary with and are primarily
                         related to the  production of new  business,  have been
                         deferred.  For traditional life insurance,  these costs
                         are being  amortized  over the premium paying period of
                         the  related   policies  in  proportion  to  the  total
                         anticipated premium revenue stream. Anticipated premium
                         revenue was estimated using the same assumptions  which
                         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.



                                                              


<PAGE>
INCORPORATED BY REFERENCE, PAGE 25 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                              NOTES TO FINANCIAL STATEMENTS

Note 3.  Significant Accounting Policies (Continued)

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

                         Unamortized   acquisition   costs  are   summarized  as
                         follows:
<TABLE>
<CAPTION>

                                                                  1995                   1994                   1993
                                                               -----------            -----------            -----------
                         <S>                                  <C>                    <C>                    <C>   

                         Balance at
                          beginning
                          of year                              $44,951,795            $38,482,838            $33,683,227
                         Additions                               8,168,624              8,448,722              6,892,375
                         Amortization                         (  2,358,127)          (  1,979,765)          (  2,092,764)
                                                               -----------            -----------            -----------

                         Balance at end
                          of year                              $50,762,292            $44,951,795            $38,482,838
                                                               ===========            ===========            ===========
</TABLE>

                (c)      Policy Revenues and Deposits

                         Premiums on traditional  life  insurance  contracts are
                         reported as earned revenue when due. 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.   Premiums  on  life
                         insurance   contracts   and  deposits  on  annuity  and
                         universal life contracts are summarized as follows:
<TABLE>
<CAPTION>

                                                                  1995                   1994                   1993
                                                               -----------            -----------            -----------
                         <S>                                   <C>                    <C>                    <C>   

                         Life insurance
                           premiums:
                           First year                          $ 5,624,117            $ 5,563,765            $ 4,567,631
                           Renewal                              20,140,296             17,368,018             15,873,005
                                                               -----------            -----------            -----------

                                                               $25,764,413            $22,931,783            $20,440,636
                                                               ===========            ===========            ===========

                         Annuity and universal
                           life deposits, net
                           of loading:
                           First year
                             and single                        $57,606,715            $53,965,315            $42,602,356
                          Renewal                               16,935,182             15,565,382             14,078,357
                                                               -----------            -----------            -----------

                                                               $74,541,897            $69,530,697            $56,680,713
                                                               ===========            ===========            ===========
</TABLE>

                                                               


<PAGE>
INCORPORATED BY REFERENCE, PAGE 25 AND 26 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                              NOTES TO FINANCIAL STATEMENTS

Note 3.  Significant Accounting Policies (Continued)

                         Included  in the  amount of 1995,  1994 and 1993  first
                         year and single  deposits on annuity and universal life
                         deposits   are    $6,024,125,    $8,880,714   and   $0,
                         respectively,   of   deposits   on  annuity   contracts
                         purchased by the Erie Insurance  Group  Retirement Plan
                         for Employees.  Structured settlement annuities sold to
                         affiliate  property  and casualty  insurance  companies
                         totalled  $22,018,313,  $11,431,965 and $7,516,908,  in
                         1995, 1994, and 1993, respectively.

                (d)      Policy Liabilities and Accruals

                         Liabilities   for  life  insurance  and   income-paying
                         annuity  future  policy  benefits  have  been  computed
                         primarily  by  the  net  level   premium   method  with
                         assumptions as to anticipated  mortality,  withdrawals,
                         and investment  yields.  Deferred annuity future policy
                         benefit    liabilities   have   been   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.  Significant assumptions
                         pertinent to policy liabilities follow:
<TABLE>
<CAPTION>

  Years
 of Issue            Policy Type                 Interest                 Mortality                         Withdrawal
<S>                 <C>                         <C>                  <C>                                    <C>

1967-1975           All life                    4% graded            1955-60 Basic Select                   Modified
                                                to 3 1/2%            Plus Ultimate                          Linton B


1976-1980           All life                    6% graded            1955-60 Basic Select                   Linton B
                                                to 4%                Plus Ultimate

1981-1988           Permanent life              7 1/4% graded        85% of 1965-70                         150% of
                                                to 6%                Select and Ultimate                    Linton A

1981-1988           Other life                  7 1/4% graded        85% or 90% of 1965-                    Pricing
                                                to 6%                70                                     assumptions
                                                                     Select and Ultimate

1988-1995           All life and                7% graded            Multiples of 1965-                     Pricing
                    annual renew-               to 6%                70                                     assumptions
                    able term                                        Select and Ultimate

1987-1995           Universal life              7 1/4% graded        85% or 90% of 1965-                    Pricing
                                                to 6%                70                                     assumptions
                                                                     Select and Ultimate

</TABLE>

                                                               


<PAGE>
INCORPORATED BY REFERENCE, PAGE 26 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS


                                              NOTES TO FINANCIAL STATEMENTS

Note 3.  Significant Accounting Policies (Continued)

                         Annuities  are  subject  to  variable   interest  rates
                         determined at the discretion of the Company  subject to
                         certain minimums.  During 1995, annuity deposits earned
                         interest  at rates  ranging  from 5.00  percent to 6.25
                         percent.  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.

                (e)      Liability for unpaid policy and contract claims

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

                                                                       1995                 1994                 1993
                                                                    ----------           ----------           ----------
                         <S>                                       <C>                  <C>                  <C>

                         Balance at
                           January 1                                $  797,485           $1,155,359           $1,574,073
                         Less reinsurance
                           recoverables                            (   112,203)         (   271,806)         (   340,513)
                         Less unpaid matured
                           endowments                                                                        (    12,567)
                                                                    ----------           ----------           ----------

                         Net balance at
                           January 1                                $  685,282           $  883,553           $1,220,993

                         Total death claims
                           incurred                                  7,438,758            4,068,876            4,639,349
                         Total death claims
                           paid                                      7,378,981            4,267,147            4,976,789
                                                                    ----------           ----------           ----------

                         Net balance at
                           December 31                              $  745,059           $  685,282           $  883,553
                         Plus reinsurance
                           recoverables                                135,597              112,203              271,806
                         Plus unpaid matured
                           endowment                                    16,370
                                                                    ----------           ----------           ----------
                         Balance at
                           December 31                              $  897,026           $  797,485           $1,155,359
                                                                    ==========           ==========           ==========

</TABLE>

                                                               


<PAGE>
INCORPORATED BY REFERENCE, PAGE 26 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                              NOTES TO FINANCIAL STATEMENTS

Note 3.  Significant Accounting Policies (Continued)

                (f)      Mortgage Loans and Other Invested Assets

                         Mortgage  loans are  comprised  primarily of commercial
                         real  estate  mortgage  loans  and are  carried  on the
                         statements of financial position at unpaid balances
                         adjusted for amortization of premium or discount, less
                         allowance for possible losses.  Other invested  assets
                         (primarily investments  in real estate limited
                         partnerships) are recorded  under the equity  method of
                         accounting. The fair values of mortgage loans and other
                         invested assets approximate  the  amounts  presented in
                         the financial statements.  Fair values were  determined
                         based on analyses of cash flows.

                (g)      Segment Information

                         All of the  operations  of the Company  are  considered
                         "life insurance" operations.

                (h)      Earnings per Share

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

                (i)      Income Taxes

                         Income tax  provisions  are based on earnings  reported
                         for financial statement purposes. 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  tax assets and  liabilities  are adjusted for
                         the  effects  of  changes  in tax laws and rates on the
                         date of enactment.

                (j)      Short-Term Investments

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

                (k)      Reclassifications

                         Certain  amounts  as  previously   reported  have  been
                         reclassified   to   conform  to  the   current   year's
                         presentation.





                                                               


<PAGE>
INCORPORATED BY REFERENCE, PAGE 26 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                              NOTES TO FINANCIAL STATEMENTS

Note 4.  Investments

                Fixed Maturities:

                At December 31, 1995, the amortized cost, estimated fair values,
                unrealized gains, and unrealized losses for investments in fixed
                maturities available-for-sale were as follows:
<TABLE>
<CAPTION>

                                                          Amortized      Estimated     Unrealized     Unrealized
                                                             Cost       Fair Values      Gains          Losses
<S>                                                    <C>            <C>            <C>            <C>

U. S. Treasuries ...................................   $  6,568,499   $  7,442,496   $    874,234   $        237
Political
  subdivisions .....................................      2,063,013      2,310,929        247,916
Special revenue ....................................     50,683,120     52,853,098      2,861,312        691,334
Public utilities ...................................    101,653,629    105,456,784      4,289,346        486,191
Industrial and
  miscellaneous ....................................    240,803,281    258,317,701     18,138,568        624,148
                                                       ------------   ------------   ------------   ------------

Total fixed
  maturities
  available-for-
  sale .............................................   $401,771,542   $426,381,008   $ 26,411,376   $  1,801,910
                                                       ============   ============   ============   ============
</TABLE>

                At December 31, 1994, the amortized cost, estimated fair values,
                unrealized gains, and unrealized losses for investments in fixed
                maturities available-for-sale were as follows:
<TABLE>
<CAPTION>

                                                             Amortized      Estimated     Unrealized     Unrealized
                                                                Cost       Fair Values      Gains          Losses
<S>                                                        <C>            <C>            <C>            <C>    

U. S. Treasuries .......................................   $  6,121,887   $  5,868,300   $     14,687   $    268,274
Political
  subdivisions .........................................      1,868,344      2,036,950        168,606              0
Special revenue ........................................     37,317,102     35,521,340        307,076      2,102,838
Public utilities .......................................     28,833,112     27,844,600        194,982      1,183,494
Industrial and
  miscellaneous ........................................    106,140,718    104,580,675      2,662,726      4,222,769
                                                           ------------   ------------   ------------   ------------

Total fixed
  maturities
  available-for-
  sale .................................................   $180,281,163   $175,851,865   $  3,348,077   $  7,777,375
                                                           ============   ============   ============   ============

</TABLE>



                                                               


<PAGE>
INCORPORATED BY REFERENCE, PAGE 26 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                              NOTES TO FINANCIAL STATEMENTS

Note 4.  Investments (Continued)

                The  following is a summary of fixed  maturities  available-for-
                sale at December 31, 1995, by remaining term to maturity:

<TABLE>
<CAPTION>
                                                                                     Amortized                Estimated
                                                                                       Cost                  Fair Values
                         <S>                                                       <C>                      <C>   

                         Maturity during the year
                         ending December 31
                           1996                                                    $  2,402,098             $  2,393,094
                           1997-2000                                                 22,092,072               22,209,889
                           2001-2005                                                 59,838,087               62,300,700
                           Subsequent to 2005                                       315,439,285              337,597,325
                         Redeemable preferred stock                                   2,000,000                1,880,000
                                                                                   ------------             ------------

                                                                                   $401,771,542             $426,381,008
                                                                                   ============             ============
</TABLE>

                Bonds  having a fair value of  $2,014,000  at December  31, 1995
                were on deposit with various regulatory  authorities as required
                by law.  Bonds  having  a fair  value  of  $10,000,000  are also
                pledged as collateral  on a $10,000,000  line of credit with a
                Bank.  There were no  borrowings  outstanding  on the line as of
                December 31, 1995.

                At December 31, 1994, the amortized cost, estimated fair values,
                unrealized gains, and unrealized losses for investments in fixed
                maturities held-to-maturity were as follows:
<TABLE>
<CAPTION>

                                                        Amortized     Estimated     Unrealized     Unrealized
                                                          Cost       Fair Values      Gains          Losses
<S>                                                  <C>            <C>            <C>            <C>    

U. S. Government .................................   $    541,184   $    549,676   $     13,413   $      4,921
Political
  subdivision ....................................      1,140,000      1,174,200         34,200              0
Special revenue ..................................      8,413,257      7,356,761        185,621      1,242,117
Public utility ...................................     62,216,452     54,951,765         34,191      7,298,878
Industrial and
  miscellaneous ..................................     88,134,179     78,511,613         71,883      9,694,449
                                                     ------------   ------------   ------------   ------------

Total fixed
  maturities held-
  to-maturity ....................................   $160,445,072   $142,544,015   $    339,308   $ 18,240,365
                                                     ============   ============   ============   ============
</TABLE>




                                                               


<PAGE>
INCORPORATED BY REFERENCE, PAGE 27 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                              NOTES TO FINANCIAL STATEMENTS

Note 4.  Investments (Continued)

                Equity Securities:

                At December 31, 1995, cost, fair values,  unrealized  gains, and
                unrealized  losses for investments in equity  securities were as
                follows:
<TABLE>
<CAPTION>

                                                           Unrealized      Unrealized
                              Actual Cost   Fair Values       Gains         Losses
<S>                          <C>            <C>            <C>            <C>   

Common stock:
  Industrial and
    miscellaneous .........  $  3,500,006   $  3,414,640   $          0   $     85,366
Preferred stock:
  Public utilities ........     5,273,282      5,299,712         26,430              0
  Banks, trusts
    and insurance
    companies .............    83,749,715     84,656,625      3,036,760      2,129,850
  Industrial and
    miscellaneous .........    33,240,871     32,953,744      1,615,500      1,902,627
                             ------------   ------------   ------------   ------------

Total equity
  securities ..............  $125,763,874   $126,324,721   $  4,678,690   $  4,117,843
                             ============   ============   ============   ============
</TABLE>

                         At December 31,  1994,  cost,  fair values,  unrealized
                         gains, and unrealized  losses for investments in equity
                         securities were as follows:
<TABLE>
<CAPTION>

                                                            Unrealized     Unrealized
                               Actual Cost    Fair Values      Gains          Losses
<S>                           <C>             <C>           <C>           <C>

Common stock:
  Banks, trusts
    and insurance
    companies                 $    790,311    $  1,080,715  $  325,248    $    34,844
  Industrial and
    miscellaneous                6,677,716       7,044,856     969,221        602,081
Preferred stock:
  Public utilities               2,414,273       2,316,375       8,352        106,250
  Banks, trusts
    and insurance
    companies                   63,453,075      59,298,250   1,381,500      5,536,325
  Industrial and
    miscellaneous               43,045,443      38,621,420     185,000      4,609,023
                              ------------    ------------  ----------    -----------

Total equity
  securities                  $116,380,818    $108,361,616  $2,869,321    $10,888,523
                              ============    ============  ==========    ===========
</TABLE>

                         Net unrealized gains and losses on investments in fixed
                         maturities available-for-sale and equity securities are
                         credited to or charged directly  against  shareholders'
                         equity.  At December 31, 1995, net unrealized  gains on
                         these   securities   of   $16,360,704    consisted   of
                         $31,090,066  in  unrealized  gains less  $5,919,753  in
                         unrealized losses and deferred taxes of $8,809,609.



                                                              


<PAGE>
INCORPORATED BY REFERENCE, PAGE 27 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                              NOTES TO FINANCIAL STATEMENTS

Note 4.  Investments (Continued)

                At December 31, 1995,  the Company did not have  investments  in
                securities  of  any  single  issuer  which  exceeded  10% of net
                shareholders'  equity,  except for federal home loan debentures,
                which represents 15% of net shareholders' equity.

                Investment  gains  (losses)  during  the  year are  composed  as
                follows:
<TABLE>
<CAPTION>

                                                 1995                 1994                 1993
                                              ----------           ----------            ---------
                <S>                          <C>                  <C>                 <C>

                Realized gains
                  (losses):
                 Held-to-maturity            ($  266,413)         ($  167,535)         $ 5,939,490
                 Available-for-sale            7,750,211            3,673,188            6,862,998
                 Mortgage loans                                                       (    775,000)
                 Other invested
                   assets                                             905,681         (  1,594,170)
                                              ----------           ----------          -----------

                                              $7,483,798           $4,411,334          $10,433,318
                                              ==========           ==========          ===========
</TABLE>

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

                                                   1995                  1994                 1993
                                               -----------           -----------          -----------
                <S>                           <C>                   <C>                     <C>

                Equity securities              $ 8,580,049          ($13,938,368)            $810,651
                Debt securities
                  available-for-
                  sale                          26,799,457          ( 19,042,193)
                Held to maturity
                  securities transferred
                  to available-for-sale
                  securities                     2,239,307
                Deferred federal
                  income taxes                ( 13,166,584)           11,543,196            ( 564,696)
                                               -----------           -----------             --------

                  Net unrealized
                    capital gains
                    (losses)                   $24,452,229          ($21,437,365)            $245,955
                                               ===========           ===========             ========
</TABLE>

                Investment income consists of the following:
<TABLE>
<CAPTION>

                                                    1995                   1994                   1993
                                                 -----------            -----------            -----------
                <S>                             <C>                    <C>                    <C>        

                Dividends                        $10,033,662            $ 9,413,996            $ 8,226,162
                Interest                          31,160,233             26,085,767             22,467,010
                Other                                464,892                461,320                595,775
                Less expenses                   (    695,975)          (    394,834)          (    360,336)
                                                 -----------            -----------            -----------

                                                 $40,962,812            $35,566,249            $30,928,611
                                                 ===========            ===========            ===========
</TABLE>





                                                               


<PAGE>
INCORPORATED BY REFERENCE, PAGE 27 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                              NOTES TO FINANCIAL STATEMENTS

Note 5.         Federal Income Taxes

                Differences between total tax expense and the amount computed by
                applying  the  federal  income  tax rate of 35% to  income  from
                operations are set forth as follows:
<TABLE>
<CAPTION>

                                                                       1995                 1994                 1993
                                                                    ----------           ----------           ----------
                <S>                                                <C>                  <C>                  <C>    

                Federal income taxes
                  at statutory rates                                $9,241,355           $9,267,827           $9,756,696
                Dividends received
                 deduction and
                 tax-exempt interest                               (   437,130)         (   398,527)         (   609,550)
                Effect on deferred
                 taxes of new tax law                                                                            126,136
                Other                                              (   281,945)             780,528              498,751
                                                                    ----------           ----------           ----------

                Income tax expense                                  $8,522,280           $9,649,828           $9,772,033
                                                                    ==========           ==========           ==========
</TABLE>

                Temporary  differences  between the financial statement carrying
                amounts and tax bases of assets and  liabilities  that give rise
                to deferred  tax assets  (liabilities)  at December 31, 1995 and
                1994, relate to the following:
<TABLE>
<CAPTION>

                                                        1995                   1994
                                                     -----------            -----------
                <S>                                 <C>                    <C>

                Deferred policy acquisition costs   ($15,404,226)          ($13,711,784)
                Liability for future life and
                  annuity policy benefits              7,527,275              6,613,659
                Investments                         (  9,033,667)             4,276,711
                Other                               (     68,637)          (     76,550)
                                                    ------------            -----------

                                                    ($16,979,255)          ($ 2,897,964)
                                                     ===========            ===========          
</TABLE>


                In February,  1992,  the Financial  Accounting  Standards  Board
                issued Statement of Financial  Accounting Standards No. 109 (FAS
                109),  "Accounting for Income Taxes." Effective January 1, 1993,
                the Company adopted the FAS 109 standards. A deferred tax charge
                of $567,610, or $.18 per share, is reported in the first quarter
                1993 statement of operation and represents the cumulative effect
                of this accounting change.  The change  also had the  effect  of
                increasing  the deferred tax  liability by $229,000  relating to
                net unrealized appreciation reflected in shareholders' equity.


Note 6.         Related Party Transactions

                The Erie Family Life Insurance Company is owned 21.6% by the
                Erie Indemnity Company and 52.2% by the Erie Insurance
                Exchange.

                The Erie Indemnity Company (EIC) is the attorney-in-fact for


<PAGE>
INCORPORATED BY REFERENCE, PAGE 27 AND 28 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS

                                             NOTES TO FINANCIAL STATEMENTS

Note 6.         Related Party Transactions (Continued)

                the Erie Insurance Exchange (Exchange).  Certain operating
                expenses of the Company are paid by EIC and common expenses
                are allocated.  Such allocated expenses comprise the major
                portion of Company general expenses.

                The Company  owns certain real estate which it leases to EIC for
                rentals of $423,120 per year through December 31, 2000. The real
                estate is recorded net of accumulated depreciation of $1,024,352
                and $922,119 at December 31, 1995 and 1994, 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  allocated to the
                Company equalled  $203,699,  $164,792 and $106,166 in 1995, 1994
                and 1993, respectively.

                The  Exchange  and  Erie  Insurance   Company  (a   wholly-owned
                subsidiary  of EIC)  periodically  purchase  annuities  from the
                Company in connection with the structured  settlement of claims.
                Periodically  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
                approximately  $28,744,000  and $23,650,000 at December 31, 1995
                and  1994,  respectively.  The  reserves  held  for the  sale of
                structured  settlement  annuities to the Erie Insurance Exchange
                and Erie Insurance  Company equal $81,709,000 and $59,306,000 at
                December 31, 1995 and 1994, respectively.

                On  December   29,  1995  a  Note   Payable  in  the  amount  of
                $15,000,000,  was  issued  by the  Company  in  accordance  with
                Pennsylvania  Insurance Company Law to the EIC in exchange for a
                cash sum of  $15,000,000.  Interest on this Note will be charged
                at an annual rate of 6.45% per annum.  No payment of any portion
                of the  principal  amount of this Note shall be  demanded by EIC
                prior to December 31, 2005.  However,  the Company may pay, upon
                ten (10) days' prior written  notice to EIC, the interest or any
                portion  of the  principal  of  this  Note  without  premium  of
                penalty,   subject  to  the  prior   consent  of  the  Insurance
                Commissioner of the Commonwealth of Pennsylvania.  Commencing on
                December 31, 2005 the outstanding principal balance of this Note
                (including all accrued interest) shall be repayable on demand by
                EIC or under such  terms as EIC may elect,  subject to the prior
                consent of the Commissioner to such repayment in accordance with
                the provisions of law.





                                                               


<PAGE>
INCORPORATED BY REFERENCE, PAGE 28 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                              NOTES TO FINANCIAL STATEMENTS

Note 7.  Reinsurance

                The Company  cedes  insurance to other  insurers and  reinsurers
                under  various   contracts   (typically  under  excess  of  loss
                contracts)  which  cover  individual  risks.  These  reinsurance
                arrangements  minimize  losses  arising from large risks or from
                hazards  of  an  unusual  nature.   The  Company   accounts  for
                reinsurance activities in accordance with Statement of Financial
                Accounting  Standards  No. 113  ("SFAS  113"),  "Accounting  and
                Reporting for Reinsurance of  Short-Duration  and  Long-Duration
                Contracts." Pursuant to these standards,  amounts recoverable or
                credited  under  reinsurance  contracts,  are  included in total
                assets as reinsurance  recoverable  or credited 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  that 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 and benefits expense reflected in the statements
                of operations have been reduced by the following amounts due to
                reinsurance cessions:
<TABLE>
<CAPTION>

                                                    1995                   1994                   1993
                                                 ----------             ----------             ----------
                <S>                              <C>                    <C>                    <C>

                Policy revenues                  $3,354,484             $3,185,718             $2,132,670

                Death benefits                    1,040,858                695,567                902,124

                Future life policy
                  benefits                           98,567              1,120,329                813,965
</TABLE>

                The Company has an insignificant  amount of reinsurance  assumed
                activity.



                                                               


<PAGE>
INCORPORATED BY REFERENCE, PAGE 28 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                              NOTES TO FINANCIAL STATEMENTS

Note 8.         Statutory Net Income and Shareholders' Equity, Dividend
                Restrictions, and Accounting Practices

                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, 1995, 1994 and 1993,
                follows:
<TABLE>
<CAPTION>

                                                                     1995                   1994                   1993
                                                                 -----------            -----------            -----------
                <S>                                             <C>                    <C>                    <C>

                Statutory net income                             $ 9,373,483            $ 9,678,535            $ 6,335,124

                Reconciling items:
                 Policy liabilities
                  and accruals                                       287,030                898,212                330,948
                 Deferred policy
                  acquisition costs,
                  net of amortization                              5,810,497              6,468,957              4,799,611
                 Investment valuation
                  differences                                      3,436,669              1,494,951              8,537,233
                 Deferred taxes                                 (    914,707)          (  1,469,927)          (  2,064,012)
                 Other, net                                     (    111,380)          (    241,050)          (    402,272)
                                                                 -----------            -----------            -----------

                GAAP net income                                  $17,881,592            $16,829,678            $17,536,632
                                                                 ===========            ===========            ===========
</TABLE>

                A  reconciliation   of   shareholders'   equity  as  filed  with
                regulatory  authorities to shareholders'  equity reported in the
                accompanying  financial  statements  as of December 31, 1995 and
                1994, follows:
<TABLE>
<CAPTION>

                                                                                           1995                   1994
                                                                                       ------------            -----------
                <S>                                                                   <C>                     <C>

                Statutory shareholders' equity                                         $ 66,735,780            $46,695,870

                Reconciling items
                 Asset valuation and interest
                  maintenance reserves                                                   22,167,637             19,558,985
                 Investment valuation differences                                        23,400,679           ( 14,741,044)
                 Deferred policy acquisition costs                                       50,762,292             44,951,795
                 Surplus note                                                         (  15,000,000)
                 Policy liabilities and accruals                                            377,644           (    230,680)
                 Deferred taxes                                                       (  16,979,255)          (  2,897,964)
                 Deferred and uncollected premiums                                    (   3,421,669)          (  3,171,594)
                 Other, net                                                                 862,294                690,213
                                                                                       ------------            -----------

                GAAP shareholders' equity                                              $128,905,402            $90,855,581
                                                                                       ============            ===========
</TABLE>

                The    amount    of    dividends    Erie    Family    Life,    a
                Pennsylvania-domiciled life insurer, can pay to its shareholders
                without  the  prior  approval  of  the  Pennsylvania   Insurance
                Commissioner  is limited by statute to not more than the greater
                of:  (a)  10  percent  of  its  statutory   surplus  as  regards
                policyholders as reported on its last annual  statement,  or (b)
                the net income of the  insurer as  reported  on its last  annual
                statement, not including any pro rata distributions of any class
                of  the  insurer's  own  securities.  Accordingly,  the  maximum
                dividend  payout  which  may  be  made  in  1996  without  prior
                Pennsylvania commissioner approval is $9,373,000.


                                                               


<PAGE>
INCORPORATED BY REFERENCE, PAGE 28 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                                              NOTES TO FINANCIAL STATEMENTS

Note 8.         Statutory Net Income and Stockholders' Equity, Dividend
                Restrictions, and Accounting Practices (Continued)

                The Company  prepares  its  statutory  financial  statements  in
                accordance   with   accounting   practices   prescribed  by  the
                Pennsylvania   Insurance   Department.    Prescribed   statutory
                accounting  practices  include a variety of  publications of the
                National Association of Insurance  Commissioners (NAIC), as well
                as state laws, regulations, and general administrative rules.


Note 9.         Unaudited Quarterly Summary of Operations

                The following  summaries of operations  for the four quarters of
                1995 and 1994 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>

1995

Policy revenues          $ 6,470,366          $ 7,266,659          $ 7,195,175          $ 7,141,797
Investment income          9,903,802           10,141,044           10,465,117           10,452,849
Realized gain
 on investments              538,950              776,767            4,690,581            1,477,500
Other income                 373,397              399,200              386,776              669,971
                         -----------          -----------          -----------          -----------

  Total revenues         $17,286,515          $18,583,670          $22,737,649          $19,742,117
                         ===========          ===========          ===========          ===========

Income from
 operations              $ 4,588,580          $ 4,799,789          $10,011,847          $ 7,003,656
Federal income
 taxes                     1,502,821            1,641,840            3,075,792            2,301,827
                         -----------          -----------          -----------          -----------

  Net income             $ 3,085,759          $ 3,157,949          $ 6,936,055          $ 4,701,829
                         ===========          ===========          ===========          ===========

  Earnings
   per share             $      0.98          $      1.00          $      2.20          $      1.50
                         ===========          ===========          ===========          ===========
</TABLE>


                                                               


<PAGE>
INCORPORATED BY REFERENCE, PAGE 28 OF THE COMPANY'S 1995 ANNUAL
                        REPORT TO SHAREHOLDERS



                          NOTES TO FINANCIAL STATEMENTS

Note 9.         Unaudited Quarterly Summary of Operations (Continued)
<TABLE>
<CAPTION>

<S>                      <C>                  <C>                  <C>                  <C>

1994

Policy revenues          $ 5,938,807          $ 6,161,076          $ 6,435,291          $ 6,358,309
Investment income          8,336,576            8,619,825            9,087,090            9,522,758
Realized gain (loss)
 on investments            2,533,962            1,068,629            1,063,897             (255,154)
Other income                 281,023              471,849              355,490              789,394
                         -----------          -----------          -----------          -----------

  Total revenues         $17,090,368          $16,321,379          $16,941,768          $16,415,307
                         ===========          ===========          ===========          ===========

Income from
 operations              $ 7,282,936          $ 5,442,339          $ 7,391,656          $ 6,362,575
Federal income
 taxes                     2,558,323            1,945,424            2,760,038            2,386,043
                         -----------          -----------          -----------          -----------

  Net income             $ 4,724,613          $ 3,496,915          $ 4,631,618          $ 3,976,532
                         ===========          ===========          ===========          ===========

  Earnings
   per share             $      1.50          $      1.11          $      1.47          $      1.26
                         ===========          ===========          ===========          ===========
</TABLE>


                                                               


<PAGE>