10-K

Our results of operations are tied to the growth and financial condition of the Exchange. If any events occurred that impaired the Exchange’s ability to grow or sustain its financial condition, including but not limited to lower financial strength ratings, significant catastrophe losses, disruption in the independent agency relationships, or products offered not meeting customer demands, the Exchange could experience difficulty retaining its existing business and attracting new business. A decline in the business of the Exchange would likely result in a reduction of total premiums paid and a corresponding decrease in the amount of the management fees we receive. We also have an exposure to a concentration of credit risk related to the unsecured receivables due from the Exchange for its management fee. See Part II, Item 8. "Financial Statements and Supplementary Data - Note 14, Concentrations of Credit Risk, of Notes to Financial Statements" contained within this report. See the risk factors related to our dependency on the growth and financial condition of the Exchange in Item 1A. "Risk Factors" contained within this report.

The direct and assumed premiums written by the Exchange drive our management fee which is our primary source of revenue. The property and casualty insurance industry is highly competitive. Property and casualty insurers generally compete on the basis of customer service, price, consumer recognition, coverages offered, claims handling, financial stability and geographic coverage. Vigorous competition, particularly in the personal lines automobile and homeowners lines of business, is provided by large, well-capitalized national companies, some of which have broad distribution networks of employed or captive agents, by smaller regional insurers, and by large companies who market and sell personal lines products directly to consumers. In addition, because the insurance products of the Exchange are marketed exclusively through independent insurance agents, the Exchange faces competition within its appointed agencies based upon ease of doing business, product, price, and service relationships.

The Exchange faces significant competition from other regional and national insurance companies. The property and casualty insurance industry is highly competitive on the basis of product, price and service. If the Exchange’s competitors offer property and casualty products with more coverage or offer lower rates, and the Exchange is unable to implement product improvements quickly enough to keep pace, its ability to grow and renew its business may be adversely impacted. Likewise, an inability to match or exceed the service provided by competitors, which is increasingly relying on digital delivery and enhanced distribution technology, may impede the Exchange's ability to maintain and/or grow its customer base. In addition, due to the Exchange’s focus on the automobile and homeowners insurance markets, it may be more sensitive to trends that could affect auto and home insurance coverages and rates over time, for example changing driving patterns or advancements in vehicle or home technology or safety features.

The Exchange maintains a brand recognized for customer service. The perceived performance, actions, conduct and behaviors of employees, independent insurance agency representatives, and third-party service partners may result in reputational harm to the Exchange’s brand. Specific incidents which may cause harm include but are not limited to disputes, long customer wait times, errors in processing a claim, failure to protect sensitive customer data, and inappropriate social media communications. If third-party service providers fail to perform as anticipated, the Exchange may experience operational difficulties, increased costs and reputational damage. If an extreme catastrophic event were to occur in a heavily concentrated area of policyholders, an extraordinarily high number of claims could have the potential to strain claims processing and affect the Exchange’s ability to satisfy its customers. Any reputational harm to the Exchange could have the potential to impair its ability to grow and renew its business.

Serving as the attorney-in-fact in the reciprocal insurance exchange structure results in the Exchange being our sole customer. We have an interest in the financial condition of the Exchange as our earnings are largely generated from management fees based on the direct and assumed premiums written by the Exchange. If the Exchange were to fail to maintain acceptable financial strength ratings, its competitive position in the insurance industry would be adversely affected. If a rating downgrade led to customers not renewing or canceling policies, or impacted the Exchange’s ability to attract new customers, the premium revenue of the Exchange would be adversely affected which would reduce our management fee revenue. The circumstances or events that might impair the Exchange’s financial condition include, but are not limited to, the items discussed below.

The performance of the Exchange’s investment portfolio is subject to a variety of investment risks. The Exchange’s investment portfolio is comprised principally of fixed income securities, equity securities and limited partnerships. The fixed income portfolio is subject to a number of risks including, but not limited to, interest rate risk, investment credit risk, sector/concentration risk and liquidity risk. The Exchange’s common stock and preferred equity securities have exposure to price risk, the risk of potential loss in estimated fair value resulting from an adverse change in prices. Limited partnerships are significantly less liquid and generally involve higher degrees of price risk than publicly traded securities. Limited partnerships, like publicly traded securities, have exposure to market volatility; but unlike fixed income securities, cash flows and return expectations are less predictable. If any investments in the Exchange’s investment portfolio were to suffer a substantial decrease in value, the Exchange’s financial position could be materially adversely affected through increased unrealized losses or impairments. A significant decrease in the Exchange’s portfolio could also put it, or its subsidiaries, at risk of failing to satisfy regulatory or rating agency minimum capital requirements.

Property and casualty insurers are subject to extensive regulatory supervision in the states in which they do business. This regulatory oversight includes, by way of example, matters relating to licensing, examination, rate setting, market conduct, policy forms, limitations on the nature and amount of certain investments, claims practices, mandated participation in involuntary markets and guaranty funds, reserve adequacy, insurer solvency, restrictions on underwriting standards, accounting standards, and transactions between affiliates. Such regulation and supervision are primarily for the benefit and protection of policyholders. Changes in applicable insurance laws, regulations, or changes in the way regulators administer those laws or regulations could adversely change the Exchange’s operating environment and increase its exposure to loss or put it at a competitive disadvantage, which could result in reduced sales of its products and lower premium revenue.

We necessarily collect, use, and hold data concerning individuals, businesses, strategic plans, and intellectual property. Threats to data security, including unauthorized access, cyber-attacks, and other computer related penetrations, expose us to additional costs for protection or remediation to secure our data in accordance with customer expectations and statutory and regulatory requirements, including data privacy laws. Preventative actions we take, or our third-party vendors take, to reduce the risk of cyber incidents and protect our information may be insufficient to prevent physical and electronic break-ins or other security breaches to our computer system. Additionally, a breach of security that results in unauthorized access to our data could expose us to an operational disruption, data loss, litigation, fines and penalties, increased compliance costs, and reputational damages. While we maintain cyber liability insurance to mitigate the amount of financial loss, our insurance coverage may not be sufficient to protect against all loss.

We have an established business continuity plan to ensure the continuation of core business operations in the event that normal business operations could not be performed due to a catastrophic event. While we continue to test and assess our business continuity plan to ensure it meets the needs of our core business operations and addresses multiple business interruption events, there is no assurance that core business operations could be performed upon the occurrence of such an event. Systems failures or outages could compromise our ability to perform our business functions in a timely manner, which could harm our ability to conduct business and hurt our relationships with our business partners and customers. Our business continuity is also dependent on third-party systems on which our information technology systems interface and rely. Our systems and those of our third-party vendors may become vulnerable to damage or disruption due to circumstances beyond our or their control, such as from catastrophic events, power anomalies or outages, natural disasters, network failures, and viruses. The failure of our information systems for any reason could result in a material adverse effect on our business, financial condition, or results of operations.

All of our marketable securities are subject to market volatility. To the extent that future market volatility negatively impacts our investments, our financial condition will be negatively impacted. We review the investment portfolio on a continuous basis to evaluate positions that might have incurred other-than-temporary declines in value. Inherent in management’s evaluation of a security are assumptions and estimates about the operations of the issuer and its future earnings potential. The primary factors considered in our review of investment valuation include the extent and duration to which fair value is less than cost, historical operating performance and financial condition of the issuer, short- and long-term prospects of the issuer and its industry, specific events that occurred affecting the issuer, including rating downgrades, and, depending on the type of security, our intent to sell or our ability and intent to retain the investment for a period of time sufficient to allow for a recovery in value. As the process for determining impairments is highly subjective, changes in our assessments may have a material effect on our operating results and financial condition. See also Item 7A. "Quantitative and Qualitative Disclosures about Market Risk".

We face a significant risk of litigation and regulatory investigations and actions in the ordinary course of operating our businesses including the risk of class action lawsuits. Our pending legal and regulatory actions include proceedings specific to us and others generally applicable to business practices in the industries in which we operate. In our operations, we are, have been, or may become subject to class actions and individual suits alleging, among other things, issues relating to sales or underwriting practices, payment of contingent or other sales commissions, product design, product disclosure, policy issuance and administration, additional premium charges for premiums paid on a periodic basis, charging excessive or impermissible fees on products, recommending unsuitable products to customers, and breaching alleged fiduciary or other duties, including our obligations to indemnify directors and officers in connection with certain legal matters. We are also subject to litigation arising out of our general business activities such as our contractual and employment relationships. Plaintiffs in class action and other lawsuits against us may seek very large or indeterminate amounts, including punitive and treble damages, which may remain unknown for substantial periods of time. We are also subject to various regulatory inquiries, such as information requests, subpoenas, and books and record examinations from state and federal regulators and authorities. Changes in the way regulators administer those laws, tax statutes, or regulations could adversely impact our business, results of operations, or financial condition.

As subsequently amended, the complaint alleges that, beginning on September 1, 1997, Indemnity retained “Service Charges” (installment fees) and “Added Service Charges” (late fees and policy reinstatement charges) on policies written by the Exchange and its insurance subsidiaries, which allegedly should have been paid to the Exchange, in the amount of approximately $308 million. In addition to their claim for monetary relief on behalf of the Exchange, the plaintiffs seek an accounting of all so-called intercompany transactions between Indemnity and the Exchange from 1996 to date. Plaintiffs allege that Indemnity breached its contractual, fiduciary, and equitable duties by retaining Service Charges and Added Service Charges that should have been retained by the Exchange. Plaintiffs bring these same claims under three separate derivative-type theories. First, plaintiffs purport to bring suit as members of the Exchange on behalf of the Exchange. Second, plaintiffs purport to bring suit as trustees ad litem on behalf of the Exchange. Third, plaintiffs purport to bring suit on behalf of the Exchange pursuant to Rule 1506 of the Pennsylvania Rules of Civil Procedure, which allows shareholders to bring suit derivatively on behalf of a corporation or similar entity.

Indemnity filed a motion in the state court in November 2012 seeking dismissal of the lawsuit. On December 19, 2013, the court granted Indemnity’s motion in part, holding that the Pennsylvania Insurance Holding Company Act “provides the [Pennsylvania Insurance] Department with special competence to address the subject matter of plaintiff’s claims” and referring “all issues” in the Sullivan lawsuit to the Pennsylvania Insurance Department (the “Department”) for “its views and any determination.” The court stayed all further proceedings and reserved decision on all other grounds for dismissal raised by Indemnity. Plaintiffs sought reconsideration of the court’s order, and on January 13, 2014, the court entered a revised order affirming its prior order and clarifying that the Department “shall decide any and all issues within its jurisdiction.” On January 30, 2014, Plaintiffs asked the court to certify its order to permit an immediate appeal to the Superior Court of Pennsylvania and to stay any proceedings in the Department pending completion of any appeal. On February 18, 2014, the court issued an order denying Plaintiffs’ motion. On March 20, 2014, Plaintiffs filed a petition for review with the Superior Court, which was denied by the Superior Court on May 5, 2014.

The Sullivan matter was assigned to an Administrative Judge within the Department for determination. The parties agreed that an evidentiary hearing was not required and they entered into a stipulated record and submitted briefing to the Department. Oral argument was held before the Administrative Judge on January 6, 2015. On April 29, 2015, the Department issued a declaratory opinion and order (1) finding that the transactions between Exchange and Indemnity in which Indemnity retained or received revenue from installment and other service charges from Exchange subscribers complied with applicable insurance laws and regulations and that Indemnity properly retained charges paid by Exchange policyholders for certain installment premium payment plans, dishonored payments, policy cancellations and policy reinstatements and (2) returning jurisdiction for the matter to the Fayette County Court of Common Pleas.

As subsequently amended, the Beltz lawsuit asserts many of the same allegations and claims for monetary relief as in the Sullivan lawsuit. Plaintiffs purport to sue on behalf of all policyholders of the Exchange, or, alternatively, on behalf of the Exchange itself. Indemnity filed a motion to intervene as a Party Defendant in the Beltz lawsuit in July 2013, and the Directors filed a motion to dismiss the lawsuit in August 2013. On February 10, 2014, the court entered an order granting Indemnity’s motion to intervene and permitting Indemnity to join the Directors’ motion to dismiss; granting in part the Directors’ motion to dismiss; referring the matter to the Department to decide any and all issues within its jurisdiction; denying all other relief sought in the Directors’ motion as moot; and dismissing the case without prejudice. To avoid duplicative proceedings and expedite the Department’s review, the Parties stipulated that only the Sullivan action would proceed before the Department and any final and non-appealable determinations made by the Department in the Sullivan action will be applied to the Beltz action.

On March 7, 2014, Plaintiffs filed a notice of appeal to the United States Court of Appeals for the Third Circuit. Indemnity filed a motion to dismiss the appeal on March 26, 2014. On November 17, 2014, the Third Circuit deferred ruling on Indemnity’s motion to dismiss the appeal and instructed the parties to address that motion, as well as the merits of Plaintiffs’ appeal, in the parties’ briefing. Briefing was completed on April 2, 2015. In light of the Department’s April 29, 2015 decision in Sullivan, the Parties then jointly requested that the Beltz appeal be voluntarily dismissed as moot on June 5, 2015. The Third Circuit did not rule on the Parties’ request for dismissal and instead held oral argument as scheduled on June 8, 2015. On July 16, 2015, the Third Circuit issued an opinion and judgment dismissing the appeal. The Third Circuit found that it lacked appellate jurisdiction over the appeal, because the District Court’s February 10, 2014 order referring the matter to the Department was not a final, appealable order.




(in thousands, except per share data)	Years Ended December 31,

	2015		2014		2013		2012		2011
Operating Data:
Operating revenue	$	1,505,508	$	1,407,119	$	1,297,331	$	1,188,430	$	1,099,836
Operating expenses	1,272,967		1,184,272		1,087,995		983,420		892,101
Investment income	33,708		28,417		37,278		36,204		46,999
Income before income taxes	266,249		251,264		246,614		241,214		254,734
Net income	174,678		167,505		162,611		160,145		169,503

Per Share Data:
Net income per Class A share – diluted	$	3.33	$	3.18	$	3.08	$	2.99	$	3.08
Book value per share – Class A common and equivalent B shares	14.72		13.45		13.96		12.11		14.48
Dividends declared per Class A share	2.773		2.586		2.4125		4.25		2.0975
Dividends declared per Class B share	415.95		387.90		361.875		637.50		314.625

Financial Position Data:
Investments	$	688,476	$	702,387	$	721,728	$	687,525	$	808,500
Receivables from Erie Insurance Exchange and affiliates	348,055		335,220		300,442		280,787		254,098
Total assets	1,407,296		1,319,198		1,213,042		1,160,153		1,237,277
Total equity	769,503		703,134		733,982		641,870		781,325

Statements contained herein that are not historical fact are forward-looking statements and, as such, are subject to risks and uncertainties that could cause actual events and results to differ, perhaps materially, from those discussed herein. Forward-looking statements relate to future trends, events or results and include, without limitation, statements and assumptions on which such statements are based that are related to our plans, strategies, objectives, expectations, intentions, and adequacy of resources. Examples of forward-looking statements are discussions relating to premium and investment income, expenses, operating results, and compliance with contractual and regulatory requirements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Among the risks and uncertainties, in addition to those set forth in our filings with the Securities and Exchange Commission, that could cause actual results and future events to differ from those set forth or contemplated in the forward-looking statements include the following:

In February 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-02, Consolidation, which changed the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This guidance changed the conditions to be met in determining if a reporting entity has a variable interest in a legal entity. In accordance with the new accounting guidance, Indemnity is not deemed to have a variable interest in the Exchange as the fees paid for services provided to the Exchange no longer represent a variable interest. The compensation received from the attorney-in-fact fee arrangement with the subscribers is for services provided by Indemnity acting in its role as attorney-in-fact and is commensurate with the level of effort required to perform those services. Under the previously issued accounting guidance, Indemnity was deemed to have a variable interest and was the primary beneficiary of the Exchange and its financial position and operating results were consolidated with Indemnity. Following adoption of the new accounting guidance, the Exchange’s results are no longer required to be consolidated with Indemnity.

Level 3 securities are valued based upon unobservable inputs, reflecting our estimates of value based upon assumptions used by market participants. Securities are assigned to Level 3 in cases where non-binding broker quotes are significant to the valuation and there is a lack of transparency as to whether these quotes are based upon information that is observable in the marketplace. Fair value estimates for securities valued using unobservable inputs require significant judgment due to the illiquid nature of the market for these securities and represent the best estimate of the fair value that would occur in an orderly transaction between willing market participants at the measurement date under current market conditions. Fair value for these securities are generally determined using comparable securities or non-binding broker quotes received from outside broker dealers based upon security type and market conditions. Remaining securities, where a price is not available, are valued using an estimate of fair value based upon indicative market prices that include significant unobservable inputs not based upon, nor corroborated by, market information, including the utilization of discounted cash flow analyses which have been risk-adjusted to take into account illiquidity and other market factors. This category primarily consists of collateralized debt obligations priced using non-binding broker quotes.

Estimates of fair values for our investment portfolio are obtained primarily from a nationally recognized pricing service. Our Level 1 category includes those securities valued using an exchange traded price provided by the pricing service. The methodologies used by the pricing service that support a Level 2 classification of a financial instrument include multiple verifiable, observable inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data. Pricing service valuations for Level 3 securities are based upon proprietary models and are used when observable inputs are not available in illiquid markets. In limited circumstances we adjust the price received from the pricing service when, in our judgment, a better reflection of fair value is available based upon corroborating information and our knowledge and monitoring of market conditions such as a disparity in price of comparable securities and/or non-binding broker quotes. In other circumstances, certain securities are internally priced because prices are not provided by the pricing service.

We have three types of limited partnership investments: private equity, mezzanine debt, and real estate. Our private equity and mezzanine debt partnerships are diversified among numerous industries and geographies to minimize potential loss exposure. Nearly all of the underlying investments in our limited partnerships are valued using a source other than quoted prices in active markets. The fair value amounts for our private equity and mezzanine debt partnerships are based upon the financial statements prepared by the general partners, who use various methods to estimate fair value including the market approach, income approach, and the cost approach. The market approach uses prices and other pertinent information from market-generated transactions involving identical or comparable assets or liabilities. Such valuation techniques often use market multiples derived from a set of comparables. The income approach uses valuation techniques to convert future cash flows or earnings to a single discounted present value amount. The measurement is based upon the value indicated by current market expectations about those future amounts. The cost approach is derived from the amount that is currently required to replace the service capacity of an asset. If information becomes available that would impair the cost of investments owned by the partnerships, then the general partner would adjust the investments to the net realizable value.

While we perform various procedures in review of the general partners’ valuations, we rely on the general partners’ financial statements as the best available information to record our share of the partnership unrealized gains and losses resulting from valuation changes. Due to the limited market for these investments, there is the greatest potential for variability. We survey each of the general partners quarterly about expected significant changes (plus or minus 10% compared to previous quarter) to valuations prior to the release of the fund’s quarterly and annual financial statements. Based upon that information from the general partner, we consider whether additional disclosure is warranted. We analyze limited partnerships measured at fair value based upon NAV to determine if the most recently available NAV reflects fair value at the balance sheet date, with an adjustment being made where appropriate (change of plus or minus 5% compared to most recent NAV.)

Accumulated and projected benefit obligations are expressed as the present value of future cash payments. We discount those cash payments based upon a yield curve developed from corporate bond yield information with maturities that correspond to the payment of benefits. Lower discount rates increase present values and subsequent year pension expense, while higher discount rates decrease present values and subsequent year pension expense. The construction of the yield curve is based upon yields of corporate bonds rated Aa quality. Target yields are developed from bonds at various maturity points and a curve is fitted to those targets. Spot rates (zero coupon bond yields) are developed from the yield curve and used to discount benefit payment amounts associated with each future year. The present value of plan benefits is calculated by applying the spot/discount rates to projected benefit cash flows. A single discount rate is then developed to produce the same present value. The cash flows from the yield curve were matched against our projected benefit payments in the pension plan, which have a duration of about 19 years. This yield curve supported the selection of a 4.57% discount rate for the projected benefit obligation at December 31, 2015 and for the 2016 pension expense. The same methodology was used to develop the 4.17% and 5.11% discount rates used to determine the projected benefit obligation for 2014 and 2013, respectively, and the pension expense for 2015 and 2014, respectively. A 25 basis point decrease in the discount rate assumption, with other assumptions held constant, would increase pension cost in the following year by $3.5 million and would increase the pension benefit obligation by $33.0 million.

Unrecognized actuarial gains and losses arise from several factors, including experience and assumption changes in the obligations and from the difference between expected returns and actual returns on plan assets. These unrecognized gains and losses are recorded in the pension plan obligation and accumulated other comprehensive income (loss) on the Statements of Financial Position. These amounts are systematically recognized to net periodic pension expense in future periods, with gains decreasing and losses increasing future pension expense. If actuarial net gains or losses exceed 5% of the greater of the projected benefit obligation and the market-related value of plan assets, the excess is recognized through the net periodic pension expense equally over the estimated service period of the employee group, which is currently 14 years.

The expected long-term rate of return for the pension plan represents the average rate of return to be earned on plan assets over the period the benefits included in the benefit obligation are to be paid. The expected long-term rate of return is less susceptible to annual revisions, as there are typically no significant changes in the asset mix. To determine the expected long-term rate of return assumption, we utilized models based upon rigorous historical analysis and forward-looking views of the financial markets based upon key factors such as historical returns for the asset class' applicable indices, the correlations of the asset classes under various market conditions and consensus views on future real economic growth and inflation. The expected future return for each asset class is then combined by considering correlations between asset classes and the volatilities of each asset class to produce a reasonable range of asset return results within which our expected long-term rate of return assumption falls. A change of 25 basis points in the expected long-term rate of return assumption, with other assumptions held constant, would have an estimated $1.4 million impact on net pension benefit cost in the following year, of which our share would be approximately $0.6 million.

We use a four year averaging method to determine the market-related value of plan assets, which is used to determine the expected return component of pension expense. Under this methodology, asset gains or losses that result from returns that differ from our long-term rate of return assumption are recognized in the market-related value of assets on a level basis over a four year period. The market-related asset experience during 2015 that related to the actual investment return being different from that assumed during the prior year was a loss of $37.0 million. Recognition of this loss will be deferred and recognized over a four year period, consistent with the market-related asset value methodology. Once factored into the market-related asset value, these experience gains and losses will be amortized over a period of 14 years, which is the remaining service period of the employee group.

Estimates of fair values of the pension plan assets are obtained primarily from our trustee and custodian of our pension plan. Our Level 1 category includes a money market fund that is a mutual fund for which the fair value is determined using an exchange traded price provided by the trustee and custodian. Our Level 2 category includes commingled pools. Estimates of fair values for securities held by our commingled pools are obtained primarily from the trustee and custodian. The methodologies used by the trustee and custodian that support a financial instrument Level 2 classification include multiple verifiable, observable inputs including benchmark yields, reported trades, broker/dealer quotes, issuers spreads, two-sided markets, benchmark securities, bids, offers, and reference data. There were no Level 3 investments in 2015 or 2014.

Changes in premium levels attributable to rate changes also directly affect the profitability of the Exchange and have a direct bearing on our management fee. Pricing actions contemplated or taken by the Exchange are subject to various regulatory requirements of the states in which it operates. The pricing actions already implemented, or to be implemented, have an effect on the market competitiveness of the Exchange’s insurance products. Such pricing actions, and those of the Exchange’s competitors, could affect the ability of the Exchange’s agents to retain and attract new business. We expect the Exchange’s pricing actions to result in a net increase in direct written premium in 2016; however, exposure reductions and/or changes in mix of business as a result of economic conditions could impact the average premium written and assumed by the Exchange, as customers may reduce coverages.

Serving in the capacity of attorney-in-fact for the Exchange, we are dependent on the growth and financial condition of the Exchange, who is our sole customer. The strength of the Exchange and its wholly owned subsidiaries is rated annually by A.M. Best Company. Higher ratings of insurance companies generally indicate financial stability and a strong ability to pay claims. The ratings are generally based upon factors relevant to policyholders and are not directed toward return to investors. The Exchange and each of its property and casualty subsidiaries are rated A+ “Superior”. The outlook for the financial strength rating is stable. According to A.M. Best, this second highest financial strength rating category is assigned to those companies that, in A.M. Best’s opinion, have achieved superior overall performance when compared to the standards established by A.M. Best and have a superior ability to meet obligations to policyholders over the long term. Only 11.0% of insurance groups are rated A+ or higher, and the Exchange is included in that group.

The financial statements of the Exchange are prepared in accordance with statutory accounting principles prescribed by the Commonwealth of Pennsylvania. Financial statements prepared under statutory accounting principles focus on the solvency of the insurer and generally provide a more conservative approach than under GAAP. Statutory direct written premiums of the Exchange and its wholly owned property and casualty subsidiaries grew 7.3% to $5.9 billion in 2015 from $5.5 billion in 2014. These premiums, along with investment income, are the major sources of cash that support the operations of the Exchange. Policyholders’ surplus, determined under statutory accounting principles was $7.1 billion and $6.8 billion at December 31, 2015 and 2014, respectively. The Exchange and its wholly owned property and casualty subsidiaries' year-over-year policy retention ratio continues to be high at 89.9% at December 31, 2015 and 90.3% at December 31, 2014.

We individually analyze all positions with emphasis on those that have, in our opinion, declined significantly below cost. In compliance with impairment guidance for debt securities, we perform further analysis to determine if a credit-related impairment has occurred. Some of the factors considered in determining whether a debt security is credit impaired include potential for the default of interest and/or principal, level of subordination, collateral of the issue, compliance with financial covenants, credit ratings and industry conditions. We have the intent to sell all credit-impaired debt securities; therefore, the entire amount of the impairment charges are included in earnings and no impairments are recorded in other comprehensive income. For available-for-sale equity securities, a charge is recorded in the Statements of Operations for positions that have experienced other-than-temporary impairments. (See the "Total Investment Income" section herein for further information.)

In 2015, investments in limited partnerships decreased from the investment levels at December 31, 2014. Changes in partnership values are a function of contributions and distributions, adjusted for market value changes in the underlying investments. The decrease in limited partnership investments was due to net distributions received from the partnerships which were partially offset by increases in underlying asset values. We have made no new limited partnership commitments since 2006, and the balance of limited partnership investments is expected to decline over time as additional distributions are received. The results from our limited partnerships are based upon financial statements received from our general partners, which are generally received on a quarter lag. As a result, the market values and earnings recorded at December 31, 2015 reflect the partnership activity experienced during the twelve month period ending September 30, 2015.

The funded status of our postretirement benefit plans is recognized in the Statements of Financial Position, with a corresponding adjustment to accumulated other comprehensive income, net of tax. At December 31, 2015, shareholders’ equity amounts related to these postretirement plans increased by $25.1 million, net of tax, of which $9.4 million represents amortization of the prior service cost and net actuarial loss and $15.7 million represents the current period actuarial gain. The 2015 actuarial gain was primarily due to the change in the discount rate assumption used to measure the future benefit obligations to 4.57% in 2015, from 4.17% in 2014. At December 31, 2014, shareholders’ equity amounts related to these postretirement plans decreased by $59.4 million, net of tax, of which $4.4 million represents amortization of the prior service cost and net actuarial loss and $63.8 million represents the current period actuarial loss. The 2014 actuarial loss was primarily due to the change in the discount rate assumption used to measure the future benefit obligations to 4.17% in 2014, from 5.11% in 2013. Although we are the sponsor of these postretirement plans and record the funded status of these plans, the Exchange reimburses us for approximately 57% of the annual benefit expense of these plans, which represents pension benefits for our employees performing claims and life insurance functions.

Net cash provided by operating activities increased to $217.4 million in 2015, compared to $186.0 million in 2014, and $218.0 million in 2013. Increased cash from operating activities in 2015 was primarily due to increases in management fee revenue received and reimbursements collected from affiliates, combined with a decrease in pension and employee benefits paid. Somewhat offsetting this increase in cash provided were increases in commissions and bonuses paid to agents, and general operating expenses and income taxes paid, compared to 2014. Management fee revenues were higher reflecting the increase in direct and assumed premiums written by the Exchange. Cash paid for agent commissions and bonuses increased to $822.5 million in 2015, compared to $748.6 million in 2014, as a result of an increase in cash paid for scheduled commissions due to premium growth and bonus awards due to profitable underwriting results. We contributed $17.0 million to our pension plan in 2015, compared to $23.1 million in 2014. Additionally, we made a contribution to our pension plan for $17.4 million in January 2016. Our funding policy is generally to contribute an amount equal to the greater of the target normal cost for the plan year or the amount necessary to fund the plan to 100% plus interest to the date the contribution is made. We are reimbursed approximately 57% of the net periodic benefit cost of the pension plans from the Exchange, which represents pension benefits for our employees performing claims and life insurance functions. In 2014, decreased cash from operating activities, compared to 2013, was primarily due to increases in commissions and bonuses paid to agents and general operating expenses, combined with decreases in reimbursements collected from affiliates and limited partnership distributions. Somewhat offsetting this decrease in cash provided was an increase in management fee revenue received, compared to 2013.

Net cash provided by investing activities totaled $0.6 million in 2015 compared to cash used of $5.1 million in 2014 and $65.2 million in 2013. While cash generated from the sale of available-for-sale securities was lower in 2015, compared to 2014, decreases in purchases of available-for-sale securities and fixed assets contributed to net cash being generated for the year. Also impacting our future investing activities are limited partnership commitments, which totaled $19.1 million at December 31, 2015, and will be funded as required by the partnerships’ agreements. Of this amount, the total remaining commitment to fund limited partnerships that invest in private equity securities was $7.3 million, mezzanine debt securities was $8.2 million, and real estate activities was $3.6 million. Changes in our 2014 investing activities primarily included increased cash generated from the sale of available-for-sale securities somewhat offset by an increase in purchases of fixed assets and available-for-sale securities, compared to 2013.

In 2015, we purchased 111,535 shares of our outstanding Class A nonvoting common stock outside of our publicly announced share repurchase program at a total cost of $10.4 million for the vesting of stock-based awards in conjunction with our long-term incentive plan, for stock-based awards for executive management and an outside director, and for the rabbi trust outside director deferred compensation plan. These shares were delivered in 2015. In 2014, we purchased 64,398 shares of our outstanding Class A nonvoting common stock outside of our publicly announced share repurchase program at a total cost of $4.9 million for the vesting of stock-based awards for executive management and an outside director, and for awards under our long-term incentive plan. These shares were delivered in 2014. In 2013, we purchased 3,477 shares of our outstanding Class A nonvoting common stock outside of our publicly announced share repurchase program at a total cost of $0.3 million to settle payments due to a retired executive under our long-term incentive plan. These shares were delivered in 2013.

As of December 31, 2015, we have access to a $100 million bank revolving line of credit with a $25 million letter of credit sublimit that expires on November 3, 2020. As of December 31, 2015, a total of $98.2 million remains available under the facility due to $1.8 million outstanding letters of credit, which reduce the availability for letters of credit to $23.2 million. We had no borrowings outstanding on our line of credit as of December 31, 2015. Bonds with a fair value of $109.0 million were pledged as collateral on the line at December 31, 2015. These securities have no trading restrictions and are reported as available-for-sale securities in the Statements of Financial Position. The bank requires compliance with certain covenants, which include leverage ratios. We were in compliance with our bank covenants at December 31, 2015.



	2015			2014			2013
Operating revenue
Management fee revenue, net	$	1,475,511		$	1,376,190		$	1,266,401
Service agreement revenue	29,997			30,929			30,930
Total operating revenue	1,505,508			1,407,119			1,297,331

Operating expenses
Commissions	847,880			783,017			710,058
Salaries and employee benefits	226,713			206,690			207,559
All other operating expenses	198,374			194,565			170,378
Total operating expenses	1,272,967			1,184,272			1,087,995
Net revenue from operations	232,541			222,847			209,336

Investment income
Net investment income	17,791			16,536			15,027
Net realized investment gains	492			1,057			945
Net impairment losses recognized in earnings	(1,558		)	(105		)	(388		)
Equity in earnings of limited partnerships	16,983			10,929			21,694
Total investment income	33,708			28,417			37,278
Income before income taxes	266,249			251,264			246,614
Income tax expense	91,571			83,759			84,003
Net income	$	174,678		$	167,505		$	162,611


Earnings Per Share
Net income per share
Class A common stock – basic	$	3.75		$	3.59		$	3.46
Class A common stock – diluted	$	3.33		$	3.18		$	3.08
Class B common stock – basic	$	563		$	539		$	520
Class B common stock – diluted	$	562		$	538		$	519

Weighted average shares outstanding – Basic
Class A common stock	46,186,671			46,247,876			46,660,651
Class B common stock	2,542			2,542			2,542

Weighted average shares outstanding – Diluted
Class A common stock	52,498,811			52,616,234			52,855,757
Class B common stock	2,542			2,542			2,542



	2015			2014
Assets
Current assets:
Cash and cash equivalents	$	182,889		$	91,747
Available-for-sale securities	62,067			63,278
Receivables from Erie Insurance Exchange and affiliates	348,055			335,220
Prepaid expenses and other current assets	24,697			26,020
Federal income taxes recoverable	11,947			11,448
Accrued investment income	5,491			5,538
Total current assets	635,146			533,251

Available-for-sale securities	537,874			526,492
Limited partnership investments	88,535			112,617
Fixed assets, net	59,087			62,991
Deferred income taxes, net	40,686			37,321
Note receivable from Erie Family Life Insurance Company	25,000			25,000
Other assets	20,968			21,526
Total assets	$	1,407,296		$	1,319,198

Liabilities and shareholders' equity
Current liabilities:
Commissions payable	$	195,542		$	189,918
Agent bonuses	106,752			88,228
Accrued expenses and other current liabilities	42,006			39,560
Accounts payable	46,526			35,844
Dividends payable	33,996			31,714
Deferred executive compensation	20,877			14,891
Total current liabilities	445,699			400,155

Defined benefit pension plans	172,700			188,820
Employee benefit obligations	1,234			1,889
Deferred executive compensation	16,580			24,087
Other long-term liabilities	1,580			1,113
Total liabilities	637,793			616,064

Shareholders’ equity
Class A common stock, stated value $0.0292 per share; 74,996,930 shares authorized; 68,299,200 shares issued; 46,189,068 shares outstanding	1,992			1,992
Class B common stock, convertible at a rate of 2,400 Class A shares for one Class B share, stated value $70 per share; 3,070 shares authorized; 2,542 shares issued and outstanding	178			178
Additional paid-in-capital	16,311			16,317
Accumulated other comprehensive loss	(96,864		)	(117,701		)
Retained earnings	1,993,976			1,948,438
Total contributed capital and retained earnings	1,915,593			1,849,224
Treasury stock, at cost; 22,110,132 shares held	(1,155,108		)	(1,146,090		)
Deferred compensation	9,018			—
Total shareholders’ equity	769,503			703,134
Total liabilities and shareholders’ equity	$	1,407,296		$	1,319,198



	Class A common stock		Class B common stock		Additional paid-in-capital			Accumulated other comprehensive income (loss)			Retained earnings			Treasury stock			Deferred compensation		Total shareholders' equity
Balance, December 31, 2012	$	1,992	$	178	$	16,346		$	(133,191	)	$	1,852,180		$	(1,095,635	)	$	—	$	641,870
Net income											162,611								162,611
Other comprehensive income								74,092											74,092
Dividends declared:
Class A $2.4125 per share											(112,443		)						(112,443		)
Class B $361.875 per share											(920		)						(920		)
Net purchase of treasury stock					19									(31,248		)			(31,229		)
Balance, December 31, 2013	$	1,992	$	178	$	16,365		$	(59,099	)	$	1,901,428		$	(1,126,883	)	$	—	$	733,981
Net income											167,505								167,505
Other comprehensive loss								(58,602		)									(58,602		)
Dividends declared:
Class A $2.586 per share											(119,509		)						(119,509		)
Class B $387.90 per share											(986		)						(986		)
Net purchase of treasury stock					(48		)							(19,207		)			(19,255		)
Balance, December 31, 2014	$	1,992	$	178	$	16,317		$	(117,701	)	$	1,948,438		$	(1,146,090	)	$	—	$	703,134
Net income											174,678								174,678
Other comprehensive income								20,837											20,837
Dividends declared:
Class A $2.773 per share											(128,082		)						(128,082		)
Class B $415.95 per share											(1,058		)						(1,058		)
Net purchase of treasury stock ⁽¹⁾					(6		)							0					(6		)
Deferred compensation														(9,018		)	9,018		0
Balance, December 31, 2015	$	1,992	$	178	$	16,311		$	(96,864	)	$	1,993,976		$	(1,155,108	)	$	9,018	$	769,503



	2015			2014			2013
Cash flows from operating activities
Management fee received	$	1,454,902		$	1,348,885		$	1,240,311
Service agreement fee received	29,997			30,929			30,930
Net investment income received	25,999			22,846			21,517
Limited partnership distributions	14,112			15,327			27,050
Increase (decrease) in reimbursements collected from affiliates	7,775			(7,472		)	6,435
Commissions paid to agents	(725,714		)	(665,154		)	(617,086		)
Agents bonuses paid	(96,749		)	(83,436		)	(64,597		)
Salaries and wages paid	(155,303		)	(153,459		)	(147,059		)
Pension contribution and employee benefits paid	(40,993		)	(48,516		)	(40,844		)
General operating expenses paid	(190,301		)	(178,452		)	(152,456		)
Income taxes paid	(106,347		)	(95,485		)	(86,193		)
Net cash provided by operating activities	217,378			186,013			218,008

Cash flows from investing activities
Purchase of investments:
Available-for-sale securities	(228,308		)	(250,789		)	(242,676		)
Limited partnerships	(928		)	(1,123		)	(2,907		)
Proceeds from investments:
Available-for-sale securities	214,991			236,080			159,524
Limited partnerships	26,735			28,613			29,054
Net purchase of fixed assets	(12,556		)	(19,473		)	(10,750		)
Net collections on agent loans	688			1,595			2,523
Net cash provided by (used in) investing activities	622			(5,097		)	(65,232		)

Cash flows from financing activities
Purchase of treasury stock	0			(19,692		)	(31,721		)
Dividends paid to shareholders	(126,858		)	(118,526		)	(83,618		)
Net cash used in financing activities	(126,858		)	(138,218		)	(115,339		)

Net increase in cash and cash equivalents	91,142			42,698			37,437
Cash and cash equivalents, beginning of year	91,747			49,049			11,612
Cash and cash equivalents, end of year	$	182,889		$	91,747		$	49,049

Our results of operations are tied to the growth and financial condition of the Exchange. If any events occurred that impaired the Exchange’s ability to grow or sustain its financial condition, including but not limited to reduced financial strength ratings, disruption in the independent agency relationships, significant catastrophe losses, or products not meeting customer demands, the Exchange could find it more difficult to retain its existing business and attract new business. A decline in the business of the Exchange almost certainly would have as a consequence a decline in the total premiums paid and a correspondingly adverse effect on the amount of the management fees we receive. We also have an exposure to a concentration of credit risk related to the unsecured receivables due from the Exchange for its management fee. See Note 14, "Concentrations of Credit Risk" contained within this report.

In February 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-02, Consolidation, which changed the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This guidance changed the conditions to be met in determining if a reporting entity has a variable interest in a legal entity. In accordance with the new accounting guidance, Indemnity is not deemed to have a variable interest in the Exchange as the fees paid for services provided to the Exchange no longer represent a variable interest. The compensation received from the attorney-in-fact fee arrangement with the subscribers is for services provided by Indemnity acting in its role as attorney-in-fact and is commensurate with the level of effort required to perform those services. Under the previously issued accounting guidance, Indemnity was deemed to be the primary beneficiary of the Exchange and its financial

Limited partnerships – Limited partnerships include U.S. and foreign private equity, mezzanine debt, and real estate investments. The majority of our limited partnership holdings are considered investment companies and are recorded using the equity method of accounting. For these limited partnerships the general partners record assets at fair value, including any other-than-temporary impairments of these individual investments. Our ownership interest in partnerships accounted for under the equity method is generally less than 10%, and does not provide us the ability to significantly influence the operations of the partnerships. However, we believe the equity method most appropriately reflects the value of our economic interest in these investments. We also own certain real estate limited partnerships that do not meet the criteria of an investment company. These partnerships prepare audited financial statements on a cost basis. We have elected to report these limited partnerships under the fair value option, which is based on the net asset value (NAV) from our partner’s capital statement reflecting the general partner’s estimate of fair value for the fund’s underlying assets. Limited partnerships reported under the fair value option are disclosed in Note 4, "Fair Value" as other investments. Fair value provides consistency in the evaluation and financial reporting for these limited partnerships and limited partnerships accounted for under the equity method.

Nearly all of the underlying investments in our limited partnerships are valued using a source other than quoted prices in active markets. The fair value amounts for our private equity and mezzanine debt partnerships are based upon the financial statements of the general partners, who use multiple methods to estimate fair value including the market approach, income approach or the cost approach. The market approach uses prices and other pertinent information from market-generated transactions involving identical or comparable assets or liabilities. Such valuation techniques often use market multiples derived from a set of comparables. The income approach uses valuation techniques to convert future cash flows or earnings to a single discounted present value amount. The measurement is based upon the value indicated by current market expectations on those future amounts. The cost approach is derived from the amount that is currently required to replace the service capacity of an asset. If information becomes available that would impair the cost of investments owned by the partnerships, then the general partner would adjust to the net realizable value. For real estate limited partnerships, the general partners record these at fair value based upon an independent appraisal or internal estimates of fair value.

We earn management fees from the Exchange for providing certain sales, underwriting, and policy issuance services. Pursuant to the subscriber’s agreements with the policyholders at the Exchange, we may retain up to 25% of all direct and assumed premiums written by the Exchange. Management fee revenue is calculated by multiplying the management fee rate by the direct and assumed premiums written by the Exchange. The Exchange issues policies with annual terms only. Management fees are recorded as revenue upon policy issuance or renewal, as substantially all of the services required to be performed by us have been satisfied at that time. Certain activities are performed and related costs are incurred by us subsequent to policy issuance in connection with the services provided to the Exchange; however, these activities are inconsequential and perfunctory.



(dollars in thousands, except per share data)						For the years ended December 31,
	2015					2014					2013
	Allocated net income (numerator)		Weighted shares (denominator)	Per- share amount		Allocated net income (numerator)		Weighted shares (denominator)	Per- share amount		Allocated net income (numerator)		Weighted shares (denominator)	Per- share amount
Class A – Basic EPS:
Income available to Class A stockholders	$	173,248	46,186,671	$	3.75	$	166,134	46,247,876	$	3.59	$	161,290	46,660,651	$	3.46
Dilutive effect of stock-based awards	0		211,340	—		0		267,558	—		0		94,306	—
Assumed conversion of Class B shares	1,430		6,100,800	—		1,371		6,100,800	—		1,321		6,100,800	—
Class A – Diluted EPS:
Income available to Class A stockholders on Class A equivalent shares	$	174,678	52,498,811	$	3.33	$	167,505	52,616,234	$	3.18	$	162,611	52,855,757	$	3.08
Class B – Basic EPS:
Income available to Class B stockholders	$	1,430	2,542	$	563	$	1,371	2,542	$	539	$	1,321	2,542	$	520
Class B – Diluted EPS:
Income available to Class B stockholders	$	1,429	2,542	$	562	$	1,369	2,542	$	538	$	1,320	2,542	$	519



	At December 31, 2014
	Fair value measurements using:
(in thousands)	Total		Quoted prices in active markets for identical assets Level 1		Observable inputs Level 2		Unobservable inputs Level 3
Available-for-sale securities:
States & political subdivisions	$	231,134	$	0	$	231,134	$	0
Corporate debt securities	234,040		0		234,040		0
Residential mortgage-backed securities	8,375		0		8,375		0
Commercial mortgage-backed securities	51,255		0		51,255		0
Collateralized debt obligations	32,932		0		32,932		0
Other debt securities	6,804		0		6,804		0
Total fixed maturities	564,540		0		564,540		0
Nonredeemable preferred stock	12,541		2,068		10,473		0
Common stock	12,689		12,689		0		0
Total available-for-sale securities	589,770		14,757		575,013		0
Other investments ⁽¹⁾	7,583		—		—		—
Total	$	597,353	$	14,757	$	575,013	$	0

(1) Other investments measured at fair value represent real estate funds included on the balance sheet as limited partnership investments that are reported under the fair value option using the net asset value practical expedient. These amounts are not required to be categorized in the fair value hierarchy. The investments can never be redeemed with the funds. Instead, distributions are received when liquidation of the underlying assets of the funds occur. It is estimated that the underlying assets will generally be liquidated between 5 and 10 years from the inception of the funds. The fair value of these investments is based on the net asset value (NAV) information provided by the general partner. Fair value is based on our proportionate share of the NAV based on the most recent partners' capital statements received from the general partners, which is generally one quarter prior to our balance sheet date. These values are then analyzed to determine if the NAV represents fair value at our balance sheet date, with adjustment being made where appropriate. We consider observable market data and perform a review validating the appropriateness of the NAV at each balance sheet date. It is likely that all of the investments will be redeemed at a future date for an amount different than the NAV of our ownership interest in partners' capital as of December 31, 2015 and December 31, 2014. During the year ended December 31, 2015, no contributions were made and distributions totaling $3.5 million were received from these investments. During the year ended December 31, 2014, no contributions were made and distributions totaling $12.9 million were received from these investments. As of December 31, 2015 and 2014, the amount of unfunded commitments related to the investments was $0.6 million.



	At December 31, 2015
(dollars in thousands)	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		No. of
	value		losses		value		losses		value		losses		holdings
Available-for-sale securities:
States & political subdivisions	$	5,867	$	7	$	0	$	0	$	5,867	$	7	3
Corporate debt securities	172,831		2,447		19,086		1,965		191,917		4,412		349
Residential mortgage-backed securities	9,827		84		936		46		10,763		130		9
Commercial mortgage-backed securities	13,081		68		19,081		1,021		32,162		1,089		24
Collateralized debt obligations	27,981		103		9,174		118		37,155		221		19
Other debt securities	1,960		40		241		1		2,201		41		2
Total fixed maturities	231,547		2,749		48,518		3,151		280,065		5,900		406
Common stock	12,732		133		0		0		12,732		133		1
Total available-for-sale securities	$	244,279	$	2,882	$	48,518	$	3,151	$	292,797	$	6,033	407
Quality breakdown of fixed maturities:
Investment grade	$	174,723	$	1,296	$	38,369	$	1,256	$	213,092	$	2,552	105
Non-investment grade	56,824		1,453		10,149		1,895		66,973		3,348		301
Total fixed maturities	$	231,547	$	2,749	$	48,518	$	3,151	$	280,065	$	5,900	406



	At December 31, 2014
(dollars in thousands)	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		No. of
	value		losses		value		losses		value		losses		holdings
Available-for-sale securities:
States & political subdivisions	$	6,251	$	10	$	2,378	$	15	$	8,629	$	25	4
Corporate debt securities	120,850		3,064		0		0		120,850		3,064		250
Residential mortgage-backed securities	5,702		19		0		0		5,702		19		4
Commercial mortgage-backed securities	40,865		455		0		0		40,865		455		24
Collateralized debt obligations	20,985		72		0		0		20,985		72		9
Other debt securities	6,805		28		0		0		6,805		28		3
Total fixed maturities	201,458		3,648		2,378		15		203,836		3,663		294
Common stock	0		0		12,689		176		12,689		176		1
Total available-for-sale securities	$	201,458	$	3,648	$	15,067	$	191	$	216,525	$	3,839	295
Quality breakdown of fixed maturities:
Investment grade	$	145,364	$	949	$	2,378	$	15	$	147,742	$	964	58
Non-investment grade	56,094		2,699		0		0		56,094		2,699		236
Total fixed maturities	$	201,458	$	3,648	$	2,378	$	15	$	203,836	$	3,663	294

As of December 31, 2015, we have access to a $100 million bank revolving line of credit with a $25 million letter of credit sublimit that expires on November 3, 2020. As of December 31, 2015, a total of $98.2 million available under the facility due to $1.8 million outstanding letters of credit, which reduce the availability for letters of credit to $23.2 million. We had no borrowings outstanding on our line of credit as of December 31, 2015. Bonds with a fair value of $109.0 million were pledged as collateral on the line at December 31, 2015. The securities pledged as collateral have no trading restrictions and are reported as available-for-sale securities in the Statements of Financial Position as of December 31, 2015. The banks require compliance with certain covenants, which include leverage ratios, for our line of credit. We are in compliance with all covenants at December 31, 2015.

Our annual incentive plan is a bonus plan that pays cash to our executive and senior vice presidents annually. The cash awards are based on attainment of corporate and individual performance measures, which can include various financial measures. The plan includes a funding qualifier which considers our financial results, based on operating income, before a payout can be made to plan participants. If the funding qualifier is met, plan participants are eligible to receive the incentive based upon specific performance measures. The measures are established at the beginning of each year by the Executive Compensation and Development Committee of our Board of Directors ("ECDC"), with ultimate approval by the full Board of Directors. For 2015 and 2014, the performance measures primarily included the growth in direct written premium and statutory combined ratio of the Exchange and its property and casualty subsidiaries.

Our long-term incentive plan ("LTIP") is a performance based incentive plan designed to reward executive and senior vice presidents who can have a significant impact on our long-term performance and to further align the interests of such employees with those of our shareholders. The LTIP permits grants of performance shares or units, or phantom shares to be satisfied with shares of our Class A common stock or cash payment as determined by the ECDC. The ECDC determines the form of the award to be granted at the beginning of each performance period, which is generally a three-year period. The number of shares of the Company’s common stock authorized for grant under the LTIP is 1.5 million shares, with no one person able to receive more than 250,000 shares or the equivalent of $5 million during any one performance period. We repurchase our Class A common stock on the open market to settle stock awards under the plan. We do not issue new shares of common stock to settle stock awards. LTIP awards are considered vested at the end of each applicable performance period.

The LTIP provides the recipient the right to earn performance shares or units, or phantom stock based on the level of achievement of performance goals as defined by us. Performance measures and a peer group of property and casualty companies to be used for comparison are determined by the ECDC. The performance measures for the 2015, 2014 and 2013 awards were the reported growth in direct written premium and statutory combined ratio of the Exchange and its property and casualty subsidiaries and return on invested assets over a three-year performance period as compared to the results of the peer group over the same period. Because the award is based upon a comparison to results of a peer group over a three-year period, the award accrual is based upon estimates of probable results for the remaining performance period. This estimate is subject to variability if our results or the results of the peer group are substantially different than the results we project.

At December 31, 2015, the plan awards for the 2013-2015 performance period were fully vested. Distributions will be made in 2016 once peer group financial information becomes available at which time participants will elect the form of payment, either cash or stock. The estimated plan award based upon the peer group information as of September 30, 2015 is $13.5 million. At December 31, 2014, the awards for the 2012-2014 period were fully vested. Participants had the option of receiving either cash or stock for the 2012-2014 award. The cash award of $8.2 million was paid in June 2015 and the stock award of 1,567 shares with an average share price of $81.04 and a market value of $0.1 million was delivered to plan participants in June 2015. At December 31, 2013, the awards, granted as stock, for the 2011-2013 performance period were fully vested. The average share price on the date the shares were delivered to plan participants for the 2011-2013 performance period was $75.36. The plan award of 54,371 shares of Class A common stock with a market value of approximately $4.1 million was paid in June 2014.

Effective April 17, 2013, our Board of Directors approved an equity compensation plan ("ECP") designed to reward key employees, as determined by the ECDC or the chief executive officer, who can have a significant impact on our long-term performance and to further align the interests of such employees with those of our shareholders. The ECP permits grants of restricted shares, restricted share units and other share based awards, to be satisfied with shares of our Class A common stock or cash. The ECDC determines the form of the award to be granted at the beginning of each performance period. The number of shares of the Company's Class A common stock authorized for grant under the ECP is 100,000 shares, with no one person able to receive more than 5,000 shares in a calendar year. Share awards are settled through the repurchase of our Class A common stock on the open market. We do not issue new shares of common stock to satisfy plan awards.

Vesting conditions are determined at the time the award is granted and may include continuation of employment for a specific period, satisfaction of performance goals and the defined performance period, and the satisfaction of any other terms and conditions as determined to be appropriate. The plan is to remain in effect until December 31, 2022, unless earlier amended or terminated by our Board of Directors. The total number of restricted stock units granted under the plan was 5,500 and 8,750 in 2015 and 2014, respectively. There were no awards granted during 2013. The total compensation charged to operations related to these ECP awards was $0.4 million and $0.3 million in 2015 and 2014, respectively. The Exchange reimburses us for approximately 31% of the annual compensation cost of these plans, which represents the amount compensation expense for our employees performing claims functions. Unrecognized compensation expense of $0.7 million is expected to be recognized over a period of three years.

We have two classes of common stock: Class A which has a dividend preference and Class B which has voting power and a conversion right. Each share of Class A common stock outstanding at the time of the declaration of any dividend upon shares of Class B common stock shall be entitled to a dividend payable at the same time, at the same record date, and in an amount at least equal to 2/3 of 1.0% of any dividend declared on each share of Class B common stock. We may declare and pay a dividend in respect to Class A common stock without any requirement that any dividend be declared and paid in respect to Class B common stock. Sole shareholder voting power is vested in Class B common stock except insofar as any applicable law shall permit Class A common shareholders to vote as a class in regards to any changes in the rights, preferences, and privileges attaching to Class A common stock. Holders of Class B shares may, at their option, convert their shares into Class A shares at the rate of 2,400 Class A shares per Class B share. There were no shares of Class B common stock converted into Class A common stock in 2015, 2014 or 2013.

In 2015, we purchased 111,535 shares of our outstanding Class A nonvoting common stock outside of our publicly announced share repurchase program at a total cost of $10.4 million. Of this amount, we purchased 1,567 shares of our outstanding Class A nonvoting common stock at a total cost of $0.1 million or $81.91 per share, for the vesting of stock-based awards in conjunction with our long-term incentive plan. These shares were delivered to plan participants in June 2015. We purchased 2,800 shares of our outstanding Class A nonvoting common stock at a total cost of $0.2 million, or $86.24 per share, for the vesting of stock-based awards for executive management. These shares were delivered to executive management in August 2015. In November 2015, we purchased 12,230 shares of our outstanding Class A nonvoting common stock at a total cost of $1.1 million or $87.03 per share, for the vesting of stock-based awards for a former outside director. These shares were delivered in November 2015. In November and December 2015, we purchased 94,938 shares of our outstanding Class A nonvoting common stock at a total cost of $9.0 million or $94.99 per share, to fund the newly established rabbi trust for the outside director deferred compensation plan. See Note 9, "Incentive and Deferred Compensation Plans".



(in thousands)
	2015			2014			2013
Investment securities:
Accumulated other comprehensive income, beginning of the year	$	6,807		$	5,984		$	13,325
Other comprehensive (loss) income before reclassifications, net of tax benefit (expense) of $2,678, $(633), and $3,852, respectively	(4,973		)	1,175			(7,153		)
Realized investment gains, net of tax benefit of $172, $226 and $236, respectively	(320		)	(420		)	(440		)
Impairment losses, net of tax expense of $(545), $(37), and $(136), respectively	1,013			68			252
Other comprehensive (loss) income, net of tax	(4,280		)	823			(7,341		)
Accumulated other comprehensive income, end of the year	$	2,527		$	6,807		$	5,984

Pension and other postretirement plans:
Accumulated other comprehensive loss, beginning of the year	$	(124,508	)	$	(65,083	)	$	(146,516	)
Other comprehensive income (loss) before reclassifications, net of tax (expense) benefit of $(8,433), $34,378, and $(38,352), respectively	15,661			(63,845		)	71,226
Amortization of prior service costs, net of tax expense of $234, $248, and $278, respectively ⁽¹⁾	434			461			517
Amortization of net actuarial loss, net of tax expense of $4,858, $2,131, and $5,218, respectively ⁽¹⁾	9,022			3,959			9,690
Other comprehensive income (loss), net of tax	25,117			(59,425		)	81,433
Accumulated other comprehensive loss, end of the year	$	(99,391	)	$	(124,508	)	$	(65,083	)

Total
Accumulated other comprehensive loss, beginning of the year	$	(117,701	)	$	(59,099	)	$	(133,191	)
Investment securities	(4,280		)	823			(7,341		)
Pension and other postretirement plans	25,117			(59,425		)	81,433
Other comprehensive income, net of tax	20,837			(58,602		)	74,092
Accumulated other comprehensive loss, end of the year	$	(96,864	)	$	(117,701	)	$	(59,099	)

All claims handling services for the Exchange are performed by our employees who are entirely dedicated to claims related activities. All costs associated with these employees are reimbursed to us from the Exchange’s revenues in accordance with the subscriber’s agreement. We are reimbursed by EFL from its revenues for all costs associated with employees who perform life insurance related operating activities for EFL in accordance with its service agreement with us. Common overhead expenses included in the expenses paid by us are allocated based upon appropriate utilization statistics (employee count, square footage, vehicle count, project hours, etc.) specifically measured to accomplish proportional allocations. Executive compensation is allocated based upon each executive’s primary responsibilities (management services, property and casualty claims operations, EFL operations, and investment operations). We believe the methods used to allocate common overhead expenses among the affiliated entities are reasonable. See also Note 8, "Postretirement Benefits" for a discussion of intercompany expense allocations under the postretirement benefit plans.

We are involved in litigation arising in the ordinary course of conducting business. In accordance with current accounting standards for loss contingencies and based upon information currently known to us, we establish reserves for litigation when it is probable that a loss associated with a claim or proceeding has been incurred and the amount of the loss or range of loss can be reasonably estimated. When no amount within the range of loss is a better estimate than any other amount, we accrue the minimum amount of the estimable loss. To the extent that such litigation against us may have an exposure to a loss in excess of the amount we have accrued, we believe that such excess would not be material to our financial condition, results of operations, or cash flows. Legal fees are expensed as incurred. We believe that our accruals for legal proceedings are appropriate and, individually and in the aggregate, are not expected to be material to our financial condition, operations, or cash flows.

We review all litigation on an ongoing basis when making accrual and disclosure decisions. For certain legal proceedings, we cannot reasonably estimate losses or a range of loss, if any, particularly for proceedings that are in their early stages of development or where the plaintiffs seek indeterminate damages. Various factors, including, but not limited to, the outcome of potentially lengthy discovery and the resolution of important factual questions, may need to be determined before probability can be established or before a loss or range of loss can be reasonably estimated. If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter will continue to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. In the event that a legal proceeding results in a substantial judgment against, or settlement by, us, there can be no assurance that any resulting liability or financial commitment would not have a material adverse effect on our financial condition, results of operations, or 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 for the years ended December 31:



(in thousands)
	2015			2014			2013
Cash flows from operating activities:
Net income	$	174,678		$	167,505		$	162,611
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	16,461			15,656			14,998
Deferred income tax benefit	(14,584		)	(3,305		)	(5,002		)
Realized losses (gains) and impairments on investments	1,066			(952		)	(557		)
Equity in earnings of limited partnerships	(16,983		)	(10,929		)	(21,694		)
Net amortization of bond premium	8,160			7,225			6,864
(Decrease) increase in deferred compensation	(1,526		)	6,149			6,762
Limited partnership distributions	14,112			15,327			27,050
Increase in receivables from affiliates	(12,835		)	(34,778		)	(19,655		)
Decrease (increase) in accrued investment income	47			(915		)	(374		)
(Increase) decrease in federal income taxes recoverable	(499		)	(8,421		)	2,812
Decrease in prepaid pension	20,307			557			17,842
Decrease (increase) in prepaid expenses and other assets	1,193			(1,747		)	(5,831		)
Increase in accounts payable and accrued expenses	3,633			1,753			4,910
Increase in commissions payable	5,624			20,596			10,508
Increase in accrued agent bonuses	18,524			12,292			16,764
Net cash provided by operating activities	$	217,378		$	186,013		$	218,008

Management is responsible for establishing and maintaining adequate internal control over financial reporting of Erie Indemnity Company, as defined in Rules 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the Erie Indemnity Company’s internal control over financial reporting based upon the framework in the Internal Control-Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon our evaluation under the framework in the Internal Control-Integrated Framework issued in 2013, management has concluded that Erie Indemnity Company’s internal control over financial reporting was effective as of December 31, 2015.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.



Name	Age as of 12/31/2015	Principal Occupation and Positions for Past Five Years

President & Chief Executive Officer:
Terrence W. Cavanaugh	62	President and Chief Executive Officer of Erie Indemnity Company since July 29, 2008; Director, Erie Indemnity Company, Erie Family Life Insurance Company ("EFL"), Erie Insurance Company ("EIC"), Flagship City Insurance Company ("Flagship"), Erie Insurance Company of New York ("ENY") and Erie Insurance Property and Casualty Company ("EPC").
Executive Vice Presidents:
Gregory J. Gutting	52	Interim Executive Vice President and Chief Financial Officer since October 12, 2015; Senior Vice President and Controller since March 2009; Director, EFL, EIC, Flagship, ENY and EPC.

George D. Dufala	44	Executive Vice President – Services since September 1, 2010; Director, EFL, EIC, Flagship, ENY and EPC.

Robert C. Ingram, III	57	Executive Vice President and Chief Information Officer since August 13, 2012; Senior Vice President and Chief Information Officer (for Commercial Lines, Hartford Investment Management Company and Enterprise Risk Management), The Hartford Financial Services Group, February 2011 through August 2012; Senior Vice President and Chief Information Officer, Commercial and Consumer Markets, The Hartford Financial Services Group, August 2009 through February 2011; Director, EFL, EIC, Flagship, ENY and EPC.

John F. Kearns	56	Executive Vice President – Sales & Marketing since September 1, 2010; Director, EFL, EIC, Flagship, ENY and EPC.

Sean J. McLaughlin	60	Executive Vice President, Secretary and General Counsel since August 26, 2013; Chief Judge, United States District Court for the Western District of Pennsylvania, April 2013 through August 2013; United States District Judge for the Western District of Pennsylvania, October 1994 through April 2013; Director, EFL, EIC, Flagship, ENY and EPC.



Exhibit
Number		Description of Exhibit

3.1		Articles of Incorporation of Registrant. Such exhibit is incorporated by reference to the like numbered exhibit in the Registrant’s Form 10 Registration Statement Number 0-24000 filed with the Commission on May 2, 1994.

3.1A		Amendment to the Articles of Incorporation of Registrant effective May 2, 1996. Such exhibit is incorporated by reference to the like numbered exhibit in the Registrant’s Form 10-Q that was filed with the Commission on July 29, 2010.

3.1B		Amendment to the Articles of Incorporation of Registrant effective May 4, 2001. Such exhibit is incorporated by reference to the like numbered exhibit in the Registrant’s Form 10-Q that was filed with the Commission on July 29, 2010.

3.1C		Amendment to the Articles of Incorporation of Registrant effective May 10, 2007. Such exhibit is incorporated by reference to the like numbered exhibit in the Registrant’s Form 10-Q that was filed with the Commission on July 29, 2010.

3.7		Erie Indemnity Company Amended and Restated Bylaws effective May 5, 2009. Such exhibit is incorporated by reference to the like titled exhibit in the Registrant’s Form 8-K that was filed with the Commission on May 11, 2009.

3.8		Amended and Restated Articles of Incorporation of Registrant dated April 19, 2011. Such exhibit is incorporated by reference to the like titled exhibit in the Registrant’s Form 10-Q that was filed with the Commission on August 2, 2011.

10.12		Form of Subscriber’s Agreement whereby policyholders of Erie Insurance Exchange appoint Registrant as their Attorney-in-Fact. Such exhibit is incorporated by reference to the like titled but renumbered exhibit in the Registrant’s Form 10-Q that was filed with the Securities and Exchange Commission on November 6, 2002.

10.129		Lease Agreement between Erie Insurance Exchange and Erie Indemnity Company dated January 1, 2011. Such exhibit is incorporated by reference to the like titled exhibit in the Registrant’s Form 10-K that was filed with the Commission on February 24, 2011.

10.145		Erie Indemnity Company Equity Compensation Plan (incorporated by reference to Appendix A to the Registrant's Information Statement for the 2013 Annual Meeting of Shareholders filed with the Commission on March 18, 2013).

10.146		Amended and Restated Credit Agreement among JPMorgan Chase Bank, National Association, as Administrative Agent; the Lenders named therein; and Erie Indemnity Company, dated October 25, 2013. Such exhibit is incorporated by reference to the like titled exhibit in the Registrant's Form 8-K that was filed with the Commission on October 30, 2013.

10.147		Second Amended and Restated Credit Agreement among PNC Bank, National Association, as Administrative Agent; the Lenders named therein; and Erie Insurance Exchange, dated October 25, 2013. Such exhibit is incorporated by reference to the like titled exhibit in the Registrant's Form 8-K that was filed with the Commission on October 30, 2013.

10.152		Erie Indemnity Company Annual Incentive Plan (As Amended and Restated Effective as of January 1, 2014). Such exhibit is incorporated by reference to Appendix A to the Registrant's Information Statement for the 2014 Annual Meeting of Shareholders filed with the Commission on March 14, 2014.

10.153		Erie Indemnity Company Long-Term Incentive Plan (As Amended and Restated Effective as of January 1, 2014). Such exhibit is incorporated by reference to Appendix B to the Registrant's Information Statement for the 2014 Annual Meeting of Shareholders filed with the Commission on March 14, 2014.

10.154		First Amendment to Erie Indemnity Company Equity Compensation Plan effective January 1, 2014, dated March 10, 2014. Such exhibit is incorporated by reference to the like titled exhibit in the Registrant’s Form 10-Q that was filed with the Commission on May 1, 2014.

10.156		Form of Indemnification Agreement by and between Erie Indemnity Company and each Director and Executive Officer of Erie Indemnity Company. Such exhibit is incorporated by reference to the like titled exhibit in the Registrant’s Form 10-K that was filed with the Commission on February 26, 2009.



Exhibit
Number		Description of Exhibit

10.157		First Amendment to Erie Indemnity Company Long-Term Incentive Plan (As Amended and Restated Effective as of January 1, 2014), dated March 25, 2015. Such exhibit is incorporated by reference to the like titled exhibit in the Registrant’s Form 10-Q that was filed with the Commission on April 30, 2015.

10.158*		Erie Indemnity Company Deferred Compensation Plan for Outside Directors (As Amended and Restated as of July 29, 2015), dated October 20, 2015.

10.159*		Erie Indemnity Company Deferred Stock Plan for Outside Directors (As of July 29, 2015), dated October 20, 2015.

10.160		First Amendment to Amended and Restated Credit Agreement among JPMorgan Chase Bank, National Association, as Administrative Agent; the Lenders named therein; and Erie Indemnity Company, dated October 28, 2015. Such exhibit is incorporated by reference to the like titled exhibit in the Registrant’s Form 10-Q that was filed with the Commission on October 29, 2015.

10.161		First Amendment to Second Amended and Restated Credit Agreement among PNC Bank, National Association, as Administrative Agent; the Lenders named therein; and Erie Insurance Exchange, dated October 28, 2015. Such exhibit is incorporated by reference to the like titled exhibit in the Registrant’s Form 10-Q that was filed with the Commission on October 29, 2015.

10.162*		Erie Insurance Group Retirement Plan for Employees (As Amended and Restated Effective December 31, 2014), dated December 18, 2015.

10.163*		Erie Insurance Group Employee Savings Plan (As Amended and Restated Effective as of January 1, 2015), dated December 18, 2015.

10.164		Agreement between Erie Indemnity Company and Marcia A. Dall, dated December 20, 2015. Such exhibit is incorporated by reference to the like titled exhibit in the Registrant's Form 8-K that was filed with the Commission on December 22, 2015.

14.2		Code of Ethics for Senior Financial Officers. Such exhibit is incorporated by reference to the like titled exhibit in the Registrant’s Form 8-K that was filed with the Commission on April 25, 2012.

14.3*		Code of Conduct, effective January 1, 2016.

23*		Consent of Independent Registered Public Accounting Firm.

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*		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document.

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.



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

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



Large Accelerated Filer X	Accelerated Filer	Non-Accelerated Filer	Smaller Reporting Company
	(Do not check if a smaller reporting company)



PART	ITEM NUMBER AND CAPTION		PAGE


I	Item 1.	Business	3
	Item 1A.	Risk Factors	5
	Item 1B.	Unresolved Staff Comments	10
	Item 2.	Properties	10
	Item 3.	Legal Proceedings	11
	Item 4.	Mine Safety Disclosures	12


II	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
	Item 6.	Selected Financial Data	14
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
	Item 8.	Financial Statements and Supplementary Data	37
	Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	69
	Item 9A.	Controls and Procedures	69
	Item 9B.	Other Information	69


III	Item 10.	Directors, Executive Officers and Corporate Governance	71
	Item 11.	Executive Compensation	72
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	72
	Item 13.	Certain Relationships and Related Transactions, and Director Independence	72
	Item 14.	Principal Accountant Fees and Services	72


IV	Item 15.	Exhibits and Financial Statement Schedules	73


		Signatures	74



	2015								2014
	Stock sales price				Cash dividend declared				Stock sales price				Cash dividend declared
Quarter ended	High		Low		Class A		Class B		High		Low		Class A		Class B
March 31	$	93.01	$	84.11	$	0.681	$	102.15	$	74.57	$	66.63	$	0.635	$	95.25
June 30	87.15		80.02		0.681		102.15		76.71		68.72		0.635		95.25
September 30	87.82		79.79		0.681		102.15		78.48		72.63		0.635		95.25
December 31	100.56		81.37		0.730		109.50		93.35		75.72		0.681		102.15
Total					$	2.773	$	415.95					$	2.586	$	387.90



(in thousands, except per share data)
	2015			2014			2013
Operating income	$	175,371		$	166,886		$	162,248
Net realized (losses) gains and impairments on investments	(1,066		)	952			557
Income tax benefit (expense)	373			(333		)	(194		)
Realized (losses) gains and impairments, net of income taxes	(693		)	619			363
Net income	$	174,678		$	167,505		$	162,611

Per Class A common share-diluted:
Operating income	$	3.34		$	3.17		$	3.07
Net realized (losses) gains and impairments on investments	(0.02		)	0.02			0.01
Income tax benefit (expense)	0.01			(0.01		)	0.00
Realized (losses) gains and impairments, net of income taxes	(0.01		)	0.01			0.01
Net income	$	3.33		$	3.18		$	3.08



	Class A common stock, stated value $0.0292 per share, listed on the NASDAQ Stock Market, LLC
	(Title of each class)	(Name of each exchange on which registered)


•	Interest rate risk - the risk of adverse changes in the value of fixed income securities as a result of increases in market interest rates. A sustained low interest rate environment would pressure our net investment income.


•	Investment credit risk - the risk that the value of certain investments may decrease due to the deterioration in financial condition of, or the liquidity available to, one or more issuers of those securities or, in the case of asset-backed securities, due to the deterioration of the loans or other assets that underlie the securities, which, in each case, also includes the risk of permanent loss.



		Number of
Field office ownership:		field offices
Erie Indemnity Company		3
Erie Insurance Exchange		3
Erie Family Life Insurance Company		1
Unaffiliated parties ⁽¹⁾		18
		25



	2010			2011		2012		2013		2014		2015
Erie Indemnity Company Class A common stock	$	100	⁽¹⁾	$	123	$	116	$	126	$	160	$	175
Standard & Poor's 500 Stock Index	100		⁽¹⁾	102		118		156		177		180
Standard & Poor's Supercomposite Insurance Industry Group Index	100		⁽¹⁾	93		111		161		175		181


(1)	Assumes $100 invested at the close of trading, on the last trading day preceding the first day of the fifth preceding fiscal year, in our Class A common stock, the Standard & Poor’s 500 Stock Index, and the Standard & Poor’s Supercomposite Insurance Industry Group Index.



	Page Number
Cautionary Statement Regarding Forward-Looking Information	15
Retrospectively Adopted Accounting Standards	16
Recent Accounting Standards	16
Operating Overview	16
Critical Accounting Estimates	18
Results of Operations	23
Financial Condition	27
Investments	27
Shareholders’ Equity	30
Liquidity and Capital Resources	30
Transactions/Agreements with Related Parties	33


•	dependence upon our relationship with the Exchange and the management fee under the agreement with the subscribers at the Exchange;


•	costs of providing services to the Exchange under the subscriber’s agreement;


◦	the Exchange’s ability to maintain acceptable financial strength ratings;



	ERIE INDEMNITY COMPANY



	(814) 870-2000


◦	factors affecting the quality and liquidity of the Exchange’s investment portfolio;


◦	changes in government regulation of the insurance industry;


◦	severe weather conditions or other catastrophic losses, including terrorism;


•	ability to attract and retain talented management and employees;


•	our ability to meet liquidity needs and access capital; and


•	An active market is one in which transactions for the assets being valued occur with sufficient frequency and volume to provide reliable pricing information.


•	An inactive (illiquid) market is one in which there are few and infrequent transactions, where the prices are not current, price quotations vary substantially, and/or there is little information publicly available for the asset being valued.


•	Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.


•	Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.


•	Level 3 – Unobservable inputs for the asset or liability.


•	the extent and duration for which fair value is less than cost;


•	historical operating performance and financial condition of the issuer;


•	short- and long-term prospects of the issuer and its industry based upon analysts’ recommendations;


•	specific events that occurred affecting the issuer, including rating downgrades;


•	intent to sell or more likely than not we would be required to sell (debt securities); and


•	ability and intent to retain the investment for a period of time sufficient to allow for a recovery in value (equity securities).



(dollars in thousands)	2015			% Change		2014			% Change		2013
Net investment income	$	17,791		7.6	%	$	16,536		10.0	%	$	15,027
Net realized investment gains	492			(53.4	)	1,057			11.8		945
Net impairment losses recognized in earnings	(1,558		)	NM		(105		)	NM		(388		)
Equity in earnings of limited partnerships	16,983			55.4		10,929			(49.6	)	21,694
Total investment income	$	33,708		18.6	%	$	28,417		(23.8	)%	$	37,278


(1)	See Part II, Item 8. "Financial Statements and Supplementary Data – Note 5, Investments, of Notes to Financial Statements" contained within this report for additional disclosures regarding net realized investment gains (losses).



	Carrying value at December 31,
(dollars in thousands)	2015		% to total		2014		% to total
Fixed maturities	$	587,209	85	%	$	564,540	80	%
Equity securities:
Preferred stock	0		0		12,541		2
Common stock	12,732		2		12,689		2
Limited partnerships:
Private equity	48,397		7		51,379		7
Mezzanine debt	12,701		2		13,978		2
Real estate	27,437		4		47,260		7
Real estate mortgage loans	333		0		490		0
Total investments	$	688,809	100	%	$	702,877	100	%



(in thousands)									Non-investment		Fair
Industry Sector	AAA		AA		A		BBB		grade		value
Indemnity
Basic materials	$	0	$	0	$	1,965	$	3,016	$	2,901	$	7,882
Communications	0		0		2,008		18,584		12,473		33,065
Consumer	0		0		7,126		22,638		36,139		65,903
Diversified	0		0		0		0		235		235
Energy	0		0		3,565		7,739		3,657		14,961
Financial	0		2,102		27,599		46,801		12,297		88,799
Government-municipal	112,329		102,046		16,430		1,042		0		231,847
Industrial	0		0		617		5,130		10,785		16,532
Structured securities ⁽²⁾	32,366		35,961		18,021		16,191		2,490		105,029
Technology	0		0		2,305		2,298		5,863		10,466
Utilities	0		0		8,169		3,002		1,319		12,490
Total	$	144,695	$	140,109	$	87,805	$	126,441	$	88,159	$	587,209