Edgar Filing: ERIE INDEMNITY CO

As filed with the Securities and Exchange Commission on January 28, 2003.

Registration No. 333-99943
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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AMENDMENT NO. 5

TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

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Erie Indemnity Company
(Exact name of registrant as specified in charter)

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Pennsylvania 25-0466020
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

100 Erie Insurance Place
Erie, Pennsylvania 16530
814-870-2000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

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Jan R. Van Gorder, Esquire
Senior Executive Vice President,
Secretary and General Counsel
Erie Indemnity Company
100 Erie Insurance Place
Erie, Pennsylvania 16530
814-870-2000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)

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Copies to:

Frederick W. Dreher, Esquire Andrew S. Rowen, Esquire
Richard L. Cohen, Esquire John Evangelakos, Esquire
Duane Morris LLP Sullivan & Cromwell LLP
4200 One Liberty Place 125 Broad Street
Philadelphia, Pennsylvania 19103 New York, New York 10004
215-979-1234 212-558-4000

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Approximate date of commencement of proposed sale to public: As soon as
practicable after this registration statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] ______________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell nor does it seek an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated January 29, 2003.

3,000,000 Shares

ERIE INDEMNITY COMPANY

Class A Common Stock

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Shares of Erie Indemnity Company Class A common stock, which are
non-voting, are being offered by the selling shareholder named in this
prospectus. Erie Indemnity Company will not receive any proceeds from the sale
of shares.

The Class A common stock is quoted on the NASDAQ Stock Market/SM/ under the
symbol "ERIE". The last reported sale price of the Class A common stock on
January 27, 2003 was $35.60 per share.

See "Risk Factors" beginning on page 8 to read about factors you should
consider before buying shares of the Class A common stock.

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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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Per Share Total
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Initial price to public.......................... $ $
Underwriting discount............................ $ $
Proceeds, before expenses, to selling shareholder $ $

To the extent the underwriters sell more than 3,000,000 shares of Class A
common stock, the underwriters have the option to purchase up to an additional
450,000 shares of Class A common stock from the selling shareholder at the
public offering price, less the underwriting discount.

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The underwriters expect to deliver the shares against payment in New York,
New York on or about , 2003.

Goldman, Sachs & Co. Credit Suisse First Boston

Advest, Inc.

Cochran, Caronia & Co.

Legg Mason Wood Walker
Incorporated

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Prospectus dated , 2003.

PROSPECTUS SUMMARY

This summary highlights the information contained in this prospectus that
we believe is the most important regarding us and this offering. However, you
should read the entire prospectus carefully before investing in our Class A
common stock. All financial information, operating statistics and ratios in
this prospectus are based on generally accepted accounting principles unless
otherwise noted. Unless the context indicates otherwise, all references in this
prospectus to "we", "us", "our" or the "Company" include Erie Indemnity Company
and its wholly owned subsidiaries, Erie Insurance Company, Erie Insurance
Company of New York and Erie Insurance Property & Casualty Company. As used in
this prospectus, the "Exchange" refers to Erie Insurance Exchange, and "Erie
Insurance Group" refers to the Company, the Exchange, its subsidiary, Flagship
City Insurance Company, and its affiliate, Erie Family Life Insurance Company.

OUR COMPANY

We operate predominantly as a provider of management services to Erie
Insurance Exchange (the "Exchange"). We also operate as a property and casualty
insurer through our subsidiaries. We have served since 1925 as the
attorney-in-fact for the policyholders of the Exchange. The Exchange is a
reciprocal insurance exchange, which is an unincorporated association of
individuals, partnerships and corporations that agree to insure one another.
Each applicant for insurance to a reciprocal insurance exchange signs a
subscriber's agreement, which contains an appointment of an attorney-in-fact.
As attorney-in-fact, the Company is required to perform certain services
relating to the sales, underwriting and issuance of policies on behalf of the
Exchange.

The Exchange and its property and casualty subsidiary and our three
property and casualty subsidiaries (collectively, the "Property and Casualty
Group") write personal and commercial lines property and casualty coverages
exclusively through approximately 8,000 independent agents and pool their
underwriting results. The financial results of the Exchange are not
consolidated with ours.

For our services as attorney-in-fact, we charge the Exchange a management
fee calculated as a percentage, limited to 25%, of the direct written premiums
of the Property and Casualty Group. Management fees accounted for approximately
78% of our revenues for the nine months ended September 30, 2002. For the first
nine months of 2002, 70% of the direct premiums written by the Property and
Casualty Group were personal lines, while 30% were commercial lines. We also
own 21.6% of the common stock of Erie Family Life Insurance Company, an
affiliated life insurance company, of which the Exchange owns 53.5% and public
shareholders, including certain of our directors, own 24.9%. At September 30,
2002, we had total assets of $2.2 billion, total liabilities of $1.2 billion
and shareholders' equity of $958 million. Our net income was $138.2 million for
the nine months ended September 30, 2002 and $122.3 million for the year ended
December 31, 2001.

We believe we are the only publicly-traded attorney-in-fact for a
reciprocal insurance exchange in the country. Several other private property
and casualty companies, such as USAA and Farmers Insurance Group (owned by
Zurich Financial Services Group), are reciprocal insurance exchanges that
operate with separate management arrangements. Our earnings are largely
generated by fees based on premiums written directly by the underwriting pool
of the Property and Casualty Group, in which the Exchange has a 94.5%
participation. We therefore have a direct incentive to protect the financial
condition of the Exchange. As a result of the Exchange's 94.5% participation in
the underwriting results of the Property and Casualty Group, the underwriting
risk of the Property and Casualty Group's business is largely borne by the
Exchange, which had $2.1 billion of statutory surplus at September 30, 2002.
The surplus of the Exchange was $4.8 billion at December 31, 1999 and has
declined primarily

from marketable security investment declines and underwriting losses. Through
the pool, our property and casualty subsidiaries currently assume 5.5% of the
Property and Casualty Group's underwriting results, and therefore we also have
a direct incentive to manage the overall underwriting business as effectively
as possible.

ERIE INSURANCE GROUP
ORGANIZATIONAL CHART

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| Shareholders |
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|
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| Erie Indemnity | Attorney-in-Fact -----------------------------
| Company |-----------for Policyholders------------| Erie Insurance Exchange* |
------------------- -----------------------------
| |
--------------------------------------------- ---------------------
| | | | |
| | | | |
100% 100% 21.6% 53.5% 100%
| | | | |
------------------ ------------------- ------------------------ --------------------
| | | Erie Insurance* | | | | |
| Erie Insurance*| | Property & | | Erie Family Life | | Flagship City* |
| Company | | Casualty | | Insurance | | Insurance |
| | | Company | | Company | | Company |
------------------ ------------------- ------------------------ --------------------
|
|
100%
|
|
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| |
| Erie Insurance*|
| Company of |
| New York |
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* Denotes a member of the Property and Casualty Group

The Property and Casualty Group seeks to insure standard and preferred
risks in primarily private passenger automobile, homeowners and small
commercial lines, including workers' compensation policies. We believe the
Property and Casualty Group has differentiated its products from standard
industry products by providing additional coverages, which enhance agents'
marketing efforts. The Property and Casualty Group's agency force consists of
over 1,700 independent agencies comprised of approximately 8,000 agents in 11
Midwestern, Mid-Atlantic and Southeastern states (Illinois, Indiana, Maryland,
New York, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West
Virginia and Wisconsin) and the District of Columbia. These independent agents
play a significant role as underwriters and are major contributors to the
Property and Casualty Group's success.

The Company has reported increasing net operating income for 14 consecutive
years. The increases in net operating income have been driven by the premium
growth of the Property and Casualty Group that resulted in a corresponding
increase in the amount of the management fee. The premium growth of the
Property and Casualty Group has resulted primarily from an expansion of its
business into new territories, the appointment of new agencies, high policy and
agency retention rates and, recently, increased premium rates.

. Since 1997, the Property and Casualty Group has entered Illinois and
Wisconsin and expects to begin operating in Minnesota in the third
quarter of 2004.

. In 2001, we continued the planned expansion of the Property and Casualty
Group's independent agency force by appointing 247 agencies. Since 1997,
we have increased the overall number of agencies representing the
Property and Casualty Group by 60%.

. The Property and Casualty Group has a very stable base of policyholders.
The Property and Casualty Group's retention rate of 90.9% in 2001
compared favorably to an average of 82.6% for a core benchmark group
consisting largely of regional property and casualty insurers, according
to a 2001 Ward Group benchmark study.

As a result of these growth initiatives and market conditions, the Property
and Casualty Group had over 3.4 million insurance policies in force as of
September 30, 2002, an 11.9% increase from September 30, 2001. Personal lines
policies in force grew by 11.8% during the twelve months ended September 30,
2002, while commercial lines policies increased 13.0% over the same period.

The Property and Casualty Group has incurred underwriting losses in recent
years, primarily as a result of reducing premium rates in 1998 and 1999 in
response to competitive conditions, due to increasing loss severity and due to
reinsurance losses, including losses from the terrorist attack on the World
Trade Center. Because we have a 5.5% participation in the underwriting results
of the Property and Casualty Group, 5.5% of its underwriting losses are
reflected in our results of operations. Our share of these underwriting losses,
which includes the reinsurance losses, were $3.5 million in 1999, $10.4 million
in 2000 and $20.5 million in 2001, respectively.

Each member of the Property and Casualty Group is rated A++ (Superior) by
A.M. Best Company, Inc. ("A.M. Best"), its highest financial strength rating,
which was held by only 2.8% of the property and casualty insurance groups rated
by A.M. Best as of July 11, 2002.

STRATEGY

The Erie Insurance Group's overall strategy includes providing attractive
property and casualty insurance products at competitive prices, coupled with
high-quality service. The Erie Insurance Group distributes these products
exclusively through independent insurance agents whose insurance and
underwriting expertise, local market knowledge and commitment to service have
been key drivers of Erie Insurance Group's growth. The Erie Insurance Group's
strategy includes:

. Growth by expansion of existing operations, rather than through
acquisition, including by (i) a careful agency selection process in which
the Property and Casualty Group seeks to be the primary property and
casualty underwriter for each agency, (ii) a thoughtful expansion into
favorable states and (iii) increased market penetration in existing
operating territories.

. Quality service to policyholders in claims handling, underwriting and
other service activities.

. Achieving underwriting profits for the Property and Casualty Group by
focusing on standard and preferred risks and by setting and adhering to
consistent underwriting standards.

. A business model designed to provide the advantages of localized
marketing and claims servicing with the economies of scale derived from
centralized management and administration.

RECENT DEVELOPMENTS

At its meeting on December 10, 2002, our Board of Directors approved:

. the reduction of the management fee rate for 2003 from its previous rate
of 25% to 24%, which would have reduced the Company's net income by $15.4
million and net income per share by $0.22 or 11.2% had such reduction
been effective for the nine months ended September 30, 2002;

. an increase in the regular quarterly dividend from $0.17 to $0.19 on each
share of Class A common stock and from $25.50 to $28.50 on each share of
Class B common stock; and

. the reduction of the service agreement rate, which relates to the
management and administration by us of the Exchange's voluntary assumed
reinsurance business from non-affiliated insurers, for 2003 from its
previous rate of 7% to 6%, which would have reduced the Company's net
income by $891,000 and net income per share by $0.01 or less than 1% had
such reduction been effective for the nine months ended September 30,
2002.

In determining whether to reduce the management fee rate and the service
agreement rate, the Company's board of directors considered the relative
financial position of the Exchange and the Company, including the surplus
levels and underwriting results of the Exchange and the management fee and
earnings growth prospects of the Company.

The Company recorded in the fourth quarter of 2002 a one-time charge to net
income of $3.9 million, or $.06 per share, to establish an estimated allowance
for returned management fees, rather than continuing to make adjustments upon
return. This charge recognizes the management fee anticipated to be returned to
the Exchange based on historical cancellation rates. The Company did not
restate prior period financial statements because the Company believes this
adjustment is not material to the trend of earnings for the Company nor any
related financial statement amount. Future changes in this allowance will be
reflected in the Company's statement of operations and are not expected to be
material. Cash flows will not be affected.

Members of the Property and Casualty Group increased their loss and loss
adjustment reserves by approximately $184 million in the fourth quarter of
2002. Approximately $3.1 million to $6.2 million of these increases were for
our subsidiaries, which will result in after tax charges to us of approximately
$.03 to $.06 in the fourth quarter. The increases in reserves were taken in
response to adverse loss experience in the group's automobile, homeowners and
workers' compensation lines, which was primarily attributable to increased loss
severity from automobile bodily injury and catastrophic medical claims in the
workers' compensation lines.

The Company recognized realized capital losses during the fourth quarter of
2002 of approximately $8.4 million. These losses resulted from the sale of
certain securities and from charges for impairments based on the Company's
regular periodic review of equity, debt and limited partnership investments
held by the Company. The losses will reduce fourth quarter net income by
approximately $5.5 million or $.08 per share.

THE OFFERING

Class A common stock offered.. 3,000,000 shares of our Class A common stock,
which is non-voting, are being offered by the
Selling Shareholder named below.

Class A common stock
outstanding after this
offering.................. 64,037,106 shares

Class B common stock
outstanding after this
offering.................. 2,900 shares

Class B common stock
conversion ratio.......... One share of Class B common stock may be
converted into 2,400 shares of Class A common
stock

Class A common stock
outstanding after this
offering assuming
conversion................ 70,997,106 shares

Dividend history............ We declared and paid cash dividends of $0.17 per
share of Class A common stock for each of the
first three quarters of 2002 and $25.50 per share
of Class B common stock for each of the first
three quarters of 2002. We declared and paid a
cash dividend of $0.19 per share of Class A
common stock for the fourth quarter of 2002 and
$28.50 per share of Class B common stock for the
fourth quarter of 2002.

We have paid regular quarterly cash dividends
since 1942. Our board of directors considers the
declaration of cash dividends on a quarterly
basis. The payment of future dividends, if any,
will be at the discretion of our board of
directors and will depend upon many factors,
including:

. our earnings;

. our financial position;

. our capital requirements and those of our
subsidiaries; and

. our ability to receive dividends from our
subsidiaries, which is subject to regulatory
limitations.

There can be no assurance as to the declaration
of future dividends.

Use of proceeds............. We will not receive any of the proceeds from this
offering of our Class A common stock. The Selling
Shareholder identified below will receive all the
net proceeds from the sale of these shares.

NASDAQ Stock Market(SM)
symbol.................... ERIE

The above information assumes that the option covering an additional
450,000 shares granted by the Selling Shareholder to the underwriters will not
be exercised.

The above information is based on the number of shares outstanding as of
January 1, 2003.

SELLING SHAREHOLDER

Black Interests Limited Partnership (the "Selling Shareholder") is offering
3.0 million shares of the Company's Class A common stock. The Selling
Shareholder has also granted the underwriters a 30-day option to purchase up to
an additional 450,000 shares of the Company's Class A common stock. Samuel P.
Black, III is the managing general partner of the Selling Shareholder and has
the right to vote the shares held by it. Mr. Black has been a director of the
Company since 1997 and succeeded his father, who served as a director during
various periods from 1930 to 1997. Mr. Black is also an officer and principal
shareholder of an insurance agency that receives insurance commissions in the
ordinary course of business from the insurance companies we manage, in
accordance with the insurance companies' standard commission schedules and
agents' contracts.

CORPORATE INFORMATION

We were incorporated in Pennsylvania in 1925. Our principal executive
offices are located at 100 Erie Insurance Place, Erie, Pennsylvania 16530, and
our telephone number is (814) 870-2000. Our website is located at
www.erieinsurance.com. The information on this website is not a part of this
prospectus.

SUMMARY HISTORICAL FINANCIAL INFORMATION

The summary consolidated financial data presented below as of or for the
years ended December 31, 1997 through 2001 is derived from our audited
financial statements. Our consolidated financial statements as of December 31,
2000 and 2001 and for each of the years in the three-year period ended December
31, 2001, and our independent auditors' report thereon, are included elsewhere
in this prospectus and incorporated by reference herein. See "Where To Find
More Information/Incorporation by Reference". The summary consolidated
financial data presented below as of or for the nine-month periods ended
September 30, 2001 and 2002 is derived from our unaudited consolidated
financial statements included elsewhere in this prospectus and incorporated by
reference herein. See "Where To Find More Information/Incorporation by
Reference". Our results of operations for the nine months ended September 30,
2002 are not necessarily indicative of our results of operations that may be
expected for the year ended December 31, 2002. In the opinion of our
management, all adjustments, consisting only of normal recurring accruals,
considered necessary for a fair presentation have been included. The financial
data set forth below is only a summary and should be read in conjunction with
our consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.

Nine Months Ended
September 30, Year Ended December 31,
--------------------- ------------------------------------------------------
(amounts in thousands, except per 2002 2001 2001 2000 1999 1998 1997
share data) ---------- ---------- ---------- ---------- ---------- ---------- ----------
(unaudited)

Statements of Operations Data:
Operating revenue..................... $ 730,029 $ 602,001 $ 799,861 $ 698,016 $ 646,040 $ 615,965 $ 581,979
Operating expense..................... 556,871 466,566 635,756 549,672 501,061 470,155 450,037
Total other income and expenses....... 33,187 35,408 17,998 70,102 58,731 45,770 38,747
Equity in earnings of Erie Family Life
Insurance Company, net of tax........ 1,015 2,337 719 5,108 4,692 4,443 3,935
Federal income tax expense............ 69,171 56,835 60,561 71,161 65,296 61,472 56,043
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Net income............................ $ 138,189 $ 116,345 $ 122,261 $ 152,393 $ 143,106 $ 134,551 $ 118,581
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Per Share Data:
Net income per share.................. $ 1.94 $ 1.63 $ 1.71 $ 2.12 $ 1.95 $ 1.81 $ 1.59
Book value per share.................. 13.50 12.01 12.15 10.91 9.62 8.81 7.25
Weighted average shares
outstanding.......................... 71,109 71,380 71,342 71,954 73,487 74,400 74,400

Financial Position:
Investments(1)........................ $ 969,898 $ 884,599 $ 885,650 $ 853,146 $ 785,258 $ 709,417 $ 566,118
Receivables from the Exchange and
affiliates........................... 761,295 650,091 640,655 532,009 470,969 467,794 469,708
Total assets.......................... 2,194,690 1,897,077 1,935,566 1,680,599 1,518,794 1,454,062 1,292,544
Shareholders' equity.................. 958,274 855,755 865,255 779,015 697,599 655,223 539,383

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(1) Includes investment in Erie Family Life Insurance Company.

RISK FACTORS

You should consider carefully the risks and uncertainties described below
and the other information in this prospectus, including our consolidated
financial statements and related notes, before deciding to invest in shares of
our Class A common stock. If any of the following risks or uncertainties
actually occur, our business, financial condition and operating results would
likely suffer. In that event, the market price of our Class A common stock
could decline and you could lose all or part of the money you paid to buy our
Class A common stock.

RISKS RELATING TO OUR BUSINESS AND OUR RELATIONSHIPS WITH THIRD PARTIES

IF THE MANAGEMENT FEE RATE PAID TO US BY THE EXCHANGE IS FURTHER REDUCED,
IF THERE IS A SIGNIFICANT DECREASE IN THE AMOUNT OF PREMIUMS WRITTEN BY THE
EXCHANGE OR IF WE DO NOT CONTROL THE COSTS OF PROVIDING SERVICES TO THE
EXCHANGE, OUR REVENUES AND PROFITABILITY COULD BE MATERIALLY ADVERSELY AFFECTED.

We are dependent upon management fees paid to us by the Exchange, which
represent our principal source of revenue. Management fees from the Exchange
constituted 78% of our revenues for the first nine months of 2002, 78% of our
revenues for 2001, and 74% of our revenues during the three years ended
December 31, 2001. The management fee rate we receive is determined by our
board of directors and may not exceed 25% of the direct written premiums of the
Property and Casualty Group. Since 1999, the management fee rate has been 25%.
In 1998 and 1997, the management fee rate was 24.25% and 24%, respectively.

Our board of directors generally sets the management fee rate each December
for the following year. However, at their discretion, the rate can be changed
at any time. The factors our board of directors consider in setting the
management fee rate include our financial position in relation to the Exchange
and the long-term needs of the Exchange for capital and surplus to support its
continued growth and competitiveness. The Exchange's capital and surplus could
become impaired due to a number of factors, including those discussed under
"--Risks Relating to the Business of the Property and Casualty Group" and
"--Risks Relating to the Property and Casualty Insurance Industry" below. In
light of factors including the strong growth of the Exchange's premium base and
the decline in the policyholders' surplus of the Exchange from $4.8 billion at
December 31, 1999 to $2.1 billion at September 30, 2002, the management fee
rate for 2003 was reduced to 24% at our board's December 2002 meeting.

If our board of directors were to determine that the management fee rate
should be further reduced, our revenues and profitability could be materially
adversely affected. For example, a 1% reduction in the management fee rate
during the nine months ended September 30, 2002 would have resulted in a
reduction in our net revenues of $23.8 million, or 12.6%, and a reduction in
our net income per share of $0.22, or 11.2%. A similar decrease of 1% during
2001 would have resulted in a reduction in our net revenues of $25.4 million,
or 13.8%, and a reduction in our net income per share of $0.23, or 13.5%.

Our management fee revenue from the Exchange is calculated by multiplying
the management fee rate by the direct premiums written by the Exchange and the
direct premiums written by the other members of the Property and Casualty
Group, which are initially assumed by the Exchange. Accordingly, any reduction
in direct premiums written by the Property and Casualty Group would have a
proportional negative effect on our revenues and net income.

Pursuant to the attorney-in-fact agreements with the policyholders of the
Exchange, the Company is appointed to perform certain services, regardless of
the cost to the Company of providing those

services. These services relate to the sales, underwriting and issuance of
policies on behalf of the Exchange. We could lose money or be less profitable
if our cost of providing those services increases significantly.

OUR BOARD OF DIRECTORS FACES CERTAIN CONFLICTS OF INTEREST BECAUSE IT MUST
BALANCE FIDUCIARY OBLIGATIONS TO POLICYHOLDERS OF THE EXCHANGE AND TO OUR
SHAREHOLDERS; THUS OUR BOARD OF DIRECTORS MUST MAKE DECISIONS THAT ARE NOT
SOLELY IN THE INTERESTS OF OUR SHAREHOLDERS.

The Exchange has no board of directors or governing body of its own. In our
capacity as attorney-in-fact, we have a fiduciary duty to the policyholders of
the Exchange to protect their interests. Likewise, we have a fiduciary duty to
our shareholders. Certain conflicts of interest arise from these separate
fiduciary duties. Among these conflicts of interest are:

. Our board of directors sets the management fee rate paid by the Exchange
to us and decides the percentage participation rate of our property and
casualty subsidiaries in the pool.

. We make judgments about the allocation of shared costs between the
Exchange and the Company in accordance with intercompany agreements and
the attorney-in-fact agreements with the policyholders of the Exchange,
including costs relating to the eCommerce program.

. The Exchange may enter into other transactions and contractual
relationships with the Company and its subsidiaries.

As a consequence, our board of directors must make decisions or take
actions that are not solely in the interests of our shareholders. If, for
example, there should be a need to strengthen the surplus of the Exchange, our
board of directors may decide to reduce the management fee rate and/or that we
should make a capital contribution to the Exchange in the form of a surplus
note or some other form. Under such circumstances, we may be required to
provide such capital to the Exchange at a lower rate of return than would be
available with other investments or at no return at all. Payments of interest
and repayment of principal on a surplus note are subject to prior approval of
the Pennsylvania Department of Insurance, which may not approve such payments.
We may also find it necessary to fund additional surplus for the Exchange by
issuing additional shares of our capital stock, resulting in dilution of
existing shareholders' interest. In addition, state regulators could challenge
the reasonableness of the transactions between us and the Exchange.

WE ARE SUBJECT TO CREDIT RISK TO THE EXCHANGE BECAUSE OUR MANAGEMENT FEES
FROM THE EXCHANGE ARE NOT PAID IMMEDIATELY WHEN EARNED AND OUR INSURANCE
SUBSIDIARIES ARE SUBJECT TO CREDIT RISK TO THE EXCHANGE BECAUSE THE EXCHANGE
ASSUMES A HIGHER INSURANCE RISK UNDER AN INTERCOMPANY POOLING ARRANGEMENT THAN
IS PROPORTIONAL TO ITS DIRECT BUSINESS CONTRIBUTION TO THE POOL.

We recognize management fees due from the Exchange as income when the
premiums are written because at that time we have performed substantially all
of the services we are required to perform, including sales, underwriting and
policy issuance activities, but currently such fees are not paid to us by the
Exchange until it collects the premiums. As a result, we hold receivables for
management fees due us for premiums written but not yet collected by the
Exchange. In addition, we hold receivables from the Exchange for costs we pay
on its behalf and for reinsurance under the intercompany pooling arrangement.
Our total receivables from the Exchange, including the management fee, costs we
pay on behalf of the Exchange and reinsurance recoverables, totaled $759.6
million, or 34.6% of our total assets at September 30, 2002, and $638.4
million, or 33.0% of our total assets at December 31, 2001. The receivables
represented 12.3% of the Exchange's assets at September 30, 2002 and 9.1% at
December 31, 2001.

The Exchange and two of our wholly owned subsidiaries, Erie Insurance
Company and Erie Insurance Company of New York, are parties to an intercompany
pooling arrangement. Under this pooling arrangement, our insurance subsidiaries
cede 100% of their property and casualty underwriting business to the Exchange,
which retrocedes 5% of the pooled business to Erie Insurance Company and 0.5%
to Erie Insurance Company of New York. In 2001, only approximately 81.4% of the
pooled direct property and casualty business was originally generated by the
Exchange and its subsidiary, while 94.5% of the pooled business is retroceded
to the Exchange under the intercompany pooling arrangement. Accordingly, the
Exchange assumes a higher insurance risk than is proportional to the insurance
business it contributes to the pool. In 2001, our subsidiaries wrote 18.6% of
the direct premiums, while assuming only 5.5% of the risk. This poses a credit
risk to our subsidiaries participating in the pool because they are still
responsible ultimately to the policyholders for policies they have written if
the Exchange is unable to meet its obligations.

OUR FINANCIAL CONDITION MAY SUFFER BECAUSE OF DECLINES IN THE VALUE OF THE
MARKETABLE SECURITIES THAT CONSTITUTE A SIGNIFICANT PORTION OF OUR ASSETS.

At September 30, 2002, we had investments in marketable securities of
approximately $828 million and investments in limited partnerships of
approximately $89 million. In addition, we are obligated to invest up to an
additional $116 million in limited partnerships, including in partnerships for
U.S. and foreign private equity, real estate and fixed income investments. All
of our marketable security investments are subject to market volatility. Our
fixed income securities investments are exposed to price risk and to risk from
changes in interest rates as well as credit risk related to the issuer.
Generally, we do not hedge our exposure to interest rate risk as we have the
ability to hold fixed income securities to maturity. Our marketable securities
have exposure to price risk and the volatility of the equity markets and
general economic conditions. The stock market decline in 2002 has reduced the
value of our marketable securities by $6.8 million during the first nine months
of 2002, compared to $3.4 million during the first nine months of 2001. To the
extent that future market volatility negatively impacts our investments, our
results of operations will be negatively impacted.

THE TWO INDIVIDUAL TRUSTEES OF OUR CONTROLLING SHAREHOLDERS, THE H.O. HIRT
TRUSTS, HAVE SIGNIFICANTLY DIFFERING VIEWS ON A NUMBER OF MATTERS RELATING TO
THE COMPANY; SUCH DISAGREEMENTS MAY HAVE AN ADVERSE EFFECT ON OUR BUSINESS AND
ON THE VALUE OF OUR CLASS A COMMON STOCK.

Two trusts established by our founder, H.O. Hirt (the "H.O. Hirt Trusts"),
own 80.7% of our Class B common stock, which is the only class of stock that
can vote for the election of directors and has the ability to determine the
outcome of all other matters that require shareholder approval, except those
matters pertaining only to the rights of the holders of our Class A common
stock. The corporate trustee of the H.O. Hirt Trusts is Bankers Trust Company
of New York ("Bankers Trust") and the two individual trustees of the H.O. Hirt
Trusts are F. William Hirt and Susan Hirt Hagen, who are brother and sister and
the children of H.O. Hirt. Any determination by the H.O. Hirt Trusts requires a
vote of two of the three trustees and, because the H.O. Hirt Trusts control
80.7% of our Class B common stock, any such determination will be controlling
in a shareholder vote. Mrs. Hagen and Mr. Hirt disagree on a number of matters
relating to corporate governance, the appointment of a successor corporate
trustee and the financial condition of the Exchange.

Mrs. Hagen has recently raised concerns regarding a number of such matters,
including: the role of the H.O. Hirt Trusts as controlling shareholders in the
governance of the Company; the propriety of a corporate trustee of the H.O.
Hirt Trusts engaging in insurance brokerage activities; the restructuring of
our board of directors so that a majority of the directors are independent of
management; the restructuring of the committees of our board of directors to
provide a more meaningful role for directors who do not have ongoing business
relationships with us; the desirability of more liquidity and increased

institutional investor interest in the Company and the allocation of expenses
between the Exchange and us.

Mrs. Hagen on one occasion commenced litigation against us in connection
with corporate governance matters and has participated in litigation involving
the H.O. Hirt Trusts brought by each of the trustees of the H.O. Hirt Trusts
and by other beneficiaries of the H.O. Hirt Trusts. On two occasions in the
recent past, Mr. Hirt brought a suit, which was subsequently withdrawn without
prejudice, seeking the removal of Mrs. Hagen as an individual trustee. The
effect of these disagreements and concerns and possible future disagreements
between Mrs. Hagen and Mr. Hirt on us and the value of our Class A common stock
cannot be predicted.

MRS. HAGEN, WHO IS A MEMBER OF OUR BOARD OF DIRECTORS, A TRUSTEE AND A
BENEFICIARY OF THE H.O. HIRT TRUSTS AND A BENEFICIAL OWNER OF APPROXIMATELY
26.2% OF OUR CLASS A COMMON STOCK, IS OPPOSED TO OUR PARTICIPATION IN THIS
OFFERING BECAUSE SHE BELIEVES THERE MAY BE A BETTER ALTERNATIVE FOR US AND MAY
TAKE ADDITIONAL ACTIONS TO OPPOSE THIS OFFERING.

The concerns that Mrs. Hagen has expressed to our board of directors about
this offering include:

. the amount of time and effort required of our officers to prepare a
registration statement relating to this offering and to assist in the
marketing of the shares offered hereby instead of fully concentrating
their efforts on business and financial issues confronting Erie Insurance
Group;

. the liability of our directors and the H.O. Hirt Trusts if the
registration statement, including this prospectus, were determined to
contain a material misstatement or a material omission and the
indemnification by us of the underwriters for certain potential
liabilities under federal securities laws related to this offering;

. the need for the Company to consider retention of a national auditing
firm;

. the impact of the offering on our ability to attract independent director
candidates during this offering because of the potential liability
associated therewith;

. doubts whether a public offering would unlock any long-term value for our
shareholders;

. concerns that increased public holdings of our Class A common stock will
attract institutional investors; and

. her opinion that a below-market purchase by us of the shares being
offered by the Selling Shareholder would be more advantageous to us.

Our board of directors considered Mrs. Hagen's concerns at meetings held on
August 16, 2002 and September 9, 2002. At each meeting, Mrs. Hagen was the only
member of our board of directors present to vote against proceeding with this
offering. We are unable to predict whether Mrs. Hagen or any other trustee or
any other beneficiary of the H.O. Hirt Trusts may take additional actions to
oppose this offering.

Mrs. Hagen has also recently proposed five amendments to the Company's
Bylaws for consideration by the voting shareholders at the Company's annual
meeting of shareholders for 2003. These amendments concern (i) revising the
existing advance notice bylaw to provide that direct nomination by voting
shareholders of candidates for director are not due until after our nominating
committee announces its proposed slate rather than generally not less than 90
calendar days nor more than 120 calendar days before the first anniversary of
the date on which the Company first mailed its proxy statement to shareholders
for the immediately preceding year's annual meeting of shareholders as
currently provided; (ii) revising the advance notice bylaw to provide that
other shareholder proposals for annual meetings must be submitted not less than
60 nor more than 120 days prior to the first anniversary of the prior year's
annual meeting rather than generally not less than 90 calendar days nor more
than 120 calendar days before the first anniversary of the date on which the

Company first mailed its proxy statement to shareholders for the immediately
preceding year's annual meeting of shareholders as currently provided; (iii)
fixing the size of our board of directors at 13 members rather than not less
than 7 members nor more than 16 members as determined from time to time by our
board of directors as currently provided; (iv) providing that vacancies on our
board of directors only may be filled by the voting shareholders rather than by
a majority vote of remaining members of our board of directors or the voting
shareholders as currently provided and (v) providing that the bylaw provisions
containing the foregoing may not be amended without a vote of the voting
shareholders rather than by a majority vote of our board of directors or the
voting shareholders as currently provided.

Mrs. Hagen's proposals to amend the Company's Bylaws were timely submitted
in accordance with the Company's Bylaws applicable to shareholder proposals
other than the nomination of directors. If these proposals are presented by
Mrs. Hagen at the Company's 2003 annual meeting of shareholders, approval of
the proposals would require the affirmative vote of a majority of the shares of
the Company's Class B common stock voting at the annual meeting. Under the
provisions of the H.O. Hirt Trusts, which have the power to vote 80.7% of the
outstanding Class B common stock, the shares of Class B common stock held by
the H.O. Hirt Trusts are to be voted as directed by a majority of the trustees
then in office. The current trustees are Mrs. Hagen, Mr. Hirt and Bankers
Trust. The Company has not been advised to date by the trustees of the
H.O. Hirt Trusts as to how they intend to vote on Mrs. Hagen's proposals.

In addition, Mrs. Hagen has sent the Company a notice requesting that the
Company's nominating committee consider a slate of director nominees proposed
by her for election at the 2003 annual meeting of shareholders. Mr. Hirt has
sent the Company a notice requesting that the Company's nominating committee
consider certain other persons as director nominees. At the Company's 2000
annual meeting of shareholders, five nominees nominated by Mrs. Hagen and who
were not nominated by our nominating committee were elected as directors of the
Company and seven nominees nominated by our nominating committee were elected
as directors of the Company. At the Company's 2001 and 2002 annual meetings of
shareholders, all of the nominees nominated by our nominating committee, who
were the same as the directors elected in 2000, were elected as directors of
the Company and no nominees other than those nominated by our nominating
committee were elected as directors. The Company has not been advised to date
by the trustees of the H.O. Hirt Trusts as to the director nominees for whom
they intend to vote at the 2003 annual meeting of shareholders.

LAUREL A. HIRT, A BENEFICIARY OF THE H.O. HIRT TRUSTS AND THE DAUGHTER OF
MR. HIRT, THE CHAIRMAN OF OUR BOARD OF DIRECTORS, HAS REQUESTED THAT THE
TRUSTEES OF THE H.O. HIRT TRUSTS TAKE APPROPRIATE ACTIONS TO STOP THIS OFFERING
AND MAY TAKE ADDITIONAL ACTIONS TO OPPOSE THIS OFFERING.

On January 24, 2003, Laurel A. Hirt addressed a letter to the trustees of
the H.O. Hirt Trusts, who are Mr. Hirt, Mrs. Hagen and Bankers Trust, and
copied our board of directors, requesting that the trustees direct our board of
directors to withdraw their support for this offering and direct management of
the Company to withdraw this offering. Ms. Hirt expressed the view that
permitting the Company to engage in an offering that would expand the base of
shareholders to possibly include more investors whose interests may be adverse
to the H.O. Hirt Trusts creates an undue and unacceptable risk for the H.O.
Hirt Trusts and could make the H.O. Hirt Trusts more vulnerable to lawsuits.
Ms. Hirt also cited certain passages of this prospectus that she felt could be
considered material and misleading to potential investors and that could create
liability to the H.O. Hirt Trusts as a controlling person. Ms. Hirt indicated
she would consider initiating legal actions against the trustees of the H.O.
Hirt Trusts, our directors and our management if this offering is not stopped
and harm comes to the H.O. Hirt Trusts, the Exchange or the Company as a result
of this offering.

There can be no assurance that Ms. Hirt will not take additional actions to
oppose this offering or initiate litigation as a result of this offering. The
effect of any such actions on us and the value of our Class A common stock
cannot be predicted.

DECISIONS BY THE CORPORATE TRUSTEE OF THE H.O. HIRT TRUSTS OR A SUCCESSOR
TO EITHER OF THE INDIVIDUAL TRUSTEES COULD MATERIALLY ALTER OUR MANAGEMENT,
STRATEGIC DIRECTION, OPERATING PHILOSOPHY OR OTHER MATTERS MATERIAL TO US.

Bankers Trust tendered its resignation as corporate trustee of the H.O.
Hirt Trusts on March 3, 1999, 36 days after it had been appointed as a result
of conflicts of interest that Bankers Trust believed existed from certain
insurance operations of its parent company and affiliates. Also, an affiliate
of Bankers Trust, Deutsche Bank, is one of the largest market makers in the
Company's stock. The selection of a new corporate trustee of the H.O. Hirt
Trusts to replace Bankers Trust is pending before Orphan's Court in Erie
County, Pennsylvania. We cannot predict or estimate when a replacement
corporate trustee will be chosen to replace Bankers Trust or who it will be.
Because any action of the H.O. Hirt Trusts requires a vote of two of the three
trustees and because Mrs. Hagen and Mr. Hirt have significantly differing
views, the vote of the corporate trustee has been, and will likely continue to
be, determinative of the actions of the H.O. Hirt Trusts. There are a number of
circumstances in which a successor to one of the individual trustees would be
appointed, including the death of an individual trustee. If an individual
trustee is to be appointed, under the terms of the H.O. Hirt Trusts, the
remaining individual trustee, the corporate trustee and our board of directors
may select a replacement individual trustee or, if no successor is selected
within 30 days, the remaining trustees and the Company shall petition the Court
of Common Pleas of Erie County, Pennsylvania to fill said vacancy under the
trust agreement. Mr. Hirt is 77 years old and Mrs. Hagen is 67 years old.
Decisions by the existing trustees or successor trustees, including supporting
a slate of directors put forth by Mrs. Hagen or another shareholder, could
materially alter our management, strategic direction, operating philosophy or
other matters material to us. It is impossible to determine how these decisions
may affect the value of the Company and therefore our Class A common stock.

RISKS RELATING TO THE BUSINESS OF THE PROPERTY AND CASUALTY GROUP

THE PROPERTY AND CASUALTY GROUP CONDUCTS BUSINESS IN ONLY 11 STATES AND THE
DISTRICT OF COLUMBIA, WITH A CONCENTRATION OF BUSINESS IN OHIO, MARYLAND,
VIRGINIA AND, PARTICULARLY, PENNSYLVANIA. ANY SINGLE CATASTROPHE OCCURRENCE OR
OTHER CONDITION DISPROPORTIONATELY AFFECTING LOSSES IN THESE STATES COULD
ADVERSELY AFFECT THE RESULTS OF OPERATIONS OF MEMBERS OF THE PROPERTY AND
CASUALTY GROUP.

The Property and Casualty Group conducts business in only 11 states and the
District of Columbia, primarily in the Mid-Atlantic, Midwestern and
Southeastern portions of the United States. A substantial portion of this
business is private passenger and commercial automobile, homeowners and
workers' compensation insurance in Ohio, Maryland, Virginia and, particularly,
Pennsylvania. As a result, a single catastrophe occurrence, destructive weather
pattern, general economic trend, terrorist attack, regulatory development or
other condition disproportionately affecting one or more of the states in which
the Property and Casualty Group conducts substantial business could materially
adversely affect the results of operations of members of the Property and
Casualty Group. Common catastrophe events include hurricanes, earthquakes,
tornadoes, wind and hail storms, fires and explosions. Recent ice storms in
North Carolina and tornadoes and hail in Ohio and Pennsylvania during November
and December 2002 are examples of the type of event that can negatively impact
underwriting results. The Property and Casualty Group estimates the combined
exposure from the approximately 4,500 damage claims from these storms will
result in incurred losses of approximately $21 million to $24 million, our
share of which will be approximately $1.3 million or $.01 per share after
taxes. Effective January 1, 2003, the Property and Casualty Group entered into
a property catastrophe reinsurance treaty that provides coverage of 95% of a
loss up to $415 million in excess of the Property and Casualty Group's loss
retention of $115 million per occurrence.

THE OPERATING RESULTS OF THE EXCHANGE ARE SUBJECT TO GREATER VARIABILITY
BECAUSE THE PROPERTY AND CASUALTY GROUP GENERALLY DID NOT MAINTAIN REINSURANCE
COVERAGE AFTER 1993 THROUGH 2002.

The Property and Casualty Group did not purchase treaty reinsurance,
including catastrophe reinsurance, after 1993 through 2002, because management
concluded, during our periodic assessments of the Property and Casualty Group's
catastrophe exposure, that the benefits of such coverage were outweighed by the
costs of the coverage in light of the Exchange's substantial surplus and its
ratio of net premiums written to surplus. The Property and Casualty Group did
obtain property catastrophe treaty reinsurance to protect its 2003 accident
year underwriting results from catastrophes. The lower surplus levels of the
Exchange, along with increasing catastrophe risk exposure as a result of
accelerating policy growth, have resulted in management's decision to purchase
property catastrophe treaty reinsurance coverage. The Exchange's reported
surplus totaled $2.1 billion at September 30, 2002 compared to $4.8 billion at
December 31, 1999, a reduction of 56%.

We cannot determine whether the Exchange's profitability could have been
improved in years after 1993 through 2002 if the Exchange had purchased treaty
reinsurance because it is impossible to establish the terms on which the
Exchange might have obtained such reinsurance. If the recently purchased
property catastrophe treaty reinsurance had been in effect during 2002, there
would have been no recoveries and the profitability of the Exchange would not
have been affected except by the cost of such reinsurance. The risk of not
maintaining reinsurance coverage in the event of a significant catastrophe or a
series of moderate catastrophes in the same year means that surplus levels
could be exposed to dramatic decline should such catastrophes occur.
Reinsurance for catastrophe exposure protects the balance sheet and income
statement against large and infrequent events and reduces the variability of
earnings. A dramatic decline in the surplus levels would result in pressure to
reduce premium writings, and thereby, curtail growth of our property and
casualty subsidiaries. Without the benefit of higher surplus levels, the
ability of the Exchange to write additional premium would be reduced and so
would be the Company's opportunity to grow.

Variability in the Exchange's financial results can affect our financial
results in several ways. The management fee rate charged to the Exchange by us
is set based in substantial part on a review of the relative financial
condition and operating results of the Exchange and us. Deterioration in the
financial condition and operating results of the Exchange could result in a
reduction in the management fee rate paid to us or could constrain the capacity
of the Exchange to write additional premium, which would reduce management fees
paid to us. In addition, if the Exchange's financial condition worsened
considerably we could be subject to greater credit risk related to our large
accounts receivable balance due from the Exchange.

THE BUSINESS AND RESULTS OF OPERATIONS OF THE PROPERTY AND CASUALTY GROUP
WILL BE ADVERSELY AFFECTED IF THE INDEPENDENT AGENTS THAT MARKET THE PROPERTY
AND CASUALTY GROUP'S PRODUCTS DO NOT MAINTAIN THEIR CURRENT LEVELS OF PREMIUM
WRITING, FAIL TO COMPLY WITH ESTABLISHED UNDERWRITING GUIDELINES OR OTHERWISE
IMPROPERLY MARKET OUR PRODUCTS.

The Property and Casualty Group markets its insurance products solely
through a network of over 1,700 independent insurance agencies. As a result,
the Property and Casualty Group is wholly dependent upon these agencies, each
of which has the authority to bind the Property and Casualty Group to insurance
contracts. To the extent that these agencies' marketing efforts cannot be
maintained at their current levels of volume and quality or they bind the
Property and Casualty Group to unacceptable insurance risks, fail to comply
with established underwriting guidelines or otherwise improperly market our
products, the results of operations and business of the Property and Casualty
Group will suffer.

THE BUSINESS OF THE PROPERTY AND CASUALTY GROUP MAY NOT CONTINUE TO GROW
AND MAY BE MATERIALLY ADVERSELY AFFECTED IF THE COMPANY CANNOT RETAIN EXISTING,
AND ATTRACT NEW, INDEPENDENT AGENCIES OR IF INSURANCE CONSUMERS INCREASE USE OF
OTHER INSURANCE DELIVERY SYSTEMS.

The continued growth of the business of members of the Property and
Casualty Group is partially dependent upon the Company's ability to retain
existing, and attract new, independent agencies for the Property and Casualty
Group. The following factors are among those that may cause the growth and
retention in the number of independent agencies of the Property and Casualty
Group, and thereby growth in revenue of its members, to be slower than it
otherwise would have been:

. There is significant competition to attract independent agencies;

. Our process to select a new independent agency is intensive and typically
requires from six to nine months;

. The Company has stringent criteria for new independent agencies and
requires adherence by independent agencies to consistent underwriting
standards; and

. The Company may be required to reduce agents' commissions, bonuses and
other incentives, thereby reducing our attractiveness to agencies.

The Property and Casualty Group sells insurance solely through its network
of independent agencies. The Property and Casualty Group's competitors sell
insurance through a variety of delivery methods, including independent
agencies, captive agencies, the Internet and direct sales. To the extent that
business migrates to a delivery system other than independent agencies because
of changing consumer preferences, the business of the Property and Casualty
Group will be adversely affected.

THE PROPERTY AND CASUALTY GROUP HAS INCURRED UNDERWRITING LOSSES IN RECENT
YEARS PRIMARILY AS A RESULT OF REDUCING PREMIUM RATES IN 1998 AND 1999 IN
RESPONSE TO COMPETITIVE CONDITIONS, DUE TO INCREASED LOSS SEVERITY AND DUE TO
REINSURANCE LOSSES, INCLUDING LOSSES FROM THE TERRORIST ATTACK ON THE WORLD
TRADE CENTER. TO THE EXTENT UNDERWRITING LOSSES CONTINUE, THE MANAGEMENT FEE
REVENUES WE RECEIVE MAY BE REDUCED, IN ADDITION TO THE CONTINUING ADVERSE
EFFECT ON OUR OPERATING RESULTS FROM OUR SUBSIDIARIES' 5.5% PARTICIPATION IN
THE UNDERWRITING RESULTS OF THE PROPERTY AND CASUALTY GROUP.

In 1997 and 1998, the property and casualty insurance market was marked by
"soft market" conditions, which are characterized by decreased revenues, less
stringent underwriting standards and an excess of surplus in the industry.
These conditions created severe price competition in commercial and personal
lines of insurance, including private passenger automobile, the Property and
Casualty Group's largest line of business. These competitive conditions
resulted in slower new policy growth and declines in policy retention rates for
the Property and Casualty Group. Management viewed these competitive effects as
a serious threat to the well-being of the Property and Casualty Group. In 1998,
following discussions with our board of directors, management decided to reduce
premium rates in 1998 and 1999 in order to retain the Property and Casualty
Group's most profitable customers. The 1998 and 1999 premium rate reductions,
coupled with a general trend of increasing loss severity, negatively affected
the Property and Casualty Group's underwriting results, which increased from
underwriting losses of $49.8 million in 1999 to $189.7 million in 2000 and
$517.3 million in 2001. In 1999, 2000 and 2001, the Property and Casualty Group
also incurred significant underwriting losses from its non-affiliated assumed
reinsurance business, including $55 million in losses from wind storms in
Western Europe in late December 1999 and $150 million from the World Trade
Center terrorist attack in September 2001, assuming that attack is treated as
one occurrence.

The Property and Casualty Group and the Company have responded to
underwriting losses in a number of ways, including adopting stricter
underwriting requirements; restricting policy coverages; increasing the
emphasis on reviewing existing policies and accounts to determine which risks
continue

to meet underwriting guidelines and taking appropriate action regarding those
policies and accounts that do not; continuing the focus on claims strategies to
reduce claims severity, such as reducing claims fraud; raising premium rates on
its direct lines of insurance; reunderwriting all of its assumed reinsurance
treaties, resulting in the cancellation of a significant number of treaties and
the reduction in total aggregate limits for other treaties; significantly
raising reinsurance premium rates; and excluding terrorism coverage from all
reinsurance treaties entered into in 2002. However, there can be no assurance
that the measures taken or that may be taken by the Property and Casualty Group
and the Company will meet or exceed increases in loss costs or restore the
Property and Casualty Group's underwriting profitability.

To the extent underwriting losses continue, our operating results will
suffer from our subsidiaries' 5.5% participation in the pooling arrangement. In
addition, the Exchange's policyholders' surplus will be further adversely
affected. If the surplus of the Exchange were to decline significantly from its
current level, the Property and Casualty Group could find it more difficult to
retain its existing business and attract new business. A decline in the
business of the Property and Casualty Group would have an adverse effect on the
amount of the management fees we receive and the underwriting results of the
Property and Casualty Group in which we have a 5.5% participation. In addition,
a decline in the surplus of the Exchange from its current level would make it
more likely that the management fee rate received by us would be further
reduced.

THE SURPLUS OF THE EXCHANGE HAS DECREASED FROM $4.8 BILLION AT DECEMBER 31,
1999 TO $2.1 BILLION AT SEPTEMBER 30, 2002. OF THIS DECREASE, APPROXIMATELY
$1.6 BILLION WAS BECAUSE OF DECLINES IN THE MARKET VALUE OF MARKETABLE
SECURITIES INVESTMENTS, INCLUDING THE SIGNIFICANT PORTFOLIO OF COMMON EQUITY
SECURITIES. TO THE EXTENT THESE DECLINES IN MARKET VALUE CONTINUE AND THE
EXCHANGE'S SURPLUS CONTINUES TO DECREASE, THE MANAGEMENT FEE RATE WE RECEIVE
MAY BE FURTHER REDUCED AND THE UNDERWRITING RESULTS OF OUR PROPERTY AND
CASUALTY SUBSIDIARIES MAY SUFFER.

In 1985, the Exchange increased its investments in common equity securities
as a core element of its investment strategy. At December 31, 1999, when the
Exchange's surplus was $4.8 billion, the Exchange's portfolio of marketable
securities investments included common equity securities that had appreciated
in value by $2.6 billion, to a market value of $3.8 billion. However, as a
result of the downturn in common equity markets since 1999, the Exchange's
portfolio of common equity securities has experienced a decline in value of
$1.8 billion and the value of the portfolio was $2.0 billion at September 30,
2002. The common equity portfolio of the Exchange represents 32.8% of its
admitted assets at September 30, 2002 while the entire portfolio of marketable
securities investments represents 76.0% of its admitted assets at that date.

All marketable securities held by the Exchange are subject to market
volatility. The Exchange's marketable securities have exposure to price risk
and the volatility of capital markets. The stock market decline in 2002 has
reduced the value of the Exchange's marketable securities by $1.3 billion
during the first nine months of 2002 compared to the decrease of $1.0 billion
during the first nine months of 2001.

To the extent that the Exchange incurs additional investment losses
resulting from declines in the value of its marketable securities, the
Exchange's policyholders' surplus will be further adversely affected. If the
surplus of the Exchange were to decline significantly from its current level,
the Property and Casualty Group could find it more difficult to retain its
existing business and attract new business. A decline in the business of the
Property and Casualty Group would have an adverse effect on the amount of the
management fees we receive and the underwriting results of the Property and
Casualty Group in which we have a 5.5% participation. In addition, a decline in
the surplus of the Exchange from its current level would make it more likely
that the management fee rate received by us would be further reduced.

ERIE INSURANCE GROUP'S RECENT EFFORTS TO DEVELOP TECHNOLOGY, INCLUDING
INTERNET CAPABILITIES, TO ENHANCE POLICY ADMINISTRATION AND TO IMPROVE
INTERACTION WITH AGENTS MAY BE MORE COSTLY THAN WE ANTICIPATE, MAY NOT BE
COMPLETED DUE TO COST OR TECHNOLOGY CONSIDERATIONS AND MAY INCREASE OUR
EXPOSURE TO BREACHES OF PRIVACY OR SECURITY.

Customers and agents expect rapid turnaround of quotes and endorsements and
efficient services. Failure to meet these service expectations could place the
Erie Insurance Group at a competitive disadvantage. To remain competitive, the
Erie Insurance Group has undertaken an initiative, called "ERIEConnection/SM/",
to utilize technology, including the Internet, to automate certain functions to
facilitate quoting, underwriting and the issuing of policies and provide these
services directly to its agents via the Internet. Such an upgrading of
technology requires a sizable financial investment. Moreover, the effectiveness
of certain areas of technology remain unproven. Erie Insurance Group completed
the first major component of the program during the second quarter of 2002.
Through September 30, 2002, the Erie Insurance Group has spent $87 million on
its current technology development efforts. The timing, scope and level of
spending for remaining deliverables under the program are uncertain. Actual
costs to complete the technology initiatives may exceed anticipated costs and
lead to a reduction in profits or the termination of these technology
initiatives. In addition, use of Internet technology to connect directly with
the Property and Casualty Group's agents increases the risk of security
breaches, which may cause short-term or long-term disruptions to the Property
and Casualty Group's business operations and could lead to further and
currently unanticipated technology costs to prevent and mitigate the effects of
such security breaches.

IF RATINGS FOR FINANCIAL STRENGTH ASSIGNED TO MEMBERS OF THE PROPERTY AND
CASUALTY GROUP BY INDUSTRY RATING ORGANIZATIONS WERE SIGNIFICANTLY DOWNGRADED,
THE PROPERTY AND CASUALTY GROUP'S COMPETITIVE POSITION IN THE INSURANCE
INDUSTRY WOULD BE ADVERSELY AFFECTED.

Ratings are a factor in establishing the competitive position of insurance
companies. Members of the Property and Casualty Group receive ratings from A.M.
Best and Standard & Poor's, which are industry-accepted measures of an
insurance company's financial strength and are specifically designed to provide
an independent opinion of an insurance company's financial health and ability
to meet ongoing obligations to policyholders. Members of the Property and
Casualty Group are also rated by Weiss Ratings, Inc., which is a
consumer-oriented rating company that issues ratings designed to provide an
independent opinion of an insurance company's financial strength. The ratings
by Weiss Ratings, Inc. for the Exchange and Erie Insurance Company were
downgraded in July 2002. In addition, in January 2003, the Company was notified
by Standard & Poor's that the ratings for members of the Property and Casualty
Group were under review and may be downgraded. Ratings are not recommendations
to buy, sell or hold our common stock and are subject to change. A description
of the Company's recent ratings appears under "Business--Financial Ratings"
beginning on page 63.

If the Exchange or any other member of the Property and Casualty Group were
to incur underwriting losses or reductions in surplus for an extended period of
time, the ratings of such entity may be downgraded. While management of the
Company believes that recent downgrades by Weiss Ratings, Inc. have not
impacted any member of the Property and Casualty Group, a significant future
downgrade in these or other ratings would reduce the competitive position of
the affected member by making it more difficult to attract profitable business
in the highly competitive property and casualty insurance market.

RISKS RELATING TO THE PROPERTY AND CASUALTY INSURANCE INDUSTRY

THE PROPERTY AND CASUALTY GROUP FACES SIGNIFICANT EXPOSURE TO TERRORISM.

The tragic World Trade Center terrorist attack resulted in staggering
losses for the insurance industry and has caused uncertainty in the insurance
and reinsurance markets. The Property and Casualty Group incurred a loss of
$150 million in this attack assuming it continues to be considered

one occurrence, and it estimates it would incur an additional loss of $50 to
$75 million if the attack is considered two occurrences. The Company's 5.5%
share of this incurred loss was $5.8 million. Accordingly, the industry has
been compelled to re-examine policy language and to address the potential for
future threats of terrorist events and losses. The Property and Casualty
Group's personal and commercial property and casualty insurance policies were
not priced to cover the risk of terrorist attacks and losses such as those
suffered in the World Trade Center terrorist attack. The Property and Casualty
Group has withdrawn from some coverages and exposures, including terrorism,
where permitted by state regulators. However, even in states where withdrawal
has been permitted, the Property and Casualty Group is still exposed to
terrorism under several lines, including personal lines and workers'
compensation, and, in most states, losses caused by an ensuing fire. On
November 26, 2002, President Bush signed the Terrorism Risk Insurance Act of
2002, establishing a program for commercial property and casualty losses,
including workers' compensation, resulting from foreign acts of terrorism. The
Terrorism Risk Insurance Act requires commercial insurers to make terrorism
coverage available immediately and provides limited federal protection above
individual company retention levels, based upon a percentage of direct earned
premium, and above aggregate industry retention levels that range from $10
billion in the first year to $15 billion in the third year. The federal
government will pay 90% of covered terrorism losses that exceed retention
levels. The Terrorism Risk Insurance Act is scheduled to expire on December 31,
2005. Personal lines are not included under the protection of the Terrorism
Risk Insurance Act, and state regulators have not approved exclusions for acts
of terrorism on personal lines policies. The Property and Casualty Group could
incur large unexpected losses if future terrorist attacks occur.

EVEN EXCLUDING TERRORISM EXPOSURE, THE PROPERTY AND CASUALTY GROUP FACES
THE THREAT OF SUBSTANTIAL CATASTROPHE LOSSES AND DID NOT MAINTAIN TREATY
REINSURANCE COVERAGE FOR CATASTROPHE LOSSES AFTER 1993 THROUGH 2002.

The Property and Casualty Group has experienced, and can be expected in the
future to experience, catastrophe losses that may have a material adverse
impact on our results of operations and financial condition. The Property and
Casualty Group did not maintain treaty reinsurance coverage to mitigate the
impact of catastrophe losses after 1993 through 2002; however, effective
January 1, 2003, the Property and Casualty Group has obtained property
catastrophe reinsurance coverage. Catastrophes can be caused by various events,
including hurricanes, earthquakes, tornadoes, wind, hail, fires, explosions and
man-made disasters. The incidence and severity of catastrophes are inherently
unpredictable. The extent of losses from a catastrophe is a function of two
factors: the total amount of insured exposure in the area affected by the event
and the severity of the event. Most catastrophes are localized to small
geographic areas; however, events such as hurricanes, hail and ice storms have
the potential to produce significant damage in large, heavily populated areas.

For the Property and Casualty Group, areas of major potential hurricane
loss include major metropolitan centers in the eastern United States and areas
of major potential ice storm or hail loss include major metropolitan centers in
the Mid-Atlantic and Midwestern states. Although catastrophes can cause losses
in a variety of property and casualty lines, homeowners insurance has in the
past generated the vast majority of catastrophe-related claims. At December 31,
2001, 76% of the Property and Casualty Group's total homeowners insurance
exposure was comprised of risks in Mid-Atlantic states, which exposes the
Property and Casualty Group to significant risk of loss from catastrophes in
that region.

INCREASED LITIGATION AGAINST THE INDUSTRY, WILLINGNESS OF COURTS TO EXPAND
COVERED CAUSES OF LOSS, RISING JURY AWARDS, INCREASING MEDICAL COSTS AND THE
ESCALATION OF LOSS SEVERITY MAY CONTRIBUTE TO INCREASED COSTS AND TO THE
DETERIORATION OF RESERVE POSITIONS OF THE PROPERTY AND CASUALTY GROUP.

Loss severity for the Property and Casualty Group continues to increase,
principally driven by larger court judgments and increasing medical costs in
recent years. In addition, many legal actions and proceedings have been brought
on behalf of classes of complainants, which can increase the size of judgments.
The propensity of policyholders to litigate and the willingness of courts to
expand causes of loss and the size of awards may render loss reserves
inadequate for current and future losses. Loss reserves are liabilities
established by insurers and reinsurers to reflect the estimated cost of loss
payments and the related loss adjustment expenses that the insurer or reinsurer
will ultimately be required to pay in respect of insurance or reinsurance it
has written.

The Property and Casualty Group has exposure to mold claims for which there
has recently been a sharp increase in the industry generally. Sometimes
referred to as "sick building syndrome", tenants claiming to suffer illnesses
caused by mold may seek financial compensation from building owners. Businesses
also may claim loss-of-use business income interruption losses. Homeowners have
also been submitting claims based on mold that has occurred from water damage.
The Property and Casualty Group's exposure to date, including known and
expected claims, has been insignificant.

Members of the Property and Casualty Group increased their loss and loss
adjustment reserves by approximately $184 million in the fourth quarter of 2002
in response to adverse loss experience in the group's automobile, homeowners
and workers' compensation lines. To the extent that adverse trends continue,
including expansion by courts of covered causes of loss, rising jury awards,
increasing medical costs and the escalation of loss severity, the Property and
Casualty Group may need to further increase reserves and its profitability may
be adversely affected.

CHANGES IN APPLICABLE INSURANCE LAWS, REGULATIONS OR CHANGES IN THE WAY
REGULATORS ADMINISTER THOSE LAWS OR REGULATIONS COULD MATERIALLY ADVERSELY
CHANGE THE PROPERTY AND CASUALTY GROUP'S OPERATING ENVIRONMENT AND INCREASE ITS
EXPOSURE TO LOSS OR PUT IT AT A COMPETITIVE DISADVANTAGE.

Property and casualty insurers are subject to extensive supervision in the
states in which they do business. This regulatory oversight includes, by way of
example, matters relating to licensing and examination, rate setting, market
conduct, policy forms, limitations on the nature and amount of certain
investments, claims practices, mandated participation in involuntary markets
and guaranty funds, reserve adequacy, insurer solvency, transactions between
affiliates, the amount of dividends that may be paid and restrictions on
underwriting standards. Such regulation and supervision are primarily for the
benefit and protection of policyholders and not for the benefit of
shareholders. For instance, members of the Property and Casualty Group are
subject to involuntary participation in specified markets in various states in
which it operates, and the rate levels the Property and Casualty Group is
permitted to charge do not always correspond with the underlying costs
associated with the coverage issued.

The National Association of Insurance Commissioners ("NAIC") and state
insurance regulators are re-examining existing laws and regulations,
specifically focusing on insurance company investments, issues relating to the
solvency of insurance companies, risk-based capital guidelines, interpretations
of existing laws and the development of new laws. Changes in state laws and
regulations, as well as changes in the way state regulators view related party
transactions in particular, could materially change the operating environment
for the Property and Casualty Group and significantly increase the amount of
loss to which the Property and Casualty Group is exposed after an insurance
policy has been issued.

The state insurance regulatory framework recently has come under increased
federal scrutiny. Congress is considering legislation that would create an
optional federal charter for insurers. Federal chartering has the potential to
create an uneven playing field for insurers. Federally chartered

companies could be subject to different regulatory requirements than state
chartered insurers in areas such as market conduct oversight, solvency
regulation, guaranty fund participation and premium tax burdens. If this
occurs, federally chartered insurers may obtain a competitive advantage over
state licensed carriers. Federal chartering also raises the specter of a matrix
of regulation and costly duplicative, or conflicting, federal and state
requirements. Specific federal regulatory developments include the potential
repeal of the McCarran-Ferguson Act. The repeal of the McCarran-Ferguson Act
and its partial exemption for the insurance industry from federal antitrust
laws would make it extremely difficult for insurers to compile and share loss
data, develop standard policy forms and manuals and predict future loss costs.
The ability of the industry, under the exemption permitted in the
McCarran-Ferguson Act, to collect loss cost data and build a credible database
as a means of predicting future loss costs is an extremely important part of
cost-based pricing. If the ability to collect this data were removed, then the
predictability of future loss costs, and hence, the reliability of pricing
would be greatly undermined.

IF CERTAIN STATE REGULATORS, LEGISLATORS AND SPECIAL INTEREST GROUPS ARE
SUCCESSFUL IN ATTEMPTS TO REDUCE, FREEZE OR SET RATES FOR INSURANCE POLICIES,
ESPECIALLY AUTOMOBILE POLICIES, AT LEVELS THAT DO NOT, IN OUR MANAGEMENT'S
VIEW, CORRESPOND WITH UNDERLYING COSTS, THE RESULTS OF OPERATIONS OF THE
PROPERTY AND CASUALTY GROUP WILL BE ADVERSELY AFFECTED.

From time to time, the automobile insurance industry in particular has been
under pressure from certain state regulators, legislators and special interest
groups to reduce, freeze or set rates at levels that do not, in our
management's view, correspond with underlying costs, including initiatives to
roll back automobile and other personal lines rates. For example, in recent
years, certain rate increase requests by the Property and Casualty Group for
automobile coverage that management believed were necessary were rejected in
New York and Maryland. This activity has adversely affected, and may in the
future adversely affect, the profitability of the Property and Casualty Group's
automobile insurance line of business in various states because increasing
costs of litigation and medical treatment, combined with rising automobile
repair costs, continue to increase the costs of providing automobile insurance
coverage. Adverse legislative and regulatory activity constraining the Property
and Casualty Group's ability to price automobile insurance coverage adequately
may occur in the future. The impact of the automobile insurance regulatory
environment on the results of operations of members of the Property and
Casualty Group in the future is not predictable.

THE PROPERTY AND CASUALTY GROUP IS SUBJECT TO ASSESSMENT, DEPENDING UPON
ITS MARKET SHARE OF A GIVEN LINE OF BUSINESS, TO ASSIST IN THE PAYMENT OF
UNPAID CLAIMS AND RELATED COSTS OF INSOLVENT INSURANCE COMPANIES; SUCH
ASSESSMENTS COULD SIGNIFICANTLY AFFECT THE FINANCIAL CONDITION OF ANY ASSESSED
MEMBER.

The Property and Casualty Group is obligated to pay assessments under the
guaranty fund laws of the various states in which they are licensed. These
assessments were $0.6 million for the year ended December 31, 1999, $0.8
million for the year ended December 31, 2000 and $30.9 million for the year
ended December 31, 2001. Generally, under these laws, an insurer is subject to
assessment, depending upon its market share of a given line of business, to
assist in the payment of unpaid claims and related costs of insolvent insurance
companies. The number and magnitude of future insurance company failures in the
states in which the Property and Casualty Group does business cannot be
predicted, but resulting assessments levied on members of the Property and
Casualty Group could significantly affect the financial condition of members of
the Property and Casualty Group. The Property and Casualty Group believes that
it is likely to receive an assessment in the next year relating to the
insolvency of The Pennsylvania Hospital Insurance Company (PHICO), the amount
of which we cannot currently estimate.

PREMIUM RATES AND RESERVES MUST BE ESTABLISHED FOR MEMBERS OF THE PROPERTY
AND CASUALTY GROUP FROM FORECASTS OF THE ULTIMATE COSTS EXPECTED TO ARISE FROM
RISKS UNDERWRITTEN

DURING THE POLICY PERIOD; A MEMBER'S PROFITABILITY COULD BE ADVERSELY AFFECTED
TO THE EXTENT SUCH PREMIUM RATES OR RESERVES ARE TOO LOW.

One of the distinguishing features of the property and casualty insurance
industry in general is that its products are priced before its costs are known,
as premium rates are generally determined before losses are reported.
Accordingly, premium rates must be established from forecasts of the ultimate
costs expected to arise from risks underwritten during the policy period and
may not prove to be adequate. Further, property and casualty insurers establish
reserves for losses and loss adjustment expenses based upon estimates, and it
is possible that the ultimate liability will exceed these estimates because of
the future development of known losses, the existence of losses that have
occurred but are currently unreported and larger than historical settlements on
pending and unreported claims. The process of estimating reserves is inherently
judgmental and can be influenced by factors that are subject to variation. If
pricing or reserves established by a member of the Property and Casualty Group
are not sufficient, such member's profitability may be adversely impacted.

The Property and Casualty Group experienced adverse loss development
relating to losses from prior accident years of $107 million for calendar year
2000, or 5.6% of loss reserves at year-end 2000, and $117 million for calendar
year 2001, or 5.0% of loss reserves at year-end 2001. Adverse development of
losses from prior accident years results in higher calendar year loss ratios
and reduced calendar year underwriting results. To the extent prior year
reserve deficiencies are indicative of deteriorating underlying loss trends and
are material, the Property and Casualty Group's pricing of affected lines of
business would be increased to the extent permitted by state departments of
insurance.

SUBSTANTIAL PREMIUM RATE INCREASES ARE DRAWING NEW ENTRANTS AND NEW CAPITAL
TO THE REINSURANCE MARKETS, WHICH MAY INCREASE COMPETITION AMONG PROPERTY AND
CASUALTY INSURERS AND MAY CAUSE A REDUCTION IN OUR REVENUES.

Property and casualty market conditions in the wake of the World Trade
Center terrorist attack have been characterized by closer adherence to
underwriting standards, higher deductibles, reduced coverages and limits, more
restrictive terms and conditions and higher premium rates. As a result of these
changes in the industry, substantial new capital has entered the property and
casualty insurance market. A substantial portion of the new capital is
dedicated to building the capacity of new offshore reinsurers. This increased
capital could result in lower prices for reinsurance, which in turn would allow
primary insurers to offer more competitive prices or more favorable insurance
terms and conditions or increase capacity. Increased competition among insurers
and reinsurers could also allow the Property and Casualty Group's competitors
to relax their underwriting standards. If substantial premium rate increases
were to continue, additional new capital would likely be attracted, which would
further promote the effects of increased competition.

RISKS RELATING TO OUR CLASS A COMMON STOCK

THE PRICE OF OUR CLASS A COMMON STOCK MAY BE ADVERSELY AFFECTED BY ITS LOW
TRADING VOLUME.

The trading market for our Class A common stock is marked by limited
liquidity. Reported average daily trading volume in our Class A common stock
for the period January 1, 2002 through October 31, 2002 was approximately
32,000 shares. Of our 63.7 million shares of Class A common stock outstanding
at September 30, 2002, approximately 23 million shares are available for public
sale, with the remainder held by a small number of significant shareholders.
Since 1999, we have had a stock repurchase program that authorized us to
repurchase up to $120 million of our outstanding Class A common stock through
December 31, 2002. Approximately $101.9 million of Class A common stock has
been repurchased under the program to date. We believe the repurchase program
had the effect of stabilizing the price of our Class A common stock
notwithstanding that the variability of the price of our Class A common stock
had been declining every year in the three years prior to our stock

repurchase program. The program, however, has been suspended in connection with
this offering of Class A common stock, and as a result, there may be an adverse
effect on the market price of our Class A common stock.

THE MARKET PRICE OF OUR CLASS A COMMON STOCK MAY BE ADVERSELY AFFECTED BY
FUTURE SALES OF A SUBSTANTIAL NUMBER OF SHARES OF OUR CLASS A COMMON STOCK BY
OUR EXISTING SHAREHOLDERS IN THE PUBLIC MARKET, OR THE AVAILABILITY OF SUCH
SHARES FOR SALE.

In connection with this offering, the Company, certain of its directors and
officers, the Selling Shareholder and certain other shareholders have indicated
that they will enter into lock-up agreements under which they will generally
agree not to dispose of or hedge any of their shares or securities convertible
into or exchangeable for shares of common stock of the Company during the
90-day period from the date of this prospectus without prior written approval
of the underwriters. Certain of our existing shareholders and directors,
however, have indicated that they will not agree to enter into lock-up
agreements, including Susan Hirt Hagen, who is a member of our board of
directors and a trustee and a beneficiary of the H.O. Hirt Trusts, Thomas B.
Hagen, who is Mrs. Hagen's husband, and Henry N. Nassau, who is a member of our
board of directors. Also, Audrey C. Hirt and Laurel A. Hirt have indicated that
they will not agree to enter into lock-up agreements. Audrey Hirt is the wife
and Laurel Hirt is a daughter of F. William Hirt, the chairman of our board of
directors. Mr. Hirt is also a trustee and a beneficiary of the H.O. Hirt
Trusts. Although we have not received any indication that Mr. and Mrs. Hagen,
Mr. Nassau, Audrey Hirt or Laurel Hirt are planning to sell shares of Class A
common stock during the 90-day period from the date of this prospectus, Mr. and
Mrs. Hagen, Mr. Nassau, Audrey Hirt and Laurel Hirt, if they do not execute
lock-up agreements, may have available for sale up to 34.74% of the outstanding
shares of Class A common stock (based on the number of shares of Class A common
stock outstanding as of December 31, 2002), assuming no further conversion of
Class B shares into Class A shares. Sales, or the availability for sale, by
these shareholders following the consummation of this offering of a substantial
number of shares of our Class A common stock that are not subject to lock-up
agreements may have an adverse effect on the market price of our Class A common
stock.

HOLDERS OF CLASS A COMMON STOCK HAVE LIMITED VOTING RIGHTS, AND TWO
SHAREHOLDERS OF OUR CLASS B COMMON STOCK, THE H.O. HIRT TRUSTS, HAVE THE
ABILITY TO DETERMINE THE OUTCOME OF ALL MATTERS SUBMITTED FOR SHAREHOLDER
APPROVAL, EXCEPT THOSE MATTERS PERTAINING ONLY TO THE RIGHTS OF THE HOLDERS OF
CLASS A COMMON STOCK.

Our Class A common stock cannot vote for the election of directors and
generally can only vote on matters pertaining to the rights of holders of Class
A common stock. Generally, voting control of the Company is vested in the 2,900
outstanding shares of Class B common stock. The H.O. Hirt Trusts together own
2,340 shares, or 80.7%, of the outstanding Class B common stock and can
therefore together elect the entire board of directors and determine the
outcome of all matters submitted for approval of our shareholders, except those
matters pertaining only to the rights of the holders of Class A common stock.

THE VALUE OF OUR CLASS A COMMON STOCK MAY BE ADVERSELY AFFECTED BECAUSE THE
ABILITY OF OUR PRINCIPAL SHAREHOLDERS TO VOTE IN FAVOR OF A TRANSACTION THAT
WOULD RESULT IN A CHANGE OF CONTROL IS LIMITED.

The vote of the H.O. Hirt Trusts will determine the outcome of any matter
submitted for shareholder approval, except those matters pertaining only to the
rights of the holders of Class A common stock. The trust agreement governing
the H.O. Hirt Trusts provide that at least two of the three trustees, including
the corporate trustee, would be required to vote in favor of a transaction
under which we would be acquired and such action, by the terms of the trust
agreements, would be permitted only if required to maintain the health of the
Exchange. This may prevent anyone from acquiring us in a transaction that
shareholders, other than the H.O. Hirt Trusts, may consider to be in their best
interests and may consequently have a negative effect on the price of our Class
A common stock.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus and the documents incorporated by reference into this
prospectus contain "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. These statements include certain discussions relating to
underwriting, premium and investment income volume, business strategies,
profitability and business relationships and our other business activities
during 2002 and beyond. In some cases, you can identify forward-looking
statements by terms such as "may", "will", "should", "could", "would",
"expect", "plan", "intend", "anticipate", "believe", "estimate", "project",
"predict", "potential" and similar expressions. These forward-looking
statements reflect our current views about future events, are based on
assumptions and are subject to known and unknown risks and uncertainties that
may cause results to differ materially from those anticipated in those
statements. Many of the factors that will determine future events or
achievements are beyond our ability to control or predict. Such factors may
include those described under "Risk Factors" beginning on page 8.

The forward-looking statements contained in this prospectus reflect our
views and assumptions only as of the date of this prospectus. Except as
required by law, we assume no responsibility for updating any forward-looking
statements. You should read this prospectus and the documents that we reference
in this prospectus and have filed as exhibits to the registration statement of
which this prospectus is a part, completely and with the understanding that our
actual future results may be materially different from what we expect.

We qualify all of our forward-looking statements by these cautionary
statements.

PRICE RANGE OF OUR CLASS A COMMON STOCK AND DIVIDEND HISTORY

Prices for our Class A common stock are quoted on the NASDAQ Stock
Market(SM) under the symbol "ERIE". The following table presents for the
periods indicated the high and low closing prices for our Class A common stock
as reported by the NASDAQ Stock Market(SM) and the cash dividends declared.

Price Range Cash
------------- Dividends
High Low Declared
------ ------ ---------

2000:
First Quarter. $32.44 $26.50 $0.1350
Second Quarter 32.50 27.50 0.1350
Third Quarter. 32.00 29.19 0.1350
Fourth Quarter 30.00 24.00 0.1525

Price Range Cash
------------- Dividends
High Low Declared
------ ------ ---------

2001:
First Quarter. $30.00 $26.50 $0.1525
Second Quarter 36.12 27.54 0.1525
Third Quarter. 39.55 32.70 0.1525
Fourth Quarter 40.63 36.91 0.1700

Price Range Cash
------------- Dividends
High Low Declared
------ ------ ---------

2002:
First Quarter. $40.82 $37.65 $0.1700
Second Quarter 45.49 40.44 0.1700
Third Quarter. 44.50 37.45 0.1700
Fourth Quarter 42.39 35.90 0.1900

Price Range Cash
------------- Dividends
High Low Declared
------ ------ ---------

2003:
First Quarter (through January 27) $36.58 $35.60 --

The last reported sale price of our Class A common stock on January 27,
2003 was $35.60. As of September 30, 2002, there were 1,061 holders of record
of our Class A common stock.

We have paid regular quarterly cash dividends since 1942. Our board of
directors considers the declaration of cash dividends on a quarterly basis. The
payment of future dividends, if any, will be at the discretion of our board of
directors and will depend upon many factors, including:

. our earnings;

. our financial position;

. our capital requirements and those of our subsidiaries; and

. our ability to receive dividends from our subsidiaries, which is subject
to regulatory limitations.

Therefore, there can be no assurance as to the declaration of future dividends.

Although a potential source of cash for the payment of dividends to our
shareholders is dividends from our insurance subsidiaries, our insurance
subsidiaries have never paid us a dividend. Our insurance subsidiaries are
subject to state laws that restrict their ability to pay dividends.

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2002.
We will not receive any proceeds from the sale of the shares of Class A common
stock being offered hereby.

September 30, 2002
(AMOUNTS IN THOUSANDS) ------------------

Long-term debt.................................................... --
Shareholders' equity:
Class A common stock, stated value............................. $ 1,957
$0.0292 per share; authorized 74,996,930 shares;
issued 67,080,000 shares and outstanding 63,677,106 shares
Class B common stock, stated value............................. 213
$70 per share; authorized 3,070 shares;
issued and outstanding 3,050 shares
Additional paid-in capital..................................... 7,830
Accumulated other comprehensive income......................... 31,266
Retained earnings.............................................. 1,018,868
----------
Contributed capital and retained earnings.................. $1,060,134
Treasury stock, at cost (3,402,894 shares)........................ (101,860)
----------
Total capitalization....................................... $ 958,274
==========

SELECTED HISTORICAL FINANCIAL INFORMATION OF THE COMPANY

The selected consolidated financial data presented below as of or for the
years ended December 31, 1997 through 2001 is derived from our audited
financial statements. Our consolidated financial statements as of December 31,
2000 and 2001 and for each of the years in the three-year period ended December
31, 2001, and our independent auditors' report thereon, are included elsewhere
in this prospectus and incorporated by reference herein. See "Where To Find
More Information/Incorporation by Reference". The selected consolidated
financial data presented below as of or for the nine-month periods ended
September 30, 2001 and 2002 are derived from our unaudited consolidated
financial statements included elsewhere in this prospectus and incorporated by
reference herein. See "Where To Find More Information/Incorporation by
Reference". Our results of operations for the nine months ended September 30,
2002 are not necessarily indicative of our results of operations that may be
expected for the year ended December 31, 2002. In the opinion of our
management, all adjustments, consisting only of normal recurring accruals,
considered necessary for a fair presentation have been included. The financial
data set forth below is only a summary and should be read in conjunction with
our consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.

Nine Months Ended
September 30, Year Ended December 31,
--------------------- ------------------------------------------------------
(amounts in thousands, 2002 2001 2001 2000 1999 1998 1997
except per share data) ---------- ---------- ---------- ---------- ---------- ---------- ----------
(unaudited)

Statements of Operations
Data:
Operating revenue........... $ 730,029 $ 602,001 $ 799,861 $ 698,016 $ 646,040 $ 615,965 $ 581,979
Operating expense........... 556,871 466,566 635,756 549,672 501,061 470,155 450,037
Total other income and
expenses................... 33,187 35,408 17,998 70,102 58,731 45,770 38,747
Equity in earnings of Erie
Family Life Insurance
Company, net of tax........ 1,015 2,337 719 5,108 4,692 4,443 3,935
Federal income tax
expense.................... 69,171 56,835 60,561 71,161 65,296 61,472 56,043
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.................. $ 138,189 $ 116,345 $ 122,261 $ 152,393 $ 143,106 $ 134,551 $ 118,581
========== ========== ========== ========== ========== ========== ==========
Per Share Data:
Net income per share........ $ 1.94 $ 1.63 $ 1.71 $ 2.12 $ 1.95 $ 1.81 $ 1.59
Dividends declared per Class
A share.................... 0.51 0.4575 0.6275 0.5575 0.4950 0.4425 0.3925
Dividends declared per Class
B share.................... 76.50 68.625 94.125 83.625 74.250 66.375 58.875
Book value per share........ 13.50 12.01 12.15 10.91 9.62 8.81 7.25
Weighted average shares
outstanding................ 71,109 71,380 71,342 71,954 73,487 74,400 74,400

Financial Position:
Investments(1).............. $ 969,898 $ 884,599 $ 885,650 $ 853,146 $ 785,258 $ 709,417 $ 566,118
Receivables from the
Exchange and affiliates.... 761,295 650,091 640,655 532,009 470,969 467,794 469,708
Total assets................ 2,194,690 1,897,077 1,935,566 1,680,599 1,518,794 1,454,062 1,292,544
Shareholders' equity........ 958,274 855,755 865,255 779,015 697,599 655,223 539,383
Cumulative shares
repurchased at December
31/September 30............ 3,403 3,170 3,196 2,976 1,900 0 0

--------
(1) Includes investment in Erie Family Life Insurance Company.

SELECTED HISTORICAL FINANCIAL INFORMATION OF THE EXCHANGE
(STATUTORY ACCOUNTING PRINCIPLES)

The selected financial data of the Exchange presented below as of and for
the years ended December 31, 1997 through 2001 is derived from financial
statements prepared in accordance with statutory accounting principles ("SAP")
that were audited by our independent auditors. The selected financial data
below as of and for the nine months ended September 30, 2001 and 2002 are
derived from the Exchange's unaudited financial statements prepared in
accordance with SAP. In the opinion of management, all adjustments consisting
only of normal recurring accruals, considered necessary for a fair presentation
have been included. The financial data set forth below is only a summary. More
information about the Exchange, including the reasons why the Company believes
the financial data set forth below is meaningful to a reader of this
prospectus, can be found in "Erie Insurance Exchange". The Annual Statements
filed by the Exchange with the Insurance Department of the Commonwealth of
Pennsylvania are available for inspection without charge at the Department's
offices at Strawberry Square, Harrisburg, Pennsylvania. The financial
statements of the Exchange included in these annual statements are prepared in
accordance with SAP required by the NAIC Accounting Practices and Procedures
Manual, as modified to include prescribed or permitted practices of the
Commonwealth of Pennsylvania. See "Erie Insurance Exchange--General" on page 78
for a discussion of significant differences between SAP and generally accepted
accounting principles ("GAAP"). The Exchange does not, nor is it required to,
prepare financial statements in accordance with GAAP.

Nine Months Ended
September 30, Year Ended December 31,
---------------------- ---------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
(amounts in thousands) ---------- ---------- ---------- ---------- ---------- ---------- ----------
(unaudited)

Operating Data:
Premiums earned................. $2,140,526 $1,792,450 $2,422,600 $2,161,034 $2,039,791 $1,971,525 $1,877,270
Loss and loss adjustment
expenses....................... 1,727,052 1,568,896 2,150,749 1,714,487 1,509,895 1,372,705 1,375,643
Insurance underwriting and other
expenses....................... 718,881 551,623 766,304 624,622 576,031 568,149 520,648
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net underwriting (loss) income.. $ (305,407) $ (328,069) $ (494,453) $ (178,075) $ (46,135) $ 30,671 $ (19,021)
Investment income (loss), net... 48,237 (32,489) (421,754) 347,582 428,874 378,845 365,393
Federal income tax expense
(benefit)...................... (68,925) (43,230) (300,257) 42,433 102,339 102,917 86,627
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............... $ (188,245) $ (317,328) $ (615,950) $ 127,074 $ 280,400 $ 306,599 $ 259,745
========== ========== ========== ========== ========== ========== ==========
Financial Position:
Cash and invested assets........ $5,238,660 $5,563,420 $5,990,511 $6,357,658 $6,860,008 $5,604,496 $4,670,320
Total assets.................... 6,190,240 6,317,728 6,998,794 6,969,746 7,415,176 6,174,590 5,204,856
Claims and unearned premium
reserves....................... 3,663,000 3,084,067 3,200,836 2,654,300 2,463,806 2,388,958 2,328,230
Total liabilities............... 4,042,623 3,418,368 3,953,243 2,847,861 2,660,713 2,582,998 2,490,465
Policyholders' surplus(1)(2).... 2,147,617 2,899,360 3,045,551 4,121,885 4,754,462 3,591,592 2,714,391

--------
(1) Periods beginning after January 1, 2001 are computed taking into
consideration changes in SAP required by the NAIC Accounting Practices and
Procedures Manual. An adjustment made on January 1, 2001 as a result of
such changes decreased policyholders' surplus by $523.8 million.
(2) Under a practice prescribed by the Commonwealth of Pennsylvania, unearned
premium reserves are reduced (and policyholders' surplus increased) by the
amount of the management fee ultimately payable by the Exchange to us
correlating to premiums not yet earned at the respective financial
statement date. At December 31, 2001, this amount was $240.9 million.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with the "Selected
Historical Financial Information of the Company" and the consolidated financial
statements, and the related notes, included elsewhere in this prospectus and
incorporated by reference herein. In addition to this information, the table
entitled "Management Evaluation of Operating Results" on the next page directly
reflects measurements used by management in evaluating operating results. This
table, which management uses internally to monitor and evaluate results, is an
alternative presentation of the Company's Consolidated Statements of
Operations. You should refer to this table in conjunction with reading those
portions of the following discussions relating to operating results and
measurements.

GENERAL

We operate predominantly as a provider of management services to Erie
Insurance Exchange (the "Exchange") and also as an underwriter of insurance
through our subsidiaries. We have served since 1925 as the attorney-in-fact, or
management company, for the policyholders of the Exchange. The Exchange and its
property and casualty subsidiary and our three property and casualty
subsidiaries (collectively, the "Property and Casualty Group") write personal
and commercial lines property and casualty coverages exclusively through
approximately 8,000 independent agents and pool their underwriting results. The
financial results of the Exchange are not consolidated with ours. For our
services as attorney-in-fact in providing sales, underwriting and policy
issuance services to the Exchange, we charge the Exchange a management fee
calculated as a percentage, limited to 25%, of the direct written premiums of
the Property and Casualty Group.

Under the pooling arrangement, all property and casualty insurance business
of the five property and casualty insurance companies that comprise the
Property and Casualty Group is pooled within the Exchange as the pooling
entity. Our insurance subsidiaries, Erie Insurance Company and Erie Insurance
Company of New York, share in the underwriting results of the pool through
retrocession. Erie Insurance Company has a 5.0% participation, Erie Insurance
Company of New York has a 0.5% participation and the Exchange has a 94.5%
participation in the pooled underwriting results. These participation
percentages are determined by our board of directors. We also own 21.6% of the
common stock of Erie Family Life Insurance Company, an affiliated life
insurance company, of which the Exchange owns 53.5% and public shareholders,
including its officers and directors, own 24.9%.

ERIE INDEMNITY COMPANY
MANAGEMENT EVALUATION OF OPERATING RESULTS

Nine Months Ended
September 30, Year Ended December 31,
-------------------- -------------------------------
2002 2001 2001 2000 1999
(amounts in thousands) --------- --------- --------- --------- ---------
(unaudited)

Management Operations:
Management fee revenue................ $ 593,895 $ 480,805 $ 634,966 $ 551,646 $ 513,375
Service agreement revenue............. 16,310 20,339 27,247 22,662 15,441
Cost of management operations......... (421,097) (349,796) (477,645) (415,562) (380,298)
--------- --------- --------- --------- ---------
Income from management
operations.......................... $ 189,108 $ 151,348 $ 184,568 $ 158,746 $ 148,518
--------- --------- --------- --------- ---------

Insurance Underwriting Operations:
Premiums earned....................... $ 119,824 $ 100,857 $ 137,648 $ 123,708 $ 117,224
Losses and loss adjustment expenses
incurred............................ (98,431) (88,074) (117,201) (99,564) (87,719)
Policy acquisition and other
underwriting expenses............... (37,343) (28,696) (40,910) (34,546) (33,044)
--------- --------- --------- --------- ---------
Underwriting loss..................... $ (15,950) $ (15,913) $ (20,463) $ (10,402) $ (3,539)
--------- --------- --------- --------- ---------

Investment Operations:
Net investment income................. $ 40,705 $ 36,855 $ 49,884 $ 48,401 $ 43,344
Net realized (losses) gains on
investments......................... (8,628) (2,726) (31,879) 16,968 14,746
Equity in earnings of EFL............. 1,091 2,513 773 5,492 5,045
Equity in earnings (losses) of limited
partnerships........................ 1,110 1,279 (7) 4,733 641
--------- --------- --------- --------- ---------
Net revenue from investment
operations....................... $ 34,278 $ 37,921 $ 18,771 $ 75,594 $ 63,776
--------- --------- --------- --------- ---------
Income before income taxes......... 207,436 173,356 182,876 223,938 208,755
Provision for income taxes............ (69,247) (57,011) (60,615) (71,545) (65,649)
--------- --------- --------- --------- ---------
Net income............................ $ 138,189 $ 116,345 $ 122,261 $ 152,393 $ 143,106
========= ========= ========= ========= =========
Operating income(1)................... $ 143,797 $ 118,117 $ 142,983 $ 141,364 $ 133,521
========= ========= ========= ========= =========
Per Share Data:
Net income............................ $ 1.94 $ 1.63 $ 1.71 $ 2.12 $ 1.95

--------
(1) Operating income excludes net realized gain (loss) on investments and
related federal income taxes.

CRITICAL ACCOUNTING ESTIMATES

We make estimates and assumptions that can have a significant effect on
amounts and disclosures we report in our financial statements. The most
significant estimates relate to our reserves for property and casualty
insurance unpaid losses and loss adjustment expenses, valuation of investments
and guaranty fund liability accruals. While management believes its estimates
are appropriate, the ultimate amounts may differ from the estimates provided.
The methods for making these estimates are continually reviewed, and any
adjustments considered necessary are reflected in current earnings.

With respect to reserves for property and casualty unpaid losses and loss
adjustment expenses, significant components of estimates include a variety of
factors such as medical inflation trends, regulatory and judicial rulings,
legal settlements, property replacements and repair cost trends, and losses for
assumed reinsurance activities. In recent years, certain of these component
costs such as medical inflation trends and legal settlements have experienced
significant volatility and resulted in incurred amounts higher than our
original estimates. We have factored these changes in trends into our loss
estimates. However, due to the nature of these liabilities, actual results
could ultimately vary significantly from the amounts recorded. If the ultimate
liability for unpaid losses and loss adjustment expenses were 10% more than the
recorded amount at December 31, 2001, the effect would be a reduction in the
Company's pre-tax income of approximately $12 million or $0.17 per share.

We make estimates concerning the valuation of our investments and the
recognition of other than temporary declines in value of these investments.
When the decline in value of an individual investment is considered by
management to be other than temporary, the investment is written down to its
estimated net realizable value and reflected as a realized loss in the
statement of operations. All investments are individually monitored for other
than temporary declines in value. Management makes judgments about when there
are other than temporary declines in its investments. Generally, if an
individual security has depreciated in value by more than 20% of original cost,
and has been in such unrealized loss position for more than six months, we
assume there has been an other than temporary decline in value. In addition,
the Company may write-down other securities in an unrealized loss position
depending on the existence of certain other factors. These other factors we
consider include: the significance of the fair value below cost, whether there
has been a deterioration in financial condition of the issuer, whether there
have been specific events adversely affecting an investment, debt security
downgrades and specific industry or geographic events. If we had determined
there was an other than temporary decline in value in 2001 for 10% of our
investments with unrealized losses, then the Company would have recorded an
additional realized loss of $480,000 in our 2001 statement of operations. Our
evaluation of the need for write-downs due to other than temporary declines in
value is also applied to our investment in limited partnerships and mortgage
loans.

Our investments in fixed maturity and marketable equity securities are
presented at estimated fair value, which generally represents quoted market
prices. Our investments in limited partnerships are recorded using the equity
method, which approximates the Company's proportionate share of the
partnership's reported net equity. Because of their illiquidity relative to our
other investments, there is increased risk in valuation of limited
partnerships. The recorded value of limited partnerships includes the valuation
of investments held by these partnerships, which include U.S. and foreign
private equity, real estate and fixed income investments. These valuations are
determined by the general partner. We consider the reasonableness of these
valuations based on various information including: audited and unaudited
financial statements from these partnerships, and other information provided by
the general partner. The carrying value of limited partnership investments
totaled $81.6 million at December 31, 2001.

Estimates are also made by the Company's insurance subsidiaries of
liabilities for guaranty fund and other assessments. Our insurance subsidiaries
are sometimes required to pay assessments to states in which the subsidiaries
are licensed because of insurance company insolvencies. The liability for the
assessments is recorded when the insolvency event has occurred and can be
reasonably estimated. We commonly become aware of insolvencies that will affect
us prior to obtaining specific assessment amounts from state guaranty
associations to estimate our share of the liability. It is often a long process
before state guaranty associations know of the ultimate amount of assessment
needed to cover the insolvency. We initiate communication with the state
insurance departments and guaranty associations when we learn of an insolvency.
Although the insurance departments and guaranty associations may not be able to
provide specifics on the ultimate assessment amounts, they will sometimes
provide us with information from which we develop an estimated range of the
future

assessment. We generally record a liability at the mid-point of the range. In
these cases, the mid-point of the range we develop represents our best estimate
of the ultimate loss to be incurred due to the assessment. We adjust our
estimated liability as the guaranty association provides us with more up to
date assessment amounts. For example in 2001, the insolvency of Reliance
Insurance Company was significant. Although we had not received definitive
notices of assessment amounts as of December 31, 2001 from the guaranty funds,
we recorded an estimated liability of $2.0 million at December 31, 2001. This
liability was recorded based on the mid-point of the range of estimated
assessment amounts. Additional future information may result in adjustments to
our estimated liability.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001

Financial Overview

Our consolidated net income for the nine months ended September 30, 2002
increased 18.8% to $138.2 million, from $116.3 million during the same period
in 2001. Income from management operations grew as a result of a 23.5% increase
in direct written premiums of the Property and Casualty Group. Results of our
insurance underwriting operations were about the same in the first nine months
of 2002 compared to the same period in 2001 as a result of wind storm-related
catastrophe losses and increased technology spending related to the eCommerce
initiative in 2002 and World Trade Center losses in 2001. In addition, charges
of $17.7 million and $5.7 million were taken for impaired investments
contributing to net realized losses on investments in the first nine months of
2002 and 2001, respectively. The board of directors voted to reduce the
management fee rate from 25% to 24% for 2003 at its December 10, 2002 meeting.

For the nine months ended September 30, 2002, operating income (net income
excluding net realized (losses) gains and related federal income taxes)
increased 21.7% to $143.8 million, from $118.1 million reported for the same
period in 2001.

We have benefited during this period, and expect to continue to benefit,
from premium increases by the Property and Casualty Group that have resulted
from pricing actions approved by regulators through September 30, 2002. These
premiums accounted for $48.4 million in increased premiums from the Property
and Casualty Group for the nine months ended September 30, 2002. These
increases were primarily related to private passenger automobile, workers'
compensation and homeowners lines of business premium rate increases realized
in the states of Pennsylvania, Maryland and Ohio. The remaining anticipated
premium rate increases to be recognized in future periods are in the private
passenger automobile, commercial multiple peril and homeowners lines of
business in the states of Pennsylvania, Ohio and West Virginia.

Analysis of Management Operations

Our management fee revenue increased 23.5% to $593.9 million for the nine
months ended September 30, 2002, from $480.8 million for the same period in
2001.

The direct written premium of the Property and Casualty Group upon which
our management fee revenue is calculated grew 23.5% to $2,375.6 million during
the first nine months of 2002, from $1,923.2 million for the same period in
2001. Increases in average premium per policy, improvements in new policy
growth and continuing favorable policy retention rates were all contributing
factors in the growth of direct written premium.

The average premium per policy increased 9.5% to $877 for the rolling
twelve months ended September 30, 2002, from $801 for the same period ended
September 30, 2001. In private passenger automobile, which accounted for 53.1%
of the direct written premiums of the Property and Casualty

Group and over 1.5 million policies in force, the average premium per policy
increased 7.2% to $1,023 for the rolling twelve months ended September 30,
2002, from $954 during the same period ended September 30, 2001.

Continued growth in the number of new policies also drove the gains
experienced in the Property and Casualty Group's direct written premium.
Personal lines new business premium grew 45.3% for the first nine months of
2002 to $270.6 million, from $186.2 million, while commercial lines new premium
grew 56.8% to $164.6 million, from $104.9 million, during the same period in
2001. Policies in force increased at an annualized rate of 11.9% to 3,411,953
at September 30, 2002, from 3,048,808 at September 30, 2001.

Policy retention remained strong at 91.1% and 90.9% for the periods ended
September 30, 2002 and 2001, respectively, for all lines of business combined.

Changes in the management fee rate can affect our revenue and net income
significantly. If our board of directors had reduced the management fee rate 1%
(from 25% to 24%) for the nine-month periods ended September 30, 2002 and 2001,
the decrease would have resulted in a reduction of our management fee revenue
of $23.8 million and $19.2 million, respectively. The net income per share
impact would have been a reduction of $0.22 and $0.18 for the nine-month
periods ended September 30, 2002 and 2001, respectively. The board of directors
voted to reduce the management fee rate from 25% to 24% for 2003 at its
December 10, 2002 meeting.

Service agreement revenue decreased by 19.8% to $16.3 million for the nine
months ended September 30, 2002, from $20.3 million for the same period in
2001. Service agreement revenue includes service charges the Company collects
from policyholders for providing extended payment plans on policies written by
the Property and Casualty Group. During the third quarter of 2002, the Company
determined service charges were incorrectly being recognized in full as billing
installments were created at the time of policy issuance instead of at the time
the billings were rendered. The Company recorded a one-time adjustment reducing
service charge income by $7.4 million. The effect on 2002 net income per share
after taxes and other adjustments was $.06 per share. The Company did not
restate prior period financial statements because the Company believes this
adjustment is not material to the trend of earnings for the Company nor any
related financial statement amount.

Service agreement revenue also includes service income received from the
Exchange as compensation for the management and administration of voluntary
assumed reinsurance from non-affiliated insurers. These fees totaled $9.6
million and $8.3 million for the nine months ended September 30, 2002 and 2001
on net voluntary assumed reinsurance premiums of $137.1 million and $118.7
million, respectively. During the 2002 reinsurance renewal season, the Exchange
obtained significant price increases on treaties it renewed. In addition, the
Exchange reduced its aggregate exposure in non-affiliated assumed voluntary
reinsurance by non-renewing unprofitable business, generally excluding
terrorism coverage and restricting its exposure on certain types of risks.
These factors impact the level of service income received from the Exchange
since this fee is based on a percentage of non-affiliated assumed reinsurance
premiums.

The cost of management operations increased 20.4% for the first nine months
of 2002 to $421.1 million, from $349.8 million during the same period in 2001.
Commissions to independent agents are the largest component of the cost of
management operations, and include scheduled commissions earned by independent
agents on premiums written, as well as promotional incentives for agents and
agent contingency awards. Commission costs totaled $302.6 million for the first
nine months of 2002, a 23.9% increase over the $244.1 million reported in the
same period of 2001. Growth in commission costs was slightly greater than the
growth in direct premium written in the first nine months of 2002, primarily
due to increased accelerated commissions as well as an accrual for a
promotional incentive contest for agents that ran through 2002.

Accelerated commissions are offered to newly recruited agents in addition
to normal commission schedules. For the nine months ended September 30, 2002,
additional charges for accelerated commission costs totaled $6.8 million,
compared to $5.0 million for the same period one year ago due to an increase in
the number of agents. For the nine months ended September 30, 2002, the accrual
recorded for a sales incentive contest was $1.8 million. There was no similar
sales contest in 2001.

The cost of management operations, excluding commission costs, increased
12.2% for the nine months ended September 30, 2002 to $118.5 million, from
$105.6 million for the same period in 2001. These costs include amounts related
to information technology hardware and infrastructure from the eCommerce
initiative launched in September 2001. For the first nine months of 2002, these
costs totaled $2.5 million, compared to $0.5 million in the same period in 2001.

Personnel costs also increased as employment grew by 8.4%, driven by strong
policy sales growth. In addition, temporary labor costs were incurred to assist
with a company-wide rollout of personal computers. As a result, salaries,
wages, benefits and payroll taxes for the first nine months of 2002 increased
10.2% to $68.8 million, from $62.5 million for the same period in 2001.

Our gross margin from management operations (net revenue divided by total
revenue) increased to 31.0% in the first nine months of 2002, compared to the
gross margin of 30.2% reported in the same period of 2001.

ANALYSIS OF INSURANCE UNDERWRITING OPERATIONS

The underwriting loss from the insurance underwriting operations of Erie
Insurance Company and Erie Insurance Company of New York, which together assume
a 5.5% share of the direct and non-affiliate assumed underwriting results of
the Property and Casualty Group under the intercompany pooling arrangement, was
$16.0 million during the first nine months of 2002 compared to an underwriting
loss of $15.9 million during the same period in 2001. Losses of $4.4 million
resulting from spring storm-related catastrophes were partly responsible for
the underwriting loss in 2002. The per share impact, after federal income
taxes, was about $0.04 per share for the first nine months of 2002. The
underwriting results for the first nine months of 2002 also reflect increased
underwriting expenses related to the eCommerce technology program and assigned
risk buyout program costs. In addition, our share of catastrophe losses was
$5.4 million for the nine months ended September 30, 2002, compared to $1.5
million for the same period in 2001.

Our insurance subsidiaries' share of the Property and Casualty Group's
direct business generated net underwriting losses was $16.4 million and $8.7
million for the nine months ended September 30, 2002 and 2001, respectively.
The increase in the underwriting loss of $7.7 million was primarily
attributable to two factors: (i) increased incurred underwriting losses of $5.4
million resulting from catastrophes in our underwriting territories and
increased loss severity and (ii) increased underwriting expenses related to the
eCommerce technology initiatives, which amounted to $3.0 million, and to the
assigned risk buyout program costs, which amounted to $0.8 million. The firming
of automobile insurance pricing in 2001 by the industry in response to
deteriorating loss cost trends allowed the Property and Casualty Group to begin
raising automobile insurance prices in order to improve underwriting
profitability. The Property and Casualty Group only writes one-year policies;
therefore, rate increases take 24 months to be reflected fully in earned
premium because it takes 12 months to implement the rate increase as to all
policyholders and 12 months thereafter to earn fully the increased premiums.

In late 2001, we took measures to improve the underwriting results from our
non-affiliated voluntary assumed reinsurance book of business. The effect of
these measures was to lower the Property and Casualty Group's exposure to loss
by excluding terrorism coverage on certain contracts,

not renewing unprofitable contracts and, at the same time, raising pricing
substantially. Pricing in the reinsurance marketplace has firmed considerably
since the World Trade Center terrorist attack and we have obtained significant
price increases in our 2002 contract renewals.

Our insurance subsidiaries' share of the Property and Casualty Group's
unaffiliated voluntary net assumed reinsurance business generated net
underwriting income of $0.5 million and a net underwriting loss of $7.2 million
in the first nine months of 2002 and 2001, respectively. The 2001 losses
include the Company's 5.5% share of the Property and Casualty Group's estimated
incurred losses from the terrorist attack on the World Trade Center. These
losses, net of recoveries under the excess of loss agreement with the Exchange,
totaled $5.8 million. There was no additional reserve development in 2002
relating to our insurance subsidiaries' 5.5% share of the Property and Casualty
Group's estimated incurred reinsurance loss of $150 million from the World
Trade Center terrorist attack. Through September 30, 2002, loss payments made
by the Property and Casualty Group related to the terrorist attack have totaled
$35.6 million with an additional $114.4 million established as reserves for
case and incurred but not reported claims. Incurred but not reported claims are
claims for indemnity against losses that have been incurred by an insurer or
reinsurer that have not yet been reported to the insurer or reinsurer and
include future developments on losses that have been reported to the insurer or
reinsurer.

A dispute concerning whether the World Trade Center terrorist attack should
be considered one or two insurable events is currently being litigated. The
Property and Casualty Group's $150 million estimated incurred loss, which was
recorded in the third quarter of 2001, assumes that the World Trade Center
terrorist attack will continue to be considered one event. If the attack is
considered as two events, the total potential exposure for the Property and
Casualty Group would increase between $50 million and $75 million. The effect
on us, as a result, would be an additional loss of between $2.7 million and
$4.1 million out of this amount. Taking into consideration the excess of loss
reinsurance agreement, the net impact of such potential additional losses would
be minimal to our results of operations or financial condition.

An all-lines aggregate excess of loss reinsurance agreement with the
Exchange limits the ultimate net losses of Erie Insurance Company and Erie
Insurance Company of New York. Under the reinsurance agreement, once Erie
Insurance Company and Erie Insurance Company of New York sustain ultimate net
losses and allocated loss expenses in an accident year that exceed an amount
equal to 72.5% of Erie Insurance Company's and Erie Insurance Company of New
York's net premiums earned, the Exchange will be liable for 95% of the amount
of such excess up to, but not exceeding, an amount equal to 95% of 15% of Erie
Insurance Company's and Erie Insurance Company of New York's net premium
earned. Erie Insurance Company and Erie Insurance Company of New York retain
the remaining 5% of such layer as well as ultimate net losses and allocated
loss expenses in excess of 87.5% of Erie Insurance Company's and Erie Insurance
Company of New York's net premiums earned. Erie Insurance Company and Erie
Insurance Company of New York pay a premium to the Exchange equal to 1.01% of
their net premium earned, subject to a minimum premium of $800,000 for each
annual period. Net premiums means gross premiums net of reinsurance premiums.
The premium paid to the Exchange for the agreement totaled $1.4 million for
each of the nine-month periods ended September 30, 2002 and 2001. Recoveries
during the first nine months of 2002 amounted to $2.0 million, compared to
recoveries of $3.1 million for the same period one year ago. No cash payments
have been made between the companies in 2002 for recoveries under this
agreement since the recoveries are recorded based on reserved but not yet paid
losses.

During 2001, we and the Property and Casualty Group entered into a
cost-sharing agreement for information technology development. This agreement
describes how member companies of the Property and Casualty Group will share
the costs to be incurred for the development of new customer relationship
management and Internet-enabled property and casualty policy administration
systems.

This agreement provides that the application development costs and the related
enabling technology costs, such as technical infrastructure and architectural
tools, will be shared among the property and casualty insurance companies in a
manner consistent with the sharing of insurance transactions under the existing
intercompany pooling arrangement. These technology costs are included in the
Property and Casualty Group's policy acquisition and other underwriting
expenses. Our share of eCommerce initiative expenses covered under the cost
sharing agreement amounted to $3.0 million and $0.6 million for the nine-month
periods ended September 30, 2002 and 2001, respectively. These shared costs
will continue to be incurred in future periods as the program proceeds.

As part of the eCommerce initiative, a significant portion of Erie
Insurance Group's information technology staff have been deployed to work on
the eCommerce program. As such, certain personnel costs are currently being
allocated to the Property and Casualty Group as part of the eCommerce project.
However, once the eCommerce program is completed, some of these personnel costs
will again be included in our cost of management operations. Approximately 60
full time equivalent staff, or 15% of the Erie Insurance Group information
technology staff, are currently deployed to work on the eCommerce program. We
expect the cost of operations to increase by as much as $8.0 million per year
when the staff is reassigned to non-eCommerce tasks.

The Property and Casualty Group experienced an increase in costs associated
with assigned risk buyout programs during the first nine months of 2002. Under
a buyout program, one insurer pays another insurer to assume the first
insurer's obligations to participate in a state-mandated involuntary coverage
program, such as an assigned risk plan, for those who are unable to obtain
automobile insurance in the voluntary market because of underwriting
considerations. Our share of these costs in the first nine months of 2002 were
$0.8 million, compared to $0.2 million for the same period in 2001. The buyout
programs consist of Limited Assignment Distribution ("LAD") agreements, which
cover personal automobile risks, and Commercial Limited Assignment Distribution
("CLAD") agreements, which cover commercial automobile risks. The Property and
Casualty Group has a CLAD program in Pennsylvania and both LAD and CLAD
programs in New York, Illinois, Virginia, West Virginia and Tennessee. These
programs provide that a servicing carrier perform all administrative functions
relative to the assigned risk policies, including collecting premiums and
making payments for losses and loss adjustment expenses. The Property and
Casualty Group makes payments to the servicing carrier, which includes an
administrative fee, as well as a fee for rate inadequacy costs above the
collected premium.

The increase in LAD/CLAD expense is almost exclusively attributable to the
buy-out program in the State of New York, which had costs of $0.8 million,
compared to $0.2 million during the first nine months of 2002 and 2001,
respectively. The rise in costs in New York State is the result of significant
increases in both the population of assigned risk policies and the
deteriorating rate adequacy of the New York State residual market. A residual
market consists of consumers who are unable to purchase insurance in the
voluntary market due to a variety of factors. In addition, the Property and
Casualty Group's market share in the state has increased, resulting in
additional assigned risk policies being allocated to the Property and Casualty
Group.

The combined ratio computed under GAAP for our property and casualty
insurance underwriting operations was 113.3% and 115.8% for the nine months
ended September 30, 2002 and 2001, respectively. The GAAP combined ratio
represents the ratio of loss, loss adjustment, acquisition and other
underwriting expenses and dividends incurred to premiums earned. The 2002 ratio
was affected by 2.5 combined ratio points related to eCommerce expenses and by
4.5 combined ratio points related to catastrophe losses and increased loss
severity in the first nine months of 2002. The GAAP combined ratio for our
property/casualty operations, excluding eCommerce costs and catastrophe losses,
was 106.3% for the nine months ended September 30, 2002.

ANALYSIS OF INVESTMENT OPERATIONS

Our net revenue from investment operations is comprised of four major
elements, (1) equity in earnings (losses) of Erie Family Life Insurance
Company; (2) equity in the earnings (losses) of limited partnerships; (3) net
realized capital gains (losses) and (4) net investment income that is comprised
of interest, dividend and rental income from our invested assets less
investment expenses incurred.

Our net revenue from investment operations for the first nine months of
2002 declined 9.6% to $34.3 million, from $37.9 million in the same period of
2001. As a result of impairment charges taken in the first nine months of 2002,
we realized net losses on investments of $8.6 million, compared to losses of
$2.7 million in the same period of 2001. The impairment charges were for fixed
maturity, non-redeemable preferred stock and common stock, which totaled $17.7
million. Net realized losses included charges related to the WorldCom Group
securities totaling $5.7 million.

For the nine months ended September 30, 2002, our net investment income
increased 10.4% to $40.7 million, compared to $36.9 million for the same period
one year ago. Increases in investments in taxable bonds contributed to the
growth in net investment income for the first nine months of 2002. The
following table compares the performance of our equities portfolio to selected
indices:

ERIE INDEMNITY COMPANY
PORTFOLIO PERFORMANCE

Two Years Ended
September 30, 2002
(Pre-Tax Annualized Returns)
----------------------------

Erie Indemnity Company:
Fixed Maturities--Corporate.......................... 8.43%
Fixed Maturities--Municipal.......................... 7.40(1)
Preferred Stock...................................... 9.42(1)
Common Stock......................................... (27.90)

Other Indices:
Lehman Brothers Global Aggregate Bond Index--Unhedged 8.67%
S&P 500 Composite Index.............................. (23.57)

--------
(1) Returns on municipal fixed maturities and preferred stocks have
tax-equivalent yields of 10.47% and 11.27%, respectively.

Our equity in earnings of limited partnerships totaled $1.1 million and
$1.3 million for the nine months ended September 30, 2002 and 2001,
respectively. Private equity and fixed income limited partnerships realized
losses of $2.6 million for the nine months ended September 30, 2002, compared
to losses of $39,000 for the same period in 2001. Our earnings from real estate
limited partnerships were $3.7 million for the nine months ended September 30,
2002, compared to earnings of $1.3 million for the same period in 2001. Our
September 30, 2002 earnings included impairment charges totaling almost $1.4
million in private equity limited partnerships where we considered declines in
value to be other than temporary.

Our share of the earnings of Erie Family Life Insurance Company totaled
$1.1 million during the first nine months of September 30, 2002, down from the
$2.5 million recorded for the same period in 2001. The decrease in the level of
earnings from our investment in Erie Family Life Insurance Company is related
to impairment charges recorded on investments by Erie Family Life Insurance
Company totaling $17.2 million, which resulted in net realized losses for Erie
Family Life Insurance Company. Our investment in Erie Family Life Insurance
Company is accounted for under the equity method of accounting.

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

FINANCIAL OVERVIEW

Our consolidated net income in 2001 was $122.3 million, a decrease of 19.8%
from net income of $152.4 million in 2000, which in turn represented an
increase of 6.5% from net income of $143.1 million in 1999. Gains made in our
management operations, including a 15.1% increase in management fee revenue in
2001 over 2000 and a 7.5% increase in 2000 over 1999, were outpaced by losses
experienced in our insurance underwriting operations and reduced levels of
income from investment operations in 2001. In 2000, gains in our management and
investment operations outpaced losses experienced in our insurance underwriting
operations. Our 2001 underwriting loss resulted from increased losses in the
direct business of our property and casualty subsidiaries, primarily in private
passenger and commercial automobile and workers' compensation insurance, as
well as assumed reinsurance losses, some of which relate to the World Trade
Center terrorist attack. We recognized $31.9 million in net realized losses
from investments in 2001 on the sale of securities and related charges for
other than temporary impairments of equity securities and limited partnerships.
There were no similar impairments in 2000 or 1999. Our 2000 underwriting loss
stemmed from increased losses in private passenger automobile and several
commercial lines of business. Revenue from our investment operations increased
18.5% in 2000 from 1999 as our cash flows were reinvested for higher returns
and our equity earnings in limited partnerships grew substantially over 1999.

Our operating income (net income excluding realized gains/losses and
related federal income taxes) increased by 1.1% in 2001, to $143.0 million from
$141.4 million in 2000, and 5.9% in 2000 from $133.5 million in 1999. Operating
income in 2001 reflected a third quarter after-tax charge of $3.8 million, or
$0.06 per share, from the World Trade Center terrorist attack and a fourth
quarter after-tax charge of $6.9 million, or almost $0.10 a share, for
severance charges related to the retirement of our chief executive officer. Our
operating income in 2000 reflected adverse developments on assumed reinsurance
losses from the catastrophic wind storms that devastated Europe in December
1999, which resulted in a loss of $1.4 million, or $0.01 per share, after
federal income taxes.

ANALYSIS OF MANAGEMENT OPERATIONS

Our income from management operations rose 16.3% to $184.6 million in 2001
from $158.7 million in 2000 and 6.9% in 2000 from $148.5 million in 1999. Gross
margins from management operations were 27.9% in 2001 compared to gross margins
of 27.6% in 2000 and 28.1% in 1999.

Our management fee revenue rose $83.3 million, or 15.1%, to $635.0 million
in 2001 from $551.6 million in 2000 and $38.3 million, or 7.5%, in 2000 from
$513.4 million in 1999. The direct and affiliated assumed premiums of the
Exchange grew 15.1% in 2001 to $2,539.9 million from $2,206.6 million in 2000
and grew by 7.5% in 2000 from $2,053.5 million in 1999. Increases in average
premium per policy, improvements in new policy growth and favorable policy
retention rates were all contributing factors in the growth. Firming pricing in
2001 for commercial and personal insurance allowed the Property and Casualty
Group to price its products more favorably while maintaining their competitive
advantage in the marketplace. The year-to-year growth rate of direct written
premium in the fourth quarter was 18.9%, up from 14.8% growth in the third
quarter, 14.0% growth in the second quarter and 12.8% growth in the first
quarter of 2001.

The Property and Casualty Group's average premium per policy increased 6.1%
to $817 in 2001 from $770 in 2000, and 0.9% in 2000 from $763 in 1999. For
private passenger automobile (which accounted for 54.6% of the direct written
premiums of the Property and Casualty Group during 2001 with over 1.4 million
policies in force), the average premium per policy increased 3.1% to $967 in
2001 from $938 in 2000, and decreased 1.6% in 2000 from $954 in 1999.

Continued improvement in new policy growth also drove the gains experienced
in the Property and Casualty Group's direct written premiums. Policies in force
increased 8.5% to 3.1 million in 2001 from 2.9 million in 2000, and 6.5% in
2000, from 2.7 million in 1999. Policy retention of the Property and Casualty
Group remained strong at 90.9%, 91.0% and 90.5% during 2001, 2000 and 1999,
respectively, for all lines of business combined.

Changes in the management fee rate can affect our revenue and net income
significantly. If our board of directors had decreased the management fee rate
1% (from 25% to 24%) for 2001, 2000 and 1999, the decrease would have resulted
in a reduction of our management fee revenues of $25.4 million, $22.1 million
and $20.5 million, respectively, and a per share reduction in net income of
$0.23, $0.20 and $0.18, respectively. At our December 2001 board of directors
meeting, the board voted to maintain the management fee rate at 25% for 2002.

Our service agreement revenue grew 20.2% to $27.2 million in 2001 from
$22.7 million in 2000, and 46.8% in 2000 from $15.4 million in 1999. Service
agreement revenue earned for the management and administration of the
Exchange's voluntary assumed reinsurance from non-affiliated insurers, totaled
$11.3 million, $10.1 million and $8.2 million on net voluntary assumed
reinsurance premiums of $160.7 million, $145.0 million and $116.6 million for
2001, 2000 and 1999, respectively.

Service charges we collect from policyholders who pay premiums in
installments on policies written by the Property and Casualty Group amounted to
$16.0 million, $12.5 million and $7.3 million in 2001, 2000 and 1999,
respectively. The 2001 and 2000 growth was positively affected by service
charge increases from $2 to $3 per installment for policies renewing in most
states beginning in the second quarter of 2000.

The cost of management operations rose 14.9% to $477.6 million in 2001,
from $415.6 million in 2000, and 9.3% in 2000 from $380.3 million in 1999.
Commissions to independent agents, which are the largest component of the cost
of management operations, include scheduled commissions earned by independent
agents on premiums written, as well as promotional incentives for agents and
agent contingency awards. Agent contingency awards are based upon a three-year
average of the underwriting profitability of the direct business written and
serviced within the Property and Casualty Group by the independent agent. The
estimate for the agent contingency awards is modeled on a monthly basis using
the two prior years' actual underwriting data by agency combined with the
current year to date actual data. The Company uses projected underwriting data
for the remainder of the current year in order to model the 36-month
underwriting results by agency. Commission costs rose 14.3% to $323.1 million
in 2001, from $282.7 million in 2000, and 7.5% in 2000 from $263.1 million in
1999. Commission costs grew at a slower rate relative to the growth in direct
premiums written in 2001 as a result of lower accruals for agent contingency
awards compared to 2000. The provision for agent contingency awards totaled
$15.7 million, $18.3 million and $19.9 million in 2001, 2000 and 1999,
respectively. Commission costs, excluding agent contingency awards, increased
16.2% in 2001 compared to 2000, and 9.0% in 2000 compared to 1999, which is in
line with the increase in direct written premiums.

Cost of our management operations, excluding commission costs, increased
16.4% in 2001 to $154.6 million, from $132.8 million in 2000, and increased
13.3% in 2000 from $117.2 million in 1999, due primarily to increases in
personnel costs. Our personnel costs totaled $94.4 million, $79.3 million and
$69.5 million in 2001, 2000 and 1999, respectively. A portion of the 2001
increase in personnel costs resulted from recognition of the severance
obligation related to the retirement of our president and chief executive
officer on January 18, 2002. We recorded a severance charge in the fourth
quarter 2001 of $10.7 million. Personnel costs, excluding the severance charge,
rose 5.5% in 2001 due to increases in employee pay rates and staffing levels.
Increases in 2000 over 1999 were attributable to pay rate increases and the
introduction of an incentive compensation program for branch sales employees.

During 2001, we also incurred information technology infrastructure
expenditures related to the eCommerce program that were not subject to the
cost-sharing agreement for information technology. These eCommerce program
costs were included in the cost of management operations and totaled $1.6
million in 2001.

ANALYSIS OF INSURANCE UNDERWRITING OPERATIONS

We recorded underwriting losses of $20.5 million, $10.4 million and $3.5
million in 2001, 2000 and 1999, respectively. The underwriting results in 2001
reflect higher losses experienced in private passenger automobile, and
commercial automobile and workers' compensation lines of business, as well as
losses from assumed reinsurance.

Premiums earned increased 11.3% to $137.6 million in 2001, from $123.7
million in 2000, and 5.5% in 2000 from $117.2 million in 1999. The average
premium per policy of the Property and Casualty Group was $817, $770 and $763
in 2001, 2000 and 1999, respectively. Losses and loss adjustment expenses
incurred increased 17.7%, to $117.2 million in 2001 from $99.6 million in 2000,
and 13.5% in 2000 from $87.7 million in 1999.

Our property and casualty insurance subsidiaries' share of the Property and
Casualty Group's direct business generated net underwriting losses of $16.4
million, $6.1 million and $0.5 million in 2001, 2000 and 1999, respectively. In
2001, the Property and Casualty Group continued to experience a decrease in
loss frequency, although loss severity continued to rise. The higher loss costs
in 2001 also include adverse development of prior accident year losses
amounting to $5.9 million, net of reinsurance recoveries. In 1998 and 1999, the
Property and Casualty Group lowered prices in the private passenger automobile
lines of insurance in response to extremely competitive market conditions and
improving loss trends in automobile insurance. The firming of automobile
pricing in 2001 by the industry in response to deteriorating loss cost trends
allowed the Property and Casualty Group to begin raising automobile insurance
prices in order to improve underwriting profitability. Because all policies
issued by the Property and Casualty Group are for a one-year term, it will take
24 months before the full impact of 2001 rate increases are recognized in
earned premiums of Erie Insurance Group.

Our insurance subsidiaries' unaffiliated voluntary assumed reinsurance
business generated net underwriting losses of $4.1 million, $4.3 million and
$3.0 million in 2001, 2000 and 1999, respectively. Our 5.5% share of the
Property and Casualty Group's estimated incurred reinsurance losses of $150
million from the World Trade Center terrorist attack contributed to the
increased loss in 2001. Our share of these losses totaled $8.3 million in 2001.

During 2001, our property and casualty insurance subsidiaries, Erie
Insurance Company and Erie Insurance Company of New York, recorded $7.2 million
in reinsurance recoveries under the excess of loss reinsurance agreement with
the Exchange. Of the total recoveries in 2001, $6.5 million related to accident
year 2001, including the losses related to the World Trade Center terrorist
attack, with the balance pertaining to the 1999 accident year. The total
recoverable reduced our loss and loss adjustment expenses in 2001. No cash
payments were made between the companies in 2001 for these recoveries since the
recoveries were recorded based on reserved but yet unpaid losses. No such
recoveries were recognized in calendar years 2000 or 1999.

Under the cost sharing agreement for information technology development,
our policy acquisition and other underwriting expenses include our property and
casualty insurance subsidiaries' share of costs related to the eCommerce
initiative totaling $1.3 million for 2001. No such costs were incurred in 2000
or 1999.

The 2001 combined ratio for our property and casualty insurance
underwriting operations calculated under GAAP was 114.9%, compared to 108.4% in
2000 and 103.0% in 1999. During 2001, 2000 and 1999, the Company's share of
catastrophe losses from direct business amounted to $1.6 million, $2.1 million
and $4.4 million, respectively. The GAAP combined ratio for 2001, 2000 and
1999, excluding catastrophe losses on direct business, was 113.7, 106.7 and
99.3, respectively.

During 2001, we received notification of the insolvency of the Reliance
Insurance Group. As a result, the Property and Casualty Group companies
recorded an estimated assessment of $36.8 million, before consideration of
potential premium tax recoveries of $5.9 million. Our share of this assessment
was $1.7 million and was recorded in the policy acquisition and other
underwriting expenses during the fourth quarter of 2001. This estimate was
based upon preliminary data relating to this insolvency and is subject to
change as more information becomes available.

ANALYSIS OF INVESTMENT OPERATIONS

Our net revenue from investment operations in 2001 decreased by 75.2% to
$18.8 million, compared to $75.6 million in 2000, compared to an increase of
18.5% in 2000 from $63.8 million in 1999. In 2001, the equity markets declined
and recovery was further slowed by the World Trade Center terrorist attack. As
a result, we experienced declines in value in our investment portfolios over
the past year. Net realized losses totaled $31.9 million in 2001 compared to
realized gains of $17.0 million in 2000 and $14.7 million in 1999. We
recognized realized losses in 2001 as a result of the sale of securities and
charges for other than temporary impairments of preferred stock and limited
partnerships. The sale of investments in a loss position in 2001 was part of a
proactive year-end tax selling strategy. Included in the 2001 realized loss was
$4.5 million related to sales of securities of Enron Corporation and its
related legal entities. The period of time that various securities held by the
Company had been continuously in an unrealized loss position varied. The table
below lists the quarter in which any equity securities sold during the fourth
quarter of 2001 were first in an unrealized loss position of any amount:

ERIE INDEMNITY COMPANY
QUARTER WHEN EQUITY ISSUES SOLD IN THE FOURTH QUARTER OF 2001
WERE FIRST IN UNREALIZED LOSS POSITION

Number of
Quarter Issues
------- ---------

Third Quarter 2001. 12
Second Quarter 2001 15
First Quarter 2001. 16

Fourth Quarter 2000 12
Third Quarter 2000. 5
Second Quarter 2000 2
First Quarter 2000. 6

Fourth Quarter 1999 3
Third Quarter 1999. 3
Second Quarter 1999 1
First Quarter 1999. --

Fourth Quarter 1998 1
Third Quarter 1998. 1

Impairment charges of investments with declines in value considered by
management to be other than temporary totaled $12.1 million in 2001, including
charges of $5.7 million in the third quarter of 2001 and $6.4 million in the
fourth quarter of 2001. Additionally, $1.3 million of impairment charges were
incurred in the fourth quarter of 2000. There were no such impairment charges
recorded in 1999. See "Business--Investments" beginning on page 64 for a
description of the Company's impairment policy for equity securities.

Net investment income rose 3.1% to $49.9 million in 2001 and 11.7% to $48.4
million in 2000 from $43.3 million in 1999. The growth in investment income for
2001, 2000 and 1999 was offset by cash outflows we used to repurchase $93.4
million of our Class A common stock through December 31, 2001.

Our equity in losses of limited partnerships were $7,000 in 2001, compared
to earnings of $4.7 million and $0.6 million in 2000 and 1999, respectively.
Private equity and fixed income limited partnerships investments we held
realized losses of $1.4 million in 2001 compared to earnings of $2.8 million in
2000 and losses of $0.3 million in 1999. Earnings on our real estate limited
partnerships were $1.4 million in 2001, compared to $1.9 million in 2000 and
$0.9 million in 1999.

Our share of the earnings of Erie Family Life Insurance Company totaled
$0.8 million in 2001, down from $5.5 million in 2000 and $5.0 million in 1999.
The decrease in level of earnings from our investment in Erie Family Life
Insurance Company is related to Erie Family Life Insurance Company's sales of
investments in 2001 resulting in net realized losses on that company's
statement of operations.

FINANCIAL CONDITION

SEPTEMBER 30, 2002 AND 2001

At September 30, 2002 and 2001, our investment portfolio of
investment-grade bonds, common stock, preferred stock and cash and cash
equivalents totaled $889 million and $792 million, respectively, representing
40.6% and 41.7% of our total assets.

At September 30, 2002 and 2001, the carrying value of our fixed maturity
investments represented 70.0% and 65.1%, respectively, of our total invested
assets. Our fixed maturity investments consisted of 97.6% and 96.1% of
high-quality marketable bonds and redeemable preferred stock, all of which were
rated at investment-grade levels (above Ba/BB), at September 30, 2002 and 2001,
respectively. Included in this investment-grade category at September 30, 2002
were $244 million, or 37.8%, and at September 30, 2001 were $224 million, or
41.3%, respectively, of the highest quality bonds and redeemable preferred
stock rated Aaa/AAA or Aa/AA or bonds issued by the United States government.

At September 30, 2002, the net unrealized gain on fixed maturities, net of
deferred taxes, amounted to $16.8 million, compared to $13.5 million at
September 30, 2001.

At September 30, 2002 and 2001, equity securities held by the Company
included net unrealized gains of $10.5 million and $2.6 million, respectively,
net of deferred taxes.

At September 30, 2002, our limited partnership investments increased to
$89.0 million from $77.5 million at September 30, 2001. Fixed income and real
estate limited partnerships comprised 42.1% and 31.8% of the total limited
partnerships at September 30, 2002 and 2001, respectively, while private equity
limited partnerships comprised 57.9% and 68.2%, respectively.

DECEMBER 31, 2001, 2000 AND 1999

At December 31, 2001, 2000 and 1999, our investment portfolio of
investment-grade bonds, common stock, preferred stock and cash and cash
equivalents totaled $824.6 million, $758.4 million and $714.5 million
respectively, representing 42.6%, 46.1% and 47.1%, respectively, of our total
assets.

At December 31, 2001, 2000 and 1999, the carrying value of our fixed
maturity investments represented 66.6%, 65.6% and 64.9% of our total invested
assets, respectively.

Our fixed maturity investments consisted 96.9%, 96.9% and 97.9% of
high-quality, marketable bonds and redeemable preferred stock, all of which
were rated at investment-grade levels (above Ba/BB), at December 31, 2001, 2000
and 1999, respectively. Included in this investment-grade category at December
31, 2001 were $230.2 million, or 41.1%, at December 31, 2000, $220.8 million or
41.5%, and at December 31, 1999, $225.7 million or 46.5%, of the highest
quality bonds and redeemable preferred stock rated Aaa/AAA or Aa/AA or bonds
issued by the United States government.

At December 31, 2001, the net unrealized gain on fixed maturities, net of
deferred taxes, amounted to $10.7 million, compared to $4.8 million at December
31, 2000 and a net realized loss of $2.5 million at December 31, 1999.

At December 31, 2001, 2000 and 1999, equity securities held by the Company
included net unrealized gains of $22.1 million, $12.7 million and $28.5
million, respectively, net of deferred taxes.

During 2001, limited partnership investments increased to $81.6 million
from $68.2 million at December 31, 2000 and $39.1 million at December 31, 1999.
Fixed income and real estate limited partnerships, which comprised 34.5%, 28.6%
and 49.9% of the total limited partnerships at December 31, 2001, 2000 and
1999, respectively, produced a predictable earnings stream while private equity
limited partnerships, which comprised 65.5%, 71.4% and 50.1% of the total
limited partnerships, tend to provide a less predictable earnings stream but
the potential for greater long-term returns.

COVERED LOSSES AND LOSS RESERVES

Loss reserves are set at full expected cost, except for loss reserves for
workers' compensation that were discounted at 2.5% in 2001 and 2000. Inflation
is implicitly provided for in the reserving function through analysis of costs,
trends and reviews of historical reserving results.

The Property and Casualty Group is exposed to new claims on files
previously closed (e.g., covered losses not detected during original claim
settlement) and to larger than historical settlements (due to changes in law,
precedent or underlying inflation) on pending and unreported claims. We are
exposed to increased losses by virtue of our 5.5% participation in the
intercompany reinsurance pooling arrangement with the Exchange.

Adverse development of losses from prior accident years results in higher
calendar year loss ratios and reduced calendar year underwriting results. To
the extent prior year reserve deficiencies are indicative of deteriorating
underlying loss trends and are material, the Property and Casualty Group's
pricing of affected lines of business would be increased to the extent
permitted by state departments of insurance. Management also reviews trends in
loss developments in order to determine if adjustments, such as reserve
strengthening, are appropriate. Any adjustments considered necessary are
reflected in current results of operations.

The Property and Casualty Group's $150 million loss estimate anticipates
that the World Trade Center terrorist attack is considered one event. If the
attack comes to be considered two events, the

total potential exposure for the Property and Casualty Group would increase
between $50 million and $75 million. The effect on the Company, as a result,
would be additional losses between $2.7 million and $4.1 million. Taking into
consideration the excess of loss reinsurance agreement, the net impact of such
potential additional losses to us would be minimal.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to the impact of interest rate changes, changes in
market values of investments and to credit risk.

In the normal course of business, the Company employs established policies
and procedures to manage its exposure to changes in interest rates,
fluctuations in the value of the fair market value of its debt and equity
securities and credit risk. The Company seeks to mitigate these risks by
various actions described below.

INTEREST RATE RISK

The Company's exposure to market risk for a change in interest rates is
concentrated in the investment portfolio. The Company monitors this exposure
through periodic reviews of asset and liability positions. Estimates of cash
flows and the impact of interest rate fluctuations relating to the investment
portfolio are monitored regularly. Generally, the Company does not hedge its
exposure to interest rate risk because it has the capacity to, and does, hold
fixed maturity investments to maturity.

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

ERIE INDEMNITY COMPANY
PRINCIPAL CASH FLOWS/WEIGHTED AVERAGE INTEREST RATES

As of December 31, 2001
(amounts in thousands) ------------------------------------
Weighted-average
Principal cash flows interest rate
-------------------- ----------------

Fixed maturities:
2002............................... $ 37,245 6.5%
2003............................... 35,245 6.5
2004............................... 37,978 7.0
2005............................... 49,515 6.3
2006............................... 55,340 6.5
Thereafter......................... $330,872 7.5
--------
Total.............................. $546,195
========
Market Value....................... $574,874
========

As of December 31, 2000
------------------------------------
Weighted-average
Principal cash flows interest rate
-------------------- ----------------
Fixed maturities and short-term bonds:
2001............................... $ 54,677 6.5%
2002............................... 55,203 6.6
2003............................... 49,720 6.7
2004............................... 47,852 7.0
2005............................... 59,775 6.5
Thereafter......................... $289,077 7.2
--------
Total.............................. $556,304
========
Market Value....................... $561,502
========

The following pro forma information is presented assuming a 100 basis point
increase in interest rates at December 31 of each year, and reflects the
estimated effect on the fair value of the Company's fixed maturity investment
portfolio. The Company used the modified duration of its fixed maturity
investment portfolio to model the pro forma effect of a change in interest
rates at December 31, 2001 and 2000.

ERIE INDEMNITY COMPANY
FIXED MATURITY INTEREST RATE SENSITIVITY ANALYSIS

As of December 31,
(amounts in thousands) ----------------
2001 2000
------- -------

Market value............. 574,874 561,502
Change in market value(1) (24,145) (22,460)
Pro forma market value... 550,729 539,042
Modified duration(2)..... 4.2 4.0

--------
(1) The change in market value is calculated by taking the negative of the
product obtained by multiplying (i) modified duration by (ii) change in
interest rates by (iii) market value of the portfolio.
(2) Modified duration is a measure of a portfolio's sensitivity to changes in
interest rates. It is interpreted as the approximate percentage change in
the market value of a portfolio for a certain basis point change in
interest rates.

EQUITY PRICE RISK

The Company's portfolio of marketable equity securities, which is carried
on the Consolidated Statements of Financial Position at estimated fair value,
has exposure to price risk, the risk of potential loss in estimated fair value
resulting from an adverse change in prices. The Company's objective is to earn
competitive relative returns by investing in a diverse portfolio of
high-quality, liquid securities.

Portfolio characteristics are analyzed regularly, and market risk is
actively managed through a variety of techniques. Portfolio holdings are
diversified across industries; concentrations in any one company or industry
are limited by parameters established by management and the Company's board of
directors. The Company's marketable equity security portfolio is well
diversified among primarily actively traded mid- to large-cap stocks. The value
of the Company's marketable equity portfolio generally moves with the broad
market indices such as the S&P 500. If market prices were to decrease by 10%,
the fair value of the Company's marketable equity securities would have had a
corresponding decrease of approximately $19 million at December 31, 2001
compared to approximately $20 million at December 31, 2000.

The Company's portfolio of limited partnership investments has exposure to
market risks, primarily relating to the viability of the various entities in
which they invested. These investments consist primarily of equity investments
in small and medium sized companies, and in real estate. These investments
involve risk related to changes in the equity and real estate markets. The
market value of these limited partnership investments equaled 10% of total
invested assets. We actively manage these risks in a variety of ways. These
limited partnership investments are diversified to avoid concentration in a
particular industry. We perform extensive research, including consideration of
the identity of other potential investors, prior to investment in these
partnerships.

CREDIT RISK

The Company's objective is to earn competitive returns by investing in a
diversified portfolio of securities. The Company's portfolios of fixed maturity
securities, mortgage loans and, to a lesser extent, short-term investments are
subject to credit risk. This risk is defined as the potential loss in

market value resulting from adverse changes in the borrower's ability to repay
the debt. The Company manages this risk by performing up front underwriting
analysis and through regular reviews by the Company's investment staff. The
fixed maturity investments are also maintained between minimum and maximum
percentages of invested assets.

The Company's results of operations are directly related to the financial
strength of the Exchange. Credit risks related to the receivables from the
Exchange are evaluated monthly. Since the Company's inception, it has collected
its other receivables from the Exchange in a timely manner (generally within
120 days). Other receivables include amounts due for the management fee and
costs paid by the Company on behalf of the Exchange. Other receivables from the
Exchange equaled 8.7% and 7.7% of total Company assets as of September 30, 2002
and December 31, 2001, respectively. An additional receivable from the Exchange
as relates to reinsurance recoverable, amounted to $570.1 million and $491.1
million at September 30, 2002 and December 31, 2001, respectively, or 26.0% and
25.4% of assets, respectively. This receivable relates primarily to unpaid
losses ceded to the Exchange as part of the pooling agreement between the
Exchange and the Company's property and casualty subsidiaries. The Company
collects its reinsurance recoverable receivable generally within 30 days of
actual settlement of losses. Reinsurance contracts do not relieve the Company
from its primary obligations to policyholders. A contingent liability exists
with respect to reinsurance receivables from the Exchange in the event the
Exchange would be unable to meet its obligations under its reinsurance
agreement with the Exchange. The aggregate of these receivables from the
Exchange at September 30, 2002 and December 31, 2001 equaled $761.3 million and
$640.7 million, respectively, or 34.7% and 33.1%, respectively, of the
Company's total assets. Because of the Company's attorney-in-fact agreements
with the subscribers to the Exchange and its pooling agreement with the
Exchange, the Company's existence and performance is dependent on the existence
and financial stability of the Exchange.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of an entity's ability to secure enough cash to meet
its contractual obligations and operating needs as they arise. Our major
sources of funds from operations are the net cash flow generated from
management operations, the net cash flow from our property and casualty
insurance subsidiaries' 5.5% participation in the underwriting results of the
Property and Casualty Group and investment income from affiliated and
nonaffiliated investments.

We generate sufficient net positive cash flow from our operations to fund
our commitments and build our investment portfolio, thereby increasing future
investment returns. We maintain a high degree of liquidity in our investment
portfolio in the form of readily marketable fixed maturities, equity securities
and short-term investments. Net cash flows provided by operating activities in
2001, 2000 and 1999, were $148.6 million, $130.6 million and $137.0 million,
respectively.

Management fee and other cash settlements due at December 31 from the
Exchange were $147.3 million, $118.0 million and $104.3 million in 2001, 2000
and 1999, respectively. A receivable from Erie Family Life Insurance Company
for cash settlements totaled $2.3 million at December 31, 2001, compared to
$2.0 million at December 31, 2000 and $1.5 million at December 31, 1999. We
also have a receivable due from the Exchange for reinsurance recoverable from
losses and unearned premium balances ceded to the intercompany reinsurance pool.

The reinsurance recoverable from the Exchange rose 19.2% to $491.1 million
at December 31, 2001 from the $412.0 million at December 31, 2000 and 12.8%
from $365.2 million at December 31, 1999. These increases are the result of
corresponding increases in direct loss reserves, loss adjustment expense
reserves and unearned premium reserves of the Company's property and

casualty insurance subsidiaries that are ceded to the Exchange under the
intercompany pooling arrangement. The increase in direct loss reserves, loss
adjustment expense reserves and unearned premium reserves ceded to the Exchange
is a result of a corresponding increase in direct premium written by the
Company's property and casualty insurance subsidiaries. The increase in direct
written premium of the subsidiaries of the Company that is ceded to the
Exchange was 18.3% and 11.4% for the years ended December 31, 2001 and 2000,
respectively. Total receivables from the Exchange represented 12.3% of the
Exchange's assets at September 30, 2002, 9.1% at December 31, 2001, 7.6% at
December 31, 2000 and 6.3% at December 31, 1999.

We established a stock repurchase program in 1999 pursuant to which we may
have repurchased as much as $120 million of our Class A common stock through
December 31, 2002. In 2001, 220,000 shares were repurchased at a total cost of
$7.7 million. During the first nine months of 2002, 207,217 shares were
repurchased at a total cost of $8.5 million. From its inception through
September 30, 2002, 3,402,894 shares have been repurchased at a total cost of
$101.9 million. We suspended the stock repurchase program in connection with
this offering of Class A common stock because we did not believe it was
appropriate to buy Class A common stock in the market while a registered
offering was pending and considering the repurchase program was expiring at the
end of 2002.

Dividends declared to shareholders totaled $40.4 million, $36.2 million and
$32.8 million in 2001, 2000 and 1999, respectively. There are no regulatory
restrictions on the payment of dividends to our shareholders, although there
are state law restrictions on the payment of dividends from our insurance
subsidiaries to us.

Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to deferred tax assets and
liabilities resulted in net deferred tax liabilities at December 31, 2001, 2000
and 1999 of $12.9 million, $7.2 million and $11.8 million, respectively. The
primary reason for the increase in the deferred tax liability in 2001 is an
increase in unrealized gains from available-for-sale securities and limited
partnerships in 2001 of $18.0 million resulting in an increase in deferred tax
liability of $6.3 million. Management believes it is likely that we will have
sufficient taxable income in future years to realize the benefits of the gross
deferred tax assets.

BUSINESS

We operate predominantly as a provider of sales, underwriting and policy
issuance services to the Exchange. We also operate as a property and casualty
insurer through our subsidiaries. We have served since 1925 as the
attorney-in-fact for the policyholders of the Exchange. The Property and
Casualty Group writes personal and commercial lines property and casualty
coverages exclusively through approximately 8,000 independent agents and pool
their underwriting results. The financial results of the Exchange are not
consolidated with ours.

For our services as attorney-in-fact, we charge the Exchange a management
fee calculated as a percentage, limited to 25%, of the direct written premiums
of the Exchange in addition to the direct written premiums of the other members
of the Property and Casualty Group, all of which are initially assumed by the
Exchange under the pooling agreement. Management fees accounted for
approximately 78% of our revenues for the nine months ended September 30, 2002.
For the first nine months of 2002, 70% of direct premiums written by the
Property and Casualty Group were personal lines, while 30% were commercial
lines. We also own 21.6% of the common stock of Erie Family Life Insurance
Company, an affiliated life insurance company, of which the Exchange owns 53.5%
and public shareholders, including our directors, own 24.9%. At September 30,
2002, we had total assets of $2.2 billion and shareholders' equity of $958
million. Our net income was $138.2 million for the nine months ended September
30, 2002 and $122.3 million for the year ended December 31, 2001.

In addition to our interest in the growth in premium of the Exchange, our
property and casualty insurance subsidiaries also participate in the
underwriting results of the Exchange. Our property and casualty insurance
subsidiaries share in the underwriting results of the Exchange via a pooling
arrangement under which the Exchange has a 94.5% participation in the
underwriting results of the Property and Casualty Group and our insurance
subsidiaries, the Erie Insurance Company and the Erie Insurance Company of New
York, have a 5.5% participation. As such, we have an interest in the
underwriting profitability of the business written as well as the volume of
premium written. The Property and Casualty Group wrote approximately $3.0
billion in premium during the twelve months ended September 30, 2002. Of the
net underwriting risk for this $3.0 billion, $2.8 billion in premium, or 94.5%,
is borne by the Exchange. The remaining $165 million, or 5.5%, of the net
underwriting risk is borne by our property and casualty insurance subsidiaries
via the pooling arrangement with the Exchange.

ERIE INSURANCE GROUP
ORGANIZATIONAL CHART

* Denotes a member of the Property and Casualty Group

The Property and Casualty Group seeks to insure standard and preferred
risks in primarily private passenger automobile, homeowners and small
commercial lines, including workers' compensation policies. We believe the
Property and Casualty Group has differentiated its products from standard
industry products by providing additional coverages, which enhance agents'
marketing efforts. The Property and Casualty Group is represented by an agency
force consisting of over 1,700 independent agencies comprised of approximately
8,000 agents in 11 Midwestern, Mid-Atlantic and Southeastern states (Illinois,
Indiana, Maryland, New York, North Carolina, Ohio, Pennsylvania, Tennessee,
Virginia, West Virginia and Wisconsin) and the District of Columbia. These
independent agents play a significant role as underwriters and are major
contributors to our success.

We have reported increasing net operating income for 14 consecutive years.
Our growth has primarily been driven by an expansion of the Property and
Casualty Group's business into new territories, the appointment of new
agencies, high policy and agency retention rates and, recently, increased
premium rates.

. Since 1997, the Property and Casualty Group has entered Illinois and
Wisconsin and expects to begin operating in Minnesota in the third
quarter of 2004.

. The Property and Casualty Group has a very stable base of policyholders.
The Property and Casualty Group's retention rate (the percentage of
existing policyholders who renew their policies) of 90.9% in 2001
compared favorably to an average of 82.6% for a core benchmark group
consisting largely of regional property and casualty carriers, according
to a 2001 Ward Group benchmark study.

. The Property and Casualty Group is achieving premium rate increases as a
result of the current favorable market conditions in both commercial and
personal property and casualty lines, which are generally referred to
within the industry as "hard market conditions". Hard market conditions
are characterized by increasing premium rates, more stringent
underwriting standards and a need for additional capital in the industry.
The Property and Casualty Group and the Company have benefited from these
hard market conditions and for the twelve months ended September 30, 2002
experienced average premium per policy increases of 7.2% for personal
automobile insurance policies, 17.6% for commercial lines policies and
9.5% across all lines. Management believes increases in premium rates are
likely to continue in 2002 and 2003 because of the industry's need to
improve underwriting results and to achieve adequate operating returns in
light of the reduced investment yields resulting from low interest rates
and poor returns in the equity markets. Premium rates approved by
regulators that will be realized in the fourth quarter of 2002 and in
2003 totaled $46.9 million and $96.6 million, respectively. These premium
increases were primarily related to private passenger automobile,
homeowners and commercial multiple peril lines of business in the states
of Pennsylvania, Ohio and West Virginia. Generally, the Company's profit
margins from management operations have increased during periods of
premium rate increases.

The Erie Insurance Group built its reputation in the industry and among
insurance consumers, agents and others on its commitment to be "Above all in
sERvIcE(SM)". Customer satisfaction surveys independently conducted by a
nationally recognized research firm have ranked the Property and Casualty Group:

. No. 2 for homeowners insurance in 2002 and No. 1 for homeowners insurance
in 2001;

. No. 3 for private passenger automobile insurance in 2002 and No. 2 for
private passenger automobile insurance in 2001 and 2000; and

. No. 1 for automobile collision repair in 2002, the first year this survey
was conducted.

Each member of the Property and Casualty Group is rated A++ (Superior) by
A.M. Best, its highest financial strength rating, which was held by only 2.8%
of the property and casualty insurance groups rated by A.M. Best as of July 11,
2002.

OUR COMPETITIVE ADVANTAGES

We believe that our competitive advantages come from:

. Committed, loyal and productive independent agency force. We seek to
develop long-term business relationships with high-quality independent
agencies. Prior to allowing an agency to represent the Property and
Casualty Group, we undertake a rigorous selection process that seeks
agency principals who meet our high standards and operate their agencies
in line with Erie Insurance Group's business philosophy. We believe the
independent agency force has been loyal and that the Property and
Casualty Group is the preferred carrier for most of the independent
agencies that represent it. Average annual written premium volume per
agency is approximately $1.7 million for these agencies.

. Focus on quality service. Service to the policyholder and agent has been
a tradition of the Erie Insurance Group since its founding more than 77
years ago. Erie Insurance Group has consistently been recognized as a
provider of quality service. Customer satisfaction surveys independently
conducted by a nationally recognized research firm ranked the Property
and Casualty Group No. 2 for homeowners insurance in 2002 and No. 1 in
2001, No. 3 for private passenger automobile insurance in 2002 and No. 2
in 2001 and 2000 and No. 1 for automobile collision repair in 2002, the
first year that survey was conducted. The claims force is comprised
predominantly of personnel trained in Erie Insurance Group's
service-oriented claims settlement philosophy.

. Competitive products and pricing. A key to attracting a highly effective
sales force of independent agents and enhancing the Property and Casualty
Group's ability to attract customers is a portfolio of competitively
priced products. These products include many additional coverages that we
believe differentiate the Property and Casualty Group's products in the
marketplace.

. Cost-efficient operation. Expense management is one of Erie Insurance
Group's founding traditions and is an important part of its culture. We
believe the Erie Insurance Group's operations are cost-efficient. In
addition, Erie Insurance Group's organizational structure is relatively
flat and combines the advantages of centralized common services with
field marketing and claims services. Average agency annual written
premium volume of $1.7 million allows us to keep agency training,
marketing and support costs low. The Property and Casualty Group's
five-year statutory average loss adjustment and underwriting expense
ratio for the period from 1997 to 2001 is 37.2%, which compares favorably
to A.M. Best's property and casualty industry composite average of 40.3%.
The loss adjustment expense ratio is the ratio of loss adjustment
expenses (the expenses incurred in settling a claim) incurred, including
estimates thereof for claims incurred but not reported, to net premiums
earned, and an underwriting expense ratio is the ratio of underwriting
expenses incurred to net premiums earned. The Property and Casualty
Group's underwriting expense ratio includes the management fee paid to us
of 25% of direct premiums written, which was reduced to 24% for 2003. The
actual cost of management operations is less than the management fee,
which results in a profit for our shareholders. If the actual cost of
management operations were used to compute the underwriting expense
ratio, consistent with industry-reported results, the loss adjustment and
underwriting expense ratio would be 30.7%, which compares even more
favorably to industry averages. In a 2001 benchmarking study completed by
Ward Group, productivity of the Company and the Property and Casualty
Group, as measured by the ratio of full time equivalent employees to
gross premiums written (total insurance premiums written during a given
period), is over 40% better than the core benchmark group.

. Unique corporate structure. The Erie Insurance Group's operating
structure allows for:

- A long-term management approach to business. Erie Insurance Group
aims to nurture its relationships with policyholders, agents and
employees to create long-term value. Each of our principal
executive officers has been with Erie Insurance Group for over 20
years and is committed to this long-term view of the business.

- Lower earnings volatility. Since the bulk of the insurance risk
of the Property and Casualty Group remains with the Exchange, we
do not experience the same earnings volatility as competing
property and casualty insurance carriers.

- A long-term investment horizon. Since most of the capital and
reserves necessary to support the Property and Casualty Group's
insurance underwriting business are held by the Exchange, which is
not a publicly-owned entity, a long-term total return strategy is
used in investing the Exchange's assets. Though recent equity
market results have had a significant negative effect on the value
of the Exchange's investment portfolio, the Exchange's investment
strategy of investing in equity securities has created substantial
surplus capacity over an extended period of time. From January 1,
1995 to September 30, 2002, the Exchange's equity investments
generated a pre-tax compound annual return of 10.8% compared to a
pre-tax compound annual return of 9.5% for the Standard & Poor's
500 Index.

STRATEGY

. Quality service to policyholders in claims handling, underwriting and
other service activities.

. Achieving underwriting profits for the Property and Casualty Group by
focusing on standard and preferred risks and by setting and adhering to
consistent underwriting standards.

. A business model designed to provide the advantages of localized
marketing and claims servicing with the economies of scale derived from
centralized management and administration.

OUR OPERATING SEGMENTS

Our financial results are segmented into management operations, insurance
underwriting operations and investment operations. As attorney-in-fact for the
subscribers to the Exchange, we provide sales, underwriting and policy issuance
services on behalf of the Exchange and take no underwriting risk. This segment
is the largest contributor to our earnings, providing pre-tax income of $189.1
million for the nine months ended September 30, 2002 and $184.6 million for
2001. In the property and casualty insurance underwriting operations, we take
underwriting risk through our insurance subsidiaries. This segment had a
pre-tax loss of $16.0 million for the nine months ended September 30, 2002 and
$20.5 million for 2001. Investment operations includes investment income and
realized gains and losses generated by assets of our management and insurance
underwriting operations. This segment had pre-tax income of $33.2 million for
the nine months ended September 30, 2002 and $18.0 million for 2001.

The following table summarizes the revenue we receive and the costs we
incur in connection with these three segments:

ERIE INDEMNITY COMPANY
OPERATING SEGMENT SUMMARY

(amounts in thousands)
Nine Months Year
ENDED Ended
Income September 30, December 31,
Segment Statement Item Description 2002 2001
------------- ---------------------------- ------------------------------------------------ ------------- ------------
(unaudited)

Management Management fee revenue Direct premium written by the Property and $ 593,895 $ 634,966
Operations Casualty Group x management fee rate (25% 16,310 27,247
for 2002 and 24% for 2003) (421,097) (477,645)
+
Service agreement revenue Reinsurance premiums assumed from non-
affiliates x service agreement rate (7% for 2002
and 6% for 2003) and per installment charge for
premiums billed on an installment basis
(currently $3)
-
Cost of management Cost of sales, including commissions, --------- ---------
=
Segment income before
income taxes $ 189,108 $ 184,568
--------- ---------

Insurance 5.5% of the Property and Casualty Group $ 119,824 $ 137,648
Underwriting Premiums earned earned premiums (117,201)
Operations(1) - (98,431) (40,910)
Losses and loss adjustment 5.5% of the Property and Casualty Group (37,343)
expense losses and loss adjustment expense
-
Policy acquisition and other 5.5% of the Property and Casualty Group policy
underwriting expense acquisition and other underwriting expense
--------- ---------

=
Segment (loss) before
income taxes $ (15,950) $ (20,463)
--------- ---------
Investment Net investment revenue Investment income and realized gains (losses) $ 24,882 $ 927
Operations from management generated by assets retained in management
operations(2) operations
+
Net investment revenue Investment income and realized gains (losses) 8,305 17,071
from insurance underwriting generated by assets of our property and
operations(3) casualty subsidiaries
--------- ---------

=
Segment income before
income taxes $ 33,187 $ 17,998
--------- ---------

Total Total income before
income taxes $ 206,345 $ 182,103
========= =========

-------
(1) Includes the effect of the all-lines aggregate excess of loss agreement
currently in place with the Exchange.
(2) Includes realized capital losses of $3.4 million for the nine months
ended September 30, 2002 and $30.7 million for 2001.
(3) Includes realized capital losses of $5.2 million for the nine months
ended September 30, 2002 and $1.1 million for 2001.

OUR MANAGEMENT OPERATIONS

We recognize management fees due from the Exchange as income when the
premiums are written because at that time we have performed substantially all
of the services we are required to perform, including sales, underwriting and
policy issuance activities, but currently such fees are not paid to us by the
Exchange until it collects the premiums. Management fees received from the
Exchange accounted for 78% of our revenues for the nine months ended September
30, 2002 and 78% of our revenues in 2001. The management fee rate charged to
the Exchange is set by and may be changed at the discretion of our board of
directors. The fee has been at its maximum permitted level of 25% since 1999
and was 24.25% in 1998 and 24% in 1997. Our board of directors generally sets
the management fee rate each December for the following year. At our December
10, 2002 board of directors meeting, the board voted to reduce the management
fee for 2003 to 24%.

Since 1995, we have received a service agreement fee from the Exchange, at
the rate of 7% of voluntary assumed written premium as compensation for the
management and administration of its voluntary assumed reinsurance business
from non-affiliated insurers. Reinsurance is an arrangement in which an
assuming company indemnifies an insurer or reinsurer (a "ceding company")
against all or a portion of the insurance or reinsurance risks underwritten by
the ceding company under one or more policies. At our December 10, 2002 board
of directors meeting, the board voted to reduce the service agreement rate for
2003 to 6%. Service agreement revenue is earned when reinsurance premiums are
earned because the services we are required to perform are completed over the
terms of the related treaties. We also collect service charges from
policyholders who pay their premiums in installments on policies written by the
Property and Casualty Group. The service agreement rate and service charge
amount are periodically evaluated and are subject to change.

ERIE INDEMNITY COMPANY
MANAGEMENT OPERATIONS FINANCIAL RESULTS

Nine Months Ended
September 30, Year Ended December 31,
---------------------- ----------------------------------------------------------
(amounts in thousands, 2002 2001 2001 2000 1999 1998 1997
except percentages) ---------- ---------- ---------- ---------- ---------- ---------- ----------
(unaudited)

Direct premium written by
Property and Casualty
Group..................... $2,375,579 $1,923,219 $2,539,863 $2,206,583 $2,053,501 $2,017,103 $1,948,343
Management fee rate........ 25.00% 25.00% 25.00% 25.00% 25.00% 24.25% 24.00%
Management fee revenue..... $ 593,895 $ 480,805 $ 634,966 $ 551,646 $ 513,375 $ 489,147 $ 467,603
Service agreement
revenue................... 16,310 20,339 27,247 22,662 15,441 13,879 7,026
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue from
management operations..... $ 610,205 $ 501,144 $ 662,213 $ 574,308 $ 528,816 $ 503,026 $ 474,629
Cost of management
operations................ 421,097 349,796 477,645 415,562 380,298 357,783 340,428
Net investment revenue from
management
operations(1)............. 24,882 20,474 927 51,721 41,966 28,883 25,179
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes..................... $ 213,990 $ 171,822 $ 185,495 $ 210,467 $ 190,484 $ 174,126 $ 159,380
========== ========== ========== ========== ========== ========== ==========
--------
(1)Includes realized
(losses) gains of: $ (3,467) $ (4,099) $ (30,735) $ 16,469 $ 14,408 $ 6,363 $ 5,551

The direct written premiums of the Property and Casualty Group have a
direct impact on the Company's management fee revenue and, consequently, the
Company's management operations. The following table sets forth our management
fee revenue by state and by line of business for the year ended December 31,
2001:

ERIE INDEMNITY COMPANY
MANAGEMENT FEE REVENUE BY STATE AND LINE OF BUSINESS FOR 2001

(amounts in thousands)
All Other
Private Commercial Commercial Workers' Lines of
State Passenger Auto Homeowners Multi Peril Compensation Business Total
----- --------- ---------- ---------- ----------- ------------ --------- --------

Pennsylvania........ $193,280 $23,004 $ 50,042 $27,319 $26,801 $ 7,806 $328,252
Maryland............ 40,521 6,869 12,689 6,383 6,311 2,671 75,444
Ohio................ 29,094 4,312 9,619 7,123 0 1,697 51,845
Virginia............ 22,413 5,404 7,695 6,254 6,993 1,958 50,717
North Carolina...... 11,948 4,718 6,171 5,255 3,993 1,384 33,469
West Virginia....... 18,070 2,644 4,115 2,757 0 838 28,424
Indiana............. 13,309 1,721 5,742 2,846 2,041 845 26,504
New York............ 10,319 1,887 2,654 3,010 1,645 494 20,009
Tennessee........... 3,712 1,378 1,450 1,830 1,278 386 10,034
Illinois............ 3,075 645 1,048 1,667 1,010 223 7,668
District of Columbia 548 108 247 510 595 117 2,125
Wisconsin........... 191 52 68 63 78 23 475
-------- ------- -------- ------- ------- ------- --------
Total............ $346,480 $52,742 $101,540 $65,017 $50,745 $18,442 $634,966
======== ======= ======== ======= ======= ======= ========

The following table sets forth our management fee revenue by line of
business and percentage growth for each of the five years ended December 31,
2001:

ERIE INDEMNITY COMPANY
MANAGEMENT FEE REVENUE BY LINE OF BUSINESS 2001-1997

(amounts in thousands, except percentages)
All Other
Private Commercial Commercial Workers' Lines of Percent
Year Passenger Auto Homeowners Multi Peril Compensation Business Total Increase
---- --------- ---------- ---------- ----------- ------------ --------- -------- --------

2001.. $346,480 $52,742 $101,540 $65,017 $50,745 $18,442 $634,966 15.1%
2000.. 313,703 43,318 88,743 50,401 39,914 15,567 551,646 7.5
1999.. 305,346 37,663 80,377 42,646 33,363 13,980 513,375 5.0
1998.. 304,026 33,555 69,845 36,096 31,409 14,216 489,147 4.6
1997.. 295,424 32,796 60,443 31,384 32,906 14,649 467,602 5.6

The following table sets forth the Property and Casualty Group's percentage
of management fees by state for each of the five years ended December 31, 2001.

ERIE INDEMNITY COMPANY
PERCENTAGE OF MANAGEMENT FEES BY STATE 2001-1997

State 2001 2000 1999 1998 1997
----- ----- ----- ----- ----- -----

Pennsylvania..................... 51.7% 53.9% 55.6% 58.1% 59.3%
Maryland......................... 11.9 11.9 11.9 11.7 12.0
Ohio............................. 8.2 8.0 7.9 7.6 7.4
Virginia......................... 8.0 8.0 8.1 8.1 8.3
North Carolina................... 5.3 4.6 4.1 3.3 2.7
West Virginia.................... 4.4 4.6 4.6 4.6 4.6
Indiana.......................... 4.2 4.0 3.9 3.8 3.7
New York......................... 3.1 2.7 2.2 1.4 0.8
Tennessee........................ 1.6 1.4 1.3 1.2 1.0
Illinois......................... 1.2 0.6 0.2 0.0 0.0
District of Columbia............. 0.3 0.3 0.2 0.2 0.2
Wisconsin........................ 0.1 0.0 0.0 0.0 0.0
----- ----- ----- ----- -----
Total direct premiums written. 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====

The cost of management operations includes all independent agent commission
expenses as well as personnel and benefit costs, underwriting and policy
issuance costs and other administrative expenses of the Company.

The largest component of the cost of management operations is the cost of
our independent agent commissions and other incentives to our independent
agents. Included in commission costs is the cost of scheduled commissions
earned on premiums written, agency contingency awards based on the three-year
average underwriting profitability of the business written with us, accelerated
commissions earned by start-up agencies and promotional incentives to agents.

Personnel and benefit costs related to the sales, underwriting and issuance
of policies and the administrative staff of the Company are the second largest
cost of management operations. Expenses other than personnel and benefit costs
related to the underwriting and issuance of new business vary with the number
of new policies. Underwriting reports, printing, postage and other cost of
materials necessary for the underwriting and issuance of policies are included
in the cost of management operations.

Additional costs are incurred for general administrative expenses of the
Company including the cost of office facilities, travel, telephone and
communication costs, the cost of data processing and information technology and
other miscellaneous expenses. Beginning in 2001, Erie Insurance Group initiated
the eCommerce program and committed to new information technology
infrastructure expenditures as part of the program. Our share of these
eCommerce infrastructure expenditures are included in the cost of management
operations. Non-infrastructure costs of the eCommerce program which are subject
to the technology cost-sharing agreement are included in the insurance
underwriting segment.

We also earn investment income in this business segment on the cash flow
from management operations, which is invested in our investment portfolio. We
also report our share of earnings from our 21.6% investment in Erie Family Life
Insurance Company as part of the investment income of our management operations
segment.

INSURANCE UNDERWRITING OPERATIONS

Our insurance underwriting operations consist of our three property and
casualty insurance subsidiaries that participate in an intercompany pooling
arrangement with the Exchange. The pool also includes reinsurance assumed by
the Exchange from non-affiliated entities. The table below presents a financial
summary of results of the property and casualty insurance operations of the
Property and Casualty Group.

ERIE INDEMNITY COMPANY
INSURANCE UNDERWRITING OPERATIONS FINANCIAL RESULTS

Nine Months Ended
September 30, Year Ended December 31,
------------------ ---------------------------------------------
2002 2001 2001 2000 1999 1998 1997
(amounts in thousands) -------- -------- -------- -------- -------- -------- --------
(unaudited)

Premiums earned............ $119,824 $100,857 $137,648 $123,708 $117,224 $112,939 $107,350
Net investment revenue from
insurance underwriting
operations(1)............. 8,305 14,934 17,071 18,381 16,765 16,887 13,569
-------- -------- -------- -------- -------- -------- --------
Total revenues......... $128,129 $115,791 $154,719 $142,089 $133,989 $129,826 $120,919
Losses and loss adjustment
expenses.................. 98,431 88,074 117,201 99,564 87,719 79,881 79,970
Policy acquisition and
underwriting expenses..... 37,343 28,696 40,910 34,546 33,044 32,491 29,639
-------- -------- -------- -------- -------- -------- --------
Total losses and
expenses.............. $135,774 $116,770 $158,111 $134,110 $120,763 $112,372 $109,609
-------- -------- -------- -------- -------- -------- --------
(Loss) income before income
taxes..................... $ (7,645) $ (979) $ (3,392) $ 7,979 $ 13,226 $ 17,454 $ 11,310
======== ======== ======== ======== ======== ======== ========
--------
(1)Includes realized
(losses) gains of: $ (5,160) $ 1,374 $ (1,144) $ 499 $ 337 $ 800 $ 264

Under the pooling arrangement, all property and casualty insurance business
of the five property and casualty insurance companies that comprise the
Property and Casualty Group is pooled within the Exchange as the pooling
entity. Our insurance subsidiaries, Erie Insurance Company and Erie Insurance
Company of New York, share in the underwriting results of the pool through
retrocession. Erie Insurance Company has a 5.0% participation, Erie Insurance
Company of New York has a 0.5% participation and the Exchange has a 94.5%
participation in the pooled underwriting results. These participation
percentages are determined by our board of directors. Pooling participation
percentages have not changed since 1995.

PROPERTY AND CASUALTY GROUP
POOLING ARRANGEMENT

CEDED FROM RETROCEDED TO

-----------------------------
| | -----------------
| Erie Insurance Exchange |--------- | |
| | | | | --------------------
----------------------------- | | | | |
| | | 94.5% | Erie Insurance |
----------------------------- | | |--------------| Exchange |
| | | | | --------------------
| Flagship City |--------- | |
| Insurance Company | | | |
| | | | |
----------------------------- | | |
| | | --------------------
----------------------------- | | | | |
| | | 100% | Property and | 5.0% | Erie Insurance |
| Erie Insurance Company |------------------| Casualty |--------------| Company |
| | | | Group Pool | | |
----------------------------- | | | | |
| | | --------------------
----------------------------- | | |
| | | | |
| Erie Insurance Company | | | |
| of New York |--------| | | --------------------
| | | | | | |
----------------------------- | | | | |
| | | 0.5% | Erie Insurance |
----------------------------- | | |--------------| Company |
| | | | | | of New York |
| Erie Insurance Property | | | | | |
| & Casualty Company |--------| | | --------------------
| | | |
----------------------------- -----------------

Erie Insurance Company and Erie Insurance Company of New York have an
all-lines aggregate excess of loss reinsurance agreement with the Exchange that
limits the amount of their annual net losses. Excess of loss reinsurance is
reinsurance that indemnifies the reinsured against all or a specified portion
of losses on underlying insurance policies in excess of a specified amount.
Under the reinsurance agreement, once Erie Insurance Company and Erie Insurance
Company of New York sustain ultimate net losses and allocated loss expenses in
an accident year that exceed an amount equal to 72.5% of Erie Insurance
Company's and Erie Insurance Company of New York's net premiums earned, the
Exchange will be liable for 95% of the amount of such excess up to, but not
exceeding, an amount equal to 95% of 15% of Erie Insurance Company's and Erie
Insurance Company of New York's net premium earned. Erie Insurance Company and
Erie Insurance Company of New York retain the remaining 5% of such layer as
well as ultimate net losses and allocated loss expenses in excess of 87.5% of
Erie Insurance Company's and Erie Insurance Company of New York's net premiums
earned.

The Property and Casualty Group sells personal and commercial lines
policies through independent agencies. Commercial lines policies are marketed
to small- and medium-sized businesses. Premium revenues from our property and
casualty insurance underwriting operations accounted for approximately 16% of
our revenues in the nine months ended September 30, 2002 and 17% of our
revenues in 2001.

The Property and Casualty Group has exposure to reinsurance that the
Exchange assumes from unaffiliated insurers, placed principally through
unaffiliated brokers. The Exchange engages in this

assumed reinsurance business, which represented net premiums written of $131.3
million for the nine months ended September 30, 2002 and $158.1 million for the
year ended December 31, 2001, in each case net of retrocessions, in order to
geographically diversify the overall insurance risk to the Property and
Casualty Group. The assumed business, which is included in the pooling
arrangement, consists predominately of property lines excess of loss treaties.
In 2002, management tightened underwriting standards, limited coverages,
excluded terrorism coverage and, consistent with market conditions, increased
rates for this business. Treaties are generally renewed annually and management
evaluates each treaty for profitability and continuing desirability of the
customer relationship during the renewal process.

We also earn investment income in this business segment on the cash flow
from property and casualty insurance underwriting operations, which is invested
in our investment portfolio.

The following table sets forth certain data for the Property and Casualty
Group compared to industry composites for the five years ended December 31,
2001.

PROPERTY AND CASUALTY GROUP
FIVE-YEAR COMPARISON VS. INDUSTRY COMPOSITE

Net Premiums Operating Policyholder
Written Growth Loss Ratio Expense Ratio(2) Dividend Ratio Combined Ratio
---------------- ---------------- ---------------- --------------- -----------------
Erie Industry(1) Erie Industry(1) Erie Industry(1) Erie Industry(1) Erie Industry(1)
---- ----------- ---- ----------- ---- ----------- ---- ----------- ----- -----------

2001........... 14.8% 9.1% 78.1% 75.4% 39.7% 39.7% 0.6% 0.8% 118.4% 115.9%
2000........... 8.3 5.7 69.8 68.5 36.8 40.4 0.8 1.5 107.4 110.3
1999........... 2.6 2.0 65.5 65.4 36.1 41.1 0.4 1.3 102.0 107.8
1998........... 4.4 1.6 59.2 63.4 38.2 40.7 0.6 1.9 98.0 106.0
1997........... 5.6 3.0 65.1 60.6 34.6 39.4 0.9 1.8 100.6 101.9
5-year compound
annual growth
rate or
average....... 7.2% 4.2% 68.0% 66.9% 37.2% 40.3% 0.7% 1.4% 105.9% 108.6%

--------
(1) A.M. Best's Aggregates and Averages, 2002 Edition.
(2) Includes loss adjustment and underwriting expenses.

DISTRIBUTION

The Property and Casualty Group's insurance products are marketed primarily
in the Midwest, Mid-Atlantic and Southeast regions through over 1,700 insurance
agencies that are comprised of approximately 8,000 agents. The Property and
Casualty Group is licensed to do business in 16 states and in the District of
Columbia and, at September 30, 2002, operated in 11 states (Illinois, Indiana,
Maryland, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia,
West Virginia and Wisconsin) and the District of Columbia. The Property and
Casualty Group maintains branch offices throughout these states. The Property
and Casualty Group expects to begin operating in Minnesota in the third quarter
of 2004.

PROPERTY AND CASUALTY GROUP
STATES OF OPERATION

Year Began
State Writing % of Total
----- ---------- ------------

Pennsylvania........ 1925 52%
Maryland............ 1953 12
Ohio................ 1968 8 [GRAPHIC OMITTED - Map of
Virginia............ 1955 8 eastern half of United
North Carolina...... 1991 5 States highlighting active
West Virginia....... 1963 4 states of operation, the
Indiana............. 1978 4 home office, branch offices
New York............ 1995 3 and field offices.]
Tennessee........... 1987 2
Illinois............ 1999 1
District of Columbia 1953 Less than 1%
Wisconsin........... 2001 Less than 1%

In 2001, we continued our ongoing expansion of the independent agency force
by appointing 247 agencies. Since 1997, we have increased the overall number of
agencies representing the Property and Casualty Group by 60%. Partially due to
growth in the number of agents, the Property and Casualty Group has achieved
rapid growth in premiums. As of September 30, 2002, the Property and Casualty
Group had over 3.4 million insurance policies in force, an 11.9% increase from
September 30, 2001. Personal lines policies in force grew by 11.8% during the
twelve months ended September 30, 2002, while commercial lines increased 13.0%
over the same period.

PROPERTY AND CASUALTY GROUP
12-MONTH ROLLING AVERAGE POLICY GROWTH RATES BY LINE OF BUSINESS

Twelve Months Ended
-----------------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30, June 30, March 31,
2002 2002 2002 2001 2001 2001 2001
------------- -------- --------- ------------ ------------- -------- ---------

Personal lines:
Private passenger auto.. 10.4% 9.4% 8.3% 7.1% 6.3% 5.9% 5.3%
Homeowners.............. 13.1 11.4 10.1 9.0 8.4 8.1 7.7
All other personal lines 14.4 13.4 12.2 11.5 11.4 10.9 10.7
Total personal lines. 11.8 10.5 9.3 8.2 7.5 7.1 6.6
Commercial lines:
Commercial auto......... 11.8 11.6 10.7 9.7 8.8 7.9 7.0
Commercial multi-peril.. 14.4 13.9 12.5 11.6 11.1 10.8 10.6
Workers' compensation... 12.5 11.9 10.8 10.3 9.6 9.5 8.7
All other commercial
lines................. 11.5 11.7 10.7 9.9 9.0 8.9 8.0
Total commercial
lines.............. 13.0 12.6 11.5 10.7 9.9 9.5 8.9
Total............ 11.9 10.8 9.6 8.5 7.8 7.4 6.9

In addition, the Property and Casualty Group experiences above average
retention rates. Based upon an annual best practices benchmark study conducted
by the Ward Group, an independent financial services consulting company, the
Property and Casualty Group's policy retention rate of 90.9% is among the
highest of all the property and casualty companies benchmarked by the Ward
Group.

PROPERTY AND CASUALTY GROUP
12-MONTH ROLLING AVERAGE POLICY RETENTION RATES BY LINE OF BUSINESS

Private passenger
automobile..... 92.50% 92.35% 92.26% 92.24% 92.22% 92.25% 92.24%
Commercial
automobile..... 90.79 91.12 90.86 90.53 90.16 90.35 90.29
Homeowners....... 90.54 90.35 90.24 90.24 90.38 90.63 90.66
Commercial multi-
peril.......... 88.69 88.95 88.77 88.03 88.18 88.36 88.58
Workers'
compensation... 89.51 89.46 89.34 88.43 88.53 88.76 89.06
All other lines.. 88.15 88.30 88.11 88.15 88.16 88.18 88.03
Total......... 91.12 91.02 90.91 90.85 90.89 91.01 91.03

Careful selection of independent agencies to represent the Property and
Casualty Group is a key strategy of our Company. The Property and Casualty
Group strives to be the primary writing company with the agents. In order to
enhance agency relationships and the likelihood of receiving the most desirable
underwriting opportunities, we have ongoing, direct communications with the
agency force. We believe the independent agency force has been loyal and that
the Property and Casualty Group is the preferred carrier for most of these
independent agencies. Average agency annual written premium volume is $1.7
million for all of these agencies. Agents have access to a number of
Company-sponsored venues designed to promote sharing of ideas, concerns and
suggestions with the senior management of Erie Insurance Group with the goal of
improving communications and service. These efforts have resulted in
outstanding agency penetration and the ability to sustain long-term agency
partnerships.

Agents receive commissions for premiums written, as well as promotional
incentives and contingency awards. Agent contingency awards are based upon a
three-year average of the underwriting profitability of the direct business
written and serviced within the Erie Insurance Group by the independent agent.
Commission costs rose 14.3% to $323.1 million in 2001 from $282.7 million in
2000 and 7.5% in 2000 from $263.1 million in 1999. Commission costs grew at a
slower rate relative to the growth in direct premiums written in 2001 as a
result of lower accruals for agent contingency awards compared to 2000. The
provision for agent contingency awards totaled $15.7 million, $18.3 million and
$19.9 million in 2001, 2000 and 1999, respectively. Commission costs, excluding
agent contingency awards, increased 16.2% in 2001, in line with the increase in
direct written premiums.

PRODUCTS

The Property and Casualty Group underwrites a broad range of insurance for
risks. In 2001, personal lines comprised 72.6% of direct and affiliated assumed
premium revenue while commercial lines constituted the remaining 27.4%. The
core products in the personal lines are private passenger automobile (75.2%)
and homeowners (22.0%) while the core commercial lines consist principally of
multi-peril (37.0%), automobile (30.3%) and workers' compensation (29.2%).

The insurance policies of the Property and Casualty Group contain many
features not offered as standard coverages by many of our competitors. These
"extras" are a major selling feature for agents. Some examples of these
features include:

. full replacement cost coverage with no loss cap on the percentage of
insured value in the Property and Casualty Group's full-cost replacement
homeowners policy;

. waiver of collision deductible in an automobile claim involving two
insureds of the Property and Casualty Group;

. coverage for transportation expense that begins immediately after a
collision;

. coverage for locksmith services for keys locked in cars;

. coverage for cost of replacing a deployed airbag;

. coverage for losses due to theft, loss or other unauthorized use of a
credit card; and

. coverage for theft, misplacement or loss of jewelry.

The growth rate of policies in force and policy retention trends impact the
Company's management and property and casualty operating segments.

PROPERTY AND CASUALTY GROUP
POLICIES IN FORCE AND 12-MONTH ROLLING AVERAGE POLICY RETENTION RATE BY LINE OF
BUSINESS

At At
September 30, December 31,
------------ ---------------------------------
2002 2001 2001 2000 1999 1998 1997
(amounts in thousands, except percentages) ----- ----- ----- ----- ----- ----- -----

Policies in Force:
Personal lines........................... 2,985 2,671 2,724 2,517 2,368 2,255 2,174
Commercial lines......................... 426 377 386 349 322 304 291
Total policies in force............... 3,411 3,048 3,110 2,866 2,690 2,559 2,465

Policy Retention Percentages:
Personal policy retention percentages.... 91.5% 91.4% 91.3% 91.5% 91.0% 90.4% 90.9%
Commercial policy retention percentages.. 88.1 87.5 87.7 87.3 86.5 85.6 85.6
Total policy retention percentages.... 91.1 90.9 90.9 91.0 90.5 89.4 89.7

UNDERWRITING

Our Commercial Underwriting Division (Commercial Property and Commercial
Automobile Underwriting and Risk Management) and our Personal Lines
Underwriting Division (Personal Property and Personal Automobile Underwriting)
perform underwriting and processing functions, provide advice, instruction and
guidance to the agency force regarding underwriting philosophy and assist other
divisions in developing quality products at competitive prices to promote
growth and profitability.

We strive toward underwriting profitability by: (1) assessing and selecting
quality standard and preferred risks; (2) by adhering to underwriting and
re-underwriting guidelines; (3) by providing loss control services with "in
house" loss control specialists and (4) by offering risk management services
such as hazard identification loss control program development, risk management
training programs and the establishment of safety committees. The Company
evaluates and selects those policies believed to be good quality risks. The
Company "reunderwrites" by reviewing existing policies and accounts to
determine which risks continue to meet underwriting qualifications and taking
appropriate action regarding these policies or accounts. Loss control services
are offered to policyholders via the Company's dedicated team of loss control
personnel. Risk management services offered to policyholders include hazard
identification and analysis, loss control program development, and
establishment of safety committees and risk management training programs.

To assure maintenance of acceptable underwriting results, we conduct an
annual review of agencies to identify those that do not meet our underwriting
performance expectations. Agencies failing to meet our profitability criteria
are subject to a detailed review. This review focuses on the factors affecting
the property and casualty underwriting results for the agency. The review
process includes an evaluation of the underwriting and reunderwriting practices
of the agency, completeness and accuracy of applications submitted, staffing
levels and adequacy of training of agency staff and adherence by the agency to
the business practice, underwriting and service standards of Erie Insurance
Group. The review team and the agency jointly develop an action plan to improve
agency processes and procedures designed to improve the underwriting
profitability of the agency. We then monitor the agency's progress and
underwriting performance and may take additional measures, including reducing
commissions, and/or terminating the agency if underwriting profitability
continues to be unacceptable.

CLAIMS

The Property and Casualty Group realizes that an insurance policy is also a
promise of service. The Property and Casualty Group uses its own trained
adjusters wherever possible, to assure that claims are settled quickly and
fairly by personnel who know the coverages in the Property and Casualty Group's
policies and understand the Erie Insurance Group's service philosophy.

The Property and Casualty Group claims services include:

. Prompt response standards, generally the same day, for contact with an
insured after a loss is reported;

. A toll-free number for claims call center where Erie Insurance Group
trained personnel handle reporting of losses after normal business hours
and on weekends and holidays;

. An automobile glass repair and replacement program for automobile claims
designed to simplify and speed the claims process and permit the insured
to decide who should do the repair or replacement; and

. A direct repair program for automobile claims that allows insureds to
select their own body shop and use one of numerous participating body
shops that bill the Property and Casualty Group directly for the repair
costs less any deductible.

These and other claims services the Property and Casualty Group offers have
resulted in a reputation for fast, fair and courteous claim services and the
service awards received from independent consumer organizations.

TECHNOLOGY

In 2001, Erie Insurance Group began a comprehensive program of eCommerce
initiatives in support of the Erie Insurance Group's agency force and back
office policy underwriting, issuance and administration. The eCommerce program
is intended to improve service and efficiency, as well as result in increased
sales. The first major component of the eCommerce program (network and desktop
hardware deployment) was completed during the second quarter of 2002. Also, the
Erie Insurance Group completed the release of the new web interface to a
limited number of agents and employees in July 2002. In August 2002, the
eCommerce program took advantage of a significant business opportunity to work
with a well-known provider of information technology services and solutions to
develop the Erie Insurance Group's eCommerce system called ERIEConnection/SM/.
The Erie Insurance Group is now working with that service provider, who is the
chief integrator and manager of the eCommerce program and provides software
applications that meet the Company's needs. Management of Erie Insurance Group
believes this approach will allow the eCommerce program to meet its established
budget goals. The Company estimates its share of eCommerce costs in 2003 will
amount to approximately $.09 to $.12 per share after income taxes.

FINANCIAL RATINGS

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

Each member of the Property and Casualty Group currently has an A++
("superior") rating from A.M. Best. A++ is the highest rating that A.M. Best
gives to insurance companies, and represents a

superior ability to meet ongoing obligations to policyholders. Each member of
the Property and Casualty Group also has a rating of AA\\pi\\ (" very strong")
from Standard & Poor's. A rating of AA means that the insurer has very strong
financial security characteristics, differing only slightly from those with the
highest rating, AAA. The subscript "pi" means the rating was based on publicly
available information of the Exchange. Standard & Poor's has recently advised
the Company that these ratings are being reviewed and may be downgraded. The
Exchange's rating from Weiss Ratings, Inc. was downgraded from A ("excellent,"
the highest Weiss rating) to B- (lower end of the "good" rating) in July 2002,
while Erie Insurance Company's rating was downgraded from B+ (higher end of
"good" rating) to B ("good"). At that time, our other insurance subsidiaries
maintained their B ratings from Weiss Ratings, Inc. A Weiss rating of B means
that the rated company has the financial strength to deal with a variety of
adverse economic conditions, but should be reassessed in the event of a severe
economic downturn.

INVESTMENTS

Our investment strategy takes a long-term perspective emphasizing
investment quality, diversification and investment returns providing liquidity
for our short and long-term commitments. Investments are managed on a total
return approach that focuses on both current income and capital appreciation.
At September 30, 2002, our investment portfolio increased to $923 million,
representing 42.0% of total assets. For the nine months ended September 30,
2002, net investment income was $40.7 million. Net investment income totaled
$49.9 million in 2001, compared to $48.4 million in 2000, and $43.3 million in
1999.

ERIE INDEMNITY COMPANY
TOTAL INVESTMENTS AT MARKET VALUE

At September 30, At December 31,
----------------- --------------------------------------------
2002 2001 2001 2000 1999 1998 1997
(amounts in thousands) -------- -------- -------- -------- -------- -------- --------
(unaudited)

Investments:
Fixed maturities.... $646,172 $545,700 $559,873 $531,546 $485,522 $441,353 $349,973
Equity securities
Preferred stock.... 146,955 132,682 130,007 109,081 99,584 112,574 84,963
Common stock....... 34,964 76,984 63,791 95,365 115,799 90,230 80,170
Limited
partnerships...... 88,952 77,546 81,596 68,242 39,116 17,494 7,932
Real estate
mortgage loans.... 5,601 5,731 5,700 6,581 8,230 8,287 8,392
-------- -------- -------- -------- -------- -------- --------
Total
Investments...... $922,644 $838,643 $840,967 $810,815 $748,251 $669,938 $531,430
======== ======== ======== ======== ======== ======== ========

ERIE INDEMNITY COMPANY
TOTAL INVESTMENTS AT COST

Investments:
Fixed maturities.... $620,274 $524,929 $543,423 $524,172 $489,394 $421,102 $333,136
Equity securities
Preferred stock.... 143,732 131,875 127,725 110,555 106,625 109,355 79,361
Common stock....... 22,040 73,793 32,002 74,413 64,870 60,622 64,762
Limited
partnerships...... 93,197 76,725 79,668 60,661 37,402 17,494 7,932
Real estate
mortgage loans.... 5,601 5,731 5,700 6,581 8,230 8,287 8,392
-------- -------- -------- -------- -------- -------- --------
Total
Investments...... $884,844 $813,053 $788,518 $776,382 $706,521 $616,860 $493,583
======== ======== ======== ======== ======== ======== ========

Management considers all fixed maturities and marketable equity securities
available-for-sale. These securities are stated at fair value, with the
unrealized gains and losses, net of deferred tax, reported as a separate
component of accumulated other comprehensive income in shareholders' equity.
When a decline in the value of investments is considered to be other than
temporary by management, the investments are written down in the Consolidated
Statements of Operations to their realizable value.

For common equity securities (including equity limited partnerships) where
the decline in market value is more than 20% below cost for a period exceeding
six months, there is a presumption of impairment. Management considers market
conditions, industry characteristics and the fundamental operating results of
the issuer before deciding to sell the investment at a loss or to recognize an
impairment charge to operations. For common equity securities that have
declined more than 20% below cost for a period exceeding twelve months, the
position is either sold or recognized as impaired and a charge to operations is
recognized as realized losses through the Consolidated Statements of
Operations. If a security's market value is at least 80% of cost, there is a
presumption that the security's decline is temporary regardless if the decline
in value is material either individually or in the aggregate unless there are
conditions specifically affecting the underlying issuer or its industry that
would lead us to believe the security's decline is other than temporary.

Prior to the fourth quarter of 2001, the Company's impairment policy for
common equity securities, which was based on existing GAAP guidance, was based
primarily on judgments by management as to whether declines in value were other
than temporary. The policy considered such factors as the underlying financial
condition of the issuer, the short- and long-range prospects of the issuer and
other risk factors such as corporate actions and events affecting the issuer.
If the Company had used the criteria established for common equity securities
in the amended impairment policy it adopted in the fourth quarter of 2001 in
earlier periods, approximately $1.8 million (pre-tax) in realized capital
losses recognized in the fourth quarter of 2001 would have been recognized over
various earlier periods.

For fixed maturity investments, our management analyzes all positions
individually whose market value have declined below cost for a period exceeding
six months. Management considers market conditions, industry characteristics
and the fundamental operating results of the issuer to determine if

the decline is due to changes in interest rates, changes relating to a decline
in credit quality, or other issues specifically affecting the investment.
Positions that have incurred market price decline of over 20% for a period
greater than six months where the creditworthiness of the issuer indicates a
decline that is other than temporary are either sold or recognized as impaired
and reflected as a charge to the Company's operations.

If the Company's policy for determining the recognition of impaired
positions were different, the Company's Consolidated Statements of Financial
Position and results of operations could be significantly impacted. Management
believes its investment valuation philosophy and accounting practices result in
appropriate and timely measurement of value and recognition of impairment.

Our investments include a 21.6% common stock interest in Erie Family Life
Insurance Company of $47.3 million at September 30, 2002, which is accounted
for under the equity method of accounting. Dividends paid to us for the nine
months ended September 30, 2002 and 2001 totaled over $1.2 million and $1.1
million, respectively. Related to this investment, we are also due $15 million
in principal in the form of a surplus note. The note bears an annual interest
rate of 6.45% and all payments of interest and principal on the note may be
repaid only out of unassigned surplus of Erie Family Life Insurance Company and
are subject to prior approval by the Pennsylvania Insurance Commissioner.
Interest of the surplus note is scheduled to be paid semi-annually. The note
will be payable on demand on or after December 31, 2005.

FIXED INCOME SECURITIES

At September 30, 2002, the carrying value of fixed income securities
accounted for 70.0% of total invested assets. The Company's investment strategy
achieves a balanced maturity schedule in order to moderate the effect on
investment income in the event of interest rate declines in a year in which a
large amount of securities are scheduled to be redeemed or mature.

ERIE INDEMNITY COMPANY
FIXED MATURITY SECURITIES AT MARKET VALUE

Fixed Maturities:
U.S. treasuries and
government
agencies........... $ 8,926 $ 11,844 $ 11,713 $ 11,612 $ 11,051 $ 13,707 $ 13,200
State and political
subdivisions....... 55,442 40,801 44,121 51,959 53,118 51,600 44,771
Special revenue...... 101,574 114,393 113,418 114,566 122,096 139,235 123,901
Public utilities..... 43,356 28,340 26,270 23,564 20,318 13,416 7,331
U.S. industrial and
miscellaneous...... 376,382 303,143 319,308 266,061 227,176 203,695 156,582
Foreign.............. 46,556 28,579 27,476 29,914 20,743 7,047 4,188
-------- -------- -------- -------- -------- -------- --------
Total bonds....... $632,236 $527,100 $542,306 $497,676 $454,502 $428,700 $349,973
Redeemable
preferred stock.... 13,936 18,600 17,567 33,870 31,020 12,653 --
-------- -------- -------- -------- -------- -------- --------
Total fixed
maturities...... $646,172 $545,700 $559,873 $531,546 $485,522 $441,353 $349,973
======== ======== ======== ======== ======== ======== ========

ERIE INDEMNITY COMPANY
FIXED MATURITY SECURITIES AT AMORTIZED COST

Fixed Maturities:
U.S. treasuries and
government
agencies........... $ 8,281 $ 11,211 $ 11,211 $ 11,216 $ 11,029 $ 13,018 $ 12,771
State and political
subdivisions....... 52,071 38,511 42,392 50,337 52,064 48,307 41,931
Special revenue...... 96,068 110,046 110,267 110,855 120,170 132,025 116,052
Public utilities..... 42,820 27,286 25,150 23,221 20,909 13,116 7,171
U.S. industrial and
miscellaneous...... 360,806 292,729 311,757 267,231 232,458 195,296 150,666
Foreign.............. 47,177 27,584 26,634 30,082 21,593 7,149 4,545
-------- -------- -------- -------- -------- -------- --------
Total bonds....... $607,223 $507,367 $527,411 $492,942 $458,223 $408,911 $333,136
Redeemable
preferred stock.... 13,051 17,562 16,012 31,230 31,171 12,191 --
-------- -------- -------- -------- -------- -------- --------
Total fixed
maturities...... $620,274 $524,929 $543,423 $524,172 $489,394 $421,102 $333,136
======== ======== ======== ======== ======== ======== ========

At September 30, 2002, the Company's fixed maturity investments consist of
97.6% of high-quality, marketable bonds and redeemable preferred stock, all of
which were rated at investment-grade levels (above Ba/BB). Included in this
investment-grade category are $244.3 million or 37.8% of the highest quality
bonds and redeemable preferred stock rated Aaa/AAA or Aa/AA or bonds issued by
the United States government. Generally, the fixed maturities in the Company's
portfolio are rated by external agencies. Management classifies all fixed
maturities as available-for-sale securities, allowing the Company to meet its
liquidity needs and provide greater flexibility for its investment managers to
appropriately respond to changes in market conditions or strategic direction.

ERIE INDEMNITY COMPANY
FIXED MATURITY SECURITIES BY CREDIT QUALITY

At September 30, 2002
(amounts in thousands, except percentages) ---------------------------------------
Estimated Fair
Moody's Equivalent Description Amortized Cost Market Value % of Carry
------------------------------ -------------- -------------- ----------

Aaa/Aa/A...................... $381,508 $408,320 63.2%
Baa........................... 223,267 222,525 34.4
Ba/BB......................... 3,929 3,837 0.6
B............................. 5,750 6,775 1.1
In or near default............ 5,820 4,715 0.7
-------- -------- -----
Total...................... $620,274 $646,172 100.0%
======== ======== =====

ERIE INDEMNITY COMPANY
FIXED MATURITY SECURITIES TERM TO MATURITY

At September 30, 2002
(amounts in thousands, except percentages) ---------------------------------------
Estimated Fair
Term to Maturity Amortized Cost Market Value % of Carry
---------------- -------------- -------------- ----------

Due in less than one year......... $ 30,328 $ 30,608 4.7%
Due in 1-5 years.................. 174,835 182,964 28.3
Due in 5-10 years................. 241,914 251,941 39.0
Due after 10 years................ 173,197 180,659 28.0
-------- -------- -----
Total.......................... $620,274 $646,172 100.0%
======== ======== =====

EQUITY SECURITIES

Equity securities (common stock and non-redeemable preferred stock) are
carried on the Consolidated Statements of Financial Position at market value.
The Company's non-redeemable preferred stock portfolio provides a source of
highly predictable current income that is competitive with investment-grade
bonds. Non-redeemable preferred stocks generally provide for fixed rates of
return that, while not guaranteed, resemble fixed income securities and are
paid before common stock dividends. Common stock provides capital appreciation
potential within the portfolio. Common stock investments inherently provide no
assurance of producing income because dividends are not guaranteed.

ERIE INDEMNITY COMPANY
EQUITY SECURITIES AT MARKET VALUE

Common stock:
U.S. industrials and
miscellaneous...... $ 32,168 $ 68,846 $ 59,709 $ 86,605 $103,132 $ 83,563 $ 71,191
U.S. banks, trusts
and insurance...... 2,146 4,445 4,082 3,798 7,156 3,488 6,517
Foreign.............. 650 3,693 -- 4,962 5,511 3,179 2,462

Nonredeemable
preferred stock:
U.S. industrial and
miscellaneous...... 90,032 90,792 91,647 61,134 56,662 60,463 27,914
U.S. banks, trusts
and insurance...... 23,181 16,396 15,565 22,125 36,694 45,338 50,248
Foreign.............. 21,829 25,494 20,416 25,822 6,228 6,773 4,155
Public utilities..... 11,913 -- 2,379 -- -- -- 2,646
-------- -------- -------- -------- -------- -------- --------
Total............. $181,919 $209,666 $193,798 $204,446 $215,383 $202,804 $165,133
======== ======== ======== ======== ======== ======== ========

ERIE INDEMNITY COMPANY
EQUITY SECURITIES AT COST

Common stock:
U.S. industrials and
miscellaneous...... $ 19,777 $ 65,206 $ 28,718 $ 63,662 $ 56,035 $ 53,914 $ 58,415
U.S. banks, trusts
and insurance...... 1,846 3,651 3,284 3,651 3,887 3,522 3,138
Foreign.............. 417 4,936 -- 7,100 4,948 3,186 3,209

Nonredeemable
preferred stock:
U.S. industrial and
miscellaneous...... 89,166 91,593 91,185 62,266 61,109 59,858 25,909
U.S. banks, trusts
and insurance...... 22,189 15,684 14,685 22,094 38,708 42,807 46,901
Foreign.............. 20,475 24,598 19,485 26,195 6,808 6,690 3,932
Public utilities..... 11,902 -- 2,370 -- -- -- 2,619
-------- -------- -------- -------- -------- -------- --------
Total............. $165,772 $205,668 $159,727 $184,968 $171,495 $169,977 $144,123
======== ======== ======== ======== ======== ======== ========

LIMITED PARTNERSHIPS

The Company's limited partnership investments include U.S. and foreign
private equity, real estate and fixed income investments. During the first nine
months of 2002, limited partnership investments increased $7.4 million to $89.0
million. Fixed income and real estate limited partnerships, which comprise
42.1% of the total limited partnerships, produce a predictable earnings stream
while private equity partnerships, which comprise 57.9% of the total limited
partnerships, tend to provide a less predictable earnings stream but the
potential for greater long-term returns.

At September 30, 2002, the Company had contractual commitments to invest up
to $116 million related to these limited partnership investments. The Company
is required to fund these commitments as required by the partnership agreements
through September 2007. These represented commitments by the Company to these
limited partnerships to fund investments of up to $80 million in private equity
securities, $20 million in real estate activities and $16 million in fixed
income securities. The Company expects to have sufficient cash flows from
operations to meet these limited partnership commitments.

DERIVATIVES

During 2001, we entered into several foreign currency forward contracts
that are by definition derivatives. The purpose of these contracts is to
partially hedge future capital calls related to our limited partnership
commitments. However, under accounting rules, these contracts are not
considered hedges. The forward contracts have no cash requirements at the
inception of the arrangement. At September 30, 2002, there were no contracts
outstanding. For the quarter ended September 30, 2002, changes in value
totaling $85,000 were recognized currently in earnings as realized gains in the
Consolidated Statements of Operations. Gains on these contracts totaled
$214,000 for the nine months ended September 30, 2002 and $50,000 in 2001.

SECURITIES LENDING PROGRAM

The Company participates in a securities lending program whereby certain
securities from its portfolio are loaned to other institutions for short
periods of time through a lending agent. A fee is paid to us by the borrower.
Collateral, comprised of cash and government securities, is maintained by the
lending agent. The Company has an indemnification agreement with the lending
agent in the event a borrower becomes insolvent or fails to return securities.
The Company had loaned securities with a market value of $37.4 million and
$38.5 million secured by collateral of $39.1 million and $39.6 million at
September 30, 2002 and 2001, respectively. The loaned securities are maintained
on the Consolidated Statements of Financial Position as a part of invested
assets. We have incurred no losses on the loan program since its inception.

RESERVES FOR OUR PROPERTY AND CASUALTY SUBSIDIARIES

Loss reserves are established to account for the estimated ultimate costs
of loss and loss adjustment expenses for claims that have been reported but not
yet settled and claims that have been incurred but not yet reported. The
estimated loss reserve for reported claims is based primarily upon a
case-by-case evaluation of the type of risk involved and knowledge of the
circumstances surrounding each claim and the insurance policy provisions
relating to the type of loss. Estimates of reserves for unreported claims and
loss settlement expenses are determined on the basis of historical information
by line of business as adjusted to current conditions. Inflation is implicitly
provided for in the reserving function through analysis of historical loss
development patterns that reflect the impact of inflation as well as other
factors such as changes in claims handling practices, changes in laws and
changes in allowable expenses among other things.

The Property and Casualty Group establishes loss and loss expense reserves
for the Property and Casualty Group and for all states as a whole for various
lines of business groupings. Bulk and incurred but not reported reserves are
allocated to each company, state, and line of business. The Property and
Casualty Group reviews the insurance laws of all states in which it operates,
not just domiciliary states, to ensure that carried loss and loss adjustment
expense reserves meet requirements. The statutory annual statements filed by
the companies comprising the Property and Casualty Group contain actuarial
opinions as to reserve adequacy as required by the states in which the Property
and Casualty Group does business.

The loss and loss adjustment expense reserves are computed in accordance
with accepted loss reserving standards and principles for the purpose of making
a reasonable provision for all unpaid loss and loss expense obligations under
the terms of the Property and Casualty Group's policies and agreements.
However, the process of estimating the liability for unpaid losses and loss
adjustment expenses is inherently judgmental and can be influenced by factors
subject to variation. Possible sources of variation include claim frequency and
severity, changing rates of inflation as well as changes in other economic
conditions, judicial trends and legislative changes. It is unlikely that future
losses and loss adjustment expenses will develop exactly as projected. The
Property and Casualty Group continually refines reserves as experience develops
and new information becomes known. The Property and Casualty Group reflects
adjustments to reserves in the results of operations in the periods in which
the estimates are changed. With the exception of reserves relating to certain
workers' compensation cases, which have been discounted at 2.5% since 1998,
loss reserves are not discounted.

The Property and Casualty Group continuously reevaluates reserve estimates
and retrospectively reviews past reserve estimates. The Property and Casualty
Group modifies our selections when we observe current development diverging
from our selected development pattern. The Property and Casualty Group also
performs various reasonability checks. Historical variation between actual and

estimated development has not been material in relation to policyholder surplus
as of the year ended December 31, 2001.

The following table sets forth the development of our property and casualty
subsidiaries' reserves for unpaid losses and loss adjustment expense from 1992
through 2001, the period that our property and casualty subsidiaries have
assumed underwriting activity under the intercompany pool.

PROPERTY AND CASUALTY SUBSIDIARIES OF ERIE INDEMNITY COMPANY
RESERVES FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Year Ended December 31,
----------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995 1994 1993 1992
(amounts in millions) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------

Net liability for unpaid losses
and loss adjustment
expense ("LAE")................. $118.7 $102.3 $ 95.0 $ 91.4 $ 89.5 $ 84.9 $ 79.0 $ 68.9 $ 65.4 $ 61.0
------
Net liability re-estimated as of:
One year later................. 110.4 103.0 91.3 88.9 87.2 78.4 65.7 61.8 59.0
------
Two years later................ 103.9 93.2 85.3 86.6 79.4 65.3 58.5 55.2
------
Three years later.............. 94.1 87.6 83.4 80.2 68.6 60.1 53.4
------
Four years later............... 87.5 84.4 78.2 69.4 65.7 56.1
------
Five years later............... 84.5 78.9 68.2 67.3 60.9
------
Six years later................ 79.8 68.8 68.8 62.9
------
Seven years later.............. 69.7 68.2 64.3
------
Eight years later.............. 69.3 63.8
------
Nine years later............... 64.8
------
Cumulative (deficiency)
redundancy...................... (8.1) (8.9) (2.7) 2.0 0.4 (0.8) (0.8) (3.9) (3.8)
====== ====== ====== ====== ====== ====== ====== ====== ======
Net liability for unpaid losses
and LAE......................... $118.7 $102.3 $ 95.0 $ 91.4 $ 89.5 $ 84.9 $ 79.0 $ 68.9 $ 65.4 $ 61.0
Reinsurance recoverable on
unpaid losses................... 438.6 375.6 337.9 334.8 323.9 301.5 278.3 275.9 288.5 293.0
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Gross liability for unpaid losses
and LAE......................... $557.3 $477.9 $432.9 $426.2 $413.4 $386.4 $357.3 $344.8 $353.9 $354.0
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Gross re-estimated liability as
of:
One year later................. $500.4 $463.2 $414.3 $410.6 $394.2 $351.0 $327.3 $323.2 $408.4
------
Two years later................ 464.9 429.0 398.4 398.2 362.3 332.7 322.8 312.6
------
Three years later.............. 426.9 406.0 388.0 373.0 351.6 332.7 313.2
------
Four years later............... 402.4 391.3 367.7 364.0 358.2 325.9
------
Five years later............... 389.3 370.8 361.8 371.8 349.2
------
Six years later................ 368.6 365.0 370.3 364.1
------
Seven years later.............. 363.0 374.9 362.1
------
Eight years later.............. 373.4 367.9
------
Nine years later............... 365.4
------
Cumulative (deficiency)
redundancy...................... (22.5) (32.0) (0.7) 11.0 (2.9) (11.3) (18.2) (19.5) (11.4)
====== ====== ====== ====== ====== ====== ====== ====== ======

PROPERTY AND CASUALTY SUBSIDIARIES OF ERIE INDEMNITY COMPANY
RESERVES FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (CONTINUED)

Cumulative amount of
net liability paid through:
One year later............ $ 41.2 $ 38.9 $ 33.6 $ 31.3 $ 32.6 $ 29.3 $ 22.1 $ 24.2 $ 22.0
------
Two years later........... 59.2 52.4 48.3 48.7 44.7 36.2 34.9 34.2
------
Three years later......... 63.9 59.2 57.8 53.9 44.7 42.2 39.3
------
Four years later.......... 65.5 63.5 59.4 49.8 46.5 43.3
------
Five years later.......... 67.4 62.5 53.2 49.1 45.6
------
Six years later........... 64.8 55.0 51.3 47.1
------
Seven years later......... 56.5 52.6 48.5
------
Eight years later......... 53.7 49.4
------
Nine years later.......... 50.2
------
Cumulative amount of
gross liability paid
through:
One year later............ $174.4 $158.9 $145.4 $136.9 $141.3 $131.9 $134.0 $140.6 $130.3
------
Two years later........... 244.9 228.2 211.5 212.2 199.2 199.9 214.7 205.6
------
Three years later......... 274.9 256.8 250.0 235.7 233.4 247.2 244.7
------
Four years later.......... 280.5 271.6 256.0 253.4 264.4 262.0
------
Five years later.......... 285.9 267.7 265.0 275.3 270.9
------
Six years later........... 276.1 272.3 282.8 277.1
------
Seven years later......... 277.6 288.1 281.3
------
Eight years later......... 292.5 284.9
------
Nine years later.......... 288.7
------

Additional information with respect to the reserve activity of our property and
casualty subsidiaries may be found at Notes to Consolidated Financial
Statements--Note 2--Significant Accounting Policies beginning on page F-9.

The top line shows the estimated liability that was recorded at the end of
each of the indicated years for all current and prior year unpaid losses and
loss expenses. The upper portion of the table shows re-estimations of the
original recorded reserve as of the end of each successive year. The estimate
is increased or decreased as payments are made and more information becomes
known about the development of remaining unpaid claims. The lower portion of
the table shows the cumulative amount paid in succeeding years for losses
incurred prior to the Statement of Financial Position date. The cumulative
deficiency or redundancy represents the aggregate amount by which original
estimates of reserves as of that year-end have changed in subsequent years. An
excess in reserves means that reserves established in prior years exceeded
actual losses and loss adjustment expenses or were reevaluated at less than the
originally reserved amount. A deficiency in reserves means that the reserves
established in prior years were less than actual losses and loss adjustment
expenses or were reevaluated at more than the originally reserved amount.

The Property and Casualty Group does not discount reserves except for
workers' compensation reserves on a non-tabular basis. The workers'
compensation reserves are discounted at a risk-adjusted 2.5% interest rate as
permitted by the Insurance Department of the Commonwealth of Pennsylvania. The
discount is based upon the Property and Casualty Group's historical workers'
compensation payout pattern. Our reserve liability, as a result of this
discounting, was reduced by $2.4 million, $1.5 million, $1.4 million and $1.6
million at December 31, 2001, 2000, 1999 and 1998, respectively. Reserves were
not discounted before 1998.

The 2001 unpaid losses and loss adjustment expenses reserve of $557.3
million includes the Property and Casualty Group's share of estimated incurred
losses from the unaffiliated reinsurance business stemming from the September
11th attack on the World Trade Center. Incurred losses are the total losses
sustained by an insurer or reinsurer under its policies or contracts, whether
paid or unpaid, and include a provision for incurred but not reported losses.
The portion of World Trade Center losses recorded by our property and casualty
subsidiaries after giving effect to recoveries from the excess of loss
agreement with the Exchange was $5.8 million, or $0.06 per share, after taxes.
The Property and Casualty Group is exposed to both direct and reinsurance
losses arising from possible future terrorist actions.

Adverse development on loss reserves established for the year ended
December 31, 2000 was the result of an increase in loss costs experienced by
the Property and Casualty Group's direct business related to its automobile
liability and workers' compensation lines of business. The development for the
personal and commercial automobile liability lines of business has been above
expected due to changes in claims handling procedures, which makes the
extrapolation of future development from historical patterns very difficult.
Development has also been above expected on uninsured motorist bodily injury
and underinsured motorist bodily injury coverages due to precedents set by
unfavorable court decisions and an evolving arbitration system. The increase in
claims development costs for the workers' compensation line of business has
been above expected largely because of the reevaluation of known claims in
which the claimants suffered catastrophic injuries. Adverse development on loss
reserves established for the year ended December 31, 1999 was the result of an
increase in loss severity experienced by the Property and Casualty Group on its
direct business and additional losses on its voluntary assumed reinsurance
business related to the late December 1999 European wind storms.

Adjustments to reserves for adverse loss development from prior accident
years are recorded when known to management. Adverse loss development has been
incurred on prior accident years during the first nine months of 2002. This
adverse loss development was factored into management's decision to increase
loss and loss adjustment reserves for members of the Property and Casualty
Group by approximately $184 million in the fourth quarter of 2002.

REINSURANCE OF THE PROPERTY AND CASUALTY GROUP

After 1993 through 2002, the Property and Casualty Group did not purchase
treaty reinsurance, including catastrophe reinsurance, because management
concluded, during its periodic assessment of the Property and Casualty Group's
catastrophe exposure, that the benefits of such coverage were outweighed by the
costs of such coverage in light of the Exchange's substantial surplus and its
ratio of net premiums written to surplus. Effective January 1, 2003, the
Property and Casualty Group entered into a property catastrophe reinsurance
treaty that provides coverage of 95% of a loss up to $415 million in excess of
the Property and Casualty Group's loss retention of $115 million per
occurrence. Treaty reinsurance is an agreement between a ceding company and a
reinsurer reinsuring a specified type or category of risk defined in the
agreement. Under a typical reinsurance treaty, the ceding company is obligated
to offer and the reinsurer is obligated to accept a specified portion of all
such type or category of risk originally insured or reinsured by the ceding
company. Because the Exchange has a 94.5% participation in the Property and
Casualty Group's underwriting results and provides reinsurance for the 5.5%
participation in the underwriting results of our subsidiaries, the Exchange's
financial condition could be adversely affected by insurance losses to a
greater extent than if reinsurance coverage were maintained. If the recently
purchased property catastrophe treaty reinsurance had been in effect during
2002, there would have been no recoveries and the profitability of the Exchange
would not have been affected except by the cost of such reinsurance. Effective
January 1, 2003, the Property and Casualty Group has obtained a property risk
excess of loss reinsurance treaty on commercial property risks that covers
commercial risks that exceed our current risk retention guidelines of $5.0
million per risk.

BUSINESS VOLATILITY

The Company's management fee is earned when premiums are written as
substantially all of the services performed by the Company, including sales,
underwriting and policy issuance are completed. Historically, due to policy
renewal and sales patterns, management fees earned are greater in the second
and third quarters of the calendar year. While loss and loss adjustment
expenses are not entirely predictable, historically such costs have been
greater during the third and fourth quarters, influenced by the weather in the
geographic regions where the Property and Casualty Group operates.

The profitability of the property and casualty insurance business can be
influenced by many external factors some of which include rate competition, the
severity and frequency of claims, terrorist actions, natural disasters, state
regulation of premium rates, other competitive factors, defaults of reinsurers,
investment market conditions, general business conditions, court decisions that
define and may expand the extent of coverage and the amount of compensation due
for injuries and losses.

COMPETITION

The Property and Casualty Group is ranked by the A.M. Best Company as the
25th largest property and casualty insurance group in the United States based
upon the 2001 net premium written. Among the Property and Casualty Group's
major national competitors are State Farm Group (ranked #1), Allstate Insurance
Group (ranked #2), Zurich / Farmers Group (ranked #3), Travelers/Citigroup
Companies (ranked #6) and Nationwide Group (ranked #7). Among the regional
insurance companies, the Property and Casualty Group's major competitors are
Cincinnati Insurance Companies (ranked #28) and American Family Insurance Group
(ranked #19).

The property and casualty markets in which the Property and Casualty Group
operates are highly competitive. Property and casualty insurers generally
compete on the basis of customer service, price, brand recognition, coverages
offered, claim handling ability, financial stability and geographic coverage.
In addition, because the insurance products of the Property and Casualty Group
are marketed exclusively through independent insurance agents, these agents
have the opportunity to represent more than one company. The Property and
Casualty Group, thus, potentially faces competition within its appointed
agencies based on product, price and service relationships.

Market competition bears directly on the price charged for insurance
products and services, subject to the regulatory limitations. Growth is driven
by a company's ability to provide insurance services at a price that is
reasonable and acceptable to the customer. In addition, the marketplace is
affected by available capacity of the insurance industry. Industry surplus
expands and contracts primarily in conjunction with profit levels generated by
the industry. Growth is the product of a company's ability to retain existing
customers and to attract new customers as well as movement in the average
premium per policy charged by the Property and Casualty Group. Firming pricing
in 2001 and the first nine months of 2002 and a return to "hard market"
conditions, particularly for commercial and personal insurance, have allowed
the Property and Casualty Group to raise premium rates or maintain current
premium rates to gain competitive advantage in the insurance marketplace.

The Erie Insurance Group follows several strategies that our management
believes will result in underwriting performance that exceeds those of the
property and casualty industry in general. First, we employ an underwriting
philosophy and product mix targeted to produce a Property and Casualty
Group-wide underwriting profit, i.e., a combined ratio of less than 100% on a
long-term basis, through careful risk selection and rational pricing. The
careful selection of risks allows for lower claims frequency and loss severity,
thereby enabling insurance to be offered at favorable prices.

Second, Erie Insurance Group's management focuses on consistently providing
superior service to policyholders and agents, which is reflected in its policy
retention and new policy growth rates. Policy retention remained excellent at
91.1%, 90.9%, 91.0% and 90.5% for the twelve months ended September 30, 2002
and the years ended December 31, 2001, 2000 and 1999, respectively, for all
lines of business combined. Continued improvement in new policy growth drove
the gains experienced in the Property and Casualty Group's direct written
premium. Policies in force increased at an annualized rate of 11.9% to 3.4
million at September 30, 2002, 8.5% to 3.1 million in 2001 from 2.9 million in
2000 and 6.5% in 2000 from 2.7 million in 1999.

Third, Erie Insurance Group's business model is designed to provide the
advantages of localized marketing and claims servicing with the economies of
scale from centralized accounting, administrative, underwriting, investment,
information management and other support services.

Finally, the Company carefully selects the independent agencies that
represent the Property and Casualty Group and the Property and Casualty Group
seeks to be the lead insurer with agents in order to enhance the agency
relationship and the likelihood of receiving the most desirable underwriting
opportunities from agents. The Company has ongoing, direct communications with
the agency force. Agents have access to a number of Company-sponsored venues
designed to promote sharing of ideas, concerns and suggestions with the senior
management of the Property and Casualty Group with the goal of improving
communications and service. These efforts have resulted in outstanding agency
penetration and the ability to sustain long-term agency partnerships.

GOVERNMENT REGULATION

The Property and Casualty Group are subject to supervision and regulation
in the states in which they transact business. The primary purpose of such
supervision and regulation is the protection of policyholders. The extent of
such regulation varies, but generally derives from state statutes that delegate
regulatory, supervisory and administrative authority to state insurance
departments. Accordingly, the authority of the state insurance departments
includes the establishment of standards of solvency that must be met and
maintained by insurers, the licensing to do business of insurers and agents,
the nature of the limitations on investments, the approval of premium rates for
property and casualty insurance, the provisions that insurers must make for
current losses and future liabilities, the deposit of securities for the
benefit of policyholders, the approval of policy forms, notice requirements for
the cancellation of policies and the approval of certain changes in control. In
addition, many states have enacted variations of competitive rate-making laws
that allow insurers to set certain premium rates for certain classes of
insurance without having to obtain the prior approval of the state insurance
department. State insurance departments also conduct periodic examinations of
the affairs of insurance companies and require the filing of annual and other
reports relating to the financial condition of insurance companies.

The Property and Casualty Group may be required, under the solvency or
guaranty laws of the various states in which they are licensed, to pay
assessments to fund policyholder losses or liabilities of insolvent insurance
companies. Depending on state law, insurers can be assessed an amount that is
generally equal to between 1% and 2% of premiums written for the relevant lines
of insurance in that state each year to pay the claims of an insolvent insurer.
Certain states permit these assessments, or a portion thereof, to be recorded
as an offset to future premium taxes. The members of the Property and Casualty
Group has made accruals for their portion of assessments related to such
insolvencies to the extent they can be estimated, based upon the most current
information furnished by the guaranty associations.

The Property and Casualty Group are also required to participate in various
involuntary insurance programs for automobile insurance, as well as other
property and casualty lines, in states in which such companies operate. These
involuntary programs provide various insurance coverages to individuals or
other entities that otherwise are unable to purchase such coverage in the
voluntary market. These programs include joint underwriting associations,
assigned risk plans, fair access to insurance requirements ("FAIR") plans,
reinsurance facilities and windstorm plans. Legislation establishing these
programs generally provides for participation in proportion to voluntary
premium writings of related lines of business in that state. Generally, state
law requires participation in such programs as a condition to doing business in
that state. The loss ratio on insurance written under involuntary programs has
traditionally been greater than the loss ratio on insurance in the voluntary
market; however, the impact of these involuntary programs on the Property and
Casualty Group has been immaterial.

Most states have enacted legislation that regulates insurance holding
company systems. Each insurance company in the holding company system is
required to register with the insurance supervisory authority of its state of
domicile and furnish information regarding the operations of companies within
the holding company system that may materially affect the operations,
management or financial condition of the insurers within the system. Pursuant
to these laws, the respective insurance departments may examine us and the
Property and Casualty Group at any time, require disclosure of material
transactions with the insurers and us as an insurance holding company and
require prior approval of certain transactions between us and the Property and
Casualty Group.

All transactions within the holding company system affecting the insurers
we manage are filed with the applicable insurance departments and must be fair
and reasonable. Approval of the applicable insurance commissioner is required
prior to the consummation of transactions affecting the control of an insurer.
In some states, the acquisition of 10% or more of the outstanding common stock
of an insurer or its holding company is presumed to be a change in control.

As a public company, we are subject to the corporate governance standards
set forth in the recently enacted Sarbanes-Oxley Act of 2002 and other recent
changes to the federal securities laws, as well as any rules or regulations
that may be promulgated by the Securities and Exchange Commission or the Nasdaq
Stock Market(SM). Compliance with these standards, rules and regulations, as
well as with accelerated filing requirements that have recently been enacted,
impose additional administrative costs and burdens on us.

FINANCIAL REGULATION

Our property and casualty insurance subsidiaries are required to file
financial statements prepared in accordance with SAP. The adjustments necessary
to reconcile the net income and shareholders' equity of our property and
casualty insurance subsidiaries' prepared in accordance with SAP to net income
and shareholders' equity prepared in accordance with GAAP are as follows:

ERIE INDEMNITY COMPANY SUBSIDIARIES
GAAP RECONCILIATION OF NET INCOME

Nine Months Ended
---------------- -----------------------------------------
2002 2001 2001 2000 1999 1998 1997
(amounts in thousands) ------- ------- ------- ------ ------ ------- -------
(unaudited)

SAP net income (loss).......... $(7,306) $(2,225) $(4,929) $5,091 $9,546 $14,663 $ 8,446
Adjustments:
Deferred policy acquisition
costs..................... 4,617 3,431 3,816 1,798 542 580 742
Deferred income taxes....... 1,734 17 1,392 32 226 (1,855) 1,409
Federal alternative minimum
tax credit recoverable.... 0 0 0 188 0 795 (1,815)
Salvage and subrogation..... 0 0 312 221 158 12 94
Incurred premium
adjustment................ (3,251) (1,931) (1,816) (798) (542) (580) (742)
Other....................... (114) 130 83 10 (59) (3) (78)
------- ------- ------- ------ ------ ------- -------
GAAP net income (loss)......... $(4,320) $ (578) $(1,142) $6,542 $9,871 $13,612 $ 8,056
======= ======= ======= ====== ====== ======= =======

ERIE INDEMNITY COMPANY SUBSIDIARIES
GAAP RECONCILIATION OF SHAREHOLDERS' EQUITY

At September 30, At December 31,
------------------ ------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
(amounts in thousands) -------- -------- -------- -------- -------- -------- --------
(unaudited)

SAP shareholders' equity....... $ 85,543 $ 95,018 $ 92,128 $ 89,637 $ 81,709 $ 74,348 $ 60,628
Adjustments:...................
Deferred policy acquisition
costs..................... 21,635 16,633 17,018 13,202 11,405 10,863 10,284
Difference between GAAP
and SAP deferred
income taxes.............. (1,190) (2,024) (354) 3,569 3,350 4,143 5,998
Federal alternative
minimum tax credit
recoverable............... 0 0 0 0 0 (1,020) (1,815)
Salvage and
subrogation............... 3,661 3,349 3,661 3,349 3,128 2,970 2,957
Statutory reserves.......... 0 0 0 865 2,656 2,619 1,823
Incurred premium
adjustment................ (17,269) (14,133) (14,018) (12,202) (11,405) (10,863) (10,284)
Unrealized gains net of
deferred taxes............ 9,557 6,666 4,722 2,331 38 7,653 6,697
Other....................... 230 159 223 7 (3) 0 8
-------- -------- -------- -------- -------- -------- --------
GAAP shareholders' equity...... $102,167 $105,668 $103,380 $100,758 $ 90,878 $ 90,713 $ 76,296
======== ======== ======== ======== ======== ======== ========

Effective January 1, 2001, the NAIC adopted the Codification of Statutory
Accounting Principles (Codification) as the NAIC-supported basis of accounting.
Codification resulted in changes to the SAP-based financial statements of our
property and casualty insurance subsidiaries, the most significant of which was
the recording of statutory deferred taxes for certain of the property and
casualty insurance subsidiaries. The total cumulative adjustment increased the
statutory surplus of our property and casualty insurance subsidiaries by $4.4
million as of January 1, 2001.

The NAIC has adopted risk-based capital ("RBC") standards that require
insurance companies to calculate and report statutory capital and surplus needs
based on a formula measuring underwriting, investment and other business risks
inherent in an individual company's operations. These RBC standards have not
affected the operation of our property and casualty insurance subsidiaries and
affiliates because each of them has statutory capital and surplus in excess of
RBC requirements.

ERIE INSURANCE EXCHANGE

GENERAL

Erie Insurance Exchange was organized in Pennsylvania in 1925 by H.O. Hirt
and Oliver G. Crawford as a reciprocal insurance exchange. A reciprocal
insurance exchange is an unincorporated association that consists of
individuals, corporations or entities who, as subscribers, exchange contracts
of insurance (policies) and share insurance risks among themselves, and whose
affairs are managed by an attorney-in-fact appointed at the time of application
for insurance. The subscribers pay premiums for insurance coverage that are
intended to be sufficient to cover all of the costs of operating the reciprocal
insurance exchange, including the payments of losses covered by the insurance
policies issued by the reciprocal insurance exchange and the payment of the
management fees of the attorney-in-fact, and generate a profit that is retained
by the reciprocal insurance exchange as surplus. The purpose of the surplus is
to increase the financial strength of the reciprocal insurance exchange so that
it has greater capacity to pay the insurance losses incurred by its subscribers.

The subscriber's agreement between each policyholder and the Exchange,
which is executed by each applicant when applying for insurance coverage from
the Exchange, permits us to retain up to 25% of the direct written premiums of
the Exchange in addition to the direct written premiums of the other members of
the Property and Casualty Group, all of which are assumed by the Exchange under
a pooling agreement. The management fee rate is generally set by our board of
directors each December for the following year. In consideration for this
payment, the Company performs certain services for the Exchange relating to the
sales, underwriting and issuance of policies on behalf of the Exchange. Each
subscriber's agreement provides that the remainder of the premium must be used
by the Exchange for losses, loss adjustment expenses, investment expenses,
damages, legal expenses, court costs, taxes, assessments, licenses, fees, any
other governmental fines and charges, establishment of reserves and surplus and
reinsurance and may be used for dividends and other purposes to the advantage
of the policyholders of the Exchange. The provisions in the subscriber's
agreements executed by the policyholders regarding the Company's appointment as
attorney-in-fact are the sole agreements governing the services performed by
the Company for the Exchange. There is no provision for termination of the
Company's appointment as attorney-in-fact and it is not affected by an
insured's disability or incapacity. Under the insurance holding company statute
in effect in Pennsylvania, all transactions between members of an insurance
holding company system, including the attorney-in-fact portions of the
subscriber's agreement, are subject to various filing and approval
requirements. The Exchange has not received any notices of disapproval from the
Pennsylvania Insurance Department.

Flagship City Insurance Company is a Pennsylvania-based, wholly owned
subsidiary of Erie Insurance Exchange that writes Pennsylvania assigned risk
automobile and workers' compensation business.

The principal entity in the Erie Insurance Group, the Exchange, wrote $2.0
billion in direct premiums in 2001 and is the 26th largest writer of property
and casualty insurance in the United States as measured by direct premiums
according to A.M. Best. Premiums written in Pennsylvania accounted for 59% of
the Exchange's direct written premiums in 2001.

Under an agreement among the Exchange, Erie Insurance Company and Erie
Insurance Company of New York governing the pooling arrangement, all property
and casualty business, including relevant liabilities, premiums and reserves,
is ceded to the Exchange. The pooling arrangement expressly does not include
investment results and other non-underwriting operations and income tax
obligations of the parties. The Exchange acts on behalf of Erie Insurance
Company and Erie Insurance Company of New York to fulfill all obligations under
ceded insurance policies and to adjust and pay all related claims and
underwriting expenses. This pooling arrangement provides for Erie Insurance
Company and Erie Insurance Company of New York to share proportionately
thereafter through retrocession of liabilities, premiums and reserves in the
results of the Property and Casualty Group, except for the provisions of the
excess of loss reinsurance agreement discussed below. Erie Insurance Company's
and Erie Insurance Company of New York's proportionate share of the reinsurance
pool is 5.0% and 0.5% percent, respectively, which percentages may only be
changed by each party executing a written amendment. Erie Insurance Property &
Casualty Company and Flagship City Insurance Company, the other members of the
Property and Casualty Group, have entered into quota share reinsurance
agreements with the Exchange, whereby all property and casualty business of
those entities, including relevant liabilities, premiums and reserves, is ceded
to the Exchange. Accordingly, all of this business becomes subject to the pool.
The pooling agreement and the two quota share reinsurance agreements each may
be terminated by any party to the respective agreement as of the end of any
calendar year by providing not less than 90 days' advance written notice.

The Pennsylvania Insurance Holding Companies Act requires that all
transactions within a holding company system to which an insurer is a party
must be fair and reasonable and any charges or fees for services performed must
be reasonable. Any management agreement, service agreement, cost sharing
arrangement and reinsurance agreements must be filed with the Pennsylvania
Insurance Department and are subject to Department review. The agreement
governing the pooling arrangement and the quota share reinsurance agreements
were accordingly filed with the Pennsylvania Insurance Department. The
Pennsylvania Insurance Department has never provided any notification of
disapproval to any member of the Property and Casualty Group or the Company.

The Exchange has A.M. Best's highest rating of A++ (superior). On a
statutory basis, the Exchange had total assets of $6.2 billion, total
liabilities of $4.0 billion and policyholders' surplus of $2.1 billion, as of
September 30, 2002. The Exchange owns a 53.5% stake in Erie Family Life
Insurance Company, an affiliated life insurance and annuity provider.

The selected financial data of the Exchange presented below as of and for
the years ended December 31, 1997 through 2001 are derived from annual
statements prepared in accordance with SAP that were audited by our independent
auditors. The financial statements of the Exchange included in these annual
statements are prepared in accordance with SAP required by the NAIC Accounting
Practices and Procedures Manual, as modified to include prescribed or permitted
practices of the Commonwealth of Pennsylvania. The Exchange does not, nor is it
required to, prepare financial statements in accordance with GAAP. Financial
statements prepared under SAP provide a more

conservative approach than under GAAP. Under SAP, the principal focus is on the
solvency of the insurer in order to protect the interests of the policyholders.
The material differences between SAP and GAAP as they relate to the Exchange
include the following:

. SAP provides a more conservative approach to the valuation of invested
assets than GAAP.

. SAP recognizes expenses when incurred and does not allow for the
establishment of deferred policy acquisition cost assets that is required
by GAAP.

. GAAP requires the establishment of an asset for the estimated salvage and
subrogation that will be recovered in the future. Under SAP, a company
may establish this recoverable but is not required to do so. The Exchange
does not establish salvage and subrogation recoveries.

. SAP deferred tax calculations follow GAAP with certain modifications for
the realization criteria of deferred tax assets and the recording of the
impact of changes in its deferred tax balances.

The Company believes the condensed statutory financial statements of the
Exchange, particularly its surplus and premium levels, are relevant to
investors and other readers of this prospectus, and that the Exchange's
financial information is meaningful even if it is presented using SAP because:

. The Exchange is the sole entity for which the Company contractually
provides services in its role as attorney-in-fact for the policyholders.
These revenues constituted 78% of the Company's total revenues in 2001.

. The management fee rate level is reviewed and established annually by the
board of directors of the Company. A major criterion for setting the
management fee rate level is the financial strength and well being of the
Exchange as determined by a review of the information presented in the
statutory financial statements of the Exchange.

. The Company has significant accounts receivable from the Exchange, and
three of the Company's subsidiaries have reinsurance agreements with the
Exchange.

The selected financial data below as of and for the nine months ended
September 30, 2001 and 2002 is derived from the Exchange's unaudited financial
statements prepared in accordance with SAP. In the opinion of management, all
adjustments, consisting only of normal recurring accruals, considered necessary
for a fair presentation have been included. The financial data set forth below
is only a summary.

ERIE INSURANCE EXCHANGE
SELECTED FINANCIAL INFORMATION
(STATUTORY ACCOUNTING BASIS)

Income Statement Information:
Net premiums earned............. $2,140,526 $1,792,450 $2,422,600 $2,161,034 $2,039,791 $1,971,525 $1,877,270
Loss and loss adjustment
expenses....................... 1,727,052 1,568,896 2,150,749 1,714,487 1,509,895 1,372,705 1,375,643
Insurance underwriting and other
expenses....................... 718,881 551,623 766,304 624,622 576,031 568,149 520,648
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net underwriting (loss) income.. $ (305,407) $ (328,069) $ (494,453) $ (178,075) $ (46,135) $ 30,671 $ (19,021)
Investment income (loss), net... 48,237 (32,489) (421,754) 347,582 428,874 378,845 365,393
Federal income tax expense
(benefit)...................... (68,925) (43,230) (300,257) 42,433 102,339 102,917 86,627
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............... $ (188,245) $ (317,328) $ (615,950) $ 127,074 $ 280,400 $ 306,599 $ 259,745
========== ========== ========== ========== ========== ========== ==========
Balance Sheet Information:
Cash and invested assets........ $5,238,660 $5,563,420 $5,990,511 $6,357,658 $6,860,008 $5,604,496 $4,670,320
Total assets.................... 6,190,240 6,317,728 6,998,794 6,969,746 7,415,176 6,174,590 5,204,856
Claims and unearned premium
reserves....................... 3,663,000 3,084,067 3,200,836 2,654,300 2,463,806 2,388,958 2,328,230
Total liabilities............... 4,042,623 3,418,368 3,953,243 2,847,861 2,660,713 2,582,998 2,490,465
Policyholders' surplus(1)(2).... 2,147,617 2,899,360 3,045,551 4,121,885 4,754,462 3,591,592 2,714,391

PERFORMANCE OF THE EXCHANGE

OVERVIEW OF FINANCIAL RESULTS (STATUTORY ACCOUNTING BASIS)

The Exchange has a 94.5% participation in the underwriting results of the
Property and Casualty Group.

In 1997 and 1998, soft market conditions in the property and casualty
insurance industry characterized by decreased revenues, less stringent
underwriting standards and an excess of surplus in the industry, created severe
price competition in commercial and personal lines of insurance, including
private passenger automobile, the Property and Casualty Group's largest line of
business. Lower pricing on private passenger automobile insurance was driven by
changing driver demographics, safer cars, tougher drunk driving laws and other
factors that reduced automobile insurance loss costs. Emerging forms of
distribution, including direct response writers who spent a considerable amount
of money on advertising in order to build brand awareness, intensified
competition. Competitors targeted the Property and Casualty Group's private
passenger automobile policyholders by offering them lower insurance rates.
Management believed the loss of these customers would have adversely affected
the Property and Casualty Group since its policyholder base would have included
a greater percentage of drivers with higher loss costs. Higher average premium
rates would then be required to be charged to these less profitable
policyholders, which would have exacerbated the competitive rate problem. These
competitive conditions resulted in slower new policy

growth and declines in policy retention rates for the Property and Casualty
Group. Management viewed these competitive effects as a serious threat to the
well-being of the Property and Casualty Group.

Following discussions with our board of directors in 1998, management
decided to reduce premium rates in 1998 and 1999 to remain price competitive in
order to retain the Property and Casualty Group's most profitable customers.
Management discussed with our board that one effect of these pricing actions
would be to reduce underwriting profitability, with a consequent reduction in
surplus. All policies issued by the Property and Casualty Group are for a
one-year term. Therefore, it takes one year for a rate change to be effective
and another year to be recognized fully in the underwriting results of the
Property and Casualty Group. As a result, the 1998 and 1999 premium rate
reductions negatively affected the Property and Casualty Group's underwriting
results in 2000 and 2001. The lower, more competitive private passenger
automobile premium rates have been an important factor in stronger new policy
growth and a return to traditional retention rates for the Property and
Casualty Group in 2002.

The Company and the Property and Casualty Group have responded to
underwriting losses in their direct business in light of changing competitive
positions in a number of ways, including:

. adopting stricter underwriting requirements;

. restricting policy coverages;

. increasing the emphasis on reviewing existing policies and accounts to
determine which risks continue to meet underwriting guidelines and taking
appropriate action regarding those policies and accounts that do not;

. continuing the focus on claims strategies to reduce claims severity, such
as reducing claims fraud; and

. raising premium rates on its direct lines of insurance.

The Property and Casualty Group began raising premium rates on its direct
lines of insurance in 2001, and has continued to file and receive approval for
significant premium rate increases for 2002 and 2003. Through October 1, 2002,
the calendar year impact of premium rate increases approved by regulators,
filed and unapproved by regulators and anticipated filings not yet filed
amounted to $122 million for 2002 and $145 million for 2003. In most instances,
a combination of these measures has been employed to address underwriting
losses in a particular line of business or line of business within a particular
state.

Since it takes one year for rate changes to become effective and another
year to be recognized fully in the underwriting results of the Property and
Casualty Group, management believes increased pricing, together with these
other measures, will help to reduce the Property and Casualty Group's
underwriting losses for future accident years, excluding catastrophe losses, as
long as increases in loss costs do not exceed the effect of the measures taken.
The Property and Casualty Group continually monitors its accident year loss
costs and takes actions designed to lower or offset its loss costs.

In 1999, 2000, and 2001, the Property and Casualty Group also incurred
significant underwriting losses from its non-affiliated assumed reinsurance
business. In late December 1999, significant assumed reinsurance losses were
incurred from severe wind storms in Western Europe, which also affected
incurred losses in 2000 as a result of adverse loss reserve development related
to these storms. In 2001, the Property and Casualty Group incurred a $150
million loss from assumed reinsurance related to the World Trade Center
terrorist attack. Other significant losses were incurred in 2000 and 2001 by
the Property and Casualty Group from non-affiliated assumed reinsurance.

The Property and Casualty Group has also taken action to respond to
underwriting losses in its non-affiliated assumed reinsurance business. In
2002, the Property and Casualty Group reunderwrote all of its assumed
reinsurance treaties. A significant number of treaties were cancelled, and
total aggregate limits on the treaties written were reduced significantly.
Reinsurance premium rates also were increased significantly, rising 40% to 50%.
Finally, terrorism coverage was specifically excluded from all reinsurance
treaties entered into in 2002. Management believes these measures will
significantly improve the 2002 accident year results for the non-affiliated
assumed reinsurance business of the Property and Casualty Group.

In 1985, the Exchange increased its investments in common equities as a
core element of its investment strategy. Prior to the more recent decline in
the equity markets, the Exchange's common equities portfolio had grown at
December 31, 1999 to a market value of $3.8 billion including unrealized
appreciation of $2.6 billion. However, as a result of the recent downturn in
the equity markets, the common equities portfolio of the Exchange has
experienced a decline in value. From its inception in 1985 through September
30, 2002, the common equities portfolio of the Exchange has produced returns,
inclusive of realized and unrealized gains (net of losses) and dividend income,
of $1.4 billion.

At September 30, 2002, the Exchange had investments in marketable
securities of approximately $4.7 billion, which included investments in
unaffiliated common equity securities of approximately $2.0 billion with a cost
basis of $1.4 billion. Investments in marketable securities and marketable
common equity securities comprised 76.0% and 32.8%, respectively, of the
Exchange's admitted assets at September 30, 2002. Management believes the
Exchange's concentration of investment in marketable common equity securities
is greater than that of most of its competitors. All of the Exchange's
marketable security investments are subject to market volatility. The
Exchange's marketable securities have exposure to price risk and the volatility
of the capital markets and general economic conditions. The stock market
decline in 2002 has reduced the value of the Exchange's marketable securities
by $1.3 billion during the first nine months of 2002, compared to $1.0 billion
during the first nine months of 2001.

Management believes that the Exchange's focus on investments in common
equities has produced a higher rate of return since 1985 than the Exchange
would have realized if its investment portfolio had included a lesser amount of
common equities.

NINE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001 (STATUTORY
ACCOUNTING BASIS)

The Exchange recorded a net loss of $188.2 million in the first nine months
of 2002, compared to a net loss of $317.3 million for the same period in 2001.
Premiums earned increased 19.4% for the nine months ended September 30, 2002,
to $2.1 billion from $1.8 billion for the same period in 2001. The strong
premium growth was outpaced by greater loss and underwriting expenses in 2002.
The Exchange also recognized $118.3 million in net realized losses from
investments in 2002 on the sale of securities and related charges for
impairments in investment values.

The underwriting loss recorded by the Exchange totaled $305.4 million in
the first nine months of 2002, compared to a loss of $328.1 million for the
same period in 2001. Catastrophe losses were partly responsible for the
increased losses and totaled $93.3 million for the nine months ended September
30, 2002, compared to $25.3 million for the same period in 2001. Increased loss
severity was also a factor in the underwriting loss. Losses resulting from
spring wind and hail storm related events and categorized as catastrophes by
the Property and Casualty Group totaled $79.6 million in 2002. Increased
underwriting expenses also contributed to the increased underwriting loss in
the first nine months of 2002 when compared to 2001. Included in the
underwriting expenses are the Exchange's

share of eCommerce initiative expenses covered under the technology cost
sharing agreement that totaled $51.6 million for the nine months ended
September 30, 2002 compared to $10.3 million for the same period in 2001.

Net investment income totaled $48.2 million for the nine months ended
September 30, 2002 compared to losses of $32.5 million for the same period in
2001. Investment income from interest, dividends and rent increased 9.7% to
$166.6 million for the first nine months of 2002 from $151.9 million for the
same period in 2001. Realized losses on investments totaled $118.3 million in
the first nine months of 2002, compared to $184.4 million in 2001. Impairment
charges of investments with declines in value considered by management to be
other than temporary totaled $132.0 million for the nine months ended September
30, 2002, including $17.8 million related to securities of WorldCom Group.
Impairment charges on investments totaled $215.9 million for the nine months
ended September 30, 2001.

Unrealized capital losses, net of deferred taxes, totaled $749.3 million
and $822.3 million for the nine months ended September 30, 2002 and 2001,
respectively. In the first nine months of 2002, the Exchange's policyholders'
surplus declined by $897.9 million. Policyholders' surplus totaled $2.1 billion
at September 30, 2002.

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (STATUTORY ACCOUNTING BASIS)

The Exchange recorded a net loss of $616.0 million in 2001, compared to net
income of $127.1 million in 2000 and $280.4 million in 1999. Premiums earned
increased 12.1% in 2001, to $2.4 billion from $2.2 billion in 2000, and 5.9% in
2000 from $2.0 billion in 1999. While the premium growth was strong, the
Exchange incurred greater losses and loss adjustment expenses in 2001. The
Exchange also recognized $622.1 million in net realized losses from investments
in 2001 on the sale of securities and related charges for impairments in
investment values.

The underwriting loss during 2001 was $494.5 million, compared to losses of
$178.1 million recorded in 2000 and $46.1 million recorded in 1999. The 2001
underwriting loss largely resulted from significant premium rate reductions
implemented in 1998 and 1999 in response to the intensely competitive
conditions in the private passenger automobile lines of business and higher
claims severity in private passenger and commercial automobile and workers'
compensation insurance, as well as losses from assumed reinsurance, some of
which relate to the September 11th terrorist attack on the World Trade Center.
The Exchange's estimated incurred losses from the World Trade Center terrorist
attack assumes that the attack is considered one event. The Exchange's
potential exposure would increase between approximately $47 million and $71
million if the attack is considered two events. The 2000 underwriting results
were negatively impacted by the adverse loss development experienced in the
Exchange's reinsurance operations, specifically adverse loss development during
calendar year 2000 from end of December 1999 European wind storms.

Net investment losses totaled $421.8 million in 2001 compared to net
investment income of $347.6 million in 2000 and $428.9 million in 1999.
Investment income from interest, dividends and rent declined 7.8% to $200.4
million in 2001 from $217.3 in 2000 and increased 3.4% in 2000 from $210.2
million in 1999. Investment income dropped in 2001, due to reduced earnings
from limited partnership investments and interest rate declines on the
Exchange's bond portfolio. Realized losses on investments totaled $622.1
million in 2001, compared to realized gains of $130.2 million in 2000 and
$218.7 million in 1999. The Exchange recognized realized losses in 2001 as a
result of the sale of securities and charges for other than temporary
impairments of common and preferred stock and limited partnership investments.
The sale on investments in a loss position in 2001 was part of a proactive
year-end tax selling strategy. Net realized losses from the sales of securities
totaled $583.1 million, of which the Exchange recovered $197.6 million in
federal income taxes paid in 1998, 1999

and 2000. Of this total realized loss, $21.0 million related to sales of
securities of Enron Corporation and its related legal entities. Impairment
charges of investments with declines in value considered by management to be
other than temporary totaled $256.9 million in 2001 and $7.6 million in 2000.
There were no such charges recorded in 1999.

Effective January 1, 2001, the Exchange adopted changes in SAP required by
the NAIC Accounting Practices and Procedures Manual, with deviations for
practices prescribed or permitted by state insurance commissioners. Adoption of
these new accounting standards resulted in changes to the Exchange's
statutory-basis financial statements. The cumulative effect of adoption reduced
statutory surplus by $523.8 million at January 1, 2001. The most significant
portion of the surplus adjustment was the establishment of a liability for
deferred taxes, which reduced surplus by $538.8 million at that date, the
majority of which resulted from deferred taxes on unrealized capital gains on
the common stock investments of the Exchange.

Underwriting losses combined with net realized capital losses and the
cumulative effect of adopting codified statutory accounting principles resulted
in a reduction to policyholders' surplus of $1.1 billion. Policyholders'
surplus totaled $3.0 billion at December 31, 2001.

ERIE FAMILY LIFE INSURANCE COMPANY

Erie Family Life Insurance Company markets individual and group life
insurance policies, including universal life, annuity and disability income
products. Many of the Company's and the Exchange's agents are also agents of
Erie Family Life Insurance Company and can sell a broader portfolio of Erie
Insurance Group products to their customers. Erie Family Life Insurance Company
is owned 21.6% by us, 53.5% by the Exchange and the remaining 24.9% by public
shareholders, who are predominantly directors, agents and employees of the
Company. Erie Family Life Insurance Company trades on the OTC Bulletin Board
under the symbol "ERIF".

As of September 30, 2002, Erie Family Life Insurance Company had GAAP
assets of $1,266.9 million and shareholders' equity of $216.5 million. For the
nine months ended September 30, 2002, Erie Family Life Insurance Company had
net operating income, excluding realized losses, of $13.0 million.

MANAGEMENT

DIRECTORS

Our board of directors currently consists of 12 members, each of whom is
elected annually to serve for a term of one year and until the election of the
director's successor. In July 2002, we increased the number of board seats to
13, and there is currently one vacancy on the board. Certain information as to
our directors is as follows:

Name Age Director Since
---- --- --------------

Samuel P. Black, III....... 60 1997
J. Ralph Borneman, Jr...... 64 1992
Patricia A. Garrison-Corbin 55 2000
Susan Hirt Hagen........... 67 1980
F. William Hirt............ 77 1965
Samuel P. Katz............. 53 2000
Claude C. Lilly, III....... 56 2000
Jeffrey A. Ludrof.......... 43 2002
Henry N. Nassau............ 48 2000
John M. Petersen........... 74 1979
Jan R. Van Gorder.......... 55 1990
Robert C. Wilburn.......... 59 1999

Samuel P. Black, III is President, Treasurer and Secretary of Samuel P.
Black & Associates, Inc., an insurance agency with which he has been associated
since 1973. Mr. Black is also the managing general partner and a limited
partner of Black Interests Limited Partnership, the Selling Shareholder.

J. Ralph Borneman, Jr. has been President and Chief Executive Officer of
Body-Borneman Associates, Inc., an insurance agency, and President of
Body-Borneman, Ltd. and Body-Borneman, Inc., insurance agencies, since 1967.
Mr. Borneman is also a director of National Penn Bancshares.

Patricia A. Garrison-Corbin is a founder, and has been President and Chief
Executive Officer since 1986, of P.G. Corbin & Company, Inc., a firm that
provides financial advisory and investment management services for
municipalities. She is also a director of P.G. Corbin Asset Management, Inc.

Susan Hirt Hagen was Managing Partner of Hagen, Herr & Peppin, group
relations consultants, from 1990 until it discontinued operations in 1999.
Since 1999, Mrs. Hagen has focused more of her time and efforts fulfilling her
responsibilities as a co-trustee of the H.O. Hirt Trusts, a position she has
held since 1967, and as a director of the Company and its subsidiaries. Mrs.
Hagen also engages in private investment, community leadership and
philanthropic activities.

F. William Hirt has been Chairman of the Board of the Company since 1993.
Mr. Hirt is a co-trustee of the H.O. Hirt Trusts.

Samuel P. Katz has been Chief Executive Officer of Greater Philadelphia
First, a business leadership civic organization, since July 2000. He is also a
founder, and has been President since 1997, of EnterSport Capital Advisors,
Inc., a private investment and consulting firm and Managing Partner of
Wynnefield Capital Advisors, Inc., a fund manager of a private equity venture
fund since 1997.

Claude C. Lilly, III has been Dean, Belk College of Business
Administration, University of North Carolina, Charlotte, since 1998, and James
H. Harris Chair of Risk Management and Insurance, Belk College of Business
Administration, University of North Carolina, Charlotte, since 1997.

Jeffrey A. Ludrof has been President and Chief Executive Officer of the
Company since May 2002. Mr. Ludrof was Executive Vice President-Insurance
Operations of the Company from 1999 to May 2002, and was a Senior Vice
President of the Company from 1994 to 1999.

Henry N. Nassau has been Managing Director, General Counsel and Secretary
of Internet Capital Group, Inc., an internet holding company, since 1999. He
was a partner of Dechert for 12 years prior thereto and Chairman of the
Business Department of that law firm for his last 18 months at the firm. Mr.
Nassau is a director of various companies associated with Internet Capital
Group, Inc., various companies associated with Albert Abela Corporation and of
Bliley Technologies, Inc.

John M. Petersen, who retired from the Company in 1995 and currently serves
as an equity investment consultant to the Company, was President of the Company
from 1990 to 1995, Chief Executive Officer of the Company from 1993 to 1995 and
Treasurer and Chief Financial Officer of the Company from 1992 to 1995. Mr.
Petersen is a director of Spectrum Control.

Jan R. Van Gorder has been Senior Executive Vice President, Secretary and
General Counsel of the Company since 1990. Mr. Van Gorder served as Acting
President and Chief Executive Officer from January 2002 to May 2002.

Robert C. Wilburn has been President and Chief Executive Officer of the
Gettysburg National Battlefield Museum Foundation since 2000, and Distinguished
Service Professor, Carnegie Mellon University, since 1999. Mr. Wilburn was
President and Chief Executive Officer of the Colonial Williamsburg Foundation
from 1992 to 1999.

Information regarding the compensation and benefits of the Company's
directors and executive and division officers is included in the proxy
statements relating to the Company's annual meetings of shareholders that are
incorporated herein by reference.

EXECUTIVE OFFICERS

The following table sets forth certain information regarding executive
officers of companies that comprise Erie Insurance Group, most of whom have
served with us for more than 20 years.

Name Age Positions
---- --- --------------------------------------------

Jeffrey A. Ludrof.... 43 President and Chief Executive Officer since
May 2002
Jan R. Van Gorder.... 55 Senior Executive Vice President, Secretary
and General Counsel since 1990
Philip A. Garcia..... 46 Executive Vice President and Chief Financial
Officer since 1997
Thomas B. Morgan..... 39 Executive Vice President--Insurance
Operations since 2003
Michael J. Krahe..... 49 Executive Vice President--Human
Development and Leadership since 2003
John J. Brinling, Jr. 55 Executive Vice President, Erie Family Life
Insurance Company, since 1990

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

J. Ralph Borneman, Jr. and Samuel P. Black, III, two of our directors, are
also officers and principal shareholders of insurance agencies that receive
insurance commissions in the ordinary course of business from the insurance
companies we manage in accordance with the insurance companies' standard
commission schedules and agents' contracts. During 2001, the Borneman agencies
were paid $3,761,503 and the Black agencies were paid $517,923 in commissions
for insurance business placed with the insurance companies we managed. In 1999,
2000 and 2001, Mr. Borneman, in his capacity as an insurance agent, received a
commission of $4,500 in connection with a workers' compensation insurance
policy covering our employees that he placed with Fireman's Fund Insurance
Company, based on competitive bids. The policy was placed with another
insurance carrier as of January 1, 2002, and Mr. Borneman will not receive any
commission from the placement of this policy.

John M. Petersen, a director and a former President and Chief Executive
Officer who retired on December 31, 1995 and who served as Chief Investment
Officer for Erie Insurance Group companies for many years, is a party to a
consulting arrangement with us. Under the consulting arrangement, which is
terminable on 30 days notice by either party, Mr. Petersen provides investment
services with respect to the common stock investments of us, our pension trust,
the Exchange and Erie Family Life Insurance Company. As compensation for his
services, Mr. Petersen receives a fee of 0.15 of 1%, on an annualized basis, of
the fair market value of the common equities portfolios he manages. We also pay
for all necessary and reasonable expenses incurred by Mr. Petersen in rendering
the services he provides. The payments to Mr. Petersen in 2001 for services he
rendered to the Exchange, us, our pension trust and Erie Family Life Insurance
Company were $4,584,610, $177,956, $135,723 and $93,632, respectively, or a
total of $4,991,921.

PRINCIPAL SHAREHOLDERS

The following table sets forth as of December 31, 2002, the amount and
percentage of our outstanding Class A common stock and Class B common stock
beneficially owned by (i) each person who is known by us to own beneficially
more than 5% of our Class A common stock or Class B common stock, (ii) each
director of the Company, (iii) each of our five highest-paid executive officers
in 2001 and (iv) all of our officers and directors as a group.

At December 31, 2002
-------------------------------------------------------------------
Shares of Class A Percent of Shares of Percent of
Common Stock Outstanding Class B Common Outstanding
Name of Individual Beneficially Class A Stock Beneficially Class B Common
or Identity of Group Owned(12)(13) Common Stock(14) Owned(12)(13) Stock(14)
-------------------- ----------------- ---------------- ------------------ --------------

5% Holders:
Selling Shareholder:
Black Interests Limited 8,726,250 13.63% 390 13.45%
Partnership(1)......................
Erie, Pennsylvania
Other Shareholders:
Samuel P. Black, III(1)(2)........... 8,880,286 13.87% 410 14.14%
Erie, Pennsylvania
Hagen Family Limited 10,092,900 15.76% 1 --
Partnership(3)(4)...................
Erie, Pennsylvania
H.O. Hirt Trusts(5).................. -- -- 2,340 80.69%
Erie, Pennsylvania
Susan Hirt Hagen(3)(4)(5)............ 16,751,986 26.16% 2,353 81.14%
Erie, Pennsylvania
Hirt Family Limited Partnership(6)(7) 11,830,000 18.47% -- --
Erie, Pennsylvania
F. William Hirt(5)(6)(7)............. 12,718,546 19.86% 2,360 81.38%
Erie, Pennsylvania
Directors(8):
J. Ralph Borneman, Jr................ 50,286 -- -- --
Patricia A. Garrison-Corbin.......... 386 -- -- --
Samuel P. Katz....................... 786 -- -- --
Claude C. Lilly, III................. 786 -- -- --
Jeffrey A. Ludrof.................... 2,326 -- -- --
Henry N. Nassau...................... 886 -- -- --
John M. Petersen(9).................. 2,260,323 3.53% 1 --
Jan R. Van Gorder.................... 122,167 -- 1 --
Robert C. Wilburn.................... 2,286 -- -- --
Executive Officers(10):
Philip A. Garcia..................... 90,835 -- -- --
John J. Brinling, Jr................. 15,075 -- -- --
All Directors and Executive Officers
as a group (14 persons)(11)......... 40,896,960 63.86% 2,785 96.03%

--------
(1) Mr. Black is the managing general partner and a limited partner of Black
Interests Limited Partnership. Mr. Black has the right to vote the shares
held by Black Interests Limited Partnership. If all of the 390 shares of
Class B common stock beneficially owned by the Black Interests Limited
Partnership were converted into Class A common stock, the maximum number of
shares of Class A common stock that the Black Interests Limited Partnership
could be deemed to own would be 9,662,250 shares of Class A common stock,
or 14.87% of the then outstanding shares of Class A common stock.

(2) Mr. Black owns 130,036 shares of Class A common stock directly and 24,000
shares of Class A common stock indirectly through Samuel P. Black &
Associates, of which Mr. Black is President and for which Mr. Black has the
right to vote the shares. Mr. Black also owns 10 shares of Class B common
stock directly and 10 shares of Class B common stock as executor of his
father's estate. The beneficial ownership of Class A common stock and Class
B common stock by Mr. Black also includes the 8,726,250 shares of Class A
common stock and 390 shares of Class B common stock owned by the Black
Interests Limited Partnership discussed in footnote 1. The maximum number
of shares of Class A common stock that could be deemed beneficially owned
by Mr. Black, including upon conversion of Class B common stock, would be
9,864,286 shares of Class A common stock or 15.17% of the then outstanding
shares of Class A common stock.

(3) Mrs. Hagen and her husband, Thomas B. Hagen, are limited partners of the
Hagen Family Limited Partnership and Mr. Hagen is the general partner. As
the general partner of the Hagen Family Limited Partnership, Mr. Hagen has
sole voting and investment power over the shares owned by the partnership.
If the share of Class B common stock beneficially owned by the Hagen Family
Limited Partnership were converted into Class A common stock, the maximum
number of shares of Class A common stock that the Hagen Family Limited
Partnership could be deemed to own beneficially would be 10,095,300 shares
of Class A common stock, or 15.76% of the then outstanding shares of Class
A common stock.

(4) Mrs. Hagen owns 586 shares of Class A common stock directly and 6,658,500
shares of Class A common stock indirectly through a revocable personal
trust of which Mrs. Hagen was the grantor and is the sole trustee and
beneficiary. Mrs. Hagen owns 12 shares of Class B common stock directly.
Also included are the 10,092,900 shares of Class A common stock and one
share of Class B common stock owned by the Hagen Family Limited Partnership
discussed in footnote 3 and the 2,340 shares of Class B common stock owned
by the H.O. Hirt Trusts discussed in footnote 5. Thomas B. Hagen, Mrs.
Hagen's husband, disclaims beneficial ownership of the shares of Class A
common stock and Class B common stock owned by Mrs. Hagen. Mrs. Hagen
disclaims beneficial ownership of the 5,100 shares of Class A common stock
and 3 shares of Class B common stock owned by Mr. Hagen. The maximum number
of shares of Class A common stock that could be deemed beneficially owned
by Mrs. Hagen, Mr. Hagen and the Hagen Family Limited Partnership,
including upon conversion of Class B common stock, would be 22,411,486
shares of Class A common stock or 32.16% of the then outstanding shares of
Class A common stock.

(5) There are two H.O. Hirt Trusts, one for the benefit of Mr. Hirt and one for
the benefit of Mrs. Hagen. Each of the H.O. Hirt Trusts is the record owner
of 1,170 shares of Class B common stock, or 40.34% of the outstanding
shares of Class B common stock. The trustees of the H.O. Hirt Trusts as of
the date of this prospectus are Mr. Hirt, Mrs. Hagen and Bankers Trust
Company. Mr. Hirt and Mrs. Hagen, who are brother and sister, are each the
beneficial owner of 1,170 shares of Class B common stock held by the H.O.
Hirt Trust of which each is the beneficiary and, as Co-Trustees, along with
Bankers Trust Company, have shared voting power over the 2,340 shares of
Class B common stock held by the H.O. Hirt Trusts. If all 2,340 shares of
Class B common stock the H.O. Hirt Trusts own were converted into Class A
common stock, the maximum number of shares of Class A common stock that the
H.O. Hirt Trusts could own would be 5,616,000 shares of Class A common
stock or 8.06% of the then outstanding shares of Class A common stock.
(6) Mr. Hirt is the general and a limited partner of the Hirt Family Limited
Partnership.

(7) Mr. Hirt owns 888,546 shares of Class A common stock directly. Mr. Hirt
also owns 20 shares of Class B common stock directly. The beneficial
ownership of Class A common stock and Class B common stock by Mr. Hirt also
includes the 11,830,000 shares of Class A common stock owned by the Hirt
Family Limited Partnership discussed in footnote 6 and the 2,340 shares of
Class B common stock owned by the H.O Hirt Trusts discussed in footnote 5.
Mr. Hirt disclaims beneficial ownership of the 888,260 shares of Class A
common stock owned by his wife. The maximum number of shares of Class A
common stock that could be deemed beneficially owned by Mr. Hirt, Mrs. Hirt
and the Hirt Family Limited Partnership, including upon conversion of Class
B common stock, would be 19,270,806 shares of Class A common stock or
27.65% of the then outstanding shares of Class A common stock.

(8) Excludes directors listed under "5% Holders".
(9) Mr. Petersen disclaims beneficial ownership of 120,000 shares of Class A
common stock owned by his wife, Gertrude E. Petersen, which have been
included in the total listed herein. The total also includes 200,000 shares
held in the Petersen Family Limited Partnership of which Mr. Petersen is
the general partner.
(10)Excludes executive officers listed under "Directors".

(11)If all of the 2,785 shares of Class B common stock beneficially owned by
the directors and executive officers were converted into Class A common
stock, the maximum number of shares of Class A common stock that the
directors and executive officers could be deemed to own would be 47,580,960
shares of Class A common stock, or 67.28% of the then outstanding shares of
Class A common stock.

(12)Information furnished by the named persons.
(13)Under the rules of the SEC, a person is deemed to be the beneficial owner
of securities if the person has, or shares, "voting power" (which includes
the power to vote, or to direct the voting of, such securities) or
"investment power" (which includes the power to dispose, or to direct the
disposition, of such securities). Under these rules, more than one person
may be deemed to be the beneficial owner of the same securities. Securities
beneficially owned also include securities owned jointly, in whole or in
part, or individually by the person's spouse, minor children or other
relatives who share the same home. The information set forth in the above
table includes all shares of Class A common stock over which the named
individuals, individually or together, share voting power or investment
power, adjusted, however to eliminate the reporting of shares more than
once in order not to overstate the aggregate beneficial ownership of such
persons and to reflect shares as to which the named individuals disclaim
beneficial ownership. The table does not reflect shares of Class A common
stock issuable upon conversion of shares of Class B common stock, each of
which is currently convertible into 2,400 shares of Class A common stock.
(14)Less than 1% unless otherwise indicated.

THE H.O. HIRT TRUSTS

The H.O. Hirt Trusts own 80.7% of our Class B common stock, which is the
only class of stock that can vote for the election of directors and most other
matters. The trustees of the H.O. Hirt Trusts are Bankers Trust and F. William
Hirt and Susan Hirt Hagen, who are brother and sister. Any determination by the
H.O. Hirt Trusts requires a vote of two of the three trustees and, because the
H.O. Hirt Trusts control 80.7% of our Class B voting stock, any such
determination will control the outcome of any matter submitted for shareholder
approval, except those matters pertaining only to the rights of the holders of
Class A common stock.

PURPOSE OF THE H.O. HIRT TRUSTS

The purpose of the H.O. Hirt Trusts, as set forth in paragraph 4.03(B) of
the H.O. Hirt Trust Agreement, is as follows:

"The Settlor [H.O. Hirt] hereby declares that the purpose of this Trust is
to create and preserve unified ownership and control of ERIE INDEMNITY
COMPANY as a means of preserving the existence of ERIE INSURANCE EXCHANGE
and ERIE INDEMNITY COMPANY as viable entities capable of furnishing
insurance to subscribers at the Exchange and employment to loyal employees
of the Exchange and the Company. The Settlor further declares that in his
experience in the insurance business over half a century, including the
Great Depression of the 1930's, World War II, the Korean and Viet Nam wars
and several recessions, he has never lost sight of the fact that ERIE
INSURANCE EXCHANGE, as a reciprocal insurer, was organized and exists
primarily for the benefit of its subscribers or policyholders and that
therefore the interests of the people who put their trust in the Exchange
for the protection of their personal and business affairs must come first.
However, when the Exchange is healthy, its managing attorney-in-fact ERIE
INDEMNITY COMPANY, will necessarily be prosperous and healthy, to the
benefit of the stockholders of the latter. The Settlor therefore urges that
the Trustees [currently Bankers Trust, F. William Hirt and Susan Hirt
Hagen] familiarize themselves with the nature of reciprocal insurers in
general and the ERIE INSURANCE EXCHANGE in particular; that in the
discharge of their trust duties they concentrate, in cooperation with the
Board of Directors of ERIE INDEMNITY COMPANY and the individual whom the
Board designates from time to time as "Manager" of the Exchange and
Company, to keep ERIE INSURANCE EXCHANGE in the best of health; and that
only when the task proves impossible shall they consider what then appears
to them to be a logical change to prevent deterioration and possible
disaster to the interests of all concerned."

CERTAIN RECENT LITIGATION INVOLVING THE H.O. HIRT TRUSTS OR THE INDIVIDUAL
TRUSTEES OF THE H.O. HIRT TRUSTS AND THE COMPANY

Legal Proceedings Relating to the Appointment of a Successor Corporate
Trustee to Bankers Trust

On March 3, 1999, Bankers Trust filed a petition with the Orphans' Court
Division of the Court of Common Pleas of Erie County, Pennsylvania (the
"Court"), requesting that the Court accept its resignation as corporate trustee
of the H.O. Hirt Trusts as a result of conflicts of interest that Bankers Trust
believed existed from certain insurance operations of its parent company and
affiliates. Also, an affiliate of Bankers Trust, Deutsche Bank, is one of the
largest market makers in the Company's stock. Two successor corporate trustee
candidates, one supported by Mr. Hirt and one supported by Mrs. Hagen, have
presented testimony to the Court in this matter. Subsequent to that testimony,
Laurel Hirt, Mr. Hirt's daughter and a beneficiary of the H.O. Hirt Trusts,
filed a petition requesting that the Court also consider a third successor
corporate trustee candidate not supported by Mr. Hirt. Mr. Hirt has made a
filing objecting to Ms. Hirt's petition that is pending. Mrs. Hagen has not
stated a position on Ms. Hirt's petition.

In a related matter, Mr. Hirt and Mrs. Hagen were subject to a February 23,
2000 order issued by the Court to finalize certain matters relating to a
so-called "funding plan" for the payment of the fees

and costs of the successor corporate co-trustee and to make application to the
Internal Revenue Service for a private letter ruling on the tax treatment of
the finalized "funding plan". On June 13, 2002, the Court granted a petition
filed by the trustees of the H.O. Hirt Trusts that permits the H.O. Hirt
Trusts, under certain circumstances, to sell shares owned by the H.O. Hirt
Trusts in order to fund the fees and expenses of the corporate trustee. Ms.
Hirt has filed a notice of appeal with respect to this decision.

Petition for Declaratory Judgment Filed by Bankers Trust

On May 6, 1999, Bankers Trust, in its capacity as corporate trustee of the
H.O. Hirt Trusts, filed a petition with the Court seeking a determination
whether Section 1405(c)(4) of the Pennsylvania Insurance Holding Companies Act
provides the exclusive means by which persons may be nominated and elected to
the Company's board of directors or whether shareholders independently have the
power to nominate and elect to the board of directors persons other than those
nominated by the nominating committee of the board of directors. Mrs. Hagen
supported the petition, which was opposed by the Company and Mr. Hirt. On July
15, 1999, the Court dismissed the petition for lack of ripeness.

Litigation Regarding Nominations of Candidates for Election as Directors by
the Holders of Class B Common Stock

On March 9, 2000, Mrs. Hagen commenced litigation in the Court in which she
sought relief in the form of an order that (i) the nominating committee of the
Company's board of directors does not have the exclusive right to nominate
candidates for election as directors of the Company by shareholders, (ii) any
holder of Class B common stock may nominate directly candidates for election as
directors of the Company by shareholders and vote on those nominees and (iii)
Mrs. Hagen has the right to submit nominees to a vote of Class B shareholders
at annual meetings. On April 5, 2001, a Stipulation among Mrs. Hagen, Bankers
Trust and the Company was filed with the Court whereby these three parties
agreed to accept as a final adjudication of this matter an April 24, 2000
ruling by the Court granting a preliminary injunction, as requested by Mrs.
Hagen, allowing the nomination by holders of Class B common stock directly of
candidates for director in addition to those nominated by the nominating
committee. The Stipulation is not binding on any other parties other than the
signatories to the Stipulation.

SELLING SHAREHOLDER

Black Interests Limited Partnership (the "Selling Shareholder") is offering
3.0 million shares of the Company's Class A common stock. The Selling
Shareholder has also granted the underwriters a 30-day option to purchase up to
an additional 450,000 shares of the Company's Class A common stock. Samuel P.
Black, III is the managing general partner of the partnership and has the right
to vote the shares held by it. Mr. Black has been a director of our Company
since 1997 and succeeded his father who served as a director during various
periods from 1930 to 1997. Mr. Black is also an officer and principal
shareholder of an insurance agency that receives insurance commissions in the
ordinary course of business from the insurance companies we manage in
accordance with the insurance companies' standard commission schedules and
agents' contracts.

A majority of the proceeds of the shares being offered as described in this
prospectus will be used by the Selling Shareholder to pay estate taxes and
other estate-related expenses arising from the recent death of the mother of
Mr. Black and to make a charitable bequest. The following table lists the
shares of Class A common stock and percentage of outstanding Class A common
stock beneficially owned by the Selling Shareholder both before and after this
offering.

PERCENT OF PERCENT OF
SHARES OF CLASS A OUTSTANDING SHARES OF CLASS A OUTSTANDING
NAME OF COMMON STOCK CLASS A COMMON STOCK CLASS A
SELLING BENEFICIALLY OWNED COMMON STOCK SHARES TO BENEFICIALLY OWNED COMMON STOCK
SHAREHOLDER PRIOR TO THE OFFERING PRIOR TO THE OFFERING BE SOLD AFTER THE OFFERING(1) AFTER THE OFFERING(1)
----------- --------------------- --------------------- --------- --------------------- ---------------------

Black Interests
Limited
Partnership 8,726,250 13.63% 3,000,000 5,726,250 8.94%

--------
(1) Assumes the option granted to the underwriters to purchase up to 450,000
shares is not exercised. If the option is exercised in full, the Selling
Shareholder will own 5,276,250 shares of Class A common stock, or 8.24%,
after the offering.

DESCRIPTION OF CAPITAL STOCK

As of January 1, 2003, our authorized capital stock consisted of 74,996,930
shares of Class A common stock, of which 64,037,106 shares were outstanding,
and 2,900 shares of Class B common stock, of which 2,900 shares were
outstanding. Our shares of Class A common stock do not have the right to vote
on matters submitted to a vote of shareholders, except in the instance where
applicable law permits shares of Class A common stock to vote as a class in
regard to any change in the rights, preferences and privileges of our Class A
common stock.

If a dividend is declared and paid on our Class B common stock, each share
of Class A common stock is entitled to the declaration and payment of a
dividend, at the same time and on the same record date, in an amount at least
equal to 2/3 of 1% of the dividend per share paid on our Class B common stock.
In addition, shares of Class A common stock are entitled to receive dividends,
if declared by our board of directors out of funds legally available therefor,
without any requirement that a simultaneous dividend be declared on our Class B
common stock.

Holders of Class A common stock have the preemptive right to subscribe for
and purchase, pro rata according to the number of shares held, any shares of
Class A common stock we offer for sale for a cash consideration upon such terms
as are fixed by our board of directors. This preemptive right does not apply to
conversion of our Class B common stock into our Class A common stock. Our Class
B common stock is convertible into our Class A common stock at the rate of
2,400 shares of Class A common stock for each share of Class B common stock and
cannot be reissued following conversion or retirement.

In the event of our liquidation, dissolution or winding-up, holders of
Class A common stock and Class B common stock are entitled to share ratably in
any assets available for distribution to shareholders and, in such event, each
share of Class B common stock would be treated as if it had been converted into
2,400 shares of Class A common stock.

The ownership of more than a majority of our Class B common stock by the
H.O. Hirt Trusts, which by its terms authorize a change of control transaction
only if it is required to maintain the health of the Exchange, can be expected
to have the effect of preventing a change in control of us.

Our By-laws provide that each director shall perform his or her duties in
good faith, in a manner the director reasonably believes to be in our best
interests and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. Our By-laws further provide, as permitted by Pennsylvania law,
that a director shall not have any personal liability, as such, for monetary
damages for any action taken by the director unless (i) the director has
breached or failed to perform the director's duties as stated above and (ii)
the breach or failure constitutes self-dealing, willful misconduct or
recklessness. This limitation on liability is not applicable to the liability
of a director pursuant to any criminal statute or for the payment of taxes
pursuant to local, state or federal law.

SHARES ELIGIBLE FOR FUTURE SALE

The market price of our Class A common stock could drop due to sales of a
large number of shares of our Class A common stock or the perception that such
sales could occur. These factors could also make it more difficult to raise
funds through future offerings of common stock.

After the offering described in this prospectus, 64,037,106 shares of Class
A common stock will be outstanding, which, except for any shares held by
"affiliates" of the Company as defined in Rule 144 under the Securities Act of
1933, are freely tradable without registration under the Securities Act of
1933. Shares held by affiliates can be sold in compliance with Rule 144,
pursuant to another exemption from registration or by registering such shares
for resale under the Securities Act of 1933.

In general, under Rule 144 as currently in effect, any person who is an
affiliate or certain persons whose shares are aggregated with our affiliate, is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:

. 1% of the number of then-outstanding shares of Class A common stock; and

. the average weekly trading volume in the Class A common stock during the
four calendar weeks preceding the date on which the notice of such sale
on Form 144 is filed with the Securities and Exchange Commission or, if
on such notice is required to be filed, the date of receipt of the order
to execute the transaction by the broker or the date of execution of the
transaction directly with a market maker.

Hirt and Laurel Hirt, if they do not execute lock-up agreements, may have
available for sale up to 34.74% of the outstanding shares of Class A common
stock (based on the number of shares of Class A common stock outstanding as of
December 31, 2002), assuming no further conversion of Class B shares into Class
A shares. Sales, or the availability for sale, by these shareholders following
the consummation of this offering of a substantial number of shares of our
Class A common stock that are not subject to lock-up agreements may have an
adverse effect on the market price of our Class A common stock.

UNDERWRITING

The Company, the Selling Shareholder and the underwriters named below have
entered into an underwriting agreement with respect to the shares being
offered. Subject to certain conditions, each underwriter has severally agreed
to purchase the number of shares indicated in the following table. Goldman,
Sachs & Co., Credit Suisse First Boston LLC, Advest, Inc., Cochran, Caronia
Securities LLC and Legg Mason Wood Walker, Incorporated are acting as the
representatives of the underwriters.

UNDERWRITERS NUMBER OF SHARES
------------ ----------------

Goldman, Sachs & Co..................
Credit Suisse First Boston LLC.......
Advest, Inc..........................
Cochran, Caronia Securities LLC......
Legg Mason Wood Walker, Incorporated.
---------
Total............................ 3,000,000
=========

The underwriters are committed to take and pay for all of the shares being
offered, if any are taken, other than the shares covered by the option
described below, unless and until this option is exercised.

If the underwriters sell more than the total number set forth in the table
above, the underwriters have an option to buy an additional 450,000 shares of
Class A common stock from the Selling Shareholder. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same portion
as set forth in the above table.

The following table shows the per share and total underwriting discounts
and commissions to be paid to each underwriter by the Selling Shareholder. Such
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase 450,000 additional shares of Class A common
stock.

PAID BY THE SELLING SHAREHOLDER NO EXERCISE FULL EXERCISE
------------------------------- ----------- -------------

Per Share........... $ $
Total............... $ $

Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial price to the public. Any such
securities dealers may resell any shares purchased from underwriters to certain
other brokers or dealers at a discount of up to $ per share from the
initial price to the public. If all the shares are not sold at the initial
price to the public, the representatives may change the offering price and the
other selling terms.

The Company, certain of its directors and officers, the Selling Shareholder
and certain other shareholders have agreed not to dispose of or hedge any of
their shares or securities convertible into or exchangeable for shares of
common stock of the Company during the period from the date of this prospectus
continuing through the date 90 days after the date of this prospectus, except
with the prior written consent of Goldman, Sachs & Co. This agreement does not
apply to any existing employee benefit plans of the Company. See "Shares
Eligible for Future Sale" for a discussion of certain transfer restrictions and
shares not expected to be subject to lock-up agreements.

The Company's Class A common stock is quoted on the NASDAQ Stock Market(SM)
under the symbol "ERIE."

A prospectus in electronic form may be made available on the websites
maintained by one or more of the representatives of the underwriters of this
offering and may also be made available on websites maintained by other
underwriters. The underwriters may agree to allocate a number of shares to
underwriters for sale to their online brokerage account holders. Underwriters
may make Internet distributions on the same basis as other allocations.

In connection with this offering, the underwriters may purchase and sell
shares of the Class A common stock in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Shorts sales involve the sale by the underwriters of a
greater number of shares than they are required to purchase in the offering.
"Covered" short sales are sales made in an amount not greater than the
underwriters' option to purchase additional shares from the Selling Shareholder
in the offering. The underwriters may close out any covered short position by
either exercising their option to purchase additional shares or purchasing
shares in the open market. In determining the source of shares to close out the
covered short position, the underwriters will consider, among other things, the
price of shares available for purchase in the open market as compared to the
price at which they may purchase shares through the overallotment option.
"Naked" short sales are any sales in excess of such option. The underwriters
must close out any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if the underwriters
are concerned that there may be downward pressure on the price of the Class A
common stock in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions consist of
various bids for or purchases of the Class A common stock made by the
underwriters in the open market prior to the completion of the offering.

The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have purchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transaction.

Purchases to cover a short position and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of the
Company's Class A common stock, and together with the imposition of the penalty
bid, may stabilize, maintain or otherwise affect the market price of the common
stock. As a result, the price of the Class A common stock may be higher than
the price that otherwise might exist in the open market. If these activities
are commenced, they may be discontinued at any time. These transactions may be
effected on the NASDAQ National Market System, in the over-the-counter market
or otherwise.

Each underwriter has agreed that (i) it has not offered or sold, and prior
to the six months after the date of issue of the notes will not offer or sell
any securities to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied, and will comply
with, all applicable provisions of the Financial Services and Markets Act of
2000 of Great Britain ("FSMA") with respect to anything done by it in relation
to the securities in, from or otherwise involving the United Kingdom, and (iii)
it has only communicated or caused to be communicated and will only communicate
or cause to be communicated any invitation or indictment to engage in
investment activity (within the meaning of section 21 of the FSMA) received by
it in connection with the issue or sale of any securities in circumstances in
which section 21(l) of the FSMA does not apply to the issuer.

The securities have not been and will not be registered under the
Securities and Exchange Law of Japan. Each underwriter has represented and
agreed that it has not offered or sold, and it will not offer or sell, directly
or indirectly, any securities in Japan or to, or for the account or benefit of,
any resident of Japan or to, or for the account or benefit, of any resident of
reoffering or resale, directly or indirectly, in Japan, or to, or for the
account or benefit of, any resident of Japan except (i) pursuant to an
exemption from the registration requirements of, or otherwise in compliance
with, the Securities and Exchange Law of Japan and (ii) in compliance with the
other relevant laws and regulations of Japan.

No offer to sell the securities has been or will be made in the Hong Kong
Special Administrative Region of the Peoples Republic of China ("Hong Kong"),
by means of any document, other than to persons whose ordinary business is to
buy or sell shares or debentures, whether as principal or agent, except in
circumstances which do not constitute an offer to the public within the meaning
of the Companies Ordinance (Cap. 32) of Hong Kong, and unless permitted to do
so under the securities laws of Hong Kong, no person has issued or had in its
possession for the purposes of issue, and will not issue or have in its
possession for the purpose of issue, any advertisement, document or invitation
relating to the securities in Hong Kong other than with respect to the
securities intended to be disposed of to persons outside Hong Kong or only to
persons whose business involves the acquisition, disposal or holding of
securities whether as principal or agent.

This prospectus has not been registered as a prospectus with the Monetary
Authority of Singapore. Accordingly, this prospectus and any other document or
material in connection with the offer or sale, or invitation or subscription or
purchase, of the securities may not be circulated or distributed, nor may the
securities be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to persons in
Singapore other than under circumstances in which such offer, sale or
invitation does not constitute an offer or sale, or invitation for subscription
or purchase, of the securities to the public in Singapore.

The Selling Shareholder estimates that the total expenses of this offering,
excluding underwriting discounts and commissions, will be approximately $ .

The Company and the Selling Shareholder have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.

VALIDITY OF COMMON STOCK

Certain legal matters with respect to the validity of the Class A common
stock will be passed upon for us by Duane Morris LLP, Philadelphia,
Pennsylvania. Certain legal matters with respect to the validity of the Class A
common stock will be passed upon for the underwriters by Sullivan & Cromwell
LLP, New York, New York, in reliance on the opinion of Duane Morris LLP with
respect to Pennsylvania law.

EXPERTS

The financial statements included in this Registration Statement have been
so included on the report of Malin, Bergquist & Company, LLP, independent
auditors, given on the authority of said firm as experts in auditing and
accounting.

The audit committee of our board of directors annually considers the
selection of our independent auditors. On September 10, 2002, the audit
committee selected Ernst & Young, LLP as our independent auditors for the
fiscal year ending December 31, 2003.

WHERE TO FIND MORE INFORMATION/INCORPORATION BY REFERENCE

We file reports, proxy statements and other information with the Securities
and Exchange Commission. Our SEC filings are also available over the Internet
at the SEC's web site at http://www.sec.gov. You may also read and copy any
document we file at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more
information about the public reference room.

The SEC allows us to "incorporate by reference" the information we file
with them, which means:

. incorporated documents are considered part of the prospectus;

. we can disclose important information to you by referring you to those
documents; and

. information that we file with the SEC will automatically update and
supersede the prospectus.

We are incorporating by reference the documents listed below that were
filed with the SEC under the Securities Exchange Act of 1934 under File No.
0-24000:

. Annual Report on Form 10-K for the year ended December 31, 2001 as
amended by the Form 10-K/A filed on January 27, 2003;

. Definitive proxy statement filed under Section 14 of the Securities
Exchange Act of 1934 in connection with the shareholders' meetings held
on April 24, 2001 and April 30, 2002;

. Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002 and
June 30, 2002;

. Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 as
amended by the Form 10-Q/A filed on January 27, 2003; and

. Current Reports on Form 8-K filed January 23, 2002, May 8, 2002, July 24,
2002, September 13, 2002, December 11, 2002, December 23, 2002 and
January 7, 2003.

We also incorporate by reference each of the following documents that we
will file with the SEC after the date of the prospectus but before the end of
the offering:

. Reports filed under Sections 13(a) and (c) of the Securities Exchange Act
of 1934;

. Definitive proxy or information statements filed under Section 14 of the
Securities Exchange Act of 1934 in connection with any subsequent
shareholders' meeting; and

. Any reports filed under Section 15(d) of the Securities Exchange Act of
1934.

You may request a copy of these filings, at no cost, by contacting us at
the following address or phone number:

Erie Indemnity Company
Attn: Jan R. Van Gorder,
Senior Executive Vice President,
Secretary and General Counsel
100 Erie Insurance Place
Erie, Pennsylvania 16530
Tel: (814) 870-2000
http://www.erieinsurance.com

You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. The Selling Shareholder will
not make an offer of these shares in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
supplement is accurate as of any date other than the date on the front of these
documents.

This prospectus is part of a Registration Statement on Form S-3 we filed
with the SEC (Registration No. 333-99943).

ERIE INDEMNITY COMPANY

INDEX TO FINANCIAL STATEMENTS

Page
----

Independent Auditors' Report.................................................... F-2
Consolidated Statements of Financial Position as of December 31, 2001 and 2000.. F-3
Consolidated Statements of Operations for the years ended December 31, 2001,
2000 and 1999................................................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2001,
2000 and 1999................................................................. F-5
Consolidated Statements of Shareholders' Equity for the years ended December 31,
2001, 2000 and 1999........................................................... F-6
Notes to Consolidated Financial Statements...................................... F-8
Unaudited Consolidated Statement of Financial Position as of September 30, 2002. F-36
Unaudited Consolidated Statements of Operations for the nine-month periods ended
September 30, 2002 and 2001................................................... F-37
Unaudited Consolidated Statements of Comprehensive Income for the nine-month
periods ended September 30, 2002 and 2001..................................... F-38
Unaudited Consolidated Statements of Cash Flows for the nine-month periods ended
September 30, 2002 and 2001................................................... F-39
Notes to Unaudited Consolidated Financial Statements (Unaudited)................ F-40

F-1

INDEPENDENT AUDITORS' REPORT
ON THE CONSOLIDATED FINANCIAL STATEMENTS

To the Board of Directors and Shareholders
Erie Indemnity Company
Erie, Pennsylvania

We have audited the accompanying Consolidated Statements of Financial Position
of Erie Indemnity Company and subsidiaries as of December 31, 2001 and 2000,
and the related Consolidated Statements of Operations, Shareholders' Equity,
and Cash Flows for each of the three years in the period ended December 31,
2001. 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 auditing standards generally
accepted in the United States of America. 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 our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Erie Indemnity
Company and subsidiaries as of December 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.

Erie, Pennsylvania
February 7, 2002

MALIN, BERGQUIST & COMPANY LLP

F-2

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of December 31, 2001 and 2000
(Dollars in thousands)

2001 2000
---------- ----------

ASSETS
Investments:
Fixed maturities at fair value (amortized cost of $543,423 and $524,172, respectively)..... $ 559,873 $ 531,546
Equity securities at fair value (cost of $159,727 and $184,968, respectively).............. 193,798 204,446
Limited partnerships (cost of $79,668 and $60,661, respectively)........................... 81,596 68,242
Real estate mortgage loans................................................................. 5,700 6,581
---------- ----------
Total investments....................................................................... $ 840,967 $ 810,815
Cash and cash equivalents.................................................................. 88,213 38,778
Accrued investment income.................................................................. 9,138 9,087
Premiums receivable from Policyholders..................................................... 186,175 156,269
Prepaid federal income taxes............................................................... 14,056 3,604
Reinsurance recoverable from Erie Insurance Exchange on unpaid losses...................... 438,605 375,567
Ceded unearned premiums to Erie Insurance Exchange......................................... 52,450 36,483
Note receivable from Erie Family Life Insurance Company.................................... 15,000 15,000
Other receivables from Erie Insurance Exchange and affiliates.............................. 149,600 119,959
Reinsurance recoverable from non-affiliates................................................ 372 712
Deferred policy acquisition costs.......................................................... 17,018 13,202
Property and equipment..................................................................... 14,635 13,856
Equity in Erie Family Life Insurance Company............................................... 44,683 42,331
Other assets............................................................................... 64,654 44,936
---------- ----------
Total assets............................................................................... $1,935,566 $1,680,599
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses................................................. $ 557,278 $ 477,879
Unearned premiums.......................................................................... 311,969 263,855
Commissions payable and accrued............................................................ 110,121 96,823
Accounts payable and accrued expenses...................................................... 46,164 30,476
Deferred income taxes...................................................................... 12,945 7,161
Dividends payable.......................................................................... 10,930 9,839
Employee benefit obligations............................................................... 20,904 15,551
---------- ----------
Total liabilities....................................................................... $1,070,311 $ 901,584
---------- ----------
SHAREHOLDERS' EQUITY
Capital stock
Class A common, stated value $.0292 per share; authorized 74,996,930 shares;
67,032,000 shares issued; 63,836,323 and 64,056,323 shares outstanding in 2001 and
2000, respectively..................................................................... $ 1,955 $ 1,955
Class B common, stated value $70 per share; authorized 3,070 shares; 3,070 shares
issued and outstanding................................................................. 215 215
Additional paid-in capital.............................................................. 7,830 7,830
Accumulated other comprehensive income.................................................. 35,222 23,182
Retained earnings....................................................................... 913,406 831,552
---------- ----------
Total contributed capital and retained earnings......................................... $ 958,628 $ 864,734
Treasury stock, at cost, 3,195,677 shares in 2001 and 2,975,677 in 2000................. (93,373) (85,719)
---------- ----------
Total shareholders' equity........................................................... $ 865,255 $ 779,015
---------- ----------
Total liabilities and shareholders' equity........................................... $1,935,566 $1,680,599
========== ==========

See accompanying notes to consolidated financial statements.

F-3

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2001, 2000 and 1999
(Amounts in thousands, except per share data)

2001 2000 1999
-------- -------- --------

OPERATING REVENUE:
Management fee revenue................................ $634,966 $551,646 $513,375
Premiums earned....................................... 137,648 123,708 117,224
Service agreement revenue............................. 27,247 22,662 15,441
-------- -------- --------
Total operating revenue........................... $799,861 $698,016 $646,040
-------- -------- --------
OPERATING EXPENSES:
Cost of management operations......................... $477,645 $415,562 $380,298
Losses and loss adjustment expenses incurred.......... 117,201 99,564 87,719
Policy acquisition and other underwriting expenses.... 40,910 34,546 33,044
-------- -------- --------
Total operating expenses.......................... $635,756 $549,672 $501,061
-------- -------- --------
OTHER INCOME AND EXPENSES:
Investment income, net of expenses.................... $ 49,884 $ 48,401 $ 43,344
Net realized (losses) gains on investments............ (31,879) 16,968 14,746
Equity in (losses) earnings of limited partnerships... (7) 4,733 641
-------- -------- --------
Total other income and expenses................... $ 17,998 $ 70,102 $ 58,731
-------- -------- --------
Income before income taxes and equity in earnings of
Erie Family Life Insurance Company..................... $182,103 $218,446 $203,710
Less: Provision for income taxes......................... 60,561 71,161 65,296
Equity in earnings of Erie Family Life Insurance Company,
net of tax............................................. 719 5,108 4,692
-------- -------- --------
NET INCOME............................................ $122,261 $152,393 $143,106
======== ======== ========
Net income per share..................................... $ 1.71 $ 2.12 $ 1.95
======== ======== ========
Weighted average shares outstanding...................... 71,342 71,954 73,487
======== ======== ========

See accompanying notes to consolidated financial statements.

F-4

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001, 2000 and 1999
(Dollars in thousands)

2001 2000 1999
--------- --------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................................. $ 122,261 $ 152,393 $ 143,106
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 2,350 2,745 1,766
Deferred income tax expense (benefit)................................ 1,013 (2,112) (1,311)
Amortization of deferred policy acquisition costs.................... 24,276 22,793 22,507
Realized loss (gain) on investments.................................. 31,879 (16,968) (14,746)
Equity in losses (income) from limited partnerships.................. 7 (4,733) (641)
Net amortization of bond (discount) premium....................... (199) (43) 80
Undistributed earnings of Erie Family Life........................... 0 (4,020) (3,696)
Dividends received in excess of undistributed earnings--Erie
Family Life......................................................... 821 0 0
Deferred compensation............................................. 294 642 1,212
Increase in accrued investment income................................... (51) (1,089) (745)
Increase in receivables................................................. (138,213) (76,240) (6,274)
Policy acquisition costs deferred....................................... (28,092) (24,591) (23,049)
Increase in prepaid expenses and other assets........................... (14,460) (939) (6,185)
Increase in accounts payable and accrued expenses....................... 16,362 8,068 3,343
Increase in commissions payable and accrued............................. 13,298 3,950 7,868
Increase in income taxes recoverable.................................... (10,452) (629) (466)
Increase in loss reserves............................................... 79,398 44,984 6,730
Increase in unearned premiums........................................... 48,115 26,403 7,469
--------- --------- ---------
Net cash provided by operating activities......................... $ 148,607 $ 130,614 $ 136,968
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments:
Fixed maturities..................................................... $(235,854) $(153,029) $(162,769)
Equity securities.................................................... (67,549) (54,649) (71,637)
Mortgage loans.................................................... 0 0 (66)
Limited partnership investments...................................... (28,380) (24,753) (20,667)
Sales/maturities of investments:
Fixed maturity sales................................................. 109,634 61,333 30,927
Fixed maturity calls/maturities...................................... 80,223 59,570 64,094
Equity securities.................................................... 90,589 55,596 84,187
Mortgage loans....................................................... 882 1,649 123
Limited partnership sales or distributions........................... 6,634 6,227 1,368
Purchase of property and equipment...................................... (2,014) (308) (444)
Purchase of computer software........................................... (1,113) (1,032) (4,194)
Loans to agents......................................................... (7,612) (1,781) (3,459)
Collections on agent loans.............................................. 2,358 1,719 2,582
--------- --------- ---------
Net cash used in investing activities............................. $ (52,202) $ (49,458) $ (79,955)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to shareholders.......................................... $ (39,316) $ (35,203) $ (32,049)
Purchase of treasury stock.............................................. (7,654) (31,389) (54,330)
--------- --------- ---------
Net cash used in financing activities............................. $ (46,970) $ (66,592) $ (86,379)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.................... $ 49,435 $ 14,564 $ (29,366)
Cash and cash equivalents at beginning of year.......................... 38,778 24,214 53,580
--------- --------- ---------
Cash and cash equivalents at end of year................................ $ 88,213 $ 38,778 $ 24,214
========= ========= =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Cash paid during the years ended December 31, 2001, 2000 and 1999 for income
taxes was $70,751, $74,286 and $67,495, respectively.

See accompanying notes to consolidated financial statements.

F-5

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 2001, 2000 and 1999
(Dollars in thousands, except per share data)

Total
Shareholders' Comprehensive Retained
Equity Income Earnings
------------- ------------- --------

Balance, January 1, 1999.............................. $655,223 $ $605,045
Comprehensive income
Net income......................................... 143,106 $143,106 143,106
Unrealized depreciation of investments, net of tax. (13,597) (13,597)
--------
Comprehensive income.................................. $129,509
========
Purchase of treasury stock............................ (54,330)
Dividends declared:
Class A $.495 per share............................ (32,575) (32,575)
Class B $74.25 per share........................... (228) (228)
-------- --------
Balance, December 31, 1999............................ $697,599 $715,348
-------- --------
Comprehensive income
Net income......................................... 152,393 $152,393 152,393
Unrealized depreciation of investments, net of tax. (3,399) (3,399)
--------
Comprehensive income.................................. $148,994
========
Purchase of treasury stock............................ (31,389)
Dividends declared:
Class A $.5575 per share........................... (35,932) (35,932)
Class B $83.625 per share.......................... (257) (257)
-------- --------
Balance, December 31, 2000............................ $779,015 $831,552
-------- --------
Comprehensive income
Net income......................................... 122,261 $122,261 122,261
Unrealized appreciation of investments, net of tax. 14,890 14,890
Minimum pension liability adjustment, net of tax... (2,850) (2,850)
--------
Comprehensive income.................................. $134,301
========
Purchase of treasury stock............................ (7,654)
Dividends declared:
Class A $.6275 per share........................... (40,119) (40,119)
Class B $94.125 per share.......................... (288) (288)
-------- --------
Balance, December 31, 2001............................ $865,255 $913,406
======== ========

F-6

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 2001, 2000 and 1999
(Dollars in thousands, except per share data)

Accumulated
Other
Comprehensive Class A Class B Additional Treasury
Income Common Common Paid-in-Capital Stock
------------- ------------ ------------ --------------- ------------

$ 40,178 $ 1,955 $ 215 $ 7,830 $ 0

(13,597)

(54,330)

------------- ------------ ------------ --------------- ------------
$ 26,581 $ 1,955 $ 215 $ 7,830 $ (54,330)
------------- ------------ ------------ --------------- ------------

(3,399)

(31,389)

------------- ------------ ------------ --------------- ------------
$ 23,182 $ 1,955 $ 215 $ 7,830 $ (85,719)
------------- ------------ ------------ --------------- ------------

14,890
(2,850)

(7,654)

------------- ------------ ------------ --------------- ------------
$ 35,222 $ 1,955 $ 215 $ 7,830 $ (93,373)
============= ============ ============ =============== ============

See accompanying notes to consolidated financial statements.

F-7

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 1. NATURE OF BUSINESS

Erie Indemnity Company (Company), formed in 1925, is the attorney-in-fact
for the Erie Insurance Exchange (Exchange), a reciprocal insurance exchange.
The Company earns a management fee for management services provided to the
Exchange and its affiliates. The Exchange is a Pennsylvania domiciled
property/casualty insurer rated A++ Superior by A. M. Best. The Exchange is the
23/rd/ largest insurer in the United States based on net premiums written for
all lines of business. See also Note 10.

The subscriber's agreement between each policyholder and the Exchange,
which is executed by each applicant when applying for insurance coverage from
the Exchange, permits us to retain up to 25% of the direct written premiums of
the Exchange in addition to the direct written premiums of the other members of
the Property and Casualty Group, all of which are assumed by the Exchange under
a pooling agreement. The management fee rate is generally set by our board of
directors each December for the following year. In consideration for this
payment, the Company performs certain services for the Exchange relating to the
sales, underwriting and issuance of policies on behalf of the Exchange. Each
subscriber's agreement provides that the remainder of the premium must be used
by the Exchange for losses, loss adjustment expenses, investment expenses,
damages, legal expenses, court costs, taxes, assessments, licenses, fees, any
other governmental fines and charges, establishment of reserves and surplus,
and reinsurance and may be used for dividends and other purposes to the
advantage of the policyholders of the Exchange. The provisions in the
subscriber's agreements executed by the policyholders regarding the Company's
appointment as attorney-in-fact are the sole agreements governing the services
performed by the Company for the Exchange. There is no provision for
termination of the Company's appointment as attorney-in-fact and it is not
affected by an insured's disability or incapacity.

The Company's property/casualty insurance subsidiaries also share
proportionately in the results of all property/casualty insurance underwriting
operations of the Exchange. The Exchange, Erie Insurance Company (EIC), a
wholly-owned subsidiary of the Company, and the Erie Insurance Company of New
York (EINY), a wholly-owned subsidiary of the EIC, are part of an intercompany
pooling agreement. Under this agreement, EIC and EINY cede 100% of their
property/casualty insurance business, including property/casualty insurance
operations assets and liabilities, to the Exchange. The pooling arrangement
expressly does not apply to investment and other non-underwriting operations
and income tax obligations of the parties. The Exchange acts on behalf of EIC
and EINY to fulfill all obligations under ceded insurance policies and to
adjust and pay all related claims and underwriting expenses. Erie Insurance
Property & Casualty Company, a wholly-owned subsidiary of the Company, and
Flagship City Insurance Company, owned by the Exchange, participate in a quota
share agreement, where all insurance business is ceded to the Exchange. The
Exchange retrocedes to EIC and EINY a specified percentage (5% for EIC and .5%
for EINY during 2001, 2000 and 1999) of all pooled property/casualty insurance
business, including insurance operations assets and liabilities. The specified
percentages may only be changed by each party executing a written amendment.
Insurance ceded by EIC, EINY, Erie Insurance Property & Casualty Company and
Flagship City Insurance Company, to the Exchange does not relieve EIC and EINY
from their primary liability as the original insurers. The intercompany pooling
agreement and the two quota share reinsurance agreements each may be terminated
by any party to the respective agreement as of the end of any calendar year by
providing not less than 90 days' advance written notice. See also Note 12.

The Exchange, EIC and EINY together with the Erie Insurance Property &
Casualty Company and the Flagship City Insurance Company as well as the Erie
Family Life Insurance Company (EFL) operate collectively as the "Erie Insurance
Group (EIG)."

The property/casualty insurers of the Erie Insurance Group operate in 11
states and the District of Columbia. Business consists, to a large extent, of
private passenger and commercial automobile, homeowners and workers'
compensation insurance in Pennsylvania, Ohio, West Virginia, Maryland and
Virginia.

F-8

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
of America that differ from statutory accounting practices (SAP) prescribed or
permitted for insurance companies by regulatory authorities. See also Note 13.

Principles of consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The 21.6% equity ownership
of EFL is not consolidated but accounted for under the equity method of
accounting.

Reclassifications

Certain amounts reported in prior years have been reclassified to conform
to the current year's financial statement presentation.

Use of estimates

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

Investments and cash equivalents

Fixed maturities and marketable equity securities are classified as
available-for-sale. Equity securities consist primarily of common and
nonredeemable preferred stocks while fixed maturities consist of bonds, notes
and redeemable preferred stock. Available-for-sale securities are stated at
fair value, with the unrealized gains and losses, net of deferred tax,
reflected in shareholders' equity in accumulated other comprehensive income.
There are no securities classified as "trading" or "held-to-maturity." Realized
gains and losses on sales of investments, are recognized in income on the
specific identification method. Interest and dividend income is recorded as
earned.

Limited partnerships include U.S. and foreign private equity, real estate
and fixed income investments. The private equity limited partnerships invest
primarily in small- to medium-sized companies. Limited partnerships are
recorded using the equity method, which approximates the Company's share of the
carrying value of the partnership. Unrealized gains and losses on private
equity limited partnerships are reflected in shareholders' equity in
accumulated other comprehensive income, net of deferred taxes. The Company has
not guaranteed any of the partnership liabilities.

When a decline in value of investments is considered to be
other-than-temporary by Company management, the investments are written down to
realizable value. The write down is made on an individual security or limited
partnership basis and is considered a realized loss in the Consolidated
Statements of Operations.

F-9

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)

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

Cash equivalents are principally comprised of investments in bank money
market funds and approximate fair value.

Derivatives

Financial Accounting Standards Board Statement of Financial Accounting
Standards (FAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (FAS 133) became effective for fiscal years beginning after June
15, 1999. Sections of FAS 133 were subsequently amended by FAS 138 "Accounting
for Certain Derivative Instruments and Certain Hedging Activities" (an
amendment of FAS 133 which became effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000). FAS 133 and FAS 138 establish
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. The accounting for changes in the fair value of a derivative, i.e.
gains and losses, depends on the intended use of the derivative and the
resulting designation.

For derivatives not designated as a hedging instrument, the gain or loss is
recognized in earnings in the period of change. Credit risk is managed by
entering into transactions using a bank counterparty with a high credit rating.
See also Note 3.

Fair value of financial instruments

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

Deferred policy acquisition costs

Commissions and other costs of acquiring insurance that vary with, and are
primarily related to, the production of new and renewal business are deferred
and amortized over the terms of the policies or reinsurance treaties to which
they relate. The amount of costs to be deferred would be reduced to the extent
future policy premiums and anticipated investment income would not exceed
related losses, expenses and Policyholder dividends. There have been no
reduction in costs deferred in any of the years presented. Amortization
expense, which is included in policy acquisition and other underwriting
expenses of insurance underwriting operations, equaled $24,276, $22,793 and
$22,507 in 2001, 2000 and 1999, respectively.

Insurance liabilities

Losses incurred refer to amounts paid or expected to be paid for loss
events which have occurred through the balance sheet date. The cost of
investigating, resolving and processing claims are referred to as "loss
adjustment expenses". A liability is established for the total unpaid cost of
losses and loss

F-10

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)

adjustment expenses, including events occurring in current and prior years.
Losses are reported on the Consolidated Statements of Operations in insurance
underwriting operations.

The liability for losses and loss adjustment expenses includes an amount
determined from loss reports and individual cases and an amount, based on past
experience, for losses incurred but not reported. Inflation is provided for in
the reserving function through analysis of costs, trends and reviews of
historical reserving results. Such liabilities are necessarily based on
estimates and, while management believes the amount is appropriate, the
ultimate liability may differ from the amounts provided. The methods for making
such estimates and for establishing the resulting liability are continually
reviewed, and any adjustments considered necessary are reflected in current
earnings. Loss reserves, as permitted by insurance department statute, are set
at full expected cost except for loss reserves for workers' compensation which
have been discounted at 2.5% in 2001 and 2000. Unpaid losses and loss
adjustment expenses in the Consolidated Statements of Financial Position were
reduced by $2,390 and $1,509 at December 31, 2001 and 2000, respectively, due
to discounting. The reserves for losses and loss adjustment expenses are
reported net of receivables for salvage and subrogation of $3,661 and $3,349 at
December 31, 2001 and 2000, respectively.

Environment-related claims

In establishing the liability for unpaid losses and loss adjustment
expenses related to environmental claims, management considers facts currently
known and the current state of the law and coverage litigation. Liabilities are
recognized for known claims (including the cost of related litigation) when
sufficient information has been developed to indicate the involvement of a
specific insurance policy, and management can reasonably estimate its
liability. In addition, liabilities have been established to cover additional
exposures on both known and unasserted claims. Estimates of the liabilities are
reviewed and updated continually. The total amount of the Company's
property/casualty insurance subsidiaries' share of paid losses and loss
reserves pertaining to environment-related claims is immaterial.

Liability for guaranty fund and other assessments

The Company's property/casualty insurance subsidiaries may be required,
under the solvency or guaranty laws of the various states in which they are
licensed, to pay assessments up to prescribed limits to fund Policyholder
losses or liabilities of insolvent insurance companies. The liability for
guaranty fund or other assessments is recorded when the event obligating the
Company has occurred and the amount can be reasonably estimated. The estimated
liability for guaranty fund and other assessments at December 31, 2001 and 2000
totaled $2,383 and $592, respectively. During 2001, the Company received
notification of the insolvency of Reliance Insurance Company. It is expected
this insolvency will result in guaranty fund liabilities to be assessed the
Company's property/casualty insurance subsidiaries. The Company has recorded an
estimated liability that has been charged to operations in the current period
based on preliminary data relating to this insolvency. The estimated liability
for the Reliance insolvency is $2,024 at December 31, 2001.

Certain states permit these assessments, or a portion thereof, to be
recovered as an offset to future premium taxes. When an assessment can be
recovered, an asset is established on a basis consistent with the credits to be
realized under applicable state law. During 2001, the Company's
property/casualty insurance subsidiaries recorded an asset of $559 related to
these recoverable credits

F-11

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)

which will be recovered in accordance with state law which ranges between a 5
and 10 year period. These liabilities and corresponding recoverable assets are
presented gross on the Consolidated Statement of Financial Position.

Reinsurance

The insurance underwriting operations segment in the Consolidated
Statements of Operations is presented net of reinsurance activities. Gross
losses and expenses incurred are reduced for amounts expected to be recovered
under reinsurance agreements. Reinsurance transactions are recorded gross on
the Consolidated Statements of Financial Position. Estimated reinsurance
recoverables and receivables for ceded unearned premiums are recorded as assets
with liabilities recorded for related unpaid losses and expenses and unearned
premiums. Reinsurance premiums are recognized as revenue on a pro rata basis
over the policy term.

Income taxes

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

Property and equipment

Property and equipment are stated at cost. Improvements and replacements
are capitalized, while expenditures for maintenance and repairs are charged to
expense as incurred.

Depreciation of property and equipment is computed using straight line and
accelerated methods over the estimated useful lives of the assets. The costs
and accumulated depreciation and amortization of property sold or retired are
removed from the accounts and gains or losses, if any, are reflected in
earnings for the year.

Property and equipment as of December 31 is summarized as follows:

2001 2000
------- -------

Land......................... $ 737 $ 737
Buildings.................... 5,879 5,863
Leasehold improvements....... 518 322
Computer software............ 18,836 17,723
Computer equipment........... 5,416 3,706
Transportation equipment..... 544 450
------- -------
$31,930 $28,801
Less accumulated depreciation 17,295 14,945
------- -------
$14,635 $13,856
======= =======

F-12

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Software development costs, primarily salaries and benefits, totaling
$7,842 and $7,797, are included in property and equipment at December 31, 2001
and 2000, respectively. Software development costs capitalized during 2001 and
2000 amounted to $45 and $499, respectively. These costs are amortized on a
straight-line basis over the expected life of the applications once the
software is ready for intended use. Software amortization related to these
costs totaled $2,007, $1,697 and $199 in 2001, 2000 and 1999, respectively.

During 2001, the Company entered into various operating lease agreements
for computer equipment. These leases contain various early termination
provisions which allow the Company to cancel the leases generally after three
years from inception of the lease. The total projected commitment for these
leases at December 31, 2001, approximates $10,051 through the year 2004. Of
this total, approximately $5,075 will be reimbursed to the Company from its
affiliates. The total rental expense for 2001 was $165.

Revenue recognition

In 2000, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." SAB 101
states revenue should not be recognized until it is realized or realizable and
earned. Cited in SAB 101 are certain criteria that generally should be met to
determine when revenue is realized or realizable and earned. The Company
periodically evaluates its revenue recognition practices in relation to the
requirements of SAB 101. Management believes the revenue recognition practices
are in compliance with the provisions of SAB 101.

Recognition of management fee revenue

A management fee is charged the Exchange by the Company for management of
the affairs of the Exchange. The fee is recorded as revenue, calculated as a
percentage of Exchange direct and affiliated assumed premiums written. The
management fees are recognized upon policy issuance or renewal since all
contractual obligations for services to the Exchange have been performed or are
substantially completed at that time. The Exchange issues policies with annual
terms only. Certain activities are performed and related costs are incurred by
the Company subsequent to policy issuance in connection with the services
provided to the Exchange. These activities are inconsequential or perfunctory.
The cost of these activities is immaterial to the Company.

Recognition of service agreement revenue

Service agreement revenue includes service income received from the
Exchange as compensation for the management of voluntary assumed reinsurance
from non-affiliated insurers. The Company receives a service fee, which is
currently 7.0% of non-affiliated assumed reinsurance premiums written. The
service fee revenue is recognized in the period in which the related premium is
earned since our services extend to that same period.

Also included in service agreement revenue are service charges the Company
collects from Policyholders for providing extended payment terms on policies
written by the Property and Casualty Group. Service charges are recognized as
revenue when the additional billings are rendered.

F-13

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (continued)

Recognition of premium revenues and losses

Property and liability premiums are recognized as revenue on a pro rata
basis over the policy term. Unearned premiums represent the unexpired portion
of premiums written.

Losses and loss adjustment expenses are recorded as incurred. Premiums
earned and losses and loss adjustment expenses incurred are reflected in the
Consolidated Statements of Operations net of amounts ceded to the Exchange. See
also Note 12.

Agency contingency award estimates

The estimate for the agent contingency awards is modeled on a monthly basis
using actual underwriting data by agency for the two prior years combined with
the current year to date actual data. The Company uses projected underwriting
data for the remainder of the current year in order to model the 36-month
underwriting results by agency.

Earnings per share

Earnings per share is based on the weighted average number of Class A
shares outstanding, giving effect to the conversion of the weighted average
number of Class B shares outstanding at a rate of 2,400 Class A shares for one
Class B share. The total weighted average number of Class A equivalent shares
outstanding (including conversion of Class B shares) was 71,342,329,
71,954,402, and 73,486,572 during 2001, 2000 and 1999, respectively.

F-14

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 3. INVESTMENTS

The following tables summarize the cost and market value of
available-for-sale securities at December 31, 2001 and 2000:

Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
December 31, 2001
-----------------

FIXED MATURITIES:
U.S. treasuries & government agencies.......... $ 11,211 $ 502 $ 0 $ 11,713
States & political subdivisions................ 42,392 1,817 88 44,121
Special revenue................................ 110,267 3,496 345 113,418
Public utilities............................... 25,150 1,156 36 26,270
U. S. industrial & miscellaneous............... 311,757 8,989 1,438 319,308
Foreign........................................ 26,634 859 17 27,476
-------- ------- ------ --------
Total bonds................................. $527,411 $16,819 $1,924 $542,306
Redeemable preferred stock..................... 16,012 1,555 0 17,567
-------- ------- ------ --------
Total fixed maturities...................... $543,423 $18,374 $1,924 $559,873
======== ======= ====== ========
EQUITY SECURITIES:
Common stock:
U. S. banks, trusts & insurance companies... $ 3,284 $ 814 $ 16 $ 4,082
U. S. industrial & miscellaneous............ 28,718 31,570 579 59,709
Nonredeemable preferred stock:
Public Utilities............................ 2,370 12 3 2,379
U. S. banks, trusts & insurance companies... 14,685 938 58 15,565
U. S. industrial & miscellaneous............ 91,185 2,573 2,111 91,647
Foreign..................................... 19,485 1,039 108 20,416
-------- ------- ------ --------
Total equity securities................. $159,727 $36,946 $2,875 $193,798
-------- ------- ------ --------
Total available-for-sale securities..... $703,150 $55,320 $4,799 $753,671
======== ======= ====== ========

F-15

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 3. INVESTMENTS (continued)

Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
- --------- ---------- ---------- ----------
December 31, 2000
-----------------

FIXED MATURITIES:
U.S. treasuries & government agencies.......... $ 11,216 $ 420 $ 24 $ 11,612
States & political subdivisions................ 50,337 1,656 34 51,959
Special revenue................................ 110,855 3,779 68 114,566
Public utilities............................... 23,221 550 207 23,564
U. S. industrial & miscellaneous............... 267,231 4,770 5,940 266,061
Foreign........................................ 30,082 238 406 29,914
-------- ------- ------- --------
Total bonds................................. $492,942 $11,413 $ 6,679 $497,676
Redeemable preferred stock..................... 31,230 3,341 701 33,870
-------- ------- ------- --------
Total fixed maturities...................... $524,172 $14,754 $ 7,380 $531,546
-------- ------- ------- --------
EQUITY SECURITIES:
Common stock:
U. S. banks, trusts & insurance companies... $ 3,651 $ 422 $ 275 $ 3,798
U. S. industrial & miscellaneous............ 63,662 38,286 15,343 86,605
Foreign..................................... 7,100 581 2,719 4,962
Nonredeemable preferred stock:
U. S. banks, trusts & insurance companies... 22,094 97 66 22,125
U. S. industrial & miscellaneous............ 62,266 1,987 3,119 61,134
Foreign..................................... 26,195 217 590 25,822
-------- ------- ------- --------
Total equity securities................. $184,968 $41,590 $22,112 $204,446
-------- ------- ------- --------
Total available-for-sale securities..... $709,140 $56,344 $29,492 $735,992
======== ======= ======= ========

F-16

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 3. INVESTMENTS (continued)

The amortized cost and estimated fair value of fixed maturities at December
31, 2001, by remaining contractual term to maturity, are shown below.

Amortized Estimated
Cost Fair Value
--------- ----------

Due in one year or less............... $ 37,241 $ 37,787
Due after one year through five years. 162,766 167,265
Due after five years through ten years 160,105 165,194
Due after ten years................... 183,311 189,627
-------- --------
$543,423 $559,873
======== ========

Changes in unrealized gains (losses) consist of the following for the years
ended December 31:

2001 2000 1999
------- -------- --------

Equity securities................................................ $14,593 $(24,410) $ 11,061
Fixed maturities................................................. 9,076 11,246 (24,123)
Limited partnerships............................................. (5,651) 5,930 1,616
Equity in unrealized gains (losses) of Erie Family Life Insurance
Company........................................................ 4,890 2,005 (9,473)
Deferred federal income tax (liability) benefit............... (8,018) 1,830 7,322
------- -------- --------
Increase (decrease) in unrealized gains.......................... $14,890 $ (3,399) $(13,597)
======= ======== ========

Sources of net investment income for the years ended December 31 are as
follows:

2001 2000 1999
------- ------- -------

Fixed maturities.......... $36,569 $34,445 $30,547
Equity securities......... 11,022 11,034 10,104
Cash equivalents and other 3,034 3,416 3,222
------- ------- -------
Total investment income... $50,625 $48,895 $43,873
Investment expense........ 741 494 529
------- ------- -------
Net investment income..... $49,884 $48,401 $43,344
======= ======= =======

Following are the components of net realized (loss) gain on investments as
reported on the Consolidated Statements of Operations. The securities
impairment charge in 2001 related primarily to preferred stocks in the
equipment leasing and agricultural industry segments. The limited partnership
impairment charge resulted from one private equity partnership that had
investments of preferred stock

F-17

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 3. INVESTMENTS (continued)

in the eCommerce industry and common stock in the customer relationship
software industry. The securities impairment charge in 2000 resulted from
preferred stocks in the financial services industry.

2001 2000 1999
-------- ------- -------

FIXED MATURITIES:
Gross realized gains.......................... $ 4,216 $ 2,921 $ 712
Gross realized losses......................... (7,941) (311) (87)
-------- ------- -------
Net realized (losses) gains................ $ (3,725) $ 2,610 $ 625
-------- ------- -------
EQUITY SECURITIES:
Gross realized gains.......................... $ 4,997 $18,070 $18,437
Gross realized losses and impairments......... (30,418) (3,712) (4,316)
-------- ------- -------
Net realized (losses) gains................ $(25,421) $14,358 $14,121
-------- ------- -------
Limited partnership impairment charge......... $ (2,733) $ 0 $ 0
-------- ------- -------
Net realized (losses) gains on investments. $(31,879) $16,968 $14,746
======== ======= =======

The components of equity in (losses) earnings of limited partnerships as
reported on the Consolidated Statements of Operations for the years ended
December 31 are as follows:

2001 2000 1999
------- ------ -----

Private equity............................................... $(2,013) $1,464 $(354)
Real estate.................................................. 1,424 1,926 905
Fixed income................................................. 582 1,343 90
------- ------ -----
Total equity in (losses) earnings of limited partnerships. $ (7) $4,733 $ 641
======= ====== =====

See also Note 14 for investment commitments related to partnerships.

The Company participates in a securities lending program whereby certain
securities from its portfolio are loaned to other institutions for short
periods of time through a lending agent. The Company maintains control over the
securities. A fee is paid to the Company by the borrower. Collateral, comprised
of cash and government securities, that exceeds the market value of the loaned
securities is maintained by the lending agent. The Company has an
indemnification agreement with the lending agent in the event a borrower
becomes insolvent or fails to return securities. The Company had loaned
securities with a market value of $46,771 and $31,776 and secured collateral of
$48,804 and $33,468 at December 31, 2001 and 2000, respectively. The borrower
of the securities is not permitted to sell or replace the security on loan. The
Company maintains the loaned securities on its Consolidated Statements of
Financial Position as part of its invested assets. The Company has incurred no
losses on the loan program since the program's inception.

During 2001, the Company entered into several foreign currency forward
contracts related to its limited partnership investments, which are by
definition derivatives. These contracts were not designated as hedges as the
primary purpose is to generate profits from short-term market movements. The
forward contracts have no cash requirements at the inception of the
arrangement. At December 31, 2001, the notional amount of the contracts
outstanding totaled $1,869. Changes in value, totaling $8 in 2001, have been
recognized currently in earnings as realized gains in the Consolidated
Statements of Operations.

F-18

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 4. COMPREHENSIVE INCOME

Comprehensive income is defined as any change in equity from transactions
and other events originating from nonowner sources. The components of other
comprehensive income follow for the years ended December 31:

2001 2000 1999
------- -------- --------

Unrealized holding (losses) gains on securities
arising during period............................... $(8,971) $ 11,739 $ (6,173)
Less: losses (gains) included in net income........... 31,879 (16,968) (14,746)
------- -------- --------
Net unrealized holding gains (losses) arising
during period....................................... 22,908 (5,229) (20,919)
Income tax (liability) benefit related to unrealized
gains or losses..................................... (8,018) 1,830 7,322
------- -------- --------
Net appreciation (depreciation) of investments..... 14,890 (3,399) (13,597)
Minimum pension liability adjustment (See also Note 6) (4,384) 0 0
Tax asset related to pension liability adjustment..... 1,534 0 0
------- -------- --------
Net pension liability adjustment................... (2,850) 0 0
------- -------- --------
Other comprehensive income (loss), net of tax......... $12,040 $ (3,399) $(13,597)
======= ======== ========

NOTE 5. EQUITY IN ERIE FAMILY LIFE INSURANCE COMPANY

The Company owns 21.6% of EFL's common shares outstanding, which is
accounted for using the equity method of accounting. EFL is a
Pennsylvania-domiciled life insurance company operating in ten states and the
District of Columbia.

The following represents condensed financial information for EFL on a
Generally Accepted Accounting Principles (GAAP) basis:

2001 2000 1999
---------- ---------- --------

Investments................... $ 869,723 $ 881,069 $817,460
Total assets.................. 1,120,483 1,020,343 954,532
Liabilities................... 914,724 824,623 783,429
Shareholders' equity.......... 205,759 195,720 171,103
Revenues...................... 89,514 115,373 102,924
Net income.................... 2,738 25,390 23,325
Comprehensive income (loss)... 17,410 31,421 (5,191)
Dividends paid to shareholders 7,229 6,662 6,096

The Company's share of EFL's net unrealized gains or (losses) on
securities, as reflected in shareholders' equity, is $3,983, $801 and ($502) at
December 31, 2001, 2000 and 1999, respectively.

F-19

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 6. BENEFIT PLANS

Pension plans

The Company's pension plans consist of: (1) a noncontributory-defined
benefit pension plan covering substantially all Employees of the Company, (2)
an unfunded supplemental employee retirement plan (SERP) for its executive
management and division officers and (3) an unfunded pension plan for its
outside directors. Information about the plans follows for the years ended
December 31:

2001 2000
---------- --------

Net periodic benefit cost:
Service cost................................................................... $ 6,837 $ 6,329
Interest cost.................................................................. 8,325 7,705
Expected return on plan assets................................................. (13,709) (12,322)
Amortization of prior service cost............................................. 844 989
Recognized net actuarial gain.................................................. (2,583) (2,303)
Amortization of unrecognized initial net asset................................. (234) (234)
---------- --------
Net periodic benefit cost...................................................... $ 520 $ 164
========== ========
Change in benefit obligation:
Benefit obligation at January 1................................................ $ 116,693 $104,588
Service cost................................................................... 6,837 6,329
Interest cost.................................................................. 8,325 7,705
Amendments..................................................................... 55 611
Actuarial loss (gain).......................................................... 14,523 (2,114)
Benefits paid.................................................................. (1,729) (426)
---------- --------
Benefit obligation at December 31.............................................. $ 144,704 $116,693
========== ========
Change in plan assets:
Fair value of plan assets at January 1......................................... $ 171,636 $160,385
Actual return on plan assets................................................... (31,413) 11,688
Employer contributions (refunds)............................................... 9,271 (12)
Benefits paid.................................................................. (1,729) (425)
---------- --------
Fair value of plan assets at December 31....................................... $ 147,765 $171,636
========== ========
Reconciliation of funded status:
Funded status at December 31................................................... $ 3,061 $ 54,943
Unrecognized net actuarial loss (gain)......................................... 10,986 (51,342)
Unrecognized prior service cost................................................ 5,236 6,025
Unrecognized initial net asset................................................. (469) (701)
---------- --------
Net amount recognized on Consolidated Statements of Financial Position......... $ 18,814 $ 8,925
========== ========
Amounts recognized in the consolidated statements of financial position consist of:
Prepaid benefit cost........................................................... $ 25,451 $ 15,096
Accrued benefit liability...................................................... (13,686) (8,656)
Intangible asset............................................................... 2,665 2,485
Accumulated other comprehensive income......................................... 4,384 0
---------- --------
Net amount recognized at year end.............................................. $ 18,814 $ 8,925
========== ========
Weighted-average assumptions as of December 31:
Employee pension plan:
Discount rate............................................................... 7.00% 7.50%
Expected return on plan assets.............................................. 8.25 8.25
Rate of compensation increase............................................... 5.00 5.00
SERP:
Discount rate............................................................... 7.00% 7.50%
Rate of compensation increase............................................... 6.00-7.25 5.00

F-20

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 6. BENEFIT PLANS (continued)

The amendment amounts relate primarily to two additional participants being
added to the SERP for each of the years 2001 and 2000.

The Employee pension plan has assets that include cash, treasury bonds,
corporate bonds, common and preferred stocks and mortgages.

An additional minimum pension liability of $4,384 resulted in 2001 due to
changes in discount rates, the rate of compensation increase and certain other
assumptions of the SERP. The additional pension liability was recorded as a
reduction to shareholders' equity as accumulated other comprehensive income,
net of deferred income taxes.

The Company's funding policy regarding the Employee pension plan is to
contribute amounts sufficient to meet ERISA funding requirements plus such
additional amounts as may be determined to be appropriate.

The Employee pension plan purchases individual annuities periodically from
EFL to settle retiree benefit payments. Such purchases equaled $4,513, $5,627
and $5,322 in 2001, 2000 and 1999, respectively. These are non-participating
annuity contracts under which EFL has unconditionally contracted to provide
specified benefits to beneficiaries in return for a fixed premium from the
plan. However, the plan remains the primary obligor to the beneficiaries and a
contingent liability exists in the event EFL could not honor the annuity
contracts. The benefit obligation has been reduced for these annuities
purchased for retirees.

The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets (SERP and the pension plan for outside directors) were
$20,348, $13,686 and $0 respectively, as of December 31, 2001, and $12,696,
$8,656 and $0, respectively, as of December 31, 2000.

F-21

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 6. BENEFIT PLANS (continued)

Post-retirement benefits other than pensions

The Company provides post-retirement medical coverage for eligible retired
Employees and eligible dependents. To be eligible for benefits, an employee
must be 60 years old and have 15 years of continuous full-time service. The
benefits are provided from retirement to age 65. The benefits are unfunded as
the Company pays the obligations when due. The cash payments for such benefits
were $379, $161 and $121 in 2001, 2000 and 1999, respectively. Actuarially
determined costs are recognized over the period the Employee provides service
to the Company. Information about this plan follows for the years ended
December 31:

2001 2000
------- -------

Net periodic benefit cost:
Service cost.............................................................. $ 400 $ 400
Interest cost............................................................. 389 385
Amortization of prior service cost........................................ (36) (37)
Recognized net actuarial gain............................................. (50) (27)
------- -------
Net periodic benefit cost................................................. $ 703 $ 721
======= =======
Change in benefit obligation:
Benefit obligation at January 1........................................... $ 5,803 $ 4,745
Service cost.............................................................. 400 400
Interest cost............................................................. 389 385
Actuarial loss............................................................ 919 434
Benefits paid............................................................. (379) (161)
------- -------
Benefit obligation at December 31......................................... $ 7,132 $ 5,803
======= =======
Reconciliation of Funded status:
Funded status at December 31.............................................. $(7,132) $(5,803)
Unrecognized net actuarial loss (gain).................................... 244 (726)
Unrecognized prior service costs.......................................... (330) (366)
------- -------
Net liability recognized on Consolidated Statements of Financial Position. $(7,218) $(6,895)
======= =======

The weighted average discount rate used to measure the accumulated
post-retirement benefit obligation was 7.0% and 7.50% in 2001 and 2000,
respectively. The December 31, 2001, accumulated benefit obligation was based
on a 10.0% increase in the cost of covered health care benefits during 2001.
The expected health care cost trend rate assumption for 2002 is 10.0%. This
rate is assumed to decrease gradually to 5.5% per year in 2006 and to remain at
that level thereafter.

2001 2000
------ -----

Effect on total of service and interest cost components:
1% Increase.......................................... $ 126 $ 126
1% Decrease.......................................... (106) (106)
Effect on post-retirement benefit obligation:
1% Increase.......................................... $1,023 $ 814
1% Decrease.......................................... (871) (695)

F-22

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 6. BENEFIT PLANS (continued)

Employee savings plan

The Company has an Employee Savings Plan for its Employees. Beginning
January 2001, the maximum percentage that eligible participants were permitted
to contribute to the plan was increased to 15%. The Company match was also
changed to 100% of the participant contributions up to 3% of compensation and
50% of participant contributions over 3% and up to 5% of compensation.
Additionally, regular part-time Employees are eligible to participate in the
plan. Prior to 2001, eligible participants were permitted to make contributions
of 1% to 8% of compensation to the plan on a pre-tax salary reduction basis.
The Company matched one-half of the participant contributions up to 6% of
compensation. All full-time Employees were eligible to participate in the plan.
The Company's matching contributions to the plan in 2001, 2000 and 1999 were
$5,329, $3,499 and $3,245, respectively. Employees are permitted to invest a
portion of employer contributions in the Class A common stock of the Company.
The plan acquires shares in the open market necessary to meet the obligations
of the plan.

Management incentive plans and deferred compensation

The Company has separate annual and long-term incentive plans for executive
management and division officers of the Company. The Company also makes
available several deferred compensation plans for executive management,
division officers and certain outside directors.

The annual incentive plan is a bonus plan that annually pays cash bonuses
to executive management and division officers of the Company. The incentives
under the plan are based on growth in written premiums and the underwriting
results of Erie's property casualty insurers compared to a peer group of
property casualty companies that write predominately personal lines insurance
and that are also rated A++ by A.M. Best. The cost of the plan is charged to
operations as the compensation is earned over the performance periods.

The long-term incentive plan (LTIP) of the Company is a restricted stock
awards plan designed to reward executive management and division officers who
can have a significant impact on the performance of the Company with long-term
compensation that is settled in Company stock. Awards are determined based on
the achievement of pre-determined Company financial and personal performance
objectives. According to the plan, the Company cannot issue new stock or stock
from treasury to settle the compensation award obligations under the LTIP, but
instead must purchase its stock on the open market to settle all plan
obligations. Therefore, these stock awards do not cause net share dilution. The
restricted stock awards are granted at the end of a three-year performance
period. The stock awards vest over a three-year period subsequent to the
performance period. A liability is recorded and compensation expense is
recognized ratably over the performance period. The effects of changes in the
stock price are recognized as compensation expense over the vesting period. At
December 31, 2001, 2000 and 1999, the unvested outstanding restricted shares
under the LTIP totaled 77,748 shares, 67,284 shares and 32,449 shares,
respectively, with average grant prices of $ 33.16, $28.32 and $ 29.77,
respectively.

The deferred compensation plans are arrangements for executive management
and division officers of the Company whereby the participants can elect to
defer a portion of their compensation,

F-23

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 6. BENEFIT PLANS (continued)

until separation from service to the Company. Those participating in the plans
select hypothetical investment funds for their deferrals and are credited with
the hypothetical returns generated. The Company also matches a portion of some
deferrals to the plans depending on the amount of deferral and the election of
the participant. The deferred compensation plan for directors allows them to
defer director and meeting fees. Directors participating in the plan select
hypothetical investment funds for their deferrals and are credited with the
hypothetical returns generated. The Company does not match any deferrals to the
director plan.

The awards, payments, deferrals and liabilities under the plans were as
follows for the years ended December 31:

2001 2000 1999
------- ------- ------

Awards, match and hypothetical earnings:
Long-term incentive plan awards............................ $ 1,843 $ 1,300 $1,380
Annual incentive plan awards............................... 2,169 2,291 1,276
Deferred compensation plan, match and hypothetical earnings (412) 90 725
------- ------- ------
Total plan awards and earnings.......................... $ 3,600 $ 3,681 $3,381
======= ======= ======
Total plan awards paid.................................. $ 2,441 $ 1,590 $1,426
======= ======= ======
Compensation deferred under the plans...................... $ 1,060 $ 895 $ 698
======= ======= ======
Distributions from the deferred compensation plans......... $ (355) $ (341) $ (211)
======= ======= ======
Outstanding plan liabilities at December 31,............ $12,485 $10,621 $7,976
======= ======= ======

Health and dental benefits

The Company has self-funded health and dental care plans for all of its
Employees and eligible dependents. Estimated unpaid claims incurred are accrued
as a liability at December 31, 2001 and 2000. Operations were charged $19,826,
$17,456 and $14,756 in 2001, 2000 and 1999, respectively, for the cost of
health and dental care provided under these plans.

All liabilities for the above mentioned plans are presented in this note in
total for all employees of the Erie Insurance Group. The gross liability is
presented in the Consolidated Statements of Financial Position as employee
benefit obligations with amounts expected to be recovered from the Company's
affiliates included in other assets.

F-24

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 7. INCOME TAXES

The provision for income taxes consists of the following for the years
ended December 31:

2001 2000 1999
------- ------- -------

Federal income taxes:
Currently due........ $59,602 $73,657 $66,960
Deferred.......... 959 (2,496) (1,664)
------- ------- -------
Total............. $60,561 $71,161 $65,296
======= ======= =======

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

2001 2000 1999
------- ------- -------

Income tax at statutory rates... $64,007 $78,378 $73,051
Tax-exempt interest.......... (2,729) (3,046) (3,229)
Dividends received deduction. (2,398) (2,160) (2,064)
Other........................ 1,681 (2,011) (2,462)
------- ------- -------
Provision for income taxes... $60,561 $71,161 $65,296
======= ======= =======

Temporary differences and carryforwards, which give rise to deferred tax
assets and liabilities, are as follows for the years ended December 31:

2001 2000
------- -------

DEFERRED TAX ASSETS:
Loss reserve discount..................... $ 4,580 $ 3,965
Unearned premiums......................... 4,960 4,286
Employee benefit plan obligations......... 4,800 4,111
Severance benefits........................ 3,801 0
Write downs of securities................. 1,606 443
Other..................................... 1,525 1,212
------- -------
Total deferred tax assets............. $21,272 $14,017
------- -------
DEFERRED TAX LIABILITIES:
Deferred policy acquisition costs......... $ 5,956 $ 4,621
Unrealized gains.......................... 16,822 12,051
Pension and other benefits................ 7,021 2,438
Other..................................... 4,418 2,068
------- -------
Total deferred tax liabilities........ $34,217 $21,178
======= =======
Net deferred income tax liability..... $12,945 $ 7,161
======= =======

The Company, as a corporate attorney-in-fact for a reciprocal insurer, is
not subject to state corporate taxes.

F-25

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 8. CAPITAL STOCK

Class A and B shares

Holders of Class B shares may, at their option, convert their shares into
Class A shares at the rate of 2,400 Class A shares for each Class B share.
There is no provision for conversion of Class A shares to Class B shares and
Class B shares surrendered for conversion cannot be reissued. Each share of
Class A common stock outstanding at the time of the declaration of any dividend
upon shares of Class B common stock shall be entitled to a dividend payable at
the same time, at the same record date, and in an amount at least equal to 2/3
of 1% of any dividend declared on each share of Class B common stock. The
Company may declare and pay a dividend in respect of Class A common stock
without any requirement that any dividend be declared and paid in respect of
Class B common stock. Sole voting power is vested in Class B common stock
except insofar as any applicable law shall permit Class A common stock to vote
as a class in regards to any changes in the rights, preferences and privileges
attaching to Class A common stock.

Stock repurchase plan

Beginning in 1999, the Company established a stock repurchase program. The
Company may repurchase as much as $120 million of its outstanding Class A
common stock through December 31, 2002. Treasury shares are recorded on the
Consolidated Statements of Financial Position at cost. In 2001 there were
220,000 shares repurchased at a total cost of $7,654, or an average price per
share of $34.79. Since its inception, 3,195,677 shares have been repurchased at
a total cost of $93,373, or an average price per share of $29.22. The Company
may purchase the shares from time to time in the open market or through
privately negotiated transactions, depending on prevailing market conditions
and alternative uses of the Company's capital.

F-26

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 9. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

The following table provides a reconciliation of beginning and ending loss
and loss adjustment expense liability balances for the Company's wholly-owned
property/casualty insurance subsidiaries:

2001 2000 1999
-------- -------- --------

Total unpaid losses and loss adjustment expenses at
January 1, gross................................. $477,879 $432,895 $426,165
Less reinsurance recoverables................... 375,567 337,911 334,708
-------- -------- --------
Net balance at January 1........................... 102,312 94,984 91,457
Incurred related to:
Current accident year........................... 111,258 93,416 88,422
Prior accident years............................ 5,943 6,148 (703)
-------- -------- --------
Total incurred.............................. 117,201 99,564 87,719
Paid related to:
Current accident year........................... 59,637 53,251 50,560
Prior accident years............................ 41,203 38,985 33,632
-------- -------- --------
Total paid.................................. 100,840 92,236 84,192
-------- -------- --------
Net balance at December 31......................... 118,673 102,312 94,984
Plus reinsurance recoverables................... 438,605 375,567 337,911
-------- -------- --------
Total unpaid losses and loss adjustment expenses at
December 31, gross............................... $557,278 $477,879 $432,895
======== ======== ========

Included in the 2001 losses and loss adjustment expenses incurred related
to current accident year of $111,258 are the Company's share of estimated
incurred losses of the Erie Insurance Group's reinsurance business stemming
from the September 11/th/ attack on the World Trade Center of $8,250. Partially
offsetting these losses is an aggregate excess of loss reinsurance agreement
between the Exchange and the Company's property/casualty insurance
subsidiaries. See also Note 12. This agreement reduces the net retention of
these losses recorded by the Company to $5,839. Current loss estimates are
based on the assumption that the attack will be considered one event. If the
attack comes to be considered two events, the total potential exposure for EIG
would increase between $50,000 and $75,000. The effect on the Company would be
additional losses between $2,750 and $4,125. Taking into consideration the
excess of loss reinsurance agreement, the net impact of such potential
additional losses would be minimal to the Company. The property/casualty
insurers are exposed to both direct and reinsurance losses arising from
possible future terrorist actions and other catastrophic events.

The 2001 incurred losses related to prior accident years of $5,943 are due
primarily to adverse development of losses in the private passenger auto
liability and workers' compensation lines of business and are generally the
result of ongoing analysis of recent loss development trends. These losses are
reflected in the insurance underwriting operations segment of the Consolidated
Statements of Operations.

The 2000 incurred losses related to prior accident years of $6,148 are due
to adverse development of reinsurance losses from the catastrophic storms in
Europe in December 1999, combined with increased loss severity in private
passenger automobile and in commercial lines of business.

F-27

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 10. RELATED PARTY TRANSACTIONS

Management fee

A management fee is charged to the Exchange for management services
provided by the Company under the subscriber's agreement. The fee is a
percentage of Exchange direct and affiliated assumed premiums written. The
percentage rate is adjusted periodically within specified limits by the
Company's Board of Directors. The management fee charged the Exchange was 25%
for each year from 1999 to 2001. The provisions in the subscriber's agreements
executed by the policyholders regarding the Company's appointment as
attorney-in-fact are the sole agreements governing the services performed by
the Company for the Exchange. There is no provision for termination of the
Company's appointment as attorney-in-fact and it is not affected by an
insured's disability or incapacity.

In December 2001, the Board of Directors elected to maintain the 25%
management fee rate for all of 2002. The Company's Board of Directors may
change the management fee rate at its discretion, but it may not exceed 25%.

eCommerce Program and Related Information Technology Infrastructure

During 2001, the Erie Insurance Group undertook a series of initiatives to
develop its eCommerce capabilities. In connection with this program, the
Company and the property/casualty insurance Companies of the Erie Insurance
Group entered into a Cost Sharing Agreement for Information Technology
Development (Agreement). The Agreement describes how member companies of the
Erie Insurance Group will share the costs to be incurred for the development of
new Internet enabled property/casualty policy administration and customer
relationship management systems. The Agreement provides that the cost of the
systems and the related enabling technology costs, such as required
infrastructure and architectural tools, will be shared among the
property/casualty insurance companies in a manner consistent with the sharing
of insurance transactions under the existing intercompany pooling agreement.
See also Note 12. These costs are included in the policy acquisition and other
underwriting expenses in the Consolidated Statements of Operations. The
Company's share of these costs, incurred by the Company's property/casualty
insurance subsidiaries totaled $1,315 for the year ended December 31, 2001.

Certain other costs of the eCommerce Program are related to information
technology hardware and are not included under the Agreement. These costs are
included in the cost of management operations in the Consolidated Statement of
Operations. The Company's share of these infrastructure costs amounted to
$1,589 for the year ended December 31, 2001.

Service agreement revenue

A service agreement fee is charged to the Exchange to compensate the
Company for its management of non-affiliated assumed reinsurance business on
behalf of the Exchange. The Company receives a fee of 7% of voluntary
reinsurance premiums assumed from non-affiliated insurers and is responsible
for accounting, underwriting, and operating expenses in connection with the
administration of this business. Service agreement fee revenue amounted to
$11,251, $10,149 and $8,158 in 2001, 2000 and 1999, respectively.

Also included in service agreement revenue are service charges collected
from Policyholders for providing extended payment terms on policies written by
the insurers managed by the Company. In June 2000, this administrative fee
collected from Policyholders increased from $2 to $3 per installment for
policies renewing in most states. Service charge revenue amounted to $15,996,
$12,513 and $7,283 in 2001, 2000 and 1999, respectively.

F-28

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 10. RELATED PARTY TRANSACTIONS (continued)

Expense allocations

The claims handling function of the Exchange is established and its
services are performed by personnel who are entirely dedicated to and paid for
by the Exchange from its own policyholder revenues. The Exchange's claims
function and its management and administration are exclusively the
responsibility of the Exchange and not a part of the service the Company
provides under the subscriber's agreement. Likewise, personnel who perform
activities within the life insurance operations of Erie Family Life are paid
for by Erie Family Life from its own policyholder revenues. However, the
Company is the legal entity that employs personnel on behalf of the Exchange
and Erie Family Life and functions as a common paymaster for all employees.
Common overhead expenses included in the expenses paid for by the Company are
allocated based on appropriate utilization statistics (employee count, square
footage, vehicle count, project hours, etc.) specifically measured to
accomplish proportional allocations. Executive compensation is allocated based
on each executive's primary responsibilities (management services, property and
casualty claims operations, EFL operations and investment operations).
Management believes the methods used to allocate common overhead expenses among
the affiliated entities are reasonable.

Payments on behalf of related entities

The Company makes certain payments for the account of Erie Insurance Group
related entities. The Company, in making these payments is acting as the common
paymaster. Cash transfers are settled monthly.

The amounts of these cash settlements for Company payments made for the
account of related entities were as follows for the years ended December 31:

2001 2000 1999
-------- -------- --------

Erie Insurance Exchange $162,549 $142,519 $136,045
Erie Family Life....... 18,545 18,631 14,740
-------- -------- --------
Total.................. $181,094 $161,150 $150,785
======== ======== ========

Office leases

The Company occupies certain office facilities owned by the Exchange and
EFL. The Company leases office space on a year-to-year basis from the Exchange.
Rent expenses under these leases totaled $10,842, $10,703 and $10,320 in 2001,
2000 and 1999, respectively. The Company has a lease commitment until 2008 with
EFL for a branch office. Rentals paid to EFL under this lease totaled $311 in
2001, $309 in 2000 and $303 in 1999.

Note receivable from EFL

The Company is due $15 million from EFL in the form of a surplus note. The
note bears an annual interest rate of 6.45% and all payments of interest and
principal of the note may be repaid only out of unassigned surplus of EFL and
are subject to prior approval of the Pennsylvania Insurance Commissioner.
Interest on the surplus note is scheduled to be paid semi-annually. The note
will be payable on demand on or after December 31, 2005. During 2001, 2000 and
1999, EFL paid interest to the Company totaling $968 each year.

F-29

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 10. RELATED PARTY TRANSACTIONS (continued)

Structured settlements with EFL

The Erie Insurance Group affiliated property/casualty insurance companies
periodically purchase annuities from EFL in connection with the structured
settlement of claims. The Company's pro-rata share (5.5%) of such annuities
purchased equaled $708, $889 and $1,282 in 2001, 2000 and 1999, respectively.

NOTE 11. RECEIVABLES FROM ERIE INSURANCE EXCHANGE AND CONCENTRATIONS OF
CREDIT RISK

Financial instruments, which potentially expose the Company to
concentrations of credit risk, include unsecured receivables from the Exchange.
Most all of the Company's revenue and receivables are from the Exchange and
affiliates.

Management fee and expense reimbursements due from the Exchange were
$147,344 and $117,962 in 2001 and 2000, respectively. A receivable from EFL for
expense reimbursements totaled $2,256 at December 31, 2001 compared to $1,997
at December 31, 2000. The Company also has a receivable due from the Exchange
for reinsurance recoverable from losses and unearned premium balances ceded to
the pool totaling $491,055 and $412,050 in 2001 and 2000, respectively.

Premiums receivable from Policyholders at December 31, 2001 and 2000
equaled $186,175 and $156,269, respectively. A significant amount of these
receivables are ceded to the Exchange as part of the intercompany pooling
agreement. At December 31, 2001, the Exchange's statutory total assets totaled
almost $7 billion and Policyholders' surplus totaled $3 billion.

NOTE 12. REINSURANCE

EIC and EINY have an intercompany reinsurance pooling agreement with the
Exchange, whereby EIC and EINY cede all of their direct property/casualty
insurance to the Exchange, except for the annual premium under the all-lines
aggregate excess of loss reinsurance agreement discussed below. EIC and EINY
then assume 5% and 0.5%, respectively, of the total of the Exchange's insurance
business (including the business assumed from EIC and EINY). The companies
settle accounts between them by payment of amounts due within 30 days after the
end of each quarterly accounting period. The purpose of the pooling agreement
is to spread the risks of the members of the Property and Casualty Group by the
different lines of business they underwrite and geographic regions in which
each operates. The pooling agreement may be terminated by any party to the
agreement as of the end of any calendar year by providing not less than 90
days' advance written notice.

EIC and EINY have in effect an all-lines aggregate excess of loss
reinsurance agreement with the Exchange. The purpose of the excess of loss
agreement is to mitigate catastrophic loss exposure and thereby reduce the
adverse effects on the results of operations of EIC and EINY in a given year if
the frequency or severity of claims were substantially higher than historical
averages because of a catastrophic event or series of events. Under this
agreement, EIC and EINY reinsure their net retained share of the intercompany
reinsurance pool such that once EIC and EINY have sustained ultimate net losses
in any applicable accident year that exceed an amount equal to 72.5% of EIC and
EINY's net premiums earned in that period, the Exchange will be liable for 95%
of the amount of such excess, up to but not exceeding, an amount equal to 95%
of 15% of EIC and EINY's net premium earned. Losses

F-30

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 12. INSURANCE (continued)

equal to 5% of the net ultimate net loss in excess of the retention under the
contract are retained net by EIC and EINY. The annual premium is subject to a
minimum premium of $950. This reinsurance treaty is excluded from the
intercompany pooling agreement. The annual premium paid to the Exchange for the
agreement totaled $1,423, $1,268 and $1,199 in 2001, 2000 and 1999
respectively. Recoveries during 2001 amounted to $7,241, of which $6,506
relates to the 2001 accident year. The balance of the recoveries under this
agreement recorded in 2001 related to the 1999 accident year. There were no
loss recoveries by EIC or EINY under the agreement for 2000 or 1999.

To the extent the Exchange assumes reinsurance business from nonaffiliated
sources, the Company participates because of its pooling agreement with the
Exchange. Similarly, the Company also participates in the business ceded from
the Exchange. Reinsurance premiums, commissions, expense reimbursements and
reserves related to reinsurance business are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms of
the reinsurance contracts. Premiums ceded to the Exchange have been reported as
a reduction of premium income. The Company's property and liability reinsurance
assumed from foreign insurance companies is accounted for using the periodic
method, whereby premiums are recognized as revenue over the policy term, and
claims, including an estimate of claims incurred but not reported, are
recognized as they occur. The amount of reinsurance business assumed from
foreign insurance companies is not significant.

Reinsurance contracts do not relieve the Company from its primary
obligations to Policyholders. A contingent liability exists with respect to
reinsurance receivables in the event reinsurers are unable to meet their
obligations under the reinsurance agreements. All reinsurance agreements are
accounted for under SFAS 113--Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts.

The following summarizes insurance and reinsurance activities for the
Company:

2001 2000 1999
--------- --------- ---------

Premiums Earned:
Direct............................... $ 432,307 $ 377,570 $ 351,228
Assumed nonaffiliates................ 7,391 4,824 5,380
Ceded to Erie Insurance Exchange..... (439,698) (382,394) (356,608)
Assumed from Erie Insurance Exchange. 137,648 123,708 117,224
--------- --------- ---------
Net.............................. $ 137,648 $ 123,708 $ 117,224
========= ========= =========
Losses and Loss Adjustment Expenses
Incurred:
Direct............................... $ 374,440 $ 325,644 $ 264,177
Assumed nonaffiliates................ 14,262 3,956 6,512
Ceded to Erie Insurance Exchange..... (388,702) (329,600) (270,689)
Assumed from Erie Insurance Exchange. 117,201 99,564 87,719
--------- --------- ---------
Net.............................. $ 117,201 $ 99,564 $ 87,719
========= ========= =========

F-31

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 13. STATUTORY INFORMATION

The statutory financial statements of Erie Insurance Property & Casualty
Company and EIC are prepared in accordance with accounting practices prescribed
by the Pennsylvania Insurance Department. EINY prepares its statutory financial
statements in accordance with accounting practices prescribed by the New York
Insurance Department. Prescribed SAP include state laws, regulations, and
general administration rules, as well as a variety of publications from the
National Association of Insurance Commissioners (NAIC). The NAIC adopted the
Codification of Statutory Accounting Practices (Codification), effective
January 1, 2001, as the NAIC-supported basis of accounting. The Codification
was approved with a provision allowing for prescribed or permitted accounting
practices to be determined by each state's insurance commissioner. Accordingly,
such discretion will continue to allow prescribed or permitted accounting
practices that may differ from state to state. The New York State Insurance
Department did not adopt the deferred tax provisions of Codification, thus no
deferred taxes are recorded on the EINY statutory financial statements.

Codification resulted in changes to the Company's statutory-basis financial
statements, the most significant of which was the recording of statutory
deferred taxes for EIC and Erie Insurance Property & Casualty Company. The
total cumulative adjustment increased the surplus of the Company's
property/casualty insurance subsidiaries by $4,446 as of January 1, 2001.

Accounting principles used to prepare statutory financial statements differ
from those used to prepare financial statements on the basis of generally
accepted accounting principles. Consolidated balances including amounts
reported by the property/casualty insurance subsidiaries on the statutory basis
would be as follows:

2001 2000 1999
- -------- -------- --------

Shareholders' equity at December 31,...... $854,003 $767,894 $688,802
Net income for the year ended December 31, 118,475 150,942 142,615

The amount of dividends the Company's Pennsylvania-domiciled
property/casualty subsidiaries, EIC and Erie Insurance Property & Casualty
Company, can pay without the prior approval of the Pennsylvania Insurance
Commissioner is limited by Pennsylvania regulation to not more than the greater
of: (a) 10% of its statutory surplus as reported on its last annual statement,
or (b) the net income as reported on its last annual statement. The amount of
dividends that the Erie Insurance Company's New York-domiciled
property/casualty subsidiary, EINY, can pay without the prior approval of the
New York Superintendent of Insurance is limited to the lesser of: (a) 10% of
its statutory surplus as reported on its last annual statement, or (b) 100% of
its adjusted net investment income during such period. At December 31, 2001,
the maximum dividend the Company could receive from its property/casualty
insurance subsidiaries was $5,491. No dividends were paid to the Company from
its property/casualty insurance subsidiaries in 2001 or 2000.

The amount of dividends EFL, a Pennsylvania-domiciled life insurer, can pay
to its shareholders without the prior approval of the Pennsylvania Insurance
Commissioner is limited by statute to the greater of: (a) 10% of its statutory
surplus as regards Policyholders as shown on its last annual statement on file
with the commissioner, or (b) the net income as reported for the period covered
by such annual statement, but shall not include pro rata distribution of any
class of the insurer's own securities. Accordingly, the Company's share of the
maximum dividend payout which may be made in 2002 without prior Pennsylvania
Commissioner approval is $2,295. Dividends to the Company totaled $1,594 in
2001 and $1,472 in 2000.

F-32

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 14. COMMITMENTS

The Company has outstanding commitments to invest up to $124,000 in limited
partnerships at December 31, 2001. These commitments will be funded as required
through the end of the respective investment periods, which typically span 3 to
5 years expiring in 2005. At December 31, 2001, the total commitment to fund
limited partnerships that invest in private equity securities is $87,000, real
estate activities $22,000 and fixed income securities $15,000. At December 31,
2001, no one partnership commitment exceeded $7.5 million, or 6%, of the
outstanding commitment amount.

During 2001, the Company entered into contracts to provide services related
to the eCommerce program with various external vendors. The total outstanding
commitment for these contracts at December 31, 2001, was $16,146, of which
approximately $12,943 will be reimbursed to the Company by the Exchange. The
majority of these committed services at December 31, 2001, are expected to be
performed in 2002.

NOTE 15. SEGMENT INFORMATION

The Company operates its business as three reportable segments--management
operations, property/casualty insurance operations and investment operations.
Accounting policies for segments are the same as those described in the summary
of significant accounting policies. See also Note 2. Assets are not allocated
to the segments and are reviewed in total by management for purposes of
decision making. No single customer or agent provides 10% or more of revenues
for the Exchange.

The Company's principal operations consist of serving as attorney-in-fact
for the Exchange, which constitute its management operations. The Company's
property/casualty insurance operations arise through direct business of its
subsidiaries and by virtue of the pooling agreement between its subsidiaries
and the Exchange, which includes assumed reinsurance from nonaffiliated
domestic and foreign sources. Insurance provided in the property/casualty
operations consists of personal and commercial lines and is sold by independent
agents. Personal lines are marketed to individuals and commercial lines are
marketed to small and medium-sized businesses. The performance of the personal
lines and commercial lines is evaluated based upon the underwriting results as
determined under SAP for the total pooled business of the Group.

F-33

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 15. SEGMENT INFORMATION (continued)

Summarized financial information for these operations is presented below.

2001 2000 1999
-------- -------- --------

MANAGEMENT OPERATIONS:
Operating revenue:
Management fee revenue............................... $634,966 $551,646 $513,375
Service agreement revenue............................ 27,247 22,662 15,441
-------- -------- --------
Total operating revenue.......................... $662,213 $574,308 $528,816
-------- -------- --------
Cost of management operations........................... 477,645 415,562 380,298
Income before income taxes.............................. $184,568 $158,746 $148,518
======== ======== ========
Net income from management operations................... $123,187 $107,032 $100,913
======== ======== ========
INSURANCE UNDERWRITING OPERATIONS:
Operating revenue:
Premiums earned:
Commercial lines..................................... $ 34,970 $ 28,456 $ 25,147
Personal lines....................................... 97,078 89,369 87,334
Reinsurance.......................................... 8,866 7,880 6,185
-------- -------- --------
Total premiums earned (SAP)...................... 140,914 125,705 118,666
GAAP adjustments..................................... (3,266) (1,997) (1,442)
-------- -------- --------
Total premiums earned (GAAP)......................... $137,648 $123,708 $117,224
-------- -------- --------
Operating expenses:
Losses and expenses:
Commercial lines..................................... $ 41,417 $ 31,914 $ 26,726
Personal lines....................................... 107,851 92,012 85,512
Reinsurance.......................................... 12,970 12,203 9,225
-------- -------- --------
Total losses and expenses (SAP).................. 162,238 136,129 121,463
GAAP adjustments..................................... (4,127) (2,019) (700)
-------- -------- --------
Total losses and expenses (GAAP)................. $158,111 $134,110 $120,763
-------- -------- --------
Loss before income taxes................................ $(20,463) $(10,402) $ (3,539)
======== ======== ========
Net loss from insurance underwriting operations......... $(13,658) $ (7,013) $ (2,405)
======== ======== ========
INVESTMENT OPERATIONS:
Net investment income................................... $ 49,884 $ 48,401 $ 43,344
Net realized (loss) income on investments............... (31,879) 16,968 14,746
Equity in (losses) earnings of limited partnerships..... (7) 4,733 641
-------- -------- --------
Income before income taxes and equity in earnings of EFL $ 17,998 $ 70,102 $ 58,731
======== ======== ========
Net income from investment operations................... $ 12,732 $ 52,374 $ 44,598
======== ======== ========

Profitability of the Management Operations segment is evaluated principally
based on the gross margin from management operations while profitability of the
Property Casualty Operations segment is evaluated principally based on the
combined ratio. Investment operations performance is evaluated based on
appreciation of assets, rate of return and overall return.

F-34

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All dollar amounts are in thousands except per share data

NOTE 16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------

2001
Operating revenue................................ $ 184,255 $ 208,583 $ 209,163 $ 197,860
Operating expenses............................... (144,593) (157,265) (164,708) (169,190)
Other income and expenses........................ 11,452 17,289 6,667 (17,410)
--------- --------- --------- ---------
Income before income taxes and equity in earnings
of EFL......................................... 51,114 68,607 51,122 11,260
========= ========= ========= =========
Net income....................................... $ 34,785 $ 47,129 $ 34,430 $ 5,917
========= ========= ========= =========
Net income per share............................. $ 0.49 $ 0.66 $ 0.48 $ 0.08
========= ========= ========= =========
Comprehensive income............................. $ 36,407 $ 45,414 $ 31,081 $ 21,399
========= ========= ========= =========
2000
Operating revenue................................ $ 164,223 $ 182,787 $ 183,466 $ 167,540
Operating expenses............................... (130,808) (141,067) (141,791) (136,006)
Other income and expenses........................ 18,108 19,386 17,682 14,926
--------- --------- --------- ---------
Income before income taxes and equity in earnings
of EFL......................................... 51,523 61,106 59,357 46,460
========= ========= ========= =========
Net income....................................... $ 36,185 $ 42,518 $ 41,192 $ 32,498
========= ========= ========= =========
Net income per share............................. $ 0.50 $ 0.59 $ 0.58 $ 0.45
========= ========= ========= =========
Comprehensive income............................. $ 50,036 $ 35,093 $ 41,565 $ 22,300
========= ========= ========= =========
1999
Operating revenue................................ $ 154,171 $ 170,724 $ 169,038 $ 152,107
Operating expenses............................... (120,411) (129,025) (128,672) (122,953)
Other income and expenses........................ 13,714 14,906 14,994 15,117
--------- --------- --------- ---------
Income before income taxes and equity in earnings
of EFL......................................... 47,474 56,605 55,360 44,271
========= ========= ========= =========
Net income....................................... $ 33,407 $ 39,225 $ 38,425 $ 32,049
========= ========= ========= =========
Net income per share............................. $ 0.45 $ 0.53 $ 0.53 $ 0.44
========= ========= ========= =========
Comprehensive income............................. $ 31,897 $ 32,180 $ 26,295 $ 39,137
========= ========= ========= =========

During the fourth quarter of 2001, the Company realized net losses on the
sale of impaired securities and realized charges for other-than-temporary
impairments of equity securities and limited partnerships totaling $29,153.
Realized losses resulted in an after-tax earnings per share reduction of $0.27.
The investment sales were part of a proactive year-end tax planning strategy
and will produce the recovery of approximately $9.6 million of federal income
taxes paid in 1998, 1999 and 2000. Also contributing to the fourth quarter 2001
decline in net income per share were charges for a severance benefit stemming
from the retirement of the president and CEO of the Erie Insurance Group. The
Company's share of charges related to this severance were approximately $0.10
per share, after taxes.

F-35

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Dollars in thousands)
September 30, December 31,
2002 2001
ASSETS ------------- ------------
(Unaudited)

INVESTMENTS
Fixed maturities at fair value (amortized cost of $620,274 and $543,423, respectively).. $ 646,172 $ 559,873
Equity securities at fair value (cost of $165,772 and $159,727, respectively)........... 181,919 193,798
Limited partnerships (cost of $93,197 and $79,668, respectively)........................ 88,952 81,596
Real estate mortgage loans.............................................................. 5,601 5,700
---------- ----------
TOTAL INVESTMENTS.................................................................... $ 922,644 $ 840,967
Cash and cash equivalents............................................................... 76,190 88,213
Accrued investment income............................................................... 12,496 9,138
Premiums receivable from Policyholders.................................................. 240,448 186,175
Prepaid federal income tax.............................................................. 4,383 14,056
Reinsurance recoverable from Erie Insurance Exchange.................................... 506,012 438,605
Ceded unearned premium to Erie Insurance Exchange....................................... 64,116 52,450
Note receivable from Erie Family Life Insurance Company on unpaid losses................ 15,000 15,000
Other receivables from Erie Insurance Exchange and affiliates........................... 191,167 149,600
Reinsurance recoverable non-affiliates.................................................. 273 372
Deferred policy acquisition costs....................................................... 21,635 17,018
Property and equipment.................................................................. 13,419 14,635
Equity in Erie Family Life Insurance Company............................................ 47,254 44,683
Prepaid pension......................................................................... 40,017 25,451
Other assets............................................................................ 39,636 39,203
---------- ----------
TOTAL ASSETS......................................................................... $2,194,690 $1,935,566
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses.............................................. $ 629,618 $ 557,278
Unearned premiums....................................................................... 390,639 311,969
Commissions payable and accrued......................................................... 137,383 110,121
Accounts payable and accrued expenses................................................... 41,044 46,164
Deferred income taxes................................................................... 10,054 12,945
Dividends payable....................................................................... 10,895 10,930
Employee benefit obligations............................................................ 16,783 20,904
---------- ----------
TOTAL LIABILITIES.................................................................... $1,236,416 $1,070,311
---------- ----------
SHAREHOLDERS' EQUITY
Capital Stock
Class A common, stated value $0.292 per share; authorized 74,996,930 shares;
67,080,000 shares issued in 2002; 63,677,106 and 63,836,323 shares outstanding in
2002 and 2001, respectively............................................................ $ 1,957 $ 1,955
Class B common, stated value $70 per share; authorized 3,050 shares; 3,050 shares
issued and outstanding in 2002 and 3,070 shares issued and outstanding in 2001......... 213 215
Additional paid-in capital............................................................... 7,830 7,830
Accumulated other comprehensive income................................................... 31,266 35,222
Retained earnings........................................................................ 1,018,868 913,406
---------- ----------
Total contributed capital and retained earnings...................................... $1,060,134 $ 958,628
Treasury stock, at cost 3,402,894 shares in 2002 and 3,195,677 shares in 2001............ (101,860) (93,373)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY........................................................... $ 958,274 $ 865,255
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................................... $2,194,690 $1,935,566
========== ==========

See Notes to Consolidated Financial Statements.

F-36

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Nine Months Ended
September 30
---------------------
2002 2001
-------- --------
(Amount in thousands,
except per share data)

OPERATING REVENUE:
Management fee revenue............................................ $593,895 $480,805
Premiums earned................................................... 119,824 100,857
Service agreement revenue......................................... 16,310 20,339
-------- --------
Total operating revenue....................................... $730,029 $602,001
-------- --------
OPERATING EXPENSES:
Cost of management operations..................................... $421,097 $349,796
Losses and loss adjustment expenses incurred...................... 98,431 88,074
Policy acquisition and other underwriting expenses................ 37,343 28,696
-------- --------
Total operating expenses...................................... $556,871 466,566
-------- --------
OTHER INCOME AND EXPENSES:
Net investment income............................................. $ 40,705 $ 36,855
Net realized loss on investments.................................. (8,628) (2,726)
Equity in earnings of limited partnerships........................ 1,110 1,279
-------- --------
Total other income and expenses............................... $ 33,187 $ 35,408
-------- --------
Income before income taxes and equity in earnings of Erie Family Life
Insurance Company.................................................. $206,345 $170,843
Less: Provision for income taxes..................................... 69,171 56,835
Equity in earnings of Erie Family Life Insurance Company, net of tax. $ 1,015 $ 2,337
-------- --------
Net income........................................................ $138,189 $116,345
======== ========
Net income per share.............................................. $ 1.94 $ 1.63
======== ========
Weighted average shares outstanding............................... 71,109 71,380
Dividends declared per share:
Class A........................................................... $ 0.51 $ 0.4575
Class B........................................................... 76.50 68.625

See Notes to Consolidated Financial Statements.

F-37

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Nine Months Ended
September 30
---------------------
2002 2001
-------- --------
(Dollars in thousands)

NET INCOME................................................................... $138,189 $116,345
-------- --------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period............... (19,030) (8,021)
Less: Losses included in net income................................... 8,628 2,726
-------- --------
Net unrealized holding gains (losses) arising during period........ (10,402) (5,295)
Income tax (expense) benefit related to unrealized gains (losses)......... 3,641 1,853
-------- --------
Net appreciation (depreciation) of investments............................ (6,761) (3,442)
Minimum pension liability adjustment...................................... 4,315 0
Less: Tax asset related to pension liability adjustment................... (1,510) 0
-------- --------
Net pension liability adjustment.......................................... 2,805 0
-------- --------
Other comprehensive income loss, net of tax............................... (3,956) (3,442)
COMPREHENSIVE INCOME...................................................... $134,233 $112,903
======== ========

See Notes to Consolidated Financial Statements.

F-38

ERIE INDEMNITY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended
September 30
--------------------
2002 2001
--------- ---------
(Amount in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME................................................... $ 138,189 $ 116,345
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................ 2,909 2,306
Deferred income tax expense.............................. 726 3,820
Amortization of deferred policy acquisition costs........ 21,516 17,852
Equity in income of limited partnerships................. (1,110) (1,279)
Realized loss on investments............................. 8,628 2,726
Net amortization of bond discount........................ (318) (156)
Undistributed losses (earnings of Erie Family Life
Insurance Company)..................................... 196 (1,317)
Deferred compensation.................................... 341 119
Increase in accrued investment income........................ (3,358) (1,231)
Increase in receivables...................................... (174,815) (148,346)
Policy acquisition costs deferred............................ (26,133) (21,283)
Increase in prepaid expenses and other assets................ (14,476) (11,497)
(Decrease) increase in accounts payable and accrued expenses. (5,265) 5,698
Increase in commissions payable and accrued.................. 27,262 11,803
Increase in income taxes payable............................. 9,673 22,313
Increase in loss reserves.................................... 72,340 54,383
Increase in unearned premiums................................ 78,669 48,331
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................ $ 134,974 $ 100,587
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments:
Fixed maturities......................................... $(248,428) $(161,360)
Equity securities........................................ (41,655) (43,267)
Limited partnership investments.......................... (34,448) (20,488)
Sales/maturities of investments:
Fixed maturity sales..................................... 83,978 79,485
Fixed maturity calls/maturities.......................... 80,950 61,249
Equity securities........................................ 33,949 39,881
Mortgage Loans........................................... 99 850
Limited partnership sales or distributions............... 22,028 5,687
Purchase of property and equipment........................... (1,334) (1,821)
Purchase of computer software................................ (359) (818)
Loans to agents.............................................. (2,527) (6,903)
Collections on agent loans................................... 2,000 1,788
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES.................... $(105,747) $ (45,717)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to shareholders............................... $ (32,763) $ (29,507)
Purchase of treasury stock................................... (8,487) (6,687)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES.................... $ (41,250) $ (36,194)
--------- ---------
Net (decrease) increase in cash and cash equivalents......... (12,023) 18,676
Cash and cash equivalents at beginning of period............. 88,213 38,778
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............... $ 76,190 $ 57,454
========= =========
Supplemental disclosures of cash flow information:
Income tax payments.......................................... $ 69,326 $ 31,571

See Notes to Consolidated Financial Statements.

F-39

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All dollar amounts are in thousands except per share data

NOTE A--BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements, which include
the accounts of the Erie Indemnity Company and its wholly owned property and
casualty insurance subsidiaries, Erie Insurance Company (EIC), Erie Insurance
Company of New York (EINY) and Erie Insurance Property & Casualty Company, have
been prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles (GAAP) for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended September 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Form 10-K for the
year ended December 31, 2001 as filed with the Securities and Exchange
Commission on March 12, 2002.

NOTE B--RECLASSIFICATIONS

Certain amounts previously reported in the 2001 financial statements have
been reclassified to conform to the current period's presentation. Such
reclassifications were minor in nature and did not impact earnings.

NOTE C--EARNINGS PER SHARE

Earnings per share is based on the weighted average number of Class A
shares outstanding (63,789,404 and 64,011,614 at September 30, 2002 and 2001,
respectively), giving effect to the conversion of the weighted average number
of Class B shares outstanding (3,050 in 2002 and 3,070 in 2001) at a rate of
2,400 Class A shares for one Class B share. In August 2002, 20 shares of Class
B voting stock were converted to 48,000 non voting shares of Class A common
stock. For the nine months ended September 30, 2002 weighted average equivalent
shares outstanding were 71,109,404 compared to 71,379,614 for the nine months
ended September 30, 2001.

NOTE D--INVESTMENTS

Marketable equity securities consist primarily of common and non redeemable
preferred stocks while fixed maturities consist of bonds, notes and redeemable
preferred stock. Management considers all fixed maturities and marketable
equity securities available-for-sale. Management determines the appropriate
classification of fixed maturities at the time of purchase and reevaluates such
designation as of each statement of financial position date. Available-for-sale
securities are stated at fair value, with the unrealized gains and losses, net
of deferred tax, reported as a separate component of accumulated other
comprehensive income in shareholders' equity. When a decline in the value of
investments is considered to be other-than-temporary by management, the
investments are written down to their estimated realizable value. Investment
impairments are evaluated on an individual security basis and investments
considered impaired are recorded as realized losses on investments in the
Consolidated Statements of Operations. In the first nine months of 2002 and
2001 the Company recognized impairment charges totaling $17,668 and $5,736,
respectively.

F-40

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All dollar amounts are in thousands except per share data

NOTE D--INVESTMENTS (continued)

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

Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------

September 30, 2002
------------------
FIXED MATURITIES:
U.S. treasuries & government agencies.......... $ 8,281 $ 727 $ 82 $ 8,926
States & political subdivisions................ 52,071 3,371 0 55,442
Special revenue................................ 96,068 5,506 0 101,574
Public utilities............................... 42,820 1,524 988 43,356
U.S. industrial & miscellaneous................ 360,806 24,573 8,997 376,382
Foreign........................................ 47,177 2,070 2,691 46,556
-------- ------- ------- --------
Total bonds................................. $607,223 $37,771 $12,758 $632,236
Redeemable preferred stock..................... 13,051 885 0 13,936
-------- ------- ------- --------
Total fixed maturities...................... $620,274 $38,656 $12,758 $646,172
-------- ------- ------- --------
EQUITY SECURITIES:
Common stock:
U.S. banks, trusts & insurance companies.... $ 1,846 $ 784 $ 484 $ 2,146
U.S. industrial & miscellaneous............. 19,777 14,023 1,632 32,168
Foreign..................................... 417 233 0 650
Non redeemable preferred stock:
Public utilities............................ 11,902 125 114 11,913
U.S. banks, trusts & insurance companies.... 22,189 1,478 486 23,181
U.S. industrial & miscellaneous............. 89,166 4,651 3,785 90,032
Foreign..................................... 20,475 1,404 50 21,829
-------- ------- ------- --------
Total equity securities................. $165,772 $22,698 $ 6,551 $181,919
-------- ------- ------- --------
Total available-for-sale securities..... $786,046 $61,354 $19,309 $828,091
======== ======= ======= ========

F-41

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All dollar amounts are in thousands except per share data

NOTE D--INVESTMENTS (continued)

Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------

December 31, 2001
-----------------
FIXED MATURITIES:
U.S. treasuries & government agencies.......... $ 11,211 $ 502 $ 0 $ 11,713
States & political subdivisions................ 42,392 1,817 88 44,121
Special revenue................................ 110,267 3,496 345 113,418
Public utilities............................... 25,150 1,156 36 26,270
U.S. industrial & miscellaneous................ 311,757 8,989 1,438 319,308
Foreign........................................ 26,634 859 17 27,476
-------- ------- ------ --------
Total bonds................................. $527,411 $16,819 $1,924 $542,306
Redeemable preferred stock..................... 16,012 1,555 0 17,567
-------- ------- ------ --------
Total fixed maturities...................... $543,423 $18,374 $1,924 $559,873
-------- ------- ------ --------

EQUITY SECURITIES:
Common stock:
U.S. banks, trusts & insurance companies.... $ 3,284 $ 814 $ 16 $ 4,082
U.S. industrial & miscellaneous............. 28,718 31,570 579 59,709
Nonredeemable preferred stock:
Public utilities............................ 2,370 12 3 2,379
U.S. banks, trusts & insurance companies.... 14,685 938 58 15,565
U.S. industrial & miscellaneous............. 91,185 2,573 2,111 91,647
Foreign..................................... 19,485 1,039 108 20,416
-------- ------- ------ --------
Total equity securities................. $159,727 $36,946 $2,875 $193,798
-------- ------- ------ --------
Total available-for-sale securities..... $703,150 $55,320 $4,799 $753,671
======== ======= ====== ========

The Company participates in a securities lending program whereby certain
securities from its portfolio are loaned to other institutions through a
lending agent. A fee is paid to the Company by the borrower. Collateral,
comprised of cash and government securities, that exceeds the market value of
the loaned securities is maintained by the lending agent in the event a
borrower becomes insolvent or fails to return securities. The Company had
loaned securities with a market value of $37,396 and $38,503 secured by
collateral of $39,067 and $39,645 at September 30, 2002 and 2001, respectively.
The Company maintains the loaned securities on its Consolidated Statements of
Financial Position as part of its invested assets. The Company has incurred no
losses on the loan program since the program's inception.

F-42

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All dollar amounts are in thousands except per share data

NOTE D--INVESTMENTS (continued)

The components of net realized loss on investments as reported on the
Consolidated Statements of Operations are included below. The securities that
were recognized as impaired during the first nine months of 2002 were in the
telecommunications and energy industry segment. Impairment charges taken in the
first nine months of 2001 related to the internet, telecommunications
equipment, semi-conductor and software development industry segments.

Nine Months Ended
September 30
-----------------
2002 2001
-------- -------

FIXED MATURITIES:
Gross realized gains................. $ 5,515 $ 3,697
Gross realized losses and impairments (15,425) (503)
-------- -------
Net realized (loss) gain.......... $ (9,910) $ 3,194
-------- -------
EQUITY SECURITIES:
Gross realized gains................. $ 7,989 $ 4,045
Gross realized losses and impairments (6,707) (9,965)
-------- -------
Net realized gain (loss).......... $ 1,282 $(5,920)
-------- -------
Net realized loss on investments.. $ (8,628) $(2,726)
======== =======

Limited partnerships include U.S. and foreign private equity, real estate
and fixed income investments. The private equity limited partnerships invest in
small-to medium-sized companies. Limited partnerships are recorded using the
equity method, which approximates the Company's share of the carrying value of
the partnership. Unrealized gains and losses on private equity limited
partnerships are reflected in shareholders' equity in accumulated other
comprehensive income, net of deferred taxes. The Company has not guaranteed any
of the partnership liabilities.

Limited partnerships that have declined in value below cost and for which
the decline is considered to be other-than-temporary by management are written
down to realizable value. These impairments are made directly on an individual
limited partnership basis and are considered a loss in the Equity in Earnings
of Limited Partnerships on the Consolidated Statements of Operations. The
components of Equity in Earnings of Limited Partnerships as reported on the
Consolidated Statements of Operations are included below. For the nine months
ended September 30, 2002 impairment charges related to limited partnerships
were $1,381. There were no impairments recognized during the nine month period
ended September 30, 2001.

Nine Months
Ended
September 30
---------------
2002 2001
------- ------

Private equity............................................... $(2,734) $ (373)
Real estate.................................................. 3,712 1,318
Fixed income................................................. 132 334
------- ------
Total equity in earnings (losses) of limited partnerships. $ 1,110 $1,279
======= ======

F-43

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All dollar amounts are in thousands except per share data

NOTE D--INVESTMENTS (continued)

During 2001, the Company entered into several foreign currency forward
contracts which are by definition derivatives. The purpose of these contracts
is to hedge future capital calls related to the Company's limited partnership
commitments. However, under accounting rules, these contracts are not
considered hedges. The forward contracts have no cash requirements at the
inception of the arrangement. At September 30, 2002 there were no contracts
outstanding. For the nine months, gains on these contracts totaled $214 for
2002 and $50 in 2001.

NOTE E--SUMMARIZED FINANCIAL STATEMENT INFORMATION OF AFFILIATE

The Company owns 21.6% of Erie Family Life Insurance Company (EFL) common
shares outstanding and accounts for this investment using the equity method of
accounting. EFL is a Pennsylvania domiciled life insurance company operating in
10 states and the District of Columbia. Dividends paid to the Company for the
nine months ended September 30, 2002 and 2001 totaled $1,257 and $1,163,
respectively.

The following represents unaudited condensed financial statement
information for EFL on a GAAP basis:

Nine Months Ended Nine Months Ended
September 30, 2002 September 30, 2001
------------------ ------------------

Revenues............................................... $79,598 $79,066
Benefits and expenses.................................. 70,604 61,302
------- -------
Income before income taxes............................. 8,994 17,764
Income taxes........................................... 3,112 6,147
------- -------
Net income............................................. $ 5,882 $11,617
======= =======
Comprehensive income................................... $18,675 $22,285
======= =======
Dividends paid to shareholders......................... $ 5,812 $ 5,387
======= =======
Net unrealized appreciation on investment securities at
September 30, net of deferred taxes.................. $31,152 $14,355
======= =======

NOTE F--NOTE RECEIVABLE FROM ERIE FAMILY LIFE INSURANCE COMPANY

The Company is due $15,000 from EFL in the form of a surplus note. The note
bears an annual interest rate of 6.45% and all payments of interest and
principal on the note may be repaid only out of unassigned surplus of EFL and
are subject to prior approval by the Pennsylvania Insurance Commissioner.
Interest on the surplus note is scheduled to be paid semi-annually. The note
will be payable on demand on or after December 31, 2005. EFL paid $484 in the
first nine months of 2002 and 2001 to the Company. EFL also accrued interest of
$242 in the third quarters of 2002 and 2001 which is payable to the Company.

NOTE G--TREASURY STOCK

The Company has in place a stock repurchase plan, under which the Company
may repurchase as much as $120,000 of its outstanding Class A common stock
through December 31, 2002. Treasury shares are recorded in the Consolidated
Statements of Financial Position at cost. The Company filed a registration
statement on Form S-3 with the Securities and Exchange Commission on September
30, 2002. The Company has suspended share repurchases under this plan until the
secondary offering had been completed.

F-44

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All dollar amounts are in thousands except per share data

NOTE H--COMMITMENTS

The Company has contractual commitments to invest up to $116,000 related to
its limited partnership investments at September 30, 2002. These commitments
will be funded as required by the partnership's agreements through September
2007. At September 30, 2002, the total commitment to fund limited partnerships
that invest in private equity securities is $80,000, real estate activities
$20,000 and fixed income securities $16,000. The Company expects to have
sufficient cash flows from operations to meet these partnership commitments.

NOTE I--SEGMENT INFORMATION

The Company operates its business as three reportable segments--management
operations, property and casualty insurance underwriting and investment
operations. The Company's principal operations consist of serving as
attorney-in-fact for the Erie Insurance Exchange (the Exchange). In its
capacity as attorney-in-fact, the Company sells, underwrites and issues
property and casualty insurance policies for the Exchange. These activities
constitute the Company's management operations. The Company's property and
casualty insurance underwriting operations arise through direct business of its
insurance subsidiaries and by virtue of the intercompany pooling agreement
between its subsidiaries and the Exchange which includes assumed reinsurance
from non-affiliated domestic and foreign sources. The performance of the
management operations segment is evaluated principally based on revenue growth
and the profitability as measured by the gross margin from management
operations while profitability of the property and casualty insurance
operations segment is evaluated principally based on the combined ratio.
Investment operations performance is evaluated based on appreciation of asset,
rate of return and overall return. Net income from investment operations
includes equity in earnings of EFL, net of tax. Accounting policies for
segments are the same as described in the summary of significant accounting
policies Note 2, of the Company's Annual Report on Form 10-K for the year ended
December 31, 2001 as filed with the Securities and Exchange Commission on March
12, 2002.

The Exchange and its property and casualty subsidiary, Flagship City
Insurance Company, combined with the Company's property and casualty insurance
subsidiaries (collectively, the Property and Casualty Group) provide personal
and commercial lines insurance through independent agents. The performance of
the personal and commercial lines is evaluated based upon the underwriting
results as determined under SAP for the total pooled business of the Property
and Casualty Group. Assets are not allocated to segments and are reviewed in
total by management for purposes of decision making. No single customer or
agent provides 10% or more of revenues for the Property and Casualty Group.

F-45

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All dollar amounts are in thousands except per share data

NOTE I--SEGMENT INFORMATION (continued)

Summarized financial information for these operations is presented below:

Nine Months Ended
September 30
--------------------
2002 2001
--------- ---------

MANAGEMENT OPERATIONS:
Operating revenue:
Management fee revenue............................... $593,895 $480,805
Service agreement revenue............................ 16,310 20,339
--------- ---------
Total operating revenue.......................... $610,205 $501,144
========= =========
Cost of management operations........................... $421,097 $349,796
Income before income taxes.............................. $189,108 $151,348
========= =========
Net income from management operations................... $125,715 $100,998
========= =========
INSURANCE UNDERWRITING OPERATIONS:
Operating revenue:
Premiums earned:
Commercial lines................................. $ 33,890 $ 25,627
Personal lines................................... 83,461 72,137
Reinsurance...................................... 5,724 5,024
--------- ---------
Total premiums earned (SAP)................... 123,075 102,788
GAAP adjustments................................. (3,251) (1,931)
--------- ---------
Total premiums earned (GAAP).................. $119,824 $100,857
--------- ---------
Operating expenses:
Losses and expenses:
Commercial lines................................. $ 37,351 $ 28,554
Personal lines................................... 97,775 79,434
Reinsurance...................................... 5,265 12,213
--------- ---------
Total losses and expenses (SAP)............... 140,391 120,201
GAAP adjustments................................. (4,617) (3,431)
--------- ---------
Total losses and expenses (GAAP).............. $135,774 $116,770
========= =========
Loss before income taxes................................ ($ 15,950) ($ 15,913)
========= =========
Net loss from insurance underwriting operations......... ($ 10,603) ($ 10,619)
========= =========
INVESTMENT OPERATIONS:
Net investment income................................... $ 40,705 $ 36,855
Net realized loss on investments........................ (8,628) (2,726)
Equity in earnings of limited partnerships.............. 1,110 1,279
--------- ---------
Income before income taxes and equity in earnings of EFL $ 33,187 $ 35,408
========= =========
Net income from investment operations................... $ 23,077 $ 25,966
========= =========

F-46

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All dollar amounts are in thousands except per share data

NOTE I--SEGMENT INFORMATION (continued)

The following table presents the management fee revenue by line of business:

Nine Months Ended %
September 30 Change
----------------- ------
2002 2001
-------- --------

Private passenger auto..... $313,786 $262,901 19.4%
Commercial auto............ 50,884 39,963 27.3
Homeowner.................. 92,017 76,373 20.5
Commercial multi-peril..... 62,371 44,619 39.8
Workers' compensation...... 52,173 38,829 34.3
All other lines of business 22,664 18,120 25.1
-------- -------- ----
Total................... $593,895 $480,805 23.5%
======== ======== ====

The growth rate of policies in force and policy retention trends (the
percentage of current Policyholders who have renewed their policies) directly
impact the Company's management and property and casualty insurance
subsidiaries operating segments. Below is a summary of each by line of business
for the Property and Casualty Group's insurance business.

Growth rate of policies in force for Property and Casualty Group insurance
operations:

Private 12-mth. 12-mth. All other 12-mth. Total
passenger growth growth personal lines growth Personal
Date auto rate Homeowner rate of business rate Lines
---- --------- ------- --------- ------- -------------- ------- ---------

12/31/2000 1,337,280 4.9% 986,654 7.5% 192,909 10.3% 2,516,843
03/31/2001 1,356,651 5.3 1,003,517 7.7 197,849 10.7 2,558,017
06/30/2001 1,382,419 5.9 1,029,339 8.1 204,614 10.9 2,616,372
09/30/2001 1,408,092 6.3 1,053,014 8.4 210,220 11.4 2,671,326
12/31/2001 1,432,747 7.1 1,075,816 9.0 215,134 11.5 2,723,697
03/31/2002 1,469,617 8.3 1,104,806 10.1 222,061 12.2 2,796,484
06/30/2002 1,512,335 9.4 1,146,639 11.4 231,951 13.4 2,890,925
09/30/2002 1,554,425 10.4 1,190,651 13.1 240,410 14.4 2,985,486

12-mth. 12-mth. 12-mth. All other 12-mth. Total
CML* Growth CML* Growth Workers' Growth CML* lines Growth Commercial
Date auto rate Multi-peril rate comp. rate of business rate Lines
---- ------- ------- ----------- ------- -------- ------- ----------- ------- ----------

12/31/2000 87,567 5.8% 148,910 10.1% 47,156 8.4% 65,077 7.1% 348,710
03/31/2001 89,388 7.0 152,260 10.6 48,104 8.7 66,309 8.0 356,061
06/30/2001 91,794 7.9 157,804 10.8 49,711 9.5 67,964 8.9 367,273
09/30/2001 94,204 8.8 162,246 11.1 50,984 9.6 70,048 9.0 377,482
12/31/2001 96,100 9.7 166,214 11.6 52,033 10.3 71,539 9.9 385,886
03/31/2002 98,926 10.7 171,283 12.5 53,320 10.8 73,392 10.7 396,921
06/30/2002 102,447 11.6 179,761 13.9 55,607 11.9 75,884 11.7 413,699
09/30/2002 105,353 11.8 185,608 14.4 57,375 12.5 78,131 11.5 426,467

F-47

ERIE INDEMNITY COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All dollar amounts are in thousands except per share data

NOTE I--SEGMENT INFORMATION (continued)

Policy retention trends for Property and Casualty Group insurance operations:

Private All other
passenger CML* CML* Workers' Lines of
Date auto auto Homeowner multi-peril comp. business Total
---- --------- ----- --------- ----------- -------- --------- -----

12/31/2000 92.31% 89.80% 90.70% 87.92% 88.48% 87.89% 91.01%
03/31/2001 92.24 90.29 90.66 88.58 89.06 88.03 91.03
06/30/2001 92.25 90.35 90.63 88.36 88.76 88.18 91.01
09/30/2001 92.22 90.16 90.38 88.18 88.53 88.16 90.89
12/31/2001 92.24 90.53 90.24 88.03 88.43 88.15 90.85
03/31/2002 92.26 90.86 90.24 88.77 89.34 88.11 90.91
06/30/2002 92.35 91.12 90.35 88.95 89.46 88.30 91.02
09/30/2002 92.50 90.79 90.54 88.69 89.51 88.15 91.12

--------
* CML = Commercial

F-48

================================================================================

No dealer, salesperson or other person is authorized to give any information or
to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current as of its date.

-----------------

TABLE OF CONTENTS

Page
----

Prospectus Summary.......................... 1
Risk Factors................................ 8
Cautionary Note Regarding Forward-Looking
Statements................................ 23
Price Range of Our Class A Common Stock
and Dividend History...................... 24
Capitalization.............................. 25
Selected Historical Financial Information of
the Company............................... 26
Selected Historical Financial Information of
the Exchange.............................. 27
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 28
Business.................................... 47
Erie Insurance Exchange..................... 78
Erie Family Life Insurance Company.......... 85
Management.................................. 86
Certain Relationships and Related
Transactions.............................. 88
Principal Shareholders...................... 89
Selling Shareholder......................... 93
Description of Capital Stock................ 93
Shares Eligible for Future Sale............. 94
Underwriting................................ 96
Validity of Common Stock.................... 98
Experts..................................... 98
Where To Find More Information/
Incorporation by Reference................ 99
Index to Financial Statements............... F-1

================================================================================
================================================================================

3,000,000 Shares

Erie Indemnity Company

Class A Common Stock

-----------------

[LOGO]
ERIE(R)
ERIE INDEMNITY COMPANY

-----------------

Goldman, Sachs & Co.

Credit Suisse First Boston

Advest, Inc.

Cochran, Caronia & Co.

Legg Mason Wood Walker
Incorporated

Representatives of the Underwriters

================================================================================

PART II

Item 14. Other Expenses of Issuance and Distribution.

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the Class A common stock being registered. All amounts are
estimates except the registration fee.

Commission registration fee................... $ 18,238
NASD filing fee............................... 20,324
Printing and engraving costs.................. 110,000
Legal fees and expenses....................... 500,000
Accounting fees and expenses.................. 150,000
Blue sky filing fees and expenses............. 0
Transfer agent and registrar fees and expenses 1,000
Miscellaneous expenses........................ 25,000
--------
$824,562
========

All expenses other than the Commission registration fee are estimated. The
selling shareholder identified in this registration statement is obligated to
reimburse the registrant for the above listed expenses.

Item 15. Indemnification of Directors and Officers.

Pennsylvania law provides that a Pennsylvania corporation may indemnify
directors, officers, employees and agents of the corporation against
liabilities they may incur in such capacities for any action taken or any
failure to act, whether or not the corporation would have the power to
indemnify the person under any provision of law, unless such action or failure
to act is determined by a court to have constituted recklessness or willful
misconduct. Pennsylvania law also permits the adoption of a bylaw amendment,
approved by shareholders, providing for the elimination of a director's
liability for monetary damages for any action taken or any failure to take any
action unless (i) the director has breached or failed to perform the duties of
his office and (ii) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness.

The Bylaws of the registrant provide for (i) indemnification of directors,
officers, employees and agents of the registrant and its subsidiaries and (ii)
the elimination of a director's liability for monetary damages, to the fullest
extent permitted by Pennsylvania law.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or controlling persons of the
registrant pursuant to the foregoing provisions, the registrant has been
informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.

II-1

Item 16. Exhibits.

Exhibit No. Exhibit Description
----------- -------------------
1**** Form of Underwriting Agreement
4.1* Form of Registrant's Class A Common Stock Certificate
4.2* Form of Registrant's Class B Common Stock Certificate
5**** Opinion of Duane Morris LLP
23.1 Consent of Malin, Bergquist & Company LLP
23.2*** Consent of Ward Group
23.3**** Consent of Duane Morris LLP (Included in Exhibit 5)
24** Powers of Attorney
--------
* Such exhibit is incorporated by reference to the like numbered exhibit in
Registrant's Form 10 Registration Statement Number 0-24000 filed with the
Securities and Exchange Commission on May 2, 1994.
** Such exhibit is incorporated by reference to the like numbered exhibit in
Registrant's Form S-3 Registration Statement, Commission File No. 333-99943.
*** Such exhibit is incorporated by reference to the like numbered exhibit in
Registrant's Amendment No. 1 to Form S-3 Registration Statement, Commission
File No. 333-99943.
****Such exhibit is incorporated by reference to the like numbered exhibit in
Registrant's Amendment No. 2 to Form S-3 Registration Statement, Commission
File No. 333-99943.

Item 17. Undertakings.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-2

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 5 to
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Erie, Commonwealth of Pennsylvania,
on January 28, 2003.

ERIE INDEMNITY COMPANY

By: /S/ JEFFREY A. LUDROF
-----------------------------
Jeffrey A. Ludrof,
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 5 to this registration statement has been signed by the following persons
in the capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

/s/ JEFFREY A. LUDROF President, Chief Executive January 28, 2003
----------------------------- Officer and Director
Jeffrey A. Ludrof (principal executive
officer)

/s/ PHILIP A. GARCIA Executive Vice President and January 28, 2003
----------------------------- Chief Financial Officer
Philip A. Garcia (principal financial
officer)

/s/ TIMOTHY G. NECASTRO Senior Vice President and January 28, 2003
----------------------------- Controller (principal
Timothy G. NeCastro accounting officer)

* Director January 28, 2003
-----------------------------
Samuel P. Black, III

* Director January 28, 2003
-----------------------------
J. Ralph Borneman, Jr.

* Director January 28, 2003
-----------------------------
Patricia A. Garrison-Corbin

----------------------------- Director January , 2003
Susan Hirt Hagen

* Chairman of the Board and January 28, 2003
----------------------------- Director
F. William Hirt

* Director January 28, 2003
-----------------------------
Samuel P. Katz

* Director January 28, 2003
-----------------------------
Claude C. Lilly, III

II-3

Signature Title Date
--------- ----- ----

* Director January 28, 2003
-----------------------------
Henry N. Nassau

* Director January 28, 2003
-----------------------------
John M. Petersen

/s/ JAN R. VAN GORDER Senior Executive Vice January 28, 2003
----------------------------- President, Secretary,
Jan R. Van Gorder General Counsel and Director

* Director January 28, 2003
-----------------------------
Robert C. Wilburn

*By: /s/ JAN R. VAN GORDER
-------------------------
Jan R. Van Gorder,
Attorney-in-Fact

II-4