UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~[X]~~ þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~March 3031, ~~2004~~2005

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

For the transition period from ___________ to ___________

Commission file number 2-39458

ERIE FAMILY LIFE INSURANCE COMPANY

(Exact name of registrant as specified in its charter)

PENNSYLVANIA	25-1186315
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer ~~Identification No.)~~
	Identification No.)
100 Erie Insurance Place, Erie, Pennsylvania		16530
(Address of principal executive offices)	(Zip Code)

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

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

Not applicable ~~Former name, former address and former fiscal year, if changed since last report~~

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

~~Yes~~Indicate by check mark whether the registrant (1) has filed all reports required to be filed by ~~[X] No~~Section 13 ~~[ ]~~or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o No þ

~~Yes~~Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as ~~[ ] No~~of ~~[X]~~the latest practicable date: 9,450,000 shares of Common Stock outstanding on April 15, 2005.

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: 9,450,000 shares of Common Stock outstanding on August 13, 2004.

INDEX

ERIE FAMILY LIFE INSURANCE COMPANY

PART I. FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)
		Statements of Financial Position - June 30, 2004 (Unaudited) and December 31, 2003
		Statements of Financial Position — March 31, 2005 and December 31, 2004
		Statements of Operations (Unaudited) - Three and six months ended June 30, 2004 and 2003
		Statements of Operations — Three months ended March 31, 2005 and 2004
		Statements of Comprehensive Income (Unaudited) - Three and six months ended June 30, 2004 and 2003
		Statements of Comprehensive Income — Three months ended March 31, 2005 and 2004
		Statements of Cash Flows (Unaudited) - Six months ended June 30, 2004 and 2003
		Statements of Cash Flows — Three months ended March 31, 2005 and 2004
		Notes to Financial Statements - June 30, 2004
		Notes to Financial Statements — March 31, 2005
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.		Quantitative and Qualitative Disclosures About Market Risk
Item 4.		Controls and Procedures
PART II. OTHER INFORMATION
Item 4.		Submission of Matters to a Vote of Security Holders
Item 1.		Legal Proceedings
Item 6.		Exhibits ~~and Reports on Form 8-K~~
SIGNATURES
Certification
Exhibit 31.1
Certification
Exhibit 31.2
Certifications
Exhibit 32

PART I. FINANCIAL INFORMATION

ERIE FAMILY LIFE INSURANCE COMPANY STATEMENTS OF FINANCIAL POSITION

STATEMENTS OF FINANCIAL POSITION


	(Dollars in thousands)
	March 31,		December 31,
ASSETS	2005		2004
	(Unaudited)
Investments:
Fixed maturities at fair value (amortized cost of $1,318,068 and $1,297,913, respectively)	$	1,359,516	$	1,366,898
Equity securities at fair value (cost of $59,891 and $59,426, respectively)		65,912		66,375
Limited partnerships (cost of $14,640 and $15,234, respectively)		15,560		15,467
Real estate mortgage loans		6,077		6,124
Real estate		1,023		1,044
Policy loans		10,854		10,671

Total investments		1,458,942		1,466,579

Cash and cash equivalents		22,721		22,446
Premiums receivable from policyholders		7,315		7,876
Reinsurance recoverable		1,797		2,527
Other receivables		426		319
Accrued investment income		19,305		16,031
Deferred policy acquisition costs		118,886		111,409
Reserve credit for reinsurance ceded		30,491		29,420
Prepaid federal income taxes		0		789
Other assets		5,123		4,044

Total assets	$	1,665,006	$	1,661,440

	(Dollars in thousands)
	June 30,		December 31,
ASSETS	2004		2003
	(Unaudited)		(Restated)
Investments:
Fixed maturities at fair value (amortized cost of $1,257,776 and $1,203,607, respectively)	$	1,290,791	$	1,280,327
Equity securities at fair value (cost of $60,137 and $56,608, respectively)		64,370		62,948
Limited partnerships at fair value (cost of $13,031 and $12,203, respectively)		13,108		12,241
Real estate mortgage loans		6,216		6,305
Real estate		1,086		1,127
Policy loans		10,371		9,951
Total investments		1,385,942		1,372,899
Cash and cash equivalents		70,115		91,667
Premiums receivable from policyholders		6,933		7,344
Reinsurance recoverable		1,584		2,960
Other receivables		373		137
Accrued investment income		15,456		15,088
Deferred policy acquisition costs		114,812		98,207
Reserve credit for reinsurance ceded		24,191		20,758
Prepaid federal income taxes		1,216		1,983
Other assets		6,755		18,520
Total assets	$	1,627,377	$	1,629,563

See Accompanying Notes to Financial Statements.

See Notes to Financial Statements.

ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION

	(Dollars in thousands)
	June 30,		December 31,
	March 31,		December 31,
LIABILITIES AND SHAREHOLDERS’ EQUITY	~~2004~~2005		~~2003~~2004
	(Unaudited)		~~(Restated)~~
Liabilities:
Policy Liabilities and Accruals:
Future policy benefits	$	115,553	$	108,089
Future life and accident and health policy benefits	$	128,247	$	124,016
Policy and contract claims		34,~~023~~551		3,~~653~~153
Annuity deposits		~~962~~997,~~907~~869		~~932~~984,~~553~~870
Universal life deposits		~~157~~166,~~057~~717		~~150~~163,~~421~~489
Supplementary contracts not including life contingencies		~~718~~705		~~579~~702
Other policyholder funds		47,~~910~~091		96,~~856~~048
Deferred income taxes		37,275		46,813
Federal income taxes payable		1,472		0
Reinsurance premium due		1,327		1,875
Deferred income taxes		40,158		48,066
Securities lending collateral		43,831		65,495
Reinsurance premium due		907		2,581
Accounts payable and accrued expenses		911,~~383~~531		910,~~239~~581
Notes payable to Erie Indemnity Company		40,000		40,000
Due to affiliates		4,~~046~~716		34,~~442~~327
Dividends payable		2,079		12,~~985~~079
Total liabilities		1,~~382~~406,~~109~~043		1,~~374~~389,~~000~~912
Shareholders’ Equity:
Common stock, $.40 par value per share; authorized 15,000,000 shares; 9,450,000 shares issued and outstanding		3,780		3,780
Additional paid-in capital		630		630
Accumulated other comprehensive income		1825,~~703~~217		4439,~~603~~252
Retained earnings		~~222~~229,~~155~~336		~~206~~227,~~550~~866
Total shareholders’ equity		~~245~~258,~~268~~963		~~255~~271,~~563~~528
Total liabilities and shareholders’ equity	$	1,~~627~~665,~~377~~006	$	1,~~629~~661,~~563~~440

See Accompanying Notes to Financial Statements.

ERIE FAMILY LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS (Unaudited)

STATEMENTS OF OPERATIONS (Unaudited)


	Three Months Ended			Three Months Ended
	March 31, 2005			March 31, 2004
	(Dollars in thousands, except per share data)
Revenues
Net Policy Revenue:
Life premiums	$	13,502		$	13,112
Group life and other premiums		906			867

Total net policy revenue		14,408			13,979

Net investment income		20,306			19,472
Net realized (losses) gains on investments	(	1,353	)		2,848
Equity in earnings of limited partnerships		604			155
Other income		177			318

Total revenues		34,142			36,772


Benefits and Expenses
Death benefits		3,430			4,904
Interest on annuity deposits		11,027			10,910
Interest on universal life deposits		1,795			1,736
Interest on surplus notes and other affiliate interest		712			717
Surrender and other benefits		337			320
Increase in future life policy benefits		3,160			2,247
Amortization of deferred policy acquisition costs		2,254			228
Commissions		400			542
General expenses		4,611			3,878
Taxes, licenses and fees		956			834

Total benefits and expenses		28,682			26,316


Income before income taxes		5,460			10,456

Provision for income taxes		1,911			3,940


Net income	$	3,549		$	6,516


Net income per share	$	0.38		$	0.69


Dividends declared per share	$	0.22		$	0.22

	Three Months Ended						Six Months Ended
	June 30						June 30
	2004			2003			2004			2003
				(Restated)						(Restated)
	(Dollars in thousands, except per share data)
Revenues:
Net Policy Revenue:
Life Premiums	$	13,789		$	13,529		$	26,901		$	25,771
Group Life and Other Premiums		836			805			1,703			1,651
Total Net Policy Revenue		14,625			14,334			28,604			27,422
Net Investment Income		19,752			19,843			38,507			38,426
Net Realized Gains on Investments		5,556			2,099			8,404			4,261
Equity in Earnings of Limited Partnerships		712			120			867			400
Other Income		238			217			556			396
Total Revenues		40,883			36,613			76,938			70,905
Benefits and Expenses:
Death Benefits		3,479			2,761			8,383			6,602
Interest on Annuity Deposits		11,136			10,605			22,046			20,540
Interest on Universal Life Deposits		1,751			1,827			3,487			3,606
Surrender and Other Benefits		295			448			615			723
Increase in Future Life Policy Benefits		1,784			1,509			4,031			3,297
Amortization of Deferred Policy Acquisition Costs		(3,592	)		1,725			(3,365	)		3,909
Commissions		1,043			1,143			1,585			2,483
General Expenses		4,097			3,915			7,975			8,337
Taxes, Licenses and Fees		1,023			707			1,857			1,384
Total Benefits and Expenses		21,016			24,640			46,614			50,881
Income Before Income Taxes		19,867			11,973			30,324			20,024
Provision for Federal Income Tax (Benefit):
Current		3,662			4,194			6,148			7,919
Deferred		2,958			(39	)		4,411			(971	)
Total Provision for Federal Income Tax		6,620			4,155			10,559			6,948
Net Income	$	13,247		$	7,818		$	19,765		$	13,076
Net Income Per Share	$	1.40		$	0.83		$	2.09		$	1.38
Dividends Declared Per Share	$	0.22		$	0.42		$	0.44		$	0.63

See Accompanying Notes to Financial Statements.

See Notes to Financial Statements.

ERIE FAMILY LIFE INSURANCE COMPANY STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


	Three Months Ended			Three Months Ended
	March 31, 2005			March 31, 2004
	(Dollars in thousands)
Net income	$	3,549		$	6,516

Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during period, net of offsets to shadow deferred acquisition costs	(	22,945	)		25,873
Less: losses (gains) included in net income		1,353		(	2,848	)

Net unrealized holding (losses) gains arising during period, net of offsets to shadow deferred acquisition costs	(	21,592	)		23,025
Income tax benefit (expense) related to unrealized (losses) gains		7,557		(	8,059	)

Unrealized (depreciation) appreciation of investments, net of taxes	(	14,035	)		14,966

Comprehensive (loss) income	($	10,486	)	$	21,482

	Three Months Ended						Six Months Ended
	June 30						June 30
	2004			2003			2004			2003
				(Restated)						(Restated)
	(Dollars in thousands)
Net Income	$	13,247		$	7,818		$	19,765		$	13,076
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains arising during period, net of related offsets		(57,315	)		41,296			(31,442	)		54,650
Less: gains included in net income		(5,556	)		(2,099	)		(8,404	)		(4,261	)
Net unrealized holding (losses) gains arising during period, net of related offsets		(62,871	)		39,197			(39,846	)		50,389
Income tax benefit (expense) related to unrealized (losses) gains		22,005			(13,719	)		13,946			(17,636	)
Unrealized (deprecation) appreciation of investments, net of tax		(40,866	)		25,478			(25,900	)		32,753
Comprehensive (Loss) Income	($	27,619	)	$	33,296		($	6,135	)	$	45,829

See Accompanying Notes to Financial Statements.

See Notes to Financial Statements.

ERIE FAMILY LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS (Unaudited)

STATEMENTS OF CASH FLOWS (Unaudited)


	Three Months Ended			Three Months Ended
	March 31, 2005			March 31, 2004
	(Dollars in thousands)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Premiums collected	$	14,232		$	10,790
Net investment income received		17,406			16,480
Miscellaneous income		177			318
Benefits to policyholders	(	15,470	)	(	18,870	)
Commissions paid to agents	(	469	)	(	1,340	)
Salaries and wages paid	(	4,277	)	(	3,326	)
General operating expenses paid	(	4,434	)	(	4,131	)
Taxes, licenses and fees paid	(	1,416	)	(	1,291	)
Interest paid	(	51	)	(	52	)
Income taxes recovered		0			19

Net cash provided by (used in) operating activities		5,698		(	1,403	)


CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of investments:
Fixed maturities	(	72,713	)	(	70,733	)
Equity securities	(	464	)		0
Limited partnerships	(	1,390	)	(	5	)
Sales/maturities of investments:
Sales of fixed maturities		35,803			49,784
Calls/maturities of fixed maturities		16,734			3,530
Limited partnerships		2,592			800
Increase in collateral from securities lending		0			13,733
Net mortgage loans		47			44
Net policy loans	(	183	)	(	146	)

Net cash used in investing activities	(	19,574	)	(	2,993	)


CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Annuity and supplementary contract deposits and interest		30,702			33,603
Annuity and supplementary contract surrenders and withdrawals	(	17,700	)	(	17,966	)
Universal life deposits and interest		4,749			4,820
Universal life surrenders	(	1,521	)	(	1,807	)
Dividends paid to shareholders	(	2,079	)	(	1,985	)

Net cash provided by financing activities		14,151			16,665


Net increase in cash and cash equivalents		275			12,269
Cash and cash equivalents at beginning of period		22,446			91,667

Cash and cash equivalents at end of period	$	22,721		$	103,936

	Six Months Ended			Six Months Ended
	June 30, 2004			June 30, 2003
	(Dollars in thousands)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Premiums collected	$	23,277		$	23,965
Net investment income received		40,323			37,953
Miscellaneous income		556			395
Benefits to policyholders		(34,654	)		(32,140	)
Commissions paid to agents		(3,252	)		(7,986	)
Salaries and wages paid		(6,501	)		(5,582	)
General operating expenses paid		(7,092	)		(6,969	)
Taxes, licenses and fees paid		(2,024	)		(1,814	)
Income taxes paid		(5,382	)		(8,675	)
Net cash provided by (used in) operating activities		5,251			(853	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of investments:
Fixed maturities		(166,147	)		(317,047	)
Equity securities		(3,529	)		(8,598	)
Limited partnerships		(810	)		(1,910	)
Sales/maturities of investments:
Sales of fixed maturities		116,770			115,837
Calls/maturities of fixed maturities		14,954			58,331
Equity securities		0			7,071
Limited partnerships		890			3,113
(Decrease) increase in collateral from securities lending		(21,664	)		27,010
Net mortgage loans		89			345
Net policy loans		(420	)		(266	)
Net cash used in investing activities		(59,867	)		(116,114	)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Annuity and supplementary contract deposits and interest		66,254			124,747
Annuity and supplementary contract surrenders and withdrawals		(35,761	)		(26,344	)
Universal life deposits and interest		9,891			10,425
Universal life surrenders		(3,256	)		(2,560	)
Dividends paid to shareholders		(4,064	)		(3,969	)
Net cash provided by financing activities		33,064			102,299
Net decrease in cash and cash equivalents		(21,552	)		(14,668	)
Cash and cash equivalents at beginning of period		91,667			97,022
Cash and cash equivalents at end of period	$	70,115		$	82,354

See Accompanying Notes to Financial Statements.

See Notes to Financial Statements.

ERIE FAMILY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (Unaudited)

NOTES TO FINANCIAL STATEMENTS (Unaudited) (All dollar amounts are in thousands)

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in conformity with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the ~~six~~three-month period ended ~~June~~March 3031, ~~2004~~ 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2004~~2005. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, ~~2003~~2004 as filed with the Securities and Exchange Commission on ~~August~~February 2024, ~~2004~~2005.

NOTE B — ~~RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS~~RECLASSIFICATIONS

~~During~~Certain the second quarter of 2004, the Company completed a comprehensive analysis of its deferred policy acquisition cost (DAC) asset in response to a material weakness in internal control. The analysis indicated that amounts previously reported asin ~~deferred acquisition costs and related amortization were incorrectly calculated. Accordingly,~~ the ~~Company~~2004 ~~has restated its’ previously issued~~ financial statements. ~~The~~have ~~impact~~been ofreclassified ~~the restatement~~ to ~~net income and~~ ~~net~~conform ~~income~~to ~~per~~the ~~share~~current ~~for~~period’s ~~the~~presentation. ~~three~~Such ~~and~~reclassification ~~six~~did ~~months~~not ~~ended~~impact ~~June 30,~~earnings ~~2003, and~~or ~~deferred~~total ~~policy~~Shareholders’ ~~acquisition costs and shareholders' equity as of December 31, 2003 is as follows:~~Equity.

	Three Months Ended		Six Months Ended
	June 30, 2003		June 30, 2003
	(Dollars in thousands, except per share data)
As originally reported:
Net income	$	7,814	$	13,220
Net income per share	$	0.83	$	1.40
As restated:
Net income	$	7,818	$	13,076
Net income per share	$	0.83	$	1.38

	December 31,
	2003
	(Dollars in thousands)
As originally reported:
Deferred policy acquisition costs	$	103,874
Shareholders’ equity	$	259,247
As restated:
Deferred policy acquisition costs	$	98,207
Shareholders' equity	$	255,563

NOTE C — EARNINGS PER SHARE

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

ERIE FAMILY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS (Unaudited) ~~(All dollar amounts are in thousands)~~

NOTE D — INVESTMENTS

At ~~June~~March 3031, ~~2004~~2005 and ~~2003~~2004, marketable equity securities consist of ~~common and~~ nonredeemable preferred stock while fixed maturities consist of bonds, notes and redeemable preferred stock. Management considers all fixed maturities as available-for-sale. Management determines the ~~appropriate~~ appropriate classification of fixed maturities at the time of purchase and reevaluates ~~such~~ 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 federal income taxes, reported as a separate component of Comprehensive ~~(Loss)~~ Income and Shareholders’ Equity.

The following is a summary of available-for-sale securities:

			Gross		Gross
(in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
March 31, 2005	Cost		Gains		Losses		Fair Value
June 30, 2004
Fixed maturities
Fixed Maturities:
Bonds:
U.S. treasuries and government agencies	$	6755,~~151~~118	$	~~654~~478	$	~~573~~449	$	6755,~~232~~147
Public utilities		~~153~~168,~~680~~127		78,~~049~~377		1,~~702~~083		~~159~~175,~~027~~421
U.S. banks, trusts and insurance companies		~~177~~205,~~450~~760		67,~~435~~467		31,~~010~~952		~~180~~211,~~875~~275
U.S. industrial and miscellaneous		~~546~~568,~~705~~811		2324,~~625~~396		4,~~159~~211		~~566~~588,~~171~~996
Mortgage-backed		154,412		2,069		2,464		154,017
Mortgage-backed securities		156,229		2,215		1,738		156,706
Asset-backed		8,023		225		202		8,046
Asset-backed securities		10,720		215		132		10,803
Foreign		~~143~~146,~~339~~287		79,~~987~~343		21,~~974~~340		~~148~~154,~~352~~290
Total bonds		1,~~250~~311,~~760~~052		4852,~~044~~491		1510,~~084~~905		1,~~283~~352,~~720~~638
Redeemable preferred stock		7,016		5547		0185		76,~~071~~878
Total fixed maturities		1,~~257~~318,~~776~~068		4852,~~099~~538		1511,~~084~~090		1,~~290~~359,~~791~~516
Equity Securities:
Equity securities
Common stock:
U.S. industrial and miscellaneous		529		0		85		444
Nonredeemable preferred stock:
Public utilities		1,864		54		0		1,918
U.S. banks, trusts and insurance companies		19,909		1,785		0		21,694
U.S. banks, trusts and insurance companies		16,909		1,579		0		18,488
U.S. industrial and miscellaneous		18,801		1,771		1		20,571
U.S. industrial and miscellaneous		17,119		1,484		159		18,444
Foreign		21,181		2,474		8		23,647
Foreign		23,716		1,435		75		25,076
Total equity securities		59,891		6,030		9		65,912
Total equity securities		60,137		4,552		319		64,370
Total fixed maturities and equity securities	$	1,377,959	$	58,568	$	11,099	$	1,425,428
Total fixed maturities and equity securities	$	1,317,913	$	52,651	$	15,403	$	1,355,161

ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE D — INVESTMENTS (Continued)

			Gross		Gross
(in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
December 31, 2004	Cost		Gains		Losses		Fair Value
December 31, 2003
Fixed maturities
Fixed Maturities:
Bonds:
U.S. treasuries and government agencies	$	6160,~~176~~126	$	1,~~543~~048	$	3798	$	6261,~~682~~076
Public utilities		~~141~~160,~~154~~516		1011,~~377~~313		~~528~~219		~~151~~171,~~003~~610
U.S. banks, trusts and insurance companies		~~158~~193,~~731~~461		9,~~358~~148		~~836~~709		~~167~~201,~~253~~900
U.S. industrial and miscellaneous		~~547~~566,~~363~~633		4134,~~077~~721		~~776~~976		~~587~~600,~~664~~378
Mortgage-backed		145,394		3,622		182		148,834
Mortgage-backed securities		157,289		3,713		609		160,393
Asset-backed		5,032		330		0		5,362
Asset-backed securities		10,946		348		77		11,217
Foreign		~~137~~141,~~741~~926		1312,~~314~~080		~~933~~686		~~150~~153,~~122~~320
Total bonds		1,~~196~~290,~~591~~897		7972,~~621~~371		3,~~292~~374		1,~~272~~359,~~920~~894
Redeemable preferred stock		7,016		~~391~~94		0106		7,~~407~~004
Total fixed maturities		1,~~203~~297,~~607~~913		8072,~~012~~465		3,~~292~~480		1,~~280~~366,~~327~~898
Equity Securities:
Equity securities
Nonredeemable preferred stock:
Public utilities		1,864		136		0		2,000
U.S. banks, trusts and insurance companies		19,909		2,078		2		21,985
U.S. banks, trusts and insurance companies		13,909		1,921		0		15,830
U.S. industrial and miscellaneous		18,801		1,873		0		20,674
U.S. industrial and miscellaneous		17,119		1,775		20		18,874
Foreign		20,716		3,000		0		23,716
Foreign		23,716		2,528		0		26,244
Total equity securities		59,426		6,951		2		66,375
Total equity securities		56,608		6,360		20		62,948
Total fixed maturities and equity securities	$	1,357,339	$	79,416	$	3,482	$	1,433,273
Total fixed maturities and equity securities	$	1,260,215	$	86,372	$	3,312	$	1,343,275

Realized gains and losses on the ~~sales~~sale of investments are recognized in income using the specific identification method. Investments 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 estimated ~~realizable~~net realizable value. The impairments are made on an individual security basis and are recorded as a component of net realized (losses) gains on investments in the Statements of Operations.

The components of net realized gains on investments as reported in the Statements of Operations are included below.

ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE D — INVESTMENTS (Continued)

	Three Months Ended						Six Months Ended
	June 30						June 30
	2004			2003			2004			2003
Fixed maturities:
Gross realized gains	$	5,744		$	2,258		$	8,674		$	9,263
Gross realized losses		(220	)		(141	)		(313	)		(4,974	)
Net realized gains		5,524			2,117			8,361			4,289
Equity securities:
Gross realized gains		32			29			43			29
Gross realized losses		0			(47	)		0			(57	)
Net realized gains (losses)		32			(18	)		43			(28	)
Net realized gains on investments	$	5,556		$	2,099		$	8,404		$	4,261

The components of net realized (losses) gains on investments as reported in the Statements of Operations are included below. Included in the first quarter of 2005 realized losses are impairment charges of $1.5 million related to a fixed maturity in the automotive industry. There were no impairment charges recorded in the first quarter of 2004.

The gross unrealized losses at June 30, 2004 span the various investment categories of fixed maturities and equity securities. The gross unrealized losses are aged as follows:


(in thousands)	Three Months Ended			Three Months Ended
	March 31, 2005			March 31, 2004

Fixed maturities:
Gross realized gains	$	1,083		$	2,930
Gross realized losses	(	2,441	)	(	93	)

Net realized (losses) gains	(	1,358	)		2,837


Equity securities:
Gross realized gains		7			11
Gross realized losses	(	2	)		0

Net realized gains		5			11


Net realized (losses) gains on investments	($	1,353	)	$	2,848

						Estimated		Number
	Unrealized			Amortized		Fair		of
	Loss			Cost		Value		Holdings
Six months or less	($	12,947	)	$	473,859	$	460,912		167
Six to 12 months		(2,337	)		31,685		29,348		14
12 to 18 months		(70	)		1,412		1,342		1
Greater than 18 months		(49	)		4,437		4,388		2
	($	15,403	)	$	511,393	$	495,990		184

Fixed maturities and equity securities in a gross unrealized loss position at March 31, 2005 are as follows. Data is provided by length of time securities were in a gross unrealized loss position.

No investments in an unrealized loss position at June 30, 2004 had a decline in market value that was considered by management to be other-than-temporary, thereby causing the investment to be impaired based on Company policy. There were no market conditions, industry characteristics or fundamental operating results of a specific issuer that suggested impairment of any of the listed investments. However, as interest rates rise, declines in value of the Company’s substantial fixed income portfolio could occur, which may require impairment charges to be made.


	Less than 12 months				12 months or longer				Total
(in thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses

Fixed maturities
U.S. treasuries and government agencies	$	35,491	$	419	$	1,968	$	30	$	37,459	$	449
Public utilities		41,297		716		9,429		367		50,726		1,083
U.S. banks, trusts and insurance companies		60,653		1,131		20,125		821		80,778		1,952
U.S. industrial and miscellaneous		137,976		3,166		24,007		1,045		161,983		4,211
Mortgage-backed securities		75,574		1,161		18,169		577		93,743		1,738
Asset-backed securities		0		0		2,860		132		2,860		132
Foreign		29,397		503		17,294		837		46,691		1,340


Total bonds		380,388		7,096		93,852		3,809		474,240		10,905

Redeemable preferred stock		4,681		185		0		0		4,681		185


Total fixed maturities		385,069		7,281		93,852		3,809		478,921		11,090


Equity securities
Nonredeemable preferred stock		2,998		9		0		0		2,998		9


Total equity securities		2,998		9		0		0		2,998		9


Total fixed maturities and equity securities	$	388,067	$	7,290	$	93,852	$	3,809	$	481,919	$	11,099

The Company participates in a securities lending program whereby certain securities from its portfolio are loaned to other institutions for short periods of time. A fee is paid to the Company by the borrower. Company policy requires collateral equal to 102% of the fair value of the loaned securities. The Company maintains full ownership rights to the securities loaned and continues to earn interest on them. In addition, the Company has the ability to sell the securities while they are on loan. The Company has an indemnification agreement with the lending agent in the event a borrower becomes insolvent or fails to return securities. Securities lending collateral is recorded by the Company as a liability. The proceeds from the collateral are invested in cash and short-term investments and are reported on the Statements of Financial Position as cash and cash equivalents. The Company shares a portion of the interest received on these short-term investments with the lending agent. Revenue received for the three months ended June 30, 2004 and 2003, related to this program totaled $26 and $27, respectively. For the six months ended June 30, 2004 and 2003, revenue received related to this program totaled $54 and $48, respectively.

ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE D — INVESTMENTS (Continued)

~~The~~No ~~Company~~investments ~~had~~in ~~loaned~~an ~~securities~~unrealized ~~with~~loss aposition ~~market~~at ~~value of $43.0~~March ~~million~~31, ~~and $64.1 million~~2005 ~~and~~had ~~secured~~experienced ~~collateral~~a ofdecline ~~$43.8 million~~in ~~and~~market value ~~$65.5 million~~that atwas ~~June 30,~~considered ~~2004~~by ~~and~~management ~~December 31,~~to ~~2003,~~be ~~respectively.~~significant ~~The~~and ~~Company~~other-than-temporary ~~records~~based ~~the~~on ~~loaned~~Company ~~securities~~policy. onThere ~~its~~were ~~Statements~~no ofmarket ~~Financial~~conditions, ~~Position~~industry ascharacteristics ~~part~~or offundamental ~~its~~operating ~~invested~~results ~~assets.~~of ~~The~~a ~~Company~~specific ~~has~~issuer ~~incurred~~that nosuggested ~~losses~~other-than-temporary onimpairment ~~the~~of ~~loan~~any ~~program~~of ~~since~~these ~~the~~investments ~~program’s~~held ~~inception~~at March 31, 2005.

~~Limited~~The ~~partnerships~~Company atparticipates ~~June 30,~~in ~~2004~~a ~~include~~securities Ulending program whereby certain securities from its portfolio are loaned to other institutions for short periods of time.S A fee is paid to the Company by the borrower. ~~and~~Company ~~foreign~~policy ~~real~~requires ~~estate~~collateral equal to 102% of the fair value of the loaned securities. The Company maintains full ownership rights to the securities loaned and continues to ~~mezzanine~~earn ~~debt~~interest ~~investments~~on them. ~~Real~~In ~~estate~~addition, ~~limited~~the ~~partnerships~~Company ~~represent~~has 92the ability to sell the securities while they are on loan.~~5%,~~ The Company has an indemnification agreement with the lending agent in the event a ~~while~~borrower ~~mezzanine~~becomes ~~debt~~insolvent ~~limited~~or ~~partnerships~~fails ~~represent~~to 7return securities.~~5%,~~ The Company shares a portion of the interest ~~total~~received ~~carrying~~on these short-term investments with the lending agent. Revenue received for the ~~value~~three atmonths ~~June~~ended March 3031, 2005 and 2004, related to this program totaled $10,025 and $27,821, respectively. ~~These~~The ~~partnerships~~Company ~~are~~had ~~recorded~~no loaned securities at ~~fair value~~March 31, ~~using~~2005 ~~the~~or ~~equity method~~December 31, 2004. The Company has ~~not~~incurred ~~guaranteed~~no ~~any~~losses ofon the ~~partnership~~loan ~~liabilities~~program since the program’s inception.

Limited partnerships at March 31, 2005 include U.S. and foreign real estate and mezzanine debt investments. Real estate limited partnerships represent 93%, while mezzanine debt limited partnerships represent 7%, of the total carrying value at March 31, 2005. These partnerships are recorded using the equity method, which is the Company’s share of the carrying value of the partnership. The Company has not guaranteed any of the partnership liabilities.

The components of equity in earnings of limited partnerships as reported in the Statements of Operations are as follows:

	Three Months Ended				~~Six Months Ended~~
	June 30				June 30
(in thousands)	March 31,
	2004		2003		2004		2003
	2005		2004
Mezzanine Debt	$	150	$	8620	$	35	($	1	)
Real Estate		~~697~~604		34135		~~832~~		~~401~~
	$	~~712~~604	$	~~120~~155	$	~~867~~	$	~~400~~

NOTE E — DEFERRED POLICY ACQUISITION ~~COST~~COSTS (DAC) ASSET The Company incurs significant costs in connection with acquiring new business, principally commissions and policy issue and underwriting expenses. Acquisition costs, which vary with and are primarily related to the production of new business, are deferred as an asset and amortized over the estimated lives of the policies. At each balance sheet date, the Company evaluates the value of this asset in light of historical and expected future gross premiums or profits on its insurance and annuity products. In accordance with Financial Accounting Standard (FAS) 60, Accounting and Reporting by Insurance Enterprises, the DAC related to traditional life insurance products is amortized in proportion to expected premium revenues over the premium-paying period of related policies using assumptions consistent with those used in computing policy liability reserves. Assumptions used for a specific issue year are “locked-in;” therefore, amortization in subsequent years is not adjusted for changing assumptions.

The Company incurs significant costs in connection with acquiring new business. Many of these acquisition costs, which vary with and are primarily related to the production of new business, are deferred as an asset and are then amortized over a period of time. The Company periodically reviews the DAC asset to assess recoverability from future income. If less than the full amount of DAC is determined to be recoverable, a portion of such costs are expensed at the time of determination.

The DAC on traditional life insurance products is amortized in relation to estimated gross premiums in accordance with Statement of Financial Accounting Standard No. 60, Accounting and Reporting by Insurance Enterprises. The DAC on the annuity and universal life products is amortized in relation to estimated gross profits in accordance with Statement of Financial Accounting Standard No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments (FAS 97).

During the second quarter of 2004, the Company completed a comprehensive analysis of its deferred acquisition cost asset. As described further in Note B, this analysis resulted in a restatement of previously issued financial statements.

In accordance with FAS 97, the Company periodically evaluates certain assumptions in use to determine DAC and amortization related to its interest sensitive products. In the second quarter 2004 evaluation, the Company modified certain assumptions related to lapse, mortality, interest rates, surrender rates and other factors causing an unlocking as provided under accounting guidance. As a result of unlocking assumptions, DAC as of June 30, 2004 increased by $5.9 million and net income for the second quarter 2004 increased by $3.9 million.

ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE E — DEFERRED POLICY ACQUISITION COSTS ASSET (Continued)

In accordance with FAS 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments, the DAC related to universal life products and deferred annuities is amortized in relation to the expected gross profits from projected investment, mortality and expense margins and surrender charges of the policies over a specified period. This specified period is 30 years for universal life and 20 years for deferred annuities. Both historical and anticipated investment returns, including realized gains and losses, from the investment of policyholder funds are considered in determining the amortization of deferred policy acquisition costs. Generally accepted accounting principles require that changes in expected future gross profits on the annuity and universal life products cause the DAC amortization rate to be revised retroactively, or “unlocked”, to the date of policy issuance. The cumulative change in DAC related to prior periods is recognized as a component of the current period’s DAC amortization, along with DAC amortization associated with the actual gross profits of the current period. Lower actual gross profits in a period would typically result in less DAC amortization in that period, whereas higher actual gross profits would result in more amortization in the period. However, if lower gross profits were expected to continue into the future, additional amortization of the existing DAC asset may occur.

During the first quarter of 2005, the Company unlocked certain assumptions based on the results of an expense study. As a result of unlocking these expense assumptions, the DAC asset was increased and the amortization of DAC was decreased by $0.4 million. In addition, during its annual review of actual experience to assumptions used, the Company trued up certain items in the first quarter of 2005 resulting in a $0.5 million increase in the DAC amortization.

The Company periodically reviews the DAC asset to determine if it continues to be recoverable from future premiums or profits. If less than the full amount of DAC is determined to be recoverable, a portion of such costs are expensed at the time of determination. The amount of DAC considered recoverable could be reduced in the near term if the estimate of future gross premiums or profits were to be reduced. The amount of DAC amortization may be revised if any of the estimates discussed above are revised.

In accordance with FAS 97, DAC is adjusted for the impact of unrealized gains or losses on investments as if these gains or losses had been realized, with corresponding credits or charges included in accumulated other comprehensive income.

NOTE F — SEGMENT INFORMATION

The Company offers a range of products and services, but operates as one reportable life insurance segment. The Company’s Traditional Life insurance line includes permanent life, endowment life, term life and whole life policies. The Universal Life line includes all fixed universal life ~~products~~ products sold by the Company. ~~The~~Variable ~~Company~~universal ~~does~~life products are not ~~sell~~sold ~~variable~~by ~~universal~~the ~~life products~~Company. The Fixed Annuities line includes fixed ordinary deferred annuities, tax advantaged deferred annuities, annuities in pay-out and structured settlements. Neither variable nor equity indexed annuity products are sold by the Company. The Group Life and Other line includes group life insurance and disability income products. The Corporate Account line includes investment income earned from surplus not specifically allocable to any one product type. Investment-related income is allocated based on the assumption that the fixed maturities and preferred stock portfolios support the insurance product lines and the limited partnership and remaining fixed maturity investments ~~support~~ support the Corporate Account.

								Group
Three Months Ended	Traditional		Universal			Fixed		Life &		Corporate
June 30, 2004	Life		Life			Annuities		Other		Account		Total
Total policy revenue, net of reinsurance	$	10,313	$	3,476		$	1	$	835	$	0	$	14,625
Total investment-related and other income		2,169		2,849			17,691		926		2,623		26,258
Total revenues		12,482		6,325			17,692		1,761		2,623		40,883
Less: Total benefits and expenses		9,571		(1,801	)		12,795		451		0		21,016
Income before taxes	$	2,911	$	8,126		$	4,897	$	1,310	$	2,623	$	19,867

Six Months Ended
June 30, 2004
Total policy revenue, net of reinsurance	$	19,957	$	6,944	$	1	$	1,702	$	0	$	28,604
Total investment-related and other income		4,019		5,323		32,899		977		5,116		48,334
Total revenues		23,976		12,267		32,900		2,679		5,116		76,938
Less: Total benefits and expenses		19,866		1,002		24,806		940		0		46,614
Income before taxes	$	4,110	$	11,265	$	8,094	$	1,739	$	5,116	$	30,324

During the second quarter of 2004, the Company unlocked certain assumptions related to determination of DAC for its universal life and fixed annuities. As a result of unlocking these assumptions, DAC was increased and the amortization of DAC was decreased by $5.2 million and $0.7 million for universal life and fixed annuities for the second quarter of 2004, respectively.

ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE F — SEGMENT INFORMATION (Continued)

										Group
(in thousands)										Group
Three Months Ended	Traditional			Universal			Fixed			Life &			Corporate
June 30, 2003	Life			Life			Annuities			Other			Account			Total
March 31, 2005	Life			Life			Annuities			Other			Account			Total
(Restated)
Total policy revenue, net of reinsurance	$	9,995		$	3,507		$	0		$	906		$	0		$	14,408
Total policy revenue, net of reinsurance	$	10,189		$	3,340		$	1		$	804		$	0		$	14,334
Net investment and other income		1,745			2,304			14,168			57			2,813			21,087
Total investment-related and other income		1,978			2,541			15,893			42			1,825			22,279
Net realized losses on investments	(	117	)	(	146	)	(	943	)	(	4	)	(	143	)	(	1,353	)
Total revenues		1211,~~167~~623			5,~~881~~665			1513,~~894~~225			~~846~~959			12,~~825~~670			3634,~~613~~142
Less: Total benefits and expenses		810,~~121~~133			34,~~775~~651			1213,~~394~~131			~~350~~690			077			2428,~~640~~682
Income before taxes	$	41,~~046~~490		$	21,~~106~~014		$	~~3,500~~94		$	~~496~~269		$	12,~~825~~593		$	115,~~973~~460

Six Months Ended
							Group
June 30, 2003
Three Months Ended	Traditional		Universal		Fixed		Life &		Corporate
(Restated)
March 31, 2004	Life		Life*		Annuities*		Other		Account		Total
Total policy revenue, net of reinsurance	$	199,~~152~~644	$	63,~~619~~468	$	20	$	~~1,649~~867	$	0	$	2713,~~422~~979
Total investment-related and other income		3,870		4,927		30,739		84		3,863		43,483
Net investment and other income		1,669		2,253		13,724		45		2,254		19,945
Total revenues		23,022		11,546		30,741		1,733		3,863		70,905
Net realized gains on investments		243		295		1,986		7		317		2,848
Less: Total benefits and expenses		17,067		8,219		24,435		1,160		0		50,881
Total revenues		11,556		6,016		15,710		919		2,571		36,772
Income before taxes	$	5,955	$	3,327	$	6,306	$	573	$	3,863	$	20,024
Less: Total benefits and expenses		10,357		2,877		12,513		491		78		26,316
Income before taxes	$	1,199	$	3,139	$	3,197	$	428	$	2,493	$	10,456

The March 31, 2004 universal life benefits and expenses were reduced by $1.8 million, and the fixed annuities benefits and expenses were increased by $0.1 million, for the unlocking of certain assumptions related to the amortization of the DAC.

NOTE G — REINSURANCE

The Company has entered into various reinsurance treaties for the purpose of ceding ~~the~~certain portions ~~excess~~ of life insurance ~~face~~according ~~amounts~~to ~~over Company~~ established ~~retention~~ ~~limits~~guidelines. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their ~~obligations~~ obligations could result in losses to the Company. ~~The~~Management ~~Company~~believes ~~considers~~ all of its ~~reinsurance~~ reinsurance assets toare be collectible; therefore, no allowance has been established for uncollectible amounts.

~~Generally,~~Included in the ~~Company’s~~reinsurance ~~retention~~treaties ~~limit~~are isprovisions ~~$300 per life~~ for ~~individual coverage.~~expense ~~For~~allowances ~~its~~to ~~two~~be ~~newest~~provided ~~products,~~to ~~ERIE Flagship Term2 and ERIE Target Term,~~ the ~~Company has first dollar quota share treaties with several~~ ~~unaffiliated reinsurers. The~~ Company ~~reinsures~~by ~~50% and 90% of~~ the ~~ERIE Flagship~~reinsurer. ~~Term2~~These ~~and~~allowances ~~Erie~~are ~~Target~~intended ~~Term~~to ~~products,~~help ~~respectively,~~offset ~~subject~~policy toacquisition ~~the~~and ~~Company’s~~maintenance ~~$300~~costs ~~retention~~incurred ~~limit.~~by ~~For its disability income product,~~ the Company ~~has a 50% quota share agreement with its reinsurer~~. AsThe rate of ~~June 30,~~reimbursement ~~2004~~varies ~~and 2003,~~by ~~$10.6 billion~~plan and ~~$8.2 billion, respectively, of life insurance~~ in ~~force~~some ~~was~~cases ~~ceded~~by ~~to other companies~~reinsurer. The Company’s ~~most~~put ~~significant~~in ~~reinsurance business~~place ~~is with Generali USA Reassurance Company, which reinsures~~ a ~~portion~~new ~~of the~~ceded ~~Company’s~~arrangement ~~life~~for ~~and~~new ~~accident~~issues ~~and~~under ~~health business. At June 30, 2004, the~~certain ~~amount~~ of ~~in-force~~its ~~life~~Target ~~insurance~~Term ~~ceded to Generali totaled approximately $6.1~~plans ~~billion.~~

ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE G — REINSURANCE (Continued)

~~The~~as ~~effect~~ of ~~ceded~~January 1, ~~reinsurance~~2005. inThis change did not have a material impact on the ~~Statements~~first ofquarter ~~Operations~~2005 financial results nor is asit ~~follows:~~expected to have a material impact on the Company’s financial statements in future periods.

	Three Months Ended						Six Months Ended
(Restated)	June 30						June 30
	2004			2003			2004			2003
Revenues:
Direct policy revenue	$	19,651		$	18,427		$	37,674		$	34,827
Policy revenue ceded		(5,026	)		(4,093	)		(9,070	)		(7,405	)
Net policy revenue		14,625			14,334			28,604			27,422
Net investment income		19,752			19,843			38,507			38,426
Net realized gains on investments		5,556			2,099			8,404			4,261
Equity in earnings of limited partnerships		712			120			867			400
Other income		238			217			556			396
Total revenues	$	40,883		$	36,613		$	76,938		$	70,905
Benefits and expenses:
Death benefits	$	4,420		$	3,511		$	11,046		$	8,718
Reinsurance recoveries		(941	)		(750	)		(2,663	)		(2,116	)
Net death benefits		3,479			2,761			8,383			6,602
Interest on deposits and other policyholder benefits		13,182			12,880			26,148			24,869
Increases in future life policy benefits		3,766			3,168			7,464			6,294
Reinsurance reserve credits		(1,982	)		(1,659	)		(3,433	)		(2,997	)
Net increases in future life policy benefits		1,784			1,509			4,031			3,297
Amortization of deferred policy acquisition costs		(3,592	)		1,725			(3,365	)		3,909
Commissions		2,945			2,827			5,108			5,721
Reinsurance commission allowance		(1,902	)		(1,684	)		(3,523	)		(3,238	)
Net commissions		1,043			1,143			1,585			2,483
General expenses, taxes, licenses and fees		5,120			4,622			9,832			9,721
Total benefits and expenses	$	21,016		$	24,640		$	46,614		$	50,881
Income before income taxes	$	19,867		$	11,973		$	30,324		$	20,024

The Company’s retention limit is $0.3 million per life for individual coverage. For its ERIE Flagship Term2 and ERIE Target Term products, the Company has first dollar quota share treaties with several unaffiliated reinsurers. The Company reinsures 50% and 90% of the ERIE Flagship Term2 and ERIE Target Term products, respectively, subject to the Company’s $0.3 million retention limit. For its disability income product, the Company has a 50% quota share agreement with its reinsurer. As of March 31, 2005 and 2004, $12.6 billion and $10.0 billion, respectively, of life insurance in force was ceded to other companies. The Company’s most significant reinsurance relationship is with Generali USA Reassurance Company (Generali), which reinsures a portion of the Company’s life and accident and health business. At March 31, 2005 and 2004, the amount of in-force life insurance ceded to Generali totaled approximately $6.9 billion and $5.8 billion, respectively.

The effect of ceded reinsurance to the financial statement lines contained in the Statements of Operations is as follows:


(in thousands)	Three Months Ended			Three Months Ended
	March 31, 2005			March 31, 2004

Direct policy revenue	$	19,286		$	18,023
Policy revenue ceded	(	4,878	)	(	4,044	)

Net policy revenue	$	14,408		$	13,979


Death benefits	$	5,059		$	6,626
Reinsurance recoveries	(	1,629	)	(	1,722	)

Net death benefits	$	3,430		$	4,904


Increases in future life policy benefits	$	4,231		$	3,698
Reinsurance reserve credits	(	1,071	)	(	1,451	)

Net increases in future life policy benefits	$	3,160		$	2,247


Commissions	$	2,162		$	2,163
Reinsurance commission allowance	(	1,762	)	(	1,621	)

Net commissions	$	400		$	542

The net increase in future life policy benefits in the first quarter of 2005 includes a $0.7 million charge to earnings related to an adjustment made to correct previously recorded reinsurance reserve credits, reflecting refinements in the method used to calculate these credits.

NOTE H — NOTES PAYABLE TO ERIE INDEMNITY COMPANY

The Company has $40 million due to Erie Indemnity Company (EIC) in the form of two surplus notes. The notes may be repaid only out of unassigned surplus of the Company. The first note, in the amount of $15 million, bears an annual interest rate of 6.45%. Interest on the note is scheduled to be paid semi-annually. The note is payable on demand on or after December 31, 2005. It is probable that EIC will allow the Company to repay this note through issuance of a new note with a later maturity date. Both principal and interest payments are subject to prior approval by the Pennsylvania Insurance Commissioner. Interest expense on this note totaled $0.2 million in the first quarter of 2005 and 2004.

ERIE FAMILY LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

NOTE H — NOTES PAYABLE TO ERIE INDEMNITY COMPANY (Continued) The second note was issued in 2003 for an additional $25 million. This surplus note bears an annual interest rate of 6.70% and is scheduled to be paid semi-annually. The surplus note is payable on demand on or after December 31, 2018. Both principal and interest payments are subject to prior approval by the Pennsylvania Insurance Commissioner. Interest expense on this note totaled $0.4 million in the first quarter of 2005 and 2004. NOTE I — SUPPLEMENTARY DATA ON CASH FLOWS A reconciliation of net income to net cash provided by operating activities as presented in the Statements of Cash Flows is as follows:

The Company has a $15,000 surplus note payable to Erie Indemnity Company (EIC). This note bears an annual interest rate of 6.45%. Interest on the surplus note is scheduled to be paid semi-annually, subject to prior approval of the Pennsylvania Insurance Commissioner. The note is payable on demand on or after December 31, 2005, subject to prior approval by the Pennsylvania Insurance Commissioner. The Company paid interest of $0.5 million on this note during the second quarter of 2004 and 2003.


(in thousands)	Three Months Ended			Three Months Ended
	March 31, 2005			March 31, 2004

CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income	$	3,549		$	6,516
Adjustments to reconcile net income to net cash used in operating activities:
Amortization of deferred policy acquisition costs		2,254			228
Other amortization		232			246
Deferred federal income tax (benefit) expense	(	350	)		1,453
Realized losses (gains) on investments		1,353		(	2,848	)
Equity in earnings of limited partnerships	(	604	)	(	155	)
Decrease in premium and other receivables		454			204
Increase in accrued investment income	(	3,274	)	(	3,330	)
Policy acquisition costs deferred	(	3,547	)	(	3,476	)
Decrease (increase) in other assets		2		(	95	)
Increase in reinsurance recoverables and reserve credits	(	341	)	(	1,232	)
Decrease in prepaid federal income taxes		2,261			2,506
Increase in future policy benefits and claims		5,629			3,338
Increase (decrease) in other policyholder funds		1,043		(	2,296	)
Decrease in reinsurance premium due	(	1,674	)	(	1,089	)
Decrease in accounts payable and due to affiliates	(	1,289	)	(	1,373	)

Net cash provided by (used in) operating activities	$	5,698		( $	1,403	)

~~During~~NOTE ~~the~~J ~~third~~— ~~quarter of 2003, the Company issued a $25,000 surplus note to~~COMMITMENTS ~~EIC~~AND ~~in exchange for $25,000 in cash. This surplus note bears an annual~~CONTINGENCIES ~~interest rate of 6.70% and is scheduled to be paid semi-annually, subject to~~ ~~prior approval of the Pennsylvania Insurance Commissioner. The surplus note is~~ payable on demand on or after December 31, 2018, subject to prior approval by the Pennsylvania Insurance Commissioner. The Company paid interest of $0.8 million on this note during the second quarter of 2004.

~~NOTE~~The ICompany —has ~~SUPPLEMENTARY~~outstanding ~~DATA~~commitments ONto ~~CASH~~invest ~~FLOWS~~up to $15.2 million in limited partnerships at March 31, 2005. These commitments will be funded as required through the end of the respective investment periods, which typically span 3 to 5 years.

AThe ~~reconciliation~~Company ofis ~~net~~involved ~~income~~in litigation toarising ~~net~~in ~~cash~~the ~~provided~~ordinary bycourse ~~(used~~of ~~in)~~business. ~~operating activities~~In asthe ~~presented~~opinion inof management, the ~~Statements~~effects, if any, of ~~Cash~~such ~~Flows~~litigation isare asnot ~~follows:~~expected to be material to the Company’s financial condition, cash flows or operations.

	Six Months Ended			Six Months Ended
	June 30, 2004			June 30, 2003
				(Restated)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income	$	19,765		$	13,076
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of deferred policy acquisition costs		(3,365	)		3,909
Other amortization		528			318
Deferred federal income tax expense (benefit)		4,410			(971	)
Realized gains on investments		(8,404	)		(4,261	)
Equity in earnings of limited partnerships		(867	)		(400	)
Decrease in premium and other receivables		176			769
Increase in accrued investment income		(369	)		(1,610	)
Policy acquisition costs deferred		(7,316	)		(9,435	)
Increase in other assets		(104	)		0
Increase in reinsurance recoverables and reserve credits		(2,057	)		(2,786	)
Decrease (increase) in prepaid federal income taxes		767			(756	)
Increase in future policy benefits and claims		6,834			6,194
Decrease in other policyholder funds		(4,946	)		(3,671	)
Decrease in reinsurance premium due		(548	)		(519	)
Increase (decrease) in accounts payable and due to affiliates		747			(710	)
Net cash provided by (used in) operating activities	$	5,251		($	853	)

NOTE K — STATUTORY INFORMATION

~~NOTE~~The Jminimum —statutory ~~COMMITMENTS~~capital and surplus requirements under Pennsylvania law for stock life insurance companies (Section 386 of the Pennsylvania Insurance Code) amounts to $1.65 million. The Company’s total statutory capital and surplus well exceeded these minimum requirements.

~~The~~Bonds ~~Company~~having ~~has~~a ~~outstanding~~fair ~~commitments~~value toof ~~invest up to~~ $32.71 million inat ~~real estate~~March 31, ~~limited~~2005 ~~partnerships~~and ~~at June~~December 3031, 2004., ~~These~~were ~~commitments~~on ~~will~~deposit with bevarious ~~funded~~ regulatory authorities as required ~~through~~by ~~the~~law. ~~end~~The carrying value of these bonds are not material for separate disclosure on the ~~respective~~Company’s ~~investment~~Statement ~~periods,~~of ~~which typically~~Financial ~~span~~Position 3and toare ~~5 years~~included with fixed maturities.

~~ERIE~~ITEM ~~FAMILY~~2. ~~LIFE~~MANAGEMENT’S ~~INSURANCE~~DISCUSSION ~~COMPANY NOTES~~AND TOANALYSIS OF FINANCIAL ~~STATEMENTS~~CONDITION ~~(Unaudited)~~AND ~~(Continued)~~ RESULTS OF FINANCIAL OPERATIONS

~~NOTE~~The following discussion and analysis should be read in conjunction with the historical financial information and related notes found on pages 3 through 16, and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K —for ~~STATUTORY~~the ~~INFORMATION~~year ended December 31, 2004, as filed with the Securities and Exchange Commission on February 24, 2005.

~~The minimum statutory capital and surplus requirements under Pennsylvania law~~FINANCIAL ~~for stock life insurance companies (Section 386 of the Pennsylvania Insurance~~OVERVIEW ~~Company Law) amounts to $1,650. In addition, the Company is subject to certain~~ ~~risk based capital surplus requirements. The Company’s total statutory capital~~ ~~and surplus significantly exceed these minimum requirements.~~

17Net income decreased to $3.5 million, or $0.38 per share, in the first quarter of 2005, compared to $6.5 million, or $0.69 per share, for the first quarter of 2004. The $3.0 million decrease in the first quarter 2005 earnings was primarily the result of a $4.2 million change in realized gains and losses on investments. Realized losses totaled $1.4 million during the first quarter of 2005, compared to realized gains of $2.8 million during the first quarter of 2004. A $2.0 million increase in DAC amortization expense in 2005 also contributed to the reduction in net income from the first quarter of 2004.

~~Table of Contents~~REVENUES

~~ITEM~~Analysis 2.of ~~MANAGEMENT’S~~Policy ~~DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~Revenue ~~RESULTS OF FINANCIAL OPERATIONS~~

~~The~~Total ~~following~~net ~~discussion~~policy ~~and~~revenue ~~analysis~~increased ~~should~~3.1%, beto ~~read~~$14.4 million in ~~conjunction with~~ the ~~historical~~ ~~financial~~first ~~information~~quarter ~~and~~of ~~related~~2005 ~~notes~~from ~~found~~$14.0 million onduring ~~pages~~the 3same ~~through~~period ~~17, and~~in ~~Management’s~~2004. ~~Discussion~~Although ~~and~~total ~~Analysis~~net ofpremiums ~~Financial~~are ~~Condition~~up ~~and~~in ~~Results~~2005, ofnew ~~Operations~~traditional ~~contained~~policies issued declined in the ~~Company’s~~first ~~Annual~~quarter ~~Report~~of on2005 ~~Form 10-K/A~~when ~~for~~compared to the ~~year~~same period ~~ended~~in ~~December 31,~~2004. ~~2003,~~Direct asnew ~~filed~~premiums ~~with~~on ~~the~~traditional ~~Securities~~life ~~and~~insurance ~~Exchange~~policies ~~Commission on~~decreased ~~August 20, 2004~~7.4% Asto ~~further~~$2.3 million for ~~described~~the inquarter ~~Note~~ended March B31, ~~the~~2005, ~~Company~~from ~~has~~$2.4 million ~~restated~~for ~~its~~the ~~financial~~quarter ~~statements~~ended March 31, 2004.

~~FINANCIAL~~Analysis ~~OVERVIEW~~of Investment-related Income

Net investment income increased to $130.28 million, orto $120.403 million ~~per share,~~ in the ~~second~~ first quarter of ~~2004,~~2005 when compared to ~~$7.8 million, or $0.83 per share, for~~ the ~~second quarter~~same ofperiod ~~2003.~~in ~~For the six months ended June 30,~~ 2004~~, net income increased to $19~~.~~8 million,~~ orThe ~~$2.09~~increase ~~per~~in ~~share,~~net ~~compared~~investment toincome ~~$13.1 million,~~for orthe ~~$1.38~~first ~~per~~quarter ~~share~~of ~~for~~2005 ~~the~~is ~~same~~due ~~period~~ in ~~2003.~~part ~~Increases~~to ina ~~investment~~moderate ~~related~~increase ~~earnings combined~~in ~~with~~ the ~~unlocking~~size of ~~deferred~~the ~~policy~~investment ~~acquisition~~portfolio ~~costs~~and ~~resulted~~a inslight ~~the~~improvement ~~large~~in ~~increase~~yields inon ~~earnings~~invested assets.

~~REVENUES~~Net realized capital losses on investments were $1.4 million in the first quarter of 2005, compared to net realized capital gains of $2.8 million in the first quarter of 2004. The net realized losses for the first quarter of 2005 includes an impairment charge of $1.5 million. This impairment charge was from a fixed maturity investment in the automotive industry.

~~Analysis of Policy Revenue~~17

TotalTable net policy revenue increased to $14.6 million in the second quarter of 2004 from $14.3 million during the same period in 2003. Although total net premiums are up in 2004, sales of new traditional policies declined in the second quarter of 2004 when compared to the same period in 2003. Direct new premiums on traditional life insurance policies decreased 4.0% to $2.5 million for the quarter ended June 30, 2004, from $2.6 million for the quarter ended June 30, 2003. In 2003, management of the Erie Insurance Group enhanced its focus on property/casualty underwriting profitability. As the Company’s independent agents focus on underwriting profitability, new property and casualty production and traditional life policy production have declined. In addition, effective December 16, 2003, the Company restructured its bonus program. Changes in the bonus program may be affecting the growth in sales of life and annuity products by ERIE agencies. Total net policy revenue increased $1.2 million, or 4.3%, to $28.6 million for the six months ended June 30, 2004. Contents

~~Analysis~~ITEM of2. ~~Investment-related~~MANAGEMENT’S ~~Income~~ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF FINANCIAL OPERATIONS (Continued)

~~Net~~The ~~investment~~Company’s ~~income~~performance ~~decreased~~of ~~$0.1 million~~its tofixed ~~$19.8 million~~maturities inand ~~the~~preferred ~~second quarter~~stock ofportfolios ~~2004 when~~ compared to ~~the~~market indices ~~same~~is ~~period~~presented ~~in 2003~~below. ~~The~~Annualized ~~slight~~returns ~~decrease in~~are ~~net~~shown ~~investment~~pre-tax ~~income~~and ~~for~~include ~~the~~investment ~~second quarter of 2004 compared to the same~~income, ~~period~~realized inand ~~2003~~unrealized isgains ~~due~~and ~~in part to lower yielding fixed income securities~~losses.

Net realized capital gains on investments were $5.6 million in the second quarter of 2004, compared to net realized capital gains of $2.1 million in the second quarter of 2003. Included in the second quarter of 2004 was a gain of $1.4 million from the maturity of a bond that had been recognized as impaired in 2002.


	Two year period ended
	March 31, 2005
Erie Family Life Insurance Company indices:
Fixed maturities		5.75%
Preferred stock		8.94

Other indices:
Lehman Brothers U.S. Aggregate		3.25%

18BENEFITS AND EXPENSES

~~Table~~Analysis of ~~Contents~~Policy-related Benefits and Expenses

~~ITEM~~Net 2death benefits on life insurance policies decreased 30.1% ~~MANAGEMENT’S~~in ~~DISCUSSION~~the ~~AND~~first ~~ANALYSIS~~quarter OFof ~~FINANCIAL~~2005 ~~CONDITION~~to ~~AND~~$3.4 ~~RESULTS~~million OFfrom ~~FINANCIAL~~the ~~OPERATIONS~~first ~~(Continued)~~quarter of 2004. Random fluctuations in death benefits incurred are expected especially when mortality results are measured over a short period of time due to the small number of claims. These short-term fluctuations can influence quarterly or annual results without impacting long-term profitability. Management believes its underwriting philosophy and practices are sound.

The ~~Company’s~~liability ~~performance~~for offuture ~~its~~life ~~fixed~~policy ~~maturities~~benefits is computed considering various factors such as anticipated mortality, future investment yields, withdrawals and ~~preferred~~anticipated ~~stock~~credit for reinsurance ceded. Increase in future life policy benefits net of reinsurance ceded totaled $3.2 million in the first quarter of 2005 compared to $2.2 million in the first quarter of 2004, an increase of 40.6%. This increase includes a $0.7 million charge related to ~~market~~an ~~indices~~adjustment ismade ~~presented~~to ~~below:~~correct previously recorded reinsurance reserve credits, reflecting refinements in the method used to calculate these credits.

	Two year period ended
	June 30, 2004
	(Pre-tax annualized returns) (1)
Erie Family Life Insurance Company indices:
Fixed maturities		8.07	%
Preferred stock		10.69
Other indices:
Lehman Brothers U.S. Aggregate		5.24	%

Amortization of deferred policy acquisition costs increased to $2.3 million in the first quarter of 2005, from $0.2 million during the same period in 2004. In accordance with FAS 97, the Company periodically evaluates certain assumptions in use to determine DAC and corresponding amortization related to its interest sensitive products. During the first quarter of 2005, the Company unlocked certain assumptions on its universal life and annuity products based on the results of an expense study. As a result of unlocking these expense assumptions, the DAC asset was increased and the amortization of DAC was decreased by $0.4 million. In addition, during its annual review of actual experience to assumptions used, the Company trued up certain items in the first quarter of 2005 resulting in a $0.5 million increase in the DAC amortization. During the first quarter of 2004, the Company unlocked assumptions relating to interest rate spreads on its interest sensitive products. As a result of unlocking these assumptions, the DAC asset was increased and the amortization of DAC was decreased by $1.7 million during the first quarter of 2004.

~~(1) Includes income, realized and unrealized gains and losses.~~18

BENEFITSTable ANDof EXPENSES Contents

~~Analysis~~ITEM of2. ~~Policy-related~~MANAGEMENT’S ~~Benefits~~DISCUSSION ~~and~~AND ~~Expenses~~ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF FINANCIAL OPERATIONS (Continued)

~~Net~~Analysis ~~death benefits on life insurance policies increased $0.7 million or 26.0% in the second quarter~~ of ~~2004~~Other ~~to $3.5 million. For the six months ended June~~Expenses ~~30, 2004, net death benefits on life insurance policies increased $1.8 million,~~ ~~or 27.0%, to $8.4 million, from $6.6 million during the same period in 2003.~~ Net life insurance inforce has grown from $16.9 billion at June 30, 2003 to $17.8 billion at June 30, 2004, an increase of 5.3%. In addition, random fluctuations in death benefits incurred can be expected when mortality results are measured over a short time period due to the small number of claims. These short-term fluctuations can influence quarterly or annual results without impacting long-term profitability. Management believes its underwriting philosophy and practices are sound.

~~Interest~~Direct ~~expense~~commissions ~~incurred~~to onindependent ~~deposits~~agents ~~increased~~include ~~$0.5 million,~~new orand ~~3.7%,~~renewal tocommissions ~~$12.9~~and production ~~million~~bonuses. inThese direct commission expenses are reported on the ~~second~~Statements ~~quarter~~of Operations net of commissions ~~2004~~received from ~~$12~~reinsurers.~~4 million~~ inThe reported expense is also affected by the ~~second~~amount ~~quarter~~ of commission ~~2003~~expenses capitalized as DAC. ~~This~~Commissions, ~~increase~~which ~~can~~vary bewith ~~attributed~~and toare related primarily to the ~~growth~~production of ~~annuities~~new ~~on deposit~~business, are deferrable as DAC. AtMost ~~June 30,~~first-year ~~2004,~~and incentive commissions and some renewal commissions qualify for deferral as DAC. For the ~~balance~~first quarter of ~~annuity~~2005, ~~deposits~~the commission expense totaled $~~962~~0.9 4 million, compared to $~~902~~0.15 million atfor ~~June 30,~~the ~~2003,~~first anquarter ~~increase~~ of 62004.~~7%. The~~ ~~Company~~This ~~has~~decrease ~~lowered~~is ~~its~~partially ~~credited~~attributable ~~interest~~to ~~rates~~the ~~during~~decline in annuity sales. Annuity premiums for the period ~~last~~ended ~~two~~March 31, ~~years~~2005 were $19.7 million, compared to ~~reflect~~ ~~current~~$22.7 million ~~market~~for ~~conditions~~the same period in 2004. ~~Interest~~Commissions ~~was~~and ~~credited~~bonuses on ~~annuity~~these ~~and universal~~premiums, ~~life~~net ~~deposits~~of inDAC, ~~2004~~were $0.2 million and ~~2003~~$0.3 million at for the ~~following~~periods ~~rates:~~ended March 31, 2005 and 2004, respectively.

	Annuity			Universal Life
	Deposits			Deposits
January 1, 2003 – February 24, 2003		4.00%- 4.80	%		5.25% - 6.00	%
February 25, 2003 – March 10, 2003		3.75 - 4.70			5.25 - 6.00
March 11, 2003 – May 14, 2003		3.75 - 4.70			5.00 - 5.75
May 15, 2003 – June 1, 2003		3.50 - 4.70			5.00 - 5.75
June 2, 2003 – July 9, 2003		3.50 - 4.70			4.75 - 5.50
July 10, 2003 – June 30, 2004		3.00 - 4.70			4.25 - 5.00

General expenses, net of DAC, increased $0.7 million from the first quarter of 2004, to $4.6 million for the first quarter of 2005. General expenses include wages and salaries, employee benefits, data processing expenses, professional fees, occupancy expenses and other office and general administrative expenses of the Company. Certain general expenses of the Company related to the acquisition and underwriting of new policies are deferred as DAC. Such expenses include medical inspection and exam fees related to new business production and salaries, wages and employee benefits of underwriting personnel. The increase in general expenses includes professional consulting fees related to the strengthening of internal accounting controls, increases in information technology costs and costs associated with the implementation of new actuarial valuation systems. In addition, in January 2005 the amount allocated to the Company for the salaries and benefits of various members of executive management of the Erie Insurance Group increased due to an increased amount of effort dedicated to Company issues.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF FINANCIAL OPERATIONS (Continued)

~~Amortization~~FINANCIAL ~~of deferred policy acquisition costs (DAC) was a negative $3.6~~CONDITION ~~million in the second quarter of 2004 compared to amortization of $1.7 million~~ ~~for the same period in 2003. In accordance with FAS 97, the Company~~ periodically evaluates certain assumptions in use to determine DAC and related amortization related to its interest sensitive products. During the second quarter 2004, the Company modified certain assumptions concerning lapse, mortality, interest rates, surrender rates and other factors. As a result of unlocking these assumptions, DAC was increased and the amortization of DAC was decreased by $5.9 million during the second quarter of 2004.

~~Analysis of Other Expenses~~Investments

~~Direct~~The ~~commissions~~Company’s toinvestment ~~independent~~strategies ~~agents~~provide ~~include~~that ~~new~~portfolios ~~and renewal commissions, production bonuses and promotional incentives. These direct commission expenses~~ are ~~reported~~structured onto match the ~~Statements~~features of ~~Operations net of commissions~~ ~~received~~the ~~from~~life ~~reinsurers.~~insurance ~~The~~and ~~reported~~annuity ~~expense~~products issold ~~also affected~~ by the ~~amount of commission expenses capitalized as DAC~~Company. ~~Commissions,~~Annuities ~~which~~and ~~vary~~life ~~with~~insurance ~~and~~policies are ~~related primarily to the production of new business, are deferrable as DAC. Most first~~long-~~year~~term ~~and~~products; ~~incentive commissions and some second-year commissions qualify for deferral as DAC. For the second quarter of 2004~~therefore, ~~net commission expense decreased $0.1 million to $1.0 million, compared to $1.1 million for~~ the ~~second~~Company’s ~~quarter~~investment ofstrategy ~~2003.~~takes ~~This~~a ~~decrease~~long-term ~~is primarily attributable to the~~perspective ~~decline~~emphasizing ininvestment ~~annuity sales. Annuity premiums for the quarter ended June 30~~quality, ~~2004 were~~diversification ~~$15.2 million,~~and ~~compared~~superior toinvestment ~~$36~~returns.~~1 million~~ ~~for~~The ~~the same period in 2003.~~Company’s ~~Commissions~~investments ~~and~~are ~~bonuses~~managed on ~~these~~a ~~premiums,~~total ~~net~~return ofapproach ~~DAC,~~that ~~were~~focuses ~~$0.2 million~~on ~~and $0.7 million~~current ~~for~~income ~~the periods ended June 30, 2004~~ and ~~2003, respectively. For~~capital ~~the six months ended June 30, 2004, commission expense decreased $0~~appreciation.~~9 million~~ ~~to $1.6 million, which is attributable to the reduction in annuity sales.~~

~~General~~The ~~expenses,~~Company’s ~~net~~invested ofassets ~~DAC,~~are ~~increased~~sufficiently ~~$0.2 million,~~liquid ~~or 4.6%,~~ to ~~$4.1 million for~~meet ~~the~~commitments ~~second quarter of 2004, compared~~ to ~~$3.9 million for the same period in~~its ~~2003~~policyholders. ~~General~~At ~~expenses include wages and salaries~~March 31, ~~employee benefits~~2005, ~~data processing expenses, professional fees, occupancy expenses and other office and general administrative expenses of~~ the Company.’s ~~Certain~~investment ~~general~~portfolio ~~expenses~~consisting of ~~the~~ ~~Company related to the acquisition and underwriting of new policies are~~cash, ~~deferred~~investment asgrade ~~DAC.~~bonds ~~Such expenses include medical inspection~~ and ~~exam~~investment ~~fees related~~grade topreferred ~~new~~stock, ~~business~~totaled ~~production,~~more ~~and~~than ~~wages~~$1.4 billion, ~~salaries~~or 84.8% ~~and employee benefits~~ of ~~underwriting~~ ~~personnel~~total assets. ~~The~~These ~~increase in~~resources ~~general~~provide ~~expenses~~the ~~includes~~liquidity ~~professional~~the ~~consulting~~Company ~~fees~~requires ~~related~~ to ~~the strengthening~~meet ~~of controls~~ known and ~~increases~~unforeseen indemands ~~allocated~~on ~~information~~its ~~technology costs of Company projects~~funds.

20All investments are evaluated monthly for other-than-temporary impairment loss. Some factors considered in evaluating whether or not a decline in fair value is other-than-temporary include: 1) the extent and duration to which fair value is less than cost, 2) historical operating performance and financial condition of the issuer, 3) near term prospects of the issuer and its industry, 4) specific events that occurred affecting the issuer, including a ratings downgrade, and 5) the Company’s ability and intent to retain the investment for a period of time sufficient to allow for a recovery in value. An investment which is deemed impaired is written down to its estimated net realizable value. For all investments except limited partnerships, the impairment charge is included as a realized loss in the Statements of Operations. For limited partnerships, the impairment charge is included as a component of equity in earnings of limited partnerships in the Statements of Operations.

~~Table~~If the Company’s policy for determining the recognition of ~~Contents~~impaired positions were changed, the Company’s 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.

~~ITEM~~The 2Company’s investments are subject to certain risks, including interest rate price risk and credit risk. ~~MANAGEMENT~~The Company monitors exposure to interest rate risk 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. The Company’Ss ~~DISCUSSION~~objective ~~AND~~is ~~ANALYSIS~~to OFearn competitive ~~FINANCIAL~~relative ~~CONDITION~~returns ~~AND~~by investing in a diverse portfolio of high-quality, liquid ~~RESULTS~~securities. OFPortfolio ~~FINANCIAL~~characteristics ~~OPERATIONS~~are ~~(Continued)~~analyzed regularly and market risk is actively managed through a variety of techniques. Portfolio holdings are diversified across industries, and concentrations in any one company or industry are limited by parameters established by Company management and the Board of Directors.

~~FINANCIAL CONDITION~~20

Investments Table of Contents

~~The~~ITEM ~~Company’s investment strategies provide that portfolios are structured to match the features of the life insurance and annuity products sold by the Company~~2. ~~Annuities and life insurance policies are long-term products; therefore, the Company~~MANAGEMENT’sS ~~investment~~DISCUSSION ~~strategy~~AND ~~takes~~ANALYSIS aOF ~~long-term~~FINANCIAL ~~perspective emphasizing~~CONDITION ~~investment~~AND ~~quality,~~RESULTS ~~diversification~~OF ~~and superior investment~~FINANCIAL ~~returns.~~OPERATIONS ~~The Company’s investments are managed on a total return approach that~~(Continued) ~~focuses on current income and capital appreciation.~~

~~The~~Reserve ~~Company’s invested assets are sufficiently liquid to meet commitments to~~Liabilities ~~its policyholders. At June 30, 2004, the Company’s investment portfolio~~ ~~consisting of cash, investment grade bonds and investment grade preferred~~ ~~stock, totaled more than $1.3 billion, or 82.6% of total assets. These resources provide the liquidity the Company requires to meet known and unforeseen demands on its funds.~~

The Company’s ~~continually~~primary ~~reviews~~commitment ~~the~~is ~~investment~~its ~~portfolio~~obligation to ~~evaluate~~pay ~~positions that~~future ~~might~~policy ~~incur~~benefits ~~other-than-temporary~~under ~~declines~~the interms ~~value~~of its life insurance and annuity contracts. ~~For~~To ~~investment holdings~~meet these future obligations, ~~general~~the ~~economic~~Company establishes ~~conditions~~life ~~and/or~~insurance ~~conditions~~reserves ~~specifically~~based ~~affecting~~ upon the ~~underlying~~type ~~issuer~~of orpolicy, ~~its~~the ~~industry~~age, ~~including~~gender ~~downgrades~~and byrisk class of the ~~major~~insured ~~rating agencies,~~and ~~are~~the ~~considered~~number inof ~~evaluating~~years ~~impairment~~the policy has been in ~~value~~force. InThe ~~addition~~Company toalso establishes ~~specific~~annuity ~~factors,~~and ~~other~~universal ~~factors~~life ~~considered~~reserves inbased on the ~~Company’s~~amount ~~review~~ of ~~investment~~ ~~valuation~~policyholder ~~are~~deposits ~~the~~(less ~~length~~applicable insurance ofand ~~time~~expense ~~the~~charges) ~~market~~plus ~~value~~interest isearned ~~below~~on ~~cost~~those deposits. Life insurance and annuity reserves are supported primarily by the ~~amount~~Company’s long-term, fixed income investments as the underlying ~~market~~policy ~~value~~reserves isare ~~below~~generally ~~cost~~also of a long-term nature.

~~For~~LIQUIDITY ~~fixed~~AND ~~maturity~~CAPITAL ~~and preferred stock investments, the Company individually~~RESOURCES ~~analyzes all positions with emphasis on those that, in management’s opinion,~~ ~~have declined significantly below cost. The Company considers market~~ conditions, industry characteristics and the fundamental operating results of the issuer to determine if declines in value are due to changes in interest rates, changes relating to a decline in credit quality, or other issues affecting the investment. Positions that have incurred significant market price declines for extended periods, in which the creditworthiness of the issuer or other factors indicate a decline that is other-than-temporary, are recognized as impaired and reflected as a charge to the Company’s operations.

IfLiquidity is a measure of the Company’s ~~policy~~ability ~~for~~to ~~determining~~secure ~~the~~enough ~~recognition~~cash ofto ~~impaired~~meet ~~positions~~its contractual ~~were~~obligations ~~different,~~and ~~the~~operating needs. Insurance premiums are collected prior to claims and benefit disbursements and these funds are invested to provide necessary cash flows in future years. The Company’s ~~Results~~major sources of ~~Operations~~cash ~~could~~from beoperations ~~significantly impacted.~~are ~~Management~~life ~~believes~~insurance ~~its~~premiums and investment ~~valuation~~income. Major ~~philosophy~~cash outflows from operations are for benefits to policyholders, commissions to agents and ~~accounting~~salaries, ~~practices~~wages ~~result~~and inoperating ~~appropriate~~expenses. The net positive cash flow from operations is used to fund Company commitments and ~~timely~~to ~~measurement~~build ofthe ~~value~~investment portfolio, thereby increasing future investment returns. Net cash provided by operating activities for the three months ended March 31, 2005 was $5.7 million. With investments and cash and cash equivalents totaling approximately $1.5 billion ~~recognition~~at ofMarch 31, ~~impairment~~2005, the Company’s liquidity position remains strong.

~~The~~Annuity ~~Company’s~~and ~~investments~~universal ~~are~~life ~~subject~~deposits, towhich ~~certain~~do ~~risks,~~not ~~including~~appear ~~interest~~as ~~rate~~revenue on the Statement of Operations, ~~price~~are ~~risk~~a ~~and~~source ~~credit~~of ~~risk~~funds. ~~The~~These ~~Company~~deposits ~~monitors~~do ~~exposure~~not toinvolve ~~interest~~a ~~rate~~mortality or morbidity risk and are ~~through~~accounted ~~periodic~~for ~~reviews~~using ofmethods ~~asset~~applicable ~~and~~to ~~liability~~comparable ~~positions.~~interest-bearing ~~Estimates~~obligations of ~~cash~~other types of ~~flows~~financial ~~and~~institutions. ~~the~~This ~~impact~~method of ~~interest~~accounting ~~rate~~records ~~fluctuations~~deposits ~~relating~~as toa ~~the~~liability ~~investment portfolio~~rather ~~are~~than ~~monitored regularly~~as revenue. ~~The~~Annuity ~~Company’s~~and ~~objective~~universal islife todeposits ~~earn competitive~~were ~~relative~~$22.6 million ~~returns by investing~~ in athe ~~diverse~~first ~~portfolio~~quarter of ~~high-quality,~~ ~~liquid~~2005 ~~securities~~and $25.8 million ~~Portfolio~~in ~~characteristics~~the ~~are~~first ~~analyzed regularly~~quarter ~~and~~of ~~market~~2004. ~~risk~~The isCompany’s ~~actively~~ability ~~managed~~to ~~through~~attract adeposits ~~variety~~depends ~~of techniques.~~in ~~Portfolio~~large ~~holdings~~part ~~are~~on ~~diversified~~the ~~across~~relative ~~industries,~~attractiveness ~~and~~of ~~concentrations~~its inproducts ~~any one~~compared ~~company~~to orother ~~industry~~investment alternatives. ~~are~~Annuity ~~limited~~deposits byhave ~~parameters~~slowed ~~established~~during byrecent ~~Company management~~years ~~and~~as the ~~Board~~equity ofmarket ~~Directors~~has improved.

21All Company commitments are met by cash flows from policy revenue, annuity and universal life deposits and investment income. Management believes its cash flow from operations and its liquid assets and marketable securities will also enable the Company to meet any foreseeable cash requirements. Also available as a source of funds to the Company is a $10 million committed line of credit with a commercial bank. The Company may use extensions of credit from the bank to fund working capital needs of the Company and for other general corporate purposes. At March 31, 2005 and December 31, 2004, securities held as collateral on the committed line of credit totaled $15.1 million. At March 31, 2005 and December 31, 2004, there were no borrowings on this line of credit.

~~Table~~The Company’s $15 million surplus note due to EIC is payable on demand on or after December 31, 2005. It is probable that EIC will allow the Company to repay this note through issuance of ~~Contents~~a new note with a later maturity date. Interest payments on this note, totaling $0.5 million each, are paid in June and December of each year.

~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~21 ~~RESULTS OF FINANCIAL OPERATIONS (Continued)~~

ReserveTable Liabilities of Contents

~~The~~ITEM ~~Company’s primary commitment is its obligation to meet the payment of future policy benefits under the terms of its life insurance and annuity contracts~~2. ToMANAGEMENT’S ~~meet~~DISCUSSION ~~these future~~AND ~~obligations,~~ANALYSIS ~~the~~OF ~~Company~~FINANCIAL ~~establishes~~CONDITION ~~life~~AND ~~insurance~~RESULTS ~~reserves~~OF ~~based upon~~FINANCIAL ~~the~~OPERATIONS type of policy, the age of the insured and the number of years the policy has been in force. The Company also establishes annuity and universal life reserves based on the amount of policyholder deposits (~~less applicable insurance and expense charges~~Continued) ~~plus interest earned on those deposits. Life~~ ~~insurance and annuity reserves are supported primarily by the Company’s~~ ~~long-term, fixed-income investments as the underlying policy reserves are~~ ~~generally also of a long-term nature.~~

~~LIQUIDITY~~For ~~AND~~a ~~CAPITAL~~complete ~~RESOURCES~~discussion of the fixed contractual obligations see Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report on Form 10-K for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on February 24, 2005.

~~Liquidity~~FACTORS isTHAT aMAY ~~measure~~AFFECT ofFUTURE ~~the Company’s ability to secure enough cash to meet~~RESULTS ~~its contractual obligations and operating needs. Generally, insurance premiums~~ ~~are collected prior to claims and benefit disbursements and these funds are~~ invested to provide necessary cash flows in future years. The Company’s major sources of cash from operations are life insurance premiums and investment income. Major cash outflows from operations are for benefits to policyholders and commissions to agents. The net positive cash flow from operations is used to fund Company commitments and to build the investment portfolio, thereby increasing future investment returns. Net cash provided by operating activities for the three months ended June 30, 2004 was $5.3 million. The Company’s liquidity position remains strong. Investments and cash and cash equivalents totaled $1.5 billion at June 30, 2004.

~~Annuity~~Products ~~and~~with ~~universal~~Interest ~~life~~Rate ~~deposits, which do not appear as revenue on the~~Guarantees ~~Statement of Operations, are a source of funds. These deposits do not involve~~ ~~a mortality or morbidity risk and are accounted for using methods applicable to~~ comparable interest-bearing obligations of other types of financial institutions. This method of accounting records deposits as a liability rather than as revenue. Annuity and universal life deposits were $24.8 million in the second quarter of 2004 and $45.5 million in the second quarter of 2003. The Company’s ability to attract deposits depends in large part on the relative attractiveness of its products compared to other investment alternatives. Annuity deposits began to slow during the second half of 2003 as the Company lowered its credited interest rates and the equity market improved.

~~All~~The Company’s ~~commitments are met by cash flows from policy revenue,~~ annuity and universal life ~~deposits~~contracts ~~and~~contain ~~investment~~provisions ~~income.~~that ~~Management~~guarantee ~~believes~~interest ~~its cash~~rates ~~flow from operations and its liquid assets and marketable securities~~ will ~~also enable~~not ~~the~~decrease ~~Company~~below tocertain ~~meet any foreseeable cash requirements~~levels. ~~Also~~If ~~available as~~the ainterest ~~source~~rates ofearned ~~funds~~on to the Company’s ~~is a $10.0 million committed line of credit~~investments ~~and~~become ~~letter~~insufficient ~~agreement~~to ~~with~~meet ~~PNC~~targeted ~~Bank,~~interest ~~N.A.~~spreads ~~The~~because ~~Company may use extensions~~ of ~~credit~~ ~~from~~these ~~the~~minimum ~~bank to fund working capital needs of the Company and for other general corporate purposes. At June 30~~guarantees, ~~2004 and December 31, 2003, securities~~profit ~~held~~margins ~~as collateral~~ on ~~the~~annuity ~~committed line of credit totaled $14.6 million~~ and ~~$15.1 million,~~ ~~respectively.~~universal Atlife ~~June 30,~~deposits ~~2004~~will ~~and~~decrease ~~December 31,~~or ~~2003,~~in ~~there were~~extreme nosituations ~~borrowings~~could ~~on this line of credit~~turn negative.

~~For~~The aCompany ~~complete~~revised ~~discussion~~its ofdeferred ~~the~~annuity ~~fixed~~products ~~contractual~~in ~~obligations~~2003 ~~see~~to ~~Management’s Discussion~~lower ~~and~~interest ~~Analysis~~rate ofguarantees ~~Financial~~on newly ~~Condition~~issued ~~and~~policies ~~Results~~to of1.5% ~~Operations contained~~ in ~~the~~all ~~amended~~policy ~~Annual~~years. ~~Report~~The onguaranteed ~~Form 10-K/A~~interest ~~for~~rates ~~the~~and ~~year ended~~approximate ~~December 31,~~deposit ~~2003~~liabilities asfor ~~filed~~deferred annuity products with ~~the~~credited ~~Securities~~interest ~~and~~rates ~~Exchange~~subject ~~Commission~~to onchange by ~~August 20,~~the ~~2004.~~Company are as follows:


	Initial	Current
Policy	Guaranteed	Guaranteed	Deposit
Years	Interest Rate	Interest Rate	Liabilities
			(in thousands)
1-5	4.5%	4.5%	$	253,691
6-10	4.5	4.0		114,083
Over 10	4.5	3.5		188,487
All Years	3.0	3.0		32,462
All Years	1.5	1.5		38,685

~~Table~~The Company has some ability to restrict new deposits on its universal life and annuity contracts. New deposits can be limited to planned premium amounts under the terms of ~~Contents~~the Company’s universal life contracts. Deposits are limited also by IRS guidelines. Flexible premium deferred annuity (FPDA) contracts allow the Company to limit deposits to a maximum of $25,000 per year.

~~ITEM~~Market 2.Conditions ~~MANAGEMENT’S~~for ~~DISCUSSION~~Competing ~~AND ANALYSIS OF FINANCIAL CONDITION AND~~Products ~~RESULTS OF FINANCIAL OPERATIONS (Continued)~~

~~FACTORS~~The ~~THAT~~Company’s ~~MAY~~deposit-type ~~AFFECT~~products ~~FUTURE~~compete ~~RESULTS~~with a wide variety of investment options. Among other factors affecting the investment decisions of policyholders and potential policyholders are general investment market conditions, particularly the market interest rate environment and the performance of the equity markets. Changes in interest rates affect pricing and the relative attractiveness of interest-sensitive investment options, which bears directly on the ability of the Company to attract new policyholders and retain existing holders of annuity, universal life and certain permanent life insurance products.

~~Products~~Investment ~~with Interest Rate Guarantees~~Risk

~~Several~~The ofCompany ~~the~~is ~~Company’s~~exposed ~~annuity~~to interest ~~and~~rate ~~universal~~risk ~~life~~through ~~products~~its ~~offer~~fixed ~~guaranteed~~maturities portfolio. As interest rates torise, ~~policyholders.~~impairment Incharges ~~response~~could tobe ~~the~~recognized ~~current~~in ~~interest rate~~future ~~environment~~periods. Additionally, the ~~Company~~emerging ~~has~~authoritative ~~reduced~~guidance on the ~~credited~~determination ~~interest~~of ~~rates~~when ~~to historically~~an ~~low~~investment ~~levels.~~is ~~Certain~~impaired ~~products~~and ~~are~~whether ~~now~~the impairment atis ~~the~~other ~~minimum~~than ~~interest~~temporary, ~~rates~~could result in significant ~~guaranteed~~impairments ~~under~~being ~~these~~recognized ~~policy~~in ~~forms~~future periods.

~~If the interest rates on fixed income securities continue to decline, the~~Reinsurance ~~interest rates available in the marketplace may be insufficient to produce~~ ~~target profit margins or, in extreme situations, could produce negative profit~~ ~~margins on annuity and universal life deposits.~~

~~Effective~~The ~~July~~Company put in place a new ceding arrangement for new issues under certain of its Target Term plans as of January 101, ~~2003,~~2005. ~~the~~Allowances ~~Company~~under ~~revised~~this ~~its~~new ~~current~~arrangement ~~deferred~~are ~~annuity~~not as favorable as those ~~products~~under tothe ~~lower~~arrangement ~~interest~~in ~~rate~~place ~~guarantees~~through 2004. Increased reinsurance costs (reduced expense allowances) on ~~newly~~this ~~issued~~product ~~policies~~will reduce the profitability of the Company’s traditional life line of business. This line of business, however, is expected to 1remain profitable.5% Changes in the ~~all~~products, ~~policy~~prices, ~~years.~~or ~~This~~features ~~change~~of ~~has~~the ~~been~~Company’s ~~approved~~term inproduct ~~all~~portfolio ~~states~~may be necessary in ~~which~~order ~~the~~to ~~Company~~return ~~operates~~the profitability of this portfolio to desired levels.

~~Annuity contracts issued between February 25, 2003 and July 9, 2003 have a~~22 guaranteed interest rate of 3.0%. Contract forms issued before February 2003 have a stepped-down guaranteed interest rate structure. The guaranteed interest rates and approximate current deposit liabilities for deferred annuity products with credited interest rates subject to change by the Company are as follows:

	Initial			Current
Policy	Guaranteed			Guaranteed			Deposit
Years	Interest Rate			Interest Rate			Liabilities
							(in thousands)
1-5		4.5	%		4.5	%	$	263,156
6-10		4.5			4.0			112,689
Over 10		4.5			3.5			171,526
All Years		3.0			3.0			32,089
All Years		1.5			1.5			20,677

~~The~~ITEM ~~Company~~2. ~~has~~MANAGEMENT’S ~~some~~DISCUSSION ~~ability~~AND toANALYSIS ~~restrict~~OF ~~new~~FINANCIAL ~~deposits~~CONDITION onAND ~~its~~RESULTS ~~universal~~OF ~~life and~~FINANCIAL ~~annuity~~OPERATIONS ~~policy contracts. New deposits can be limited under the terms of the~~(Continued) ~~Company’s universal life and annuity contracts as follows:~~

	•		Universal life products provide for planned premium amounts. Additional unplanned premium payments may be made at any time during the insured’s lifetime and before the end of the payment period. The amounts of such payments must be acceptable to the Company and be within IRS guidelines. Policies in force at June 30, 2004 have an annualized planned premium of $30.4 million.
	•		Flexible premium deferred annuity (FPDA) contracts allow the Company to limit deposits to a maximum of $25,000 per year. The Company began limiting deposits to the contractual maximum effective July 10, 2003 on products with interest rate guarantees exceeding 3.0% to insure that overall product interest spreads are maintained. Currently, there are 23,833 FPDA contracts in force, of which 20,206 have guarantees in excess of 3.0%. No additional payments are permitted on single premium deferred annuity contracts.

Financial Ratings

~~During~~The ~~the~~combination ~~second~~of ~~quarter~~Company ofgrowth ~~2004,~~and ~~the~~declines ~~average~~in ~~rate~~investment ~~credited~~returns onexposes ~~flexible~~the Company to reduced ~~premium~~statutory ~~deferred~~surplus ~~annuity~~levels. ~~and~~Surplus ~~universal~~levels ~~life~~are ~~account~~an ~~values~~important ~~was~~element 4of the rating process used by such agencies as A.1%M. Best and ~~4.6%~~Standard & Poor’s, which are industry-accepted measures of an ~~respectively.~~insurance ~~The~~company’s ~~current~~financial ~~coupon~~health ~~yield~~and onability ~~fixed~~to ~~maturities~~meet ~~matched~~ongoing ~~against~~obligations to policyholders. ~~universal~~These ~~life~~ratings ~~and~~are ~~annuity~~a ~~products~~factor atin ~~June 30,~~establishing ~~2004,~~the iscompetitive 5position of insurance companies.~~9%.~~

23The Company’s rating from A.M. Best is A (Excellent). The A (Excellent) rating continues to affirm the Company’s strong financial position indicating that the Company has an excellent ability to meet its ongoing obligations to policyholders. The Company is also rated by Standard & Poor’s, but this rating is based solely on public information. Standard & Poor’s rates the Company’s Api, “strong.” The Company also has a rating of B (Good) from Weiss Ratings, Inc. According to Weiss Ratings, the B rating indicates that the Company offers good financial security and has the resources necessary to deal with a variety of adverse conditions.

~~Table~~If the Company were to incur reductions in statutory surplus for an extended period of ~~Contents~~time, the ratings of the Company may be downgraded. Future downgrades in these or other ratings would reduce the competitive position of the Company by making it more difficult to attract business in the highly competitive life insurance industry. In such circumstances, the Company may need to take measures to increase surplus levels in order to maintain adequate ratings. The Company may increase surplus through a variety of means, including the issuance of additional surplus notes.

~~ITEM~~Implementation 2.of ~~MANAGEMENT’S~~new ~~DISCUSSION~~valuation ~~AND ANALYSIS OF FINANCIAL CONDITION AND~~system ~~RESULTS OF FINANCIAL OPERATIONS (Continued)~~

~~Market~~In ~~Conditions~~2004, the Company implemented a new valuation system for ~~Competing~~its ~~Products~~statutory and tax reserves on traditional products. As a result, adjustments were made to conform reserve estimates of the old system to the estimates from the new system. The Company plans to implement the new valuation system for GAAP reserving on traditional products in the second quarter of 2005. In implementing the new GAAP valuation system for traditional products, the Company is refining its GAAP reserving methods, assumptions and calculations. The impact of the refined reserving assumptions on the recorded reserves cannot be estimated at this time.

~~The~~Introduction ~~Company’s deposit-type products compete with a wide variety~~ of ~~investment~~ErieConnection® ~~options. Among other factors affecting the investment decisions of~~ ~~policyholders and potential policyholders are general investment market~~ conditions, particularly the market interest rate environment and the performance of the equity markets. Changes in interest rates affect pricing and the relative attractiveness of interest-sensitive investment options, which bears directly on the ability of the Company to attract new policyholders and retain existing holders of annuity, universal life and certain permanent life insurance products.

~~Financial~~In ~~Ratings~~2001, the 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 for property/casualty business. The first major component of the eCommerce program (network and desktop hardware deployment) was completed during 2002.

The ~~combination~~Erie ofInsurance ~~Company~~Group ~~growth~~has ~~and~~spent ~~declines~~$180.4 million inon ~~investment returns exposes~~ the ~~Company~~eCommerce toprogram ~~reduced~~through ~~statutory surplus levels~~March 2005. ~~Surplus levels are an~~ ~~important~~Target ~~element~~delivery ofdates ~~the~~established ~~rating~~in ~~process~~2002 ~~used~~have bygenerally ~~such~~not ~~agencies~~been met as ~~A.M.~~management ~~Best~~has ~~and~~devoted ~~Standard~~increased &effort ~~Poor’s, which are industry-accepted measures of an insurance company’s financial health and ability~~ to ~~meet~~quality ~~ongoing~~assurance ~~obligations~~efforts to ~~policyholders.~~ ~~These~~ensure ~~ratings~~that ~~are~~the arollout ~~factor~~creates inonly ~~establishing the competitive~~minimal ~~position~~business ~~of insurance companies~~disruption.

IfWhile ~~the~~functional ~~Company~~as ~~were~~a topersonal ~~incur~~lines ~~reductions~~rating inand ~~statutory~~policy ~~surplus~~administration ~~for~~system, anErieConnection ~~extended~~agency ~~period~~interface ofhas ~~time,~~generally ~~the~~not ~~ratings~~met of the Company’s ~~may be downgraded. Future downgrades in these~~ or ~~other~~agent’s ~~ratings~~expectations ~~would~~for ~~reduce~~ease ~~the competitive position~~ of ~~the~~use. The Company byhas ~~making~~postponed itfurther ~~more~~deployment ~~difficult~~of tothe ~~attract~~system ~~business~~until insuch ~~the~~usability ~~highly~~issues ~~competitive~~are ~~life insurance industry~~resolved. InEstimates of ~~such circumstances,~~ the ~~Company~~costs ~~may~~to ~~need~~improve tothe ~~take measures~~agency tointerface ~~increase~~for ~~surplus~~ease ~~levels~~of inuse ~~order~~needed to ~~maintain~~facilitate ~~adequate~~future ~~ratings. The~~deployment ~~Company~~and ~~may~~the ~~increase~~timetable ~~surplus~~for ~~through~~deployment aare ~~variety~~currently ofbeing ~~means, including the issuance of additional surplus notes~~developed.

2423

ITEM 23. ~~MANAGEMENT’S~~QUANTITATIVE ~~DISCUSSION~~ AND ~~ANALYSIS~~QUALITATIVE OFDISCLOSURES ~~FINANCIAL~~ABOUT ~~CONDITION~~MARKET ~~AND~~RISK ~~RESULTS OF FINANCIAL OPERATIONS (Continued)~~

~~Introduction~~The Company’s exposure to market risk is primarily related to fluctuations in prices and interest rates. Quantitative and qualitative disclosures about market risk resulting from changes in prices and interest rates are included in Item 7A in the Company’s 2004 Annual Report on Form 10-K. The risks associated with interest rate guarantees on the Company’s universal life and annuity products are discussed in the Company’s Annual Report on Form 10-K for 2004 in Factors That May Affect Future Results. The information contained in the Investments section of ~~ERIEConnection®~~Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2004 Annual Report on Form 10-K is incorporated herein by reference.

InThe ~~2001,~~Company ~~the~~also ~~Erie~~has ~~Insurance~~exposure ~~Group~~to credit risk through its portfolios of fixed maturity securities, preferred ~~including~~stock, ~~the~~mortgage ~~Company~~loans, ~~began~~and ~~the~~to ~~development~~a lesser extent, short-term investments. This risk is ofdefined ~~several~~as ~~eCommerce~~the ~~initiatives~~potential loss in ~~support~~market ofvalue resulting from adverse changes in the ~~Group~~borrower’s ability ~~business~~to ~~model~~repay ~~of distributing~~the ~~insurance~~debt. ~~products~~The ~~exclusively~~Company’s ~~through~~objective ~~independent~~is ~~agents.~~to ~~These~~earn competitive returns by investing in a ~~initiatives~~diversified ~~include~~portfolio ~~customer~~of ~~interaction~~securities. ~~systems~~The ~~that~~Company ~~are~~manages ~~intended~~this torisk ~~improve~~by performing up front ~~service~~underwriting analysis and ~~efficiency,~~regular asreviews ~~well~~by asits ~~result~~investment instaff. ~~increased~~The ~~sales~~fixed maturity investments are also maintained between minimum and maximum percentages of invested assets.

~~The~~“Safe ~~implementation~~Harbor” ofStatement Under the ~~new~~Private ~~system~~Securities ~~will~~Litigation ~~require~~Reform aAct ~~significant~~of ~~investment~~1995: inCertain ~~training~~forward-looking ~~and~~statements ~~orientation~~contained ~~for~~herein ~~the~~involve ~~independent~~risks ~~agency~~and ~~force~~uncertainties. ~~During~~These statements ~~implementation,~~include ascertain ~~agency~~discussions ~~resources~~relating ~~are~~to ~~dedicated~~underwriting, topremium ~~learning~~and ~~the~~investment ~~new~~income ~~system~~volume, ~~sales~~business ofstrategies, ~~new~~profitability and business ~~could~~relationships beand ~~adversely~~the ~~affected~~Company’s ~~over~~other ~~the~~business activities ~~short~~during ~~term~~2005 and beyond. ~~The~~In some cases, you can identify forward-looking statements by ~~amount~~terms ofsuch ~~lost~~as ~~sales~~“may,” “will,” ~~correlate~~“should,” to“could,” ~~the~~“would,” ~~timing~~“expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential” and ~~duration~~similar ofexpressions. These forward-looking statements reflect the ~~systems~~Company’s current views about future events, are based on ~~rollout~~assumptions ~~effort~~and asare ~~well~~subject asto ~~the~~known ~~number~~and unknown risks and ~~types~~uncertainties ofthat ~~system~~may ~~issues~~cause ~~encountered.~~results to ~~Precise~~differ ~~measurement~~materially from those anticipated in those statements. Many of the ~~impact~~factors onthat ~~sales~~will determine isfuture ~~not~~events ~~estimable~~or achievements are beyond our ability to control or predict.

2524

ITEM 34. ~~QUANTITATIVE~~CONTROLS AND ~~QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~PROCEDURES

~~The~~Evaluation Company’s exposure to market risk is primarily related to fluctuations in prices and interest rates. Quantitative and qualitative disclosures about market risk resulting from changes in prices and interest rates are included in Item 7A in the Company’s 2003 Annual Report on Form 10-K/A. The risks associated with interest rate guarantees on the Company’s universal life and annuity products are discussed in the Company’s Annual Report on Form 10-K/A for 2003 in Factors That May Affect Future Results. The information contained in the Investments section of ~~Management’s~~Disclosure ~~Discussion~~Controls and ~~Analysis of Financial~~Procedures ~~Condition and Results of Operations in the Company’s 2003 Annual Report on Form~~ ~~10-K/A is incorporated herein by reference.~~

~~The~~As ~~Company~~of ~~also~~March 31, ~~has~~2005, ~~exposure~~the toCompany ~~credit~~carried ~~risk~~out ~~through~~an ~~its~~evaluation, ~~portfolios~~under ofthe ~~fixed~~supervision and with the ~~maturity~~participation ~~securities,~~of ~~preferred~~the ~~stock~~Company’s management, ~~mortgage~~including ~~loans,~~its ~~and~~Chief toExecutive aOfficer ~~lesser~~and ~~extent,~~Chief ~~short-term~~Financial ~~investments.~~Officer, ~~This~~the ~~risk~~effectiveness isof ~~defined~~the asdesign ~~the~~and ~~potential~~operation ~~loss~~of inthe ~~market~~Company’s disclosure ~~value~~controls ~~resulting~~and ~~from~~procedures ~~adverse~~(as ~~changes~~defined in ~~the~~Rules 13a-15(e) ~~borrower’s~~and ~~ability~~15d-15(e) tounder ~~repay~~ the Securities Exchange ~~debt~~Act). ~~The~~Based on this evaluation, the Company’s ~~objective~~Chief isExecutive toOfficer ~~earn~~and ~~competitive~~Chief ~~returns~~Financial byOfficer concluded ~~investing~~that, except as described in athe following paragraph, the Company’s disclosure controls ~~diversified~~and ~~portfolio~~procedures as of ~~securities.~~March 31, ~~The~~2005 ~~Company~~are ~~manages~~effective ~~this~~for ~~risk~~gathering, byanalyzing and disclosing the ~~performing~~information upthe ~~front~~Company ~~underwriting~~is ~~analysis~~required ~~and~~to ~~regular~~disclose ~~reviews~~in byreports ~~its~~it ~~investment~~files under the Securities Exchange ~~staff.~~Act ~~The~~of ~~fixed~~1934, ~~maturity~~within ~~investments~~the ~~are~~time ~~also~~periods ~~maintained~~specified ~~between~~in ~~minimum~~the Securities and ~~maximum~~ ~~percentages~~Exchange ofCommission’s ~~invested~~rules and ~~assets~~forms.

~~“Safe~~In ~~Harbor”~~its ~~Statement~~Form ~~Under~~10-K ~~the~~Annual ~~Private~~Report ~~Securities~~for ~~Litigation~~2004, ~~Reform~~the ~~Act~~Company ~~of 1995:~~reported ~~Certain~~a ~~forward-looking~~weakness ~~statements~~in ~~contained~~internal ~~herein~~control ~~involve risks and~~over ~~uncertainties.~~the ~~These~~information ~~statements~~systems ~~include~~and ~~certain~~processes ~~discussions~~used ~~relating~~ to ~~underwriting,~~ ~~premium~~record ~~and~~actuarially ~~investment~~determined ~~income~~amounts ~~volume,~~and ~~business strategies,~~disclosures ~~profitability~~in ~~and~~the ~~business~~financial ~~relationships~~statements. ~~and~~The ~~the~~ Company’s ~~other~~has ~~business activities~~also ~~during~~concluded ~~2004~~it ~~and~~does ~~beyond.~~not Inhave ~~some~~sufficient ~~cases,~~qualified actuarial ~~you~~resources ~~can~~to ~~identify forward-looking~~assure ~~statements~~timely byreview ~~terms~~and ~~such~~detection asof ~~“may,”~~errors ~~“will,”~~in ~~“should,”~~actuarially ~~“could,”~~determined ~~“would,”~~information. ~~“expect,”~~The ~~“plan,”~~Company’s ~~“intend,”~~independent ~~“anticipate,”~~registered ~~“believe,”~~public ~~“estimate,” “project,”~~accounting ~~“predict~~firm,” ~~“potential”~~Ernst ~~and~~& ~~similar~~Young ~~expressions.~~LLP, ~~These~~in ~~forward-looking~~conjunction ~~statements~~with ~~reflect~~their audit of the Company’s ~~current~~2004 ~~views~~financial ~~about~~statements, ~~future~~characterized this ~~events,~~weakness ~~are~~as ~~based~~a onmaterial ~~assumptions~~weakness, ~~and~~as ~~are~~defined ~~subject~~under tostandards ~~known~~established ~~and~~by ~~unknown~~the ~~risks~~Public ~~and~~Company ~~uncertainties~~Accounting ~~that~~Oversight ~~may~~Board ~~cause~~(United ~~results~~States), towhich ~~differ~~they ~~materially~~have ~~from~~communicated ~~those anticipated~~to inCompany ~~those~~management ~~statements.~~and the ~~Many~~Audit Committee of the ~~factors~~Board ~~that~~of ~~will determine future events or achievements are beyond our ability to control or predict~~Directors.

26As reported in its 2004 Form 10-K, management developed a plan in collaboration with the Audit Committee of the Board to correct this weakness in internal control during 2005. The plan entails implementation of improved procedures and controls over systems and procedures underlying actuarial computations and balances. The plan also entails an enhanced oversight structure over actuarial functions supporting financial reporting. The plan has been reviewed with, and progress is being monitored by, Ernst & Young LLP, the Audit Committee of the Board, and Company management including the Chief Executive Officer and Chief Financial Officer.

~~Table~~The Company has made progress in correcting the weakness in control during the first quarter of 2005, ~~Contents~~including adding qualified actuarial resources to prepare and review actuarially determined information. In addition, the Company is in the process of installing new actuarial valuation systems that will improve the information systems used to determine the recorded actuarial amounts. Certain of these systems are expected to be functional for reporting under generally accepted accounting principles in the second quarter of 2005.

~~ITEM~~Changes 4.in ~~CONTROLS~~Internal ~~AND~~Control ~~PROCEDURES~~Over Financial Reporting

InOther ~~its~~than ~~Form 10-K Annual Report for 2003 as originally filed with~~ the ~~Securities~~improvements ~~and~~made ~~Exchange Commission (the “SEC”) on March 8, 2004,~~ as ~~amended~~discussed ~~on April 1~~above, ~~2004~~there ~~(the “Original~~have ~~Filing”),~~been ~~the~~no ~~Company~~significant ~~reported~~changes ~~a weakness~~ in ~~internal control over~~ the ~~processes used to determine the recorded amount of deferred~~ ~~acquisition costs (“DAC”) and related DAC amortization. The~~ Company’s ~~independent~~internal ~~auditors,~~controls ~~Ernst~~or ~~& Young, LLP,~~ in ~~conjunction~~other ~~with their~~factors ~~audit~~that ofcould ~~the~~significantly ~~Company’s~~affect ~~2003~~internal ~~financial statements, characterized this~~controls ~~weakness~~subsequent ~~as a material weakness, as defined in Statement on Auditing Standards No. 60. The material weakness was communicated~~ to the ~~Company’s~~date ~~management and the Audit Committee~~ of ~~the~~management’s ~~Board of Directors~~evaluation.

~~As reported in the Original~~25 Filing, management developed a plan in collaboration with the Audit Committee of the Board to correct this weakness in internal control during 2004. The plan entails evaluation of DAC accounting issues, implementation of improved procedures and controls over periodic DAC computations and balances, ongoing evaluation of underlying assumptions, monitoring of DAC trends and ratios and the installation of improved valuation systems. The plan has been reviewed with, and progress is being monitored by, the Audit Committee of the Board and Company management, including the Chief Executive Officer and the Chief Financial Officer.

SubsequentTable to the Original Filing and pursuant to the plan, the Company completed its evaluation of DAC accounting issues and identified adjustments to its previously issued financial statements that required restatement (the “Restatement”). For additional discussion of the Restatement, see the Company’s Form 10-K/A filed August 20, 2004. Contents

~~The~~PART ~~Company has made substantive progress in correcting the material weakness through the date of the filing of this Form 10-Q~~II. OTHER ~~An independent consulting actuary engaged by the~~INFORMATION ~~Company is providing oversight over the team of internal actuarial and~~ ~~accounting personnel implementing the plan, and providing direction and guidance~~ ~~in evaluating past practices and in implementing procedures and controls regarding actuarial functions.~~

~~The~~ITEM ~~Company has effected certain improvements to its DAC accounting procedures~~I. ~~For~~LEGAL ~~example, actuarial~~PROCEEDINGS ~~and financial personnel have developed management reports to enable management~~ ~~to better monitor DAC trends and ratios which increase transparency in~~ understanding the periodic results of operations. The Company has also purchased a new valuation system. Installation of this new system began in the second quarter of 2004 and is expected to extend through year-end.

AsA ofcivil ~~the~~class ~~end~~action oflawsuit ~~the~~was ~~period covered~~filed byin ~~this~~April ~~Form~~of ~~10-Q,~~2003 in the ~~Company~~Court ~~carried~~of ~~out~~Common anPleas ~~evaluation~~of Philadelphia County, ~~under~~Pennsylvania. ~~the supervision~~Erie ~~and~~Family ~~with~~Life Insurance Company (Company) is the ~~participation~~named defendant ofin the ~~Company’s~~lawsuit. ~~Chief~~The ~~Executive Officer~~Company ~~and~~issued ~~Chief~~a ~~Financial~~life ~~Officer,~~insurance ~~pursuant~~policy to ~~Rule~~the ~~13a-15~~plaintiff. ~~promulgated~~The ~~under~~class action Complaint alleges that the ~~Securities~~Company ~~Exchange~~charged ~~Act~~and ofcollected ~~1934,~~annual aspremium ~~amended~~for (the ~~“Exchange~~first ~~Act”)~~year, ofbut ~~the~~did ~~effectiveness~~not provide 365 days of insurance coverage. The Complaint alleges that the ~~design~~policy forms and ~~operation~~applications ofused by the Company~~’s disclosure~~ ~~controls~~do ~~and~~not ~~procedures.~~disclose In“that ~~making~~a portion of the ~~evaluation~~first ~~described~~premium ~~above,~~will ~~the~~cover ~~Company~~a ~~considered~~period ~~matters~~of ~~relating~~time toduring which the ~~Restatement~~Company ~~including~~does ~~the~~not ~~above described~~provide ~~control~~insurance ~~weakness~~coverage.”

~~Based~~The onComplaint ~~management’s evaluation,~~contains ~~the~~four ~~Company’s~~counts. ~~Chief~~In ~~Executive~~Count ~~Officer~~I, ~~and~~Plaintiff ~~Chief~~alleges ~~Financial Officer have concluded~~ that, ~~except for~~ the ~~material~~conduct ~~weakness~~of ~~described above,~~ the Company’s violated ~~disclosure~~the ~~controls~~Pennsylvania ~~and~~Unfair ~~procedures~~Trade ~~are~~Practices ~~effective~~and ~~for gathering,~~Consumer ~~analyzing~~Protection ~~and~~Law. ~~disclosing~~Count ~~the~~II ~~information~~of the Complaint ~~Company~~alleges isa ~~required~~cause ~~to disclose~~of inaction ~~the~~for ~~reports~~breach itof ~~files~~contract. ~~under~~Count ~~the~~III ~~Exchange~~alleges ~~Act~~that ~~within~~ the ~~time periods~~Company ~~specified~~breached inits ~~the~~duty ~~SEC’s~~of ~~rules~~good faith and ~~forms~~fair dealing. ~~Other~~In ~~than~~Count ~~the~~IV ~~improvements~~of ~~made to~~ the ~~Company’s~~Complaint, ~~processes~~Plaintiff ~~and~~asserts a ~~controls~~cause ~~over~~of ~~accounting~~action for ~~DAC,~~unjust ~~there~~enrichment ~~have been~~and/or norestitution. ~~significant~~The ~~changes~~Company inanswered the ~~Company’s~~Complaint ~~internal controls or in other~~and ~~factors~~denied ~~that~~liability ~~could~~on ~~significantly~~all ~~affect internal controls subsequent to the date of management’s evaluation~~counts.

27In early 2004, the parties reached an agreement to settle this lawsuit. Under the Settlement Agreement, the Company agreed to provide supplemental life insurance coverage to qualifying class members in an amount equal to 4.62% of the face value of the underlying policy for a period of 180 days. On April 30, 2004, Plaintiff filed a Motion for Preliminary Approval of Settlement Agreement. After the filing of the Motion for Preliminary Approval, Plaintiff and the Company agreed the Company would pay attorneys’ fees in an amount up to $150,000, and to reimburse certain litigation costs and expenses in an amount up to $15,000.

~~Table~~The Court preliminarily reviewed the proposed settlement. As a result of ~~Contents~~conferences with the Court, the parties engaged in further settlement negotiations. The parties entered into an Amended and Re-Stated Class Action Settlement Agreement. On March 11, 2005, Plaintiff filed a Motion for Preliminary Approval of the Amended and Re-Stated Class Action Settlement Agreement.

~~PART~~The IIAmended and Re-Stated Class Action Settlement Agreement provides qualifying class members the option of choosing the supplemental life insurance coverage, discussed above, or a cash payment. Qualifying ~~OTHER~~class ~~INFORMATION~~members who select the cash payment option shall receive a maximum of one cash payment of $10.67 for each policy, irrespective of number of purchasers and/or owners of the policy. If a qualifying class member does not submit a cash payment selection form within the timeframe set forth in the Amended and Re-Stated Class Action Settlement Agreement, the qualifying class member shall automatically receive the supplemental life insurance coverage. The Company agrees to pay attorneys’ fees in an amount up to $150,000, and will reimburse administrative costs and expenses in an amount up to $14,000.

~~ITEM~~It 4is too early to assess the probable outcome or the purported amount of damages of this civil class action lawsuit. ~~SUBMISSION~~The OFCompany ~~MATTERS~~believes TOit Ahas ~~VOTE~~meritorious, OFlegal ~~SECURITY~~and ~~HOLDERS~~factual defenses to the lawsuit and these defenses will be vigorously pursued if a settlement is not finalized.

~~On April 27, 2004, the Registrant held its Annual Meeting of Shareholders:~~26

TheTable followingof directors were elected for a one-year term and until a successor is elected and qualified:Contents

~~Kaj~~ITEM ~~Ahlmann C~~6. Scott Hartz John T. Baily F. William Hirt Samuel P. Black, III Samuel P. Katz J. Ralph Borneman, Jr. Claude C. Lilly, III Wilson C. Cooney Jeffrey A. Ludrof Patricia Garrison-Corbin Jan R. Van Gorder, Esq. John R. Graham Robert C. Wilburn Susan Hirt HagenEXHIBITS

~~ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K~~Exhibits

Exhibits


Exhibit
Number		Description of Exhibit
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Statements of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit
Number		Description of Exhibit
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Statements of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

ReportsTable onof Form 8-K Contents

~~On May 27, 2004, the Company filed a report on Form 8-K reporting under Item 5,~~SIGNATURES ~~the resignation, effective immediately, of Samuel P. Katz, President,~~ ~~Wynnefield Capital Advisors, Inc. from the Company’s Board of Directors for~~ personal reasons. The Nominating and Governance Committee has initiated the process to determine whether to fill the vacated position prior to the 2005 Annual Shareholders’ Meeting or reduce the number of directors from 15 to 14.

28Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~Table~~ of ~~Contents~~ Date: April 27, 2005 Erie Family Life Insurance Company(Registrant) /s/ Jeffrey A. Ludrof (Jeffrey A. Ludrof, President & CEO) /s/ Philip A. Garcia (Philip A. Garcia, Executive Vice President & CFO)

~~SIGNATURES~~28

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

		Erie Family Life Insurance Company
		(Registrant)
Date: August 20, 2004		/s/ Jeffrey A. Ludrof
		(Jeffrey A. Ludrof, President & CEO)
		/s/ Philip A. Garcia
		(Philip A. Garcia, Executive Vice President & CFO)

Filing Compare · ERIE FAMILY LIFE INSURANCE CO