The following discussion of financial condition and results of operations
highlights significant factors influencing Erie Indemnity Company ("Indemnity",
"we", "us", "our").  This discussion should be read in conjunction with the
historical financial statements and the related notes thereto included in Part
I, Item 1. "Financial Statements" of this Quarterly Report on Form 10-Q, and
with Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for the year ended December 31, 2021, as contained in our
Annual Report on Form 10-K filed with the Securities and Exchange Commission on
February 24, 2022.


INDEX

                                                                  Page Number

  Cautionary Statement Regarding Forward-Looking Information           23

  Operating Overview                                                   24
  Results of Operations                                                27

  Financial Condition                                                  33

  Liquidity and Capital Resources                                      34

  Critical Accounting Estimates                                        36



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION



"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
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:
•dependence upon our relationship with the Erie Insurance Exchange ("Exchange")
and the management fee under the agreement with the subscribers at the Exchange;
•dependence upon our relationship with the Exchange and the growth of the
Exchange, including:
•general business and economic conditions;
•factors affecting insurance industry competition;
•dependence upon the independent agency system; and
•ability to maintain our reputation for customer service;
•dependence upon our relationship with the Exchange and the financial condition
of the Exchange, including:
•the Exchange's ability to maintain acceptable financial strength ratings;
•factors affecting the quality and liquidity of the Exchange's investment
portfolio;
•changes in government regulation of the insurance industry;
•litigation and regulatory actions;
•emergence of significant unexpected events, including pandemics;
•emerging claims and coverage issues in the industry; and
•severe weather conditions or other catastrophic losses, including terrorism;
•costs of providing policy issuance and renewal services to the Exchange under
the subscriber's agreement;
•ability to attract and retain talented management and employees;
•ability to ensure system availability and effectively manage technology
initiatives;
•difficulties with technology or data security breaches, including cyber
attacks;
•ability to maintain uninterrupted business operations;
•outcome of pending and potential litigation;
•factors affecting the quality and liquidity of our investment portfolio; and
•our ability to meet liquidity needs and access capital.
                                       23

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A forward-looking statement speaks only as of the date on which it is made and
reflects our analysis only as of that date.  We undertake no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events, changes in assumptions, or otherwise.


OPERATING OVERVIEW

Overview


We serve as the attorney-in-fact for the subscribers (policyholders) at the
Exchange, a reciprocal insurer that writes property and casualty insurance. Our
primary function as attorney-in-fact is to perform policy issuance and renewal
services on behalf of the subscribers at the Exchange. We also act as
attorney-in-fact on behalf of the Exchange, as well as the service provider for
its insurance subsidiaries, with respect to all administrative services.

The Exchange is a reciprocal insurance exchange, which is an unincorporated
association of individuals, partnerships and corporations that agree to insure
one another. Each applicant for insurance to the Exchange signs a subscriber's
agreement, which contains an appointment of Indemnity as their attorney-in-fact
to transact the business of the Exchange on their behalf. Pursuant to the
subscriber's agreement for acting as attorney-in-fact in these two
capacities, we earn a management fee calculated as a percentage of the direct
and affiliated assumed premiums written by the Exchange.

Our earnings are primarily driven by the management fee revenue generated for
the services we provide to the Exchange. The policy issuance and renewal
services we provide to the Exchange are related to the sales, underwriting and
issuance of policies. The sales related services we provide include agent
compensation and certain sales and advertising support services. Agent
compensation includes scheduled commissions to agents based upon premiums
written as well as additional commissions and bonuses to agents, which are
earned by achieving targeted measures. Agent compensation generally comprises
approximately two-thirds of our policy issuance and renewal expenses. The
underwriting services we provide include underwriting and policy processing. The
remaining services we provide include customer service and administrative
support. We also provide information technology services that support all the
functions listed above. Included in these expenses are allocations of costs for
departments that support these policy issuance and renewal functions.

By virtue of its legal structure as a reciprocal insurer, the Exchange does not
have any employees or officers. Therefore, it enters into contractual
relationships by and through an attorney-in-fact. Indemnity serves as the
attorney-in-fact on behalf of the Exchange with respect to its administrative
services. The Exchange's insurance subsidiaries also utilize Indemnity for these
services in accordance with the service agreements between each of the
subsidiaries and Indemnity. Claims handling services include costs incurred in
the claims process, including the adjustment, investigation, defense, recording
and payment functions. Life insurance management services include costs incurred
in the management and processing of life insurance business. Investment
management services are related to investment trading activity, accounting and
all other functions attributable to the investment of funds. Included in these
expenses are allocations of costs for departments that support these
administrative functions. The amounts incurred for these services are reimbursed
to Indemnity at cost in accordance with the subscriber's agreement and the
service agreements. State insurance regulations require that intercompany
service agreements and any material amendments be approved in advance by the
state insurance department.

Our results of operations are tied to the growth and financial condition of the
Exchange as the Exchange is our sole customer, and our earnings are largely
generated from management fees based on the direct and affiliated assumed
premiums written by the Exchange. The Exchange generates revenue by insuring
preferred and standard risks, with personal lines comprising 70% of the 2021
direct and affiliated assumed written premiums and commercial lines comprising
the remaining 30%.  The principal personal lines products are private passenger
automobile and homeowners.  The principal commercial lines products are
commercial multi-peril, commercial automobile and workers compensation.

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Coronavirus ("COVID-19") Pandemic and Economic Uncertainty
Uncertainty resulting from current events, including but not limited to, the
ongoing coronavirus ("COVID-19") pandemic, resulting continued supply chain
disruptions and certain geopolitical concerns, have influenced various economic
factors, including an elevated inflationary environment and rising interest
rates in recent months. As these events continue to evolve, the ultimate impact
and duration remain uncertain at this time.

While we were not required to close our physical locations under the state
mandated closure of nonessential services during the COVID-19 pandemic, out of
concern for the health and safety of our employees, over 90% of our workforce
had been working remotely from March 2020 through April 2022. We have had no
significant interruption to our core business processes or systems to date. We
have had no significant changes to our financial close or reporting processes or
related internal controls, nor do we anticipate any significant future
challenges at this time. We have a dedicated team responsible for the
development and implementation of a return to office plan. We began a phased
return of our workforce in April 2022 and expect to continue reopening our
offices through the remainder of 2022. Consistent with our process from the
beginning of the COVID-19 pandemic, we will prioritize the health and safety of
our employees and adjust when and where appropriate.

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Financial Overview

                                                      Three months ended June 30,                                          Six months ended June 30,
(dollars in thousands, except
per share data)                             2022                 2021                % Change                  2022                  2021                % Change
                                                 (Unaudited)                                                         (Unaudited)

Operating income                     $       104,000          $ 85,065             22.3     %            $      188,312          $ 161,160             16.8     %
Total investment (loss) income                (2,094)           16,418                   NM                         915             34,406            (97.3)
Interest expense                                 895             1,039            (13.9)                          1,894              2,048             (7.6)
Other income (expense)                           337              (548)                  NM                         810             (1,067)                  NM
Income before income taxes                   101,348            99,896              1.5                         188,143            192,451             (2.2)
Income tax expense                            21,201            20,867              1.6                          39,377             39,856             (1.2)
Net income                           $        80,147          $ 79,029              1.4     %            $      148,766          $ 152,595             (2.5)    %
Net income per share - diluted       $          1.53          $   1.51              1.4     %            $         2.84          $    2.92             (2.5)    %


NM = not meaningful


Operating income increased in both the second quarter and six months ended June
30, 2022, compared to the same periods in 2021, as growth in operating revenue
outpaced the growth in operating expenses. Management fee revenue for policy
issuance and renewal services increased 8.4% to $544.6 million in the second
quarter of 2022 and 7.8% to $1.0 billion for the six months ended June 30, 2022.
Management fee revenue is based upon the management fee rate we charge and the
direct and affiliated assumed premiums written by the Exchange. The management
fee rate was 25% for both 2022 and 2021. The direct and affiliated assumed
premiums written by the Exchange increased 8.6% to $2.2 billion in the second
quarter of 2022 and increased 7.8% to $4.3 billion for the six months ended June
30, 2022 compared to the same periods in 2021.

Cost of operations for policy issuance and renewal services increased 5.4% to
$461.5 million and 5.7% to $885.9 million in the second quarter and six months
ended June 30, 2022, compared to the same periods in 2021, primarily due to
higher scheduled commissions driven by direct and affiliated assumed written
premium growth, as well as increased professional fees and technology
investments.

Management fee revenue for administrative services decreased 1.3% to $14.5
million and 2.5% to $28.8 million in the second quarter and six months ended
June 30, 2022, compared to the same periods in 2021. The administrative services
reimbursement revenue and corresponding cost of operations increased both total
operating revenue and total operating expenses by $160.7 million in the second
quarter of 2022 and $324.0 million for the six months ended June 30, 2022, but
had no net impact on operating income.

Total investment income decreased $18.5 million and $33.5 million in the second quarter and six months ended June 30, 2022, compared to the same periods in 2021. The results from both periods were primarily due to net realized and unrealized investment losses in 2022 and a decrease in net investment income.




General Conditions and Trends Affecting Our Business
Economic conditions
Unfavorable changes in economic conditions, including declining consumer
confidence, inflation, high unemployment, and the threat of recession, among
others, may lead the Exchange's customers to modify coverage, not renew
policies, or even cancel policies, which could adversely affect the premium
revenue of the Exchange, and consequently our management fee.  The extent to
which economic conditions could impact the Exchange's operations and our
management fee was exacerbated with the COVID-19 pandemic. Further, pandemic
conditions and government responses to these conditions have created an
inflationary environment in recent months. In particular, unanticipated
increased inflation costs including medical cost inflation, building material
cost inflation, auto repair and replacement cost inflation, and tort issues may
impact estimated loss reserves and future premium rates of the Exchange. The
extent and duration of the impact to economic conditions remain uncertain as the
COVID-19 pandemic and subsequent resulting conditions continue to evolve. If any
of these items impacted the financial condition or operations of the Exchange,
it could have an impact on our financial results. See Financial Condition and
Liquidity and Capital Resources contained within this report, as well as Part I.
Item 1A. "Risk Factors" included in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2021 as filed with the Securities and Exchange
Commission on February 24, 2022 for a discussion of the potential impacts to our
operations or those of the Exchange, including pandemics.

Financial market volatility
Our portfolio of fixed maturity and equity security investments is subject to
market volatility, especially in periods of instability in the worldwide
financial markets. Over time, net investment income could also be impacted by
volatility and by the general level of interest rates, which impact reinvested
cash flow from the portfolio and business operations. Depending upon market
conditions, which are unpredictable and remain uncertain, considerable
fluctuation could occur in the fair value of our
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investment portfolio and reported total investment income, which could have an
adverse impact on our financial condition, results of operations, and cash
flows. Response to the COVID-19 pandemic and various recent geopolitical events
have had a significant impact on the global financial markets. The value of our
invested assets could be adversely impacted and there is potential for future
losses and/or impairments on our investment portfolio due to continued supply
chain disruptions and the resulting conditions including further inflationary
pressures and rising interest rates.


RESULTS OF OPERATIONS



Management fee revenue
We have two performance obligations in the subscriber's agreement, providing
policy issuance and renewal services and acting as attorney-in-fact for the
Exchange, as well as the service provider for its insurance subsidiaries, with
respect to all administrative services. We earn management fees for acting as
the attorney-in-fact for the subscribers at the Exchange in these two
capacities, and allocate our revenues between our performance obligations.

The management fee is calculated by multiplying all direct and affiliated
assumed premiums written by the Exchange by the management fee rate, which is
determined by our Board of Directors at least annually.  The management fee rate
was set at 25%, the maximum rate, for both 2022 and 2021.  Changes in the
management fee rate can affect our revenue and net income significantly. The
transaction price, including management fee revenue and administrative services
reimbursement revenue, includes variable consideration and is allocated based on
the estimated standalone selling prices developed using industry information and
other available information for similar services. We update the transaction
price and the related allocation at least annually based upon the most recent
information available or more frequently if there have been significant changes
in any components considered in the transaction price. Our most recent
transaction price allocation review resulted in a minor change in the allocation
percentages between the two performance obligations, but does not have a
material impact on our financial statements.

The following table presents the allocation and disaggregation of revenue for our two performance obligations:



                                                            Three months ended June 30,                                Six months ended June 30,
(dollars in thousands)                                2022             2021           % Change                  2022            2021           % Change
                                                          (Unaudited)                                               (Unaudited)
Policy issuance and renewal services
Direct and affiliated assumed premiums written
by the Exchange                                 $    2,247,766    $ 2,070,557        8.6     %             $  4,257,963    $ 3,948,739        7.8     %
Management fee rate                                       24.3  %        24.3  %                                   24.3  %        24.3  %
Management fee revenue                                 546,207        503,146        8.6                      1,034,685        959,544        7.8
Change in estimate for management fee returned
on cancelled policies (1)                               (1,652)          (875)     (88.9)                        (2,138)        (1,555)     (37.5)
Management fee revenue - policy issuance and
renewal services                                $      544,555    $   502,271        8.4     %             $  1,032,547    $   957,989        7.8     %

Administrative services
Direct and affiliated assumed premiums written
by the Exchange                                 $    2,247,766    $ 2,070,557        8.6     %             $  4,257,963    $ 3,948,739        7.8     %
Management fee rate                                        0.7  %         0.7  %                                    0.7  %         0.7  %
Management fee revenue                                  15,735         14,494        8.6                         29,806         27,641        7.8
Change in contract liability (2)                        (1,266)           168             NM                     (1,028)         1,875             NM
Change in estimate for management fee returned
on cancelled policies (1)                                    7              5       30.9                             11             (2)            NM

Management fee revenue - administrative
services                                                14,476         14,667       (1.3)                        28,789         29,514       (2.5)

Administrative services reimbursement revenue 160,675 157,190 2.2

                        324,002        310,723        4.3
Total revenue from administrative services      $      175,151    $   171,857        1.9     %             $    352,791    $   340,237        3.7     %


NM = not meaningful

(1)A constraining estimate of variable consideration exists related to the potential for management fees to be returned if a policy were to be cancelled mid-term. Management fees are returned to the Exchange when policies are cancelled mid-term and unearned premiums are refunded.



(2)Management fee revenue - administrative services is recognized over time as
the services are provided. See Part I, Item 1. "Financial Statements - Note 3,
Revenue, of Notes to Financial Statements" contained within this report.

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Direct and affiliated assumed premiums written by the Exchange
Direct and affiliated assumed premiums include premiums written directly by the
Exchange and premiums assumed from its wholly owned property and casualty
subsidiaries. Direct and affiliated assumed premiums written by the Exchange
increased 8.6% to $2.2 billion in the second quarter of 2022 compared to the
second quarter of 2021, primarily driven by increased personal lines and
commercial multi-peril premiums written.  Year-over-year policies in force for
all lines of business increased 3.1% in the second quarter of 2022 compared to
3.6% in the second quarter of 2021.  The year-over-year average premium per
policy for all lines of business increased 2.9% at June 30, 2022 compared to a
decrease of 1.5% at June 30, 2021. The year-over-year average premium per policy
at June 30, 2021 was impacted by the rate reductions for personal and commercial
auto policies written between July 1, 2020 and June 30, 2021, in response to
lower driving activity as a result of the COVID-19 pandemic.

New business premiums increased 10.7% to $291 million in the second quarter of
2022 compared to the same period in 2021, primarily driven by increased premiums
written in the commercial multi-peril and personal auto lines. Contributing to
this change was a 7.2% increase in year-over-year average premium per policy on
new business and a 1.7% increase in new business policies written in the second
quarter of 2022. New business premiums increased 38.4% to $263 million in the
second quarter of 2021 compared to the same period in 2020 due primarily to
increased personal lines premiums written. In the second quarter of 2021, new
business policies written increased 33.4%, partially offset by a 2.7% decrease
in year-over-year average premium per policy.

Premiums generated from renewal business increased 8.3% to $2.0 billion in the
second quarter of 2022 compared to the second quarter of 2021 and decreased 0.3%
to $1.8 billion in the second quarter of 2021 compared to the second quarter of
2020.  Underlying the trend in renewal business premiums was a slight increase
in the policy retention ratio and a 2.3% increase in year-over-year average
premium per policy at June 30, 2022, compared to a 1.2% decrease in
year-over-year average premium per policy at June 30, 2021.

Personal lines - Total personal lines premiums written increased 7.8% to $1.6
billion in the second quarter of 2022, compared to 2.0% in the second quarter of
2021, driven by a 3.1% increase in total personal lines policies in force and a
1.9% increase in total personal lines year-over-year average premium per policy.

Commercial lines - Total commercial lines premiums written increased 10.3% to $683 million in the second quarter of 2022, compared to 6.8% in the second quarter of 2021, driven by a 5.2% increase in total commercial lines year-over-year average premium per policy and a 3.0% increase in total commercial lines policies in force.



Future trends-premium revenue - Through a careful agency selection process, the
Exchange plans to continue its effort to expand the size of its agency force to
increase market penetration in existing operating territories to contribute to
future growth.

Changes in premium levels attributable to the growth in policies in force and
rate changes directly affect the profitability of the Exchange and have a direct
bearing on our management fee. Future premiums could be impacted by changes
resulting from the continued inflationary trends and potential regulatory
changes resulting from the COVID-19 pandemic, among others. Longer-term,
increased driving activity may result in future rate increases due to higher
claims frequency and severity. See also Part I. Item 1A. "Risk Factors" included
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as
filed with the Securities and Exchange Commission on February 24, 2022.


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Policy issuance and renewal services



                                                           Three months ended June 30,                                  Six months ended June 30,
(dollars in thousands)                             2022             2021             % Change                  2022             2021             % Change
                                                         (Unaudited)                                                 (Unaudited)
Management fee revenue - policy issuance and
renewal services                              $      544,555 $          502,271     8.4     %             $     1,032,547 $         957,989     7.8     %
Service agreement revenue                              6,437              5,902     9.0                            12,915            11,981     7.8
                                                     550,992            508,173     8.4                         1,045,462           969,970     7.8
Cost of policy issuance and renewal services         461,468            437,775     5.4                           885,939           838,324     5.7
Operating income - policy issuance and
renewal services                              $       89,524 $           70,398    27.2     %             $       159,523 $         131,646    21.2     %




Policy issuance and renewal services
The management fee revenue allocated for providing policy issuance and renewal
services was 24.3% of the direct and affiliated assumed premiums written by the
Exchange for both three and six month periods ended June 30, 2022 and 2021.
This portion of the management fee is recognized as revenue when the policy is
issued or renewed because it is at that time that the services we provide are
substantially complete and the executed insurance policy is transferred to the
customer.  The increase in management fee revenue for policy issuance and
renewal services was driven by the increase in the direct and affiliated assumed
premiums written by the Exchange discussed previously.

Service agreement revenue
Service agreement revenue primarily consists of service charges we collect from
subscribers/policyholders for providing multiple payment plans on policies
written by the Exchange and its property and casualty subsidiaries and also
includes late payment and policy reinstatement fees.  The service charges are
fixed dollar amounts per billed installment.  In July 2021, we also began
receiving service agreement revenue from the Exchange for the use of shared
office space. The increase in service agreement revenue for the three and six
month periods ended June 30, 2022 compared to the same periods in 2021 is
primarily due to the new shared office space agreement.

Cost of policy issuance and renewal services



                                                          Three months ended June 30,                                Six months ended June 30,
(dollars in thousands)                            2022            2021             % Change                 2022            2021             % Change
                                                        (Unaudited)                                               (Unaudited)
Commissions:
Total commissions                             $     307,483 $         293,220     4.9     %             $     588,618 $         554,601     6.1     %
Non-commission expense:
Underwriting and policy processing            $      42,802 $          43,181    (0.9)    %             $      83,856 $          83,769     0.1     %
Information technology                               51,106            46,076    10.9                          96,772            92,481     4.6
Sales and advertising                                14,271            14,590    (2.2)                         26,996            25,533     5.7
Customer service                                      8,738             9,131    (4.3)                         17,085            17,929    (4.7)
Administrative and other                             37,068            31,577    17.4                          72,612            64,011    13.4
Total non-commission expense                        153,985           144,555     6.5                         297,321           283,723     4.8
Total cost of policy issuance and renewal
services                                      $     461,468 $         437,775     5.4     %             $     885,939 $         838,324     5.7     %




Commissions - Commissions increased $14.3 million in the second quarter of 2022
and $34.0 million for the six months ended June 30, 2022 compared to the same
periods in 2021, primarily driven by the growth in direct and affiliated assumed
written premium, partially offset by a decrease in agent incentive compensation.
The estimated agent incentive payouts at June 30, 2022 are based on actual
underwriting results for the two prior years and current year-to-date actual
results and forecasted results for the remainder of 2022. The profitability
component of agent incentive compensation decreased due to higher claims
severity and related loss expense in 2022 compared to 2021.

Non-commission expense - Non-commission expense increased $9.4 million in the
second quarter of 2022 compared to the second quarter of 2021. Information
technology costs increased $5.0 million primarily due to increased hardware and
software costs and increased professional fees. Administrative and other costs
increased $5.5 million primarily due to an increase in professional fees and
increased personnel costs related to compensation compared to the same period in
2021. Personnel costs
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in all expense categories were also impacted by lower estimated costs for incentive plan awards related to underwriting performance.



Non-commission expense increased $13.6 million in the six months ended June 30,
2022 compared to the same period in 2021. Information technology costs increased
$4.3 million primarily due to increased hardware and software costs.
Administrative and other costs increased $8.6 million primarily driven by
increased professional fees compared to the same period in 2021. Personnel costs
in all expense categories were also impacted by lower estimated costs for
incentive plan awards related to underwriting performance.


Administrative services

                                                      Three months ended June 30,                              Six months ended June 30,
(dollars in thousands)                         2022            2021            % Change                2022            2021            % Change
                                                    (Unaudited)                                             (Unaudited)
Management fee revenue - administrative
services                                   $      14,476 $         14,667   (1.3)    %             $      28,789 $         29,514   (2.5)    %
Administrative services reimbursement
revenue                                          160,675          157,190    2.2                         324,002          310,723    4.3
Total revenue allocated to administrative
services                                         175,151          171,857    1.9                         352,791          340,237    3.7
Administrative services expenses
Claims handling services                         138,890          135,192    2.7                         281,386          267,662    5.1
Investment management services                     9,100            9,689   (6.1)                         18,991           19,403   (2.1)
Life management services                          12,685           12,309    3.1                          23,625           23,658   (0.1)
Operating income - administrative services $      14,476 $         14,667   (1.3)    %             $      28,789 $         29,514   (2.5)    %




Administrative services
The management fee revenue allocated to administrative services was 0.7% of the
direct and affiliated assumed premiums written by the Exchange for both three
and six month periods ended June 30, 2022 and 2021. This portion of the
management fee is recognized as revenue over a four-year period representing the
time over which the services are provided. We also report reimbursed costs as
revenues, which are recognized monthly as services are provided. The
administrative services expenses we incur and the related reimbursements we
receive are recorded gross in the Statements of Operations.

Cost of administrative services
By virtue of its legal structure as a reciprocal insurer, the Exchange does not
have any employees or officers. Therefore, it enters into contractual
relationships by and through an attorney-in-fact. Indemnity serves as the
attorney-in-fact on behalf of the Exchange with respect to its administrative
services in accordance with the subscriber's agreement. The Exchange's insurance
subsidiaries also utilize Indemnity for these services in accordance with the
service agreements between each of the subsidiaries and Indemnity. The amounts
incurred for these services are reimbursed to Indemnity at cost in accordance
with the subscriber's agreement and the service agreements.  We record these
reimbursements due from the Exchange and its insurance subsidiaries as a
receivable.
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Total investment income
A summary of the results of our investment operations is as follows:

                                                             Three months ended June 30,                                      Six months ended June 30,
(dollars in thousands)                                2022           2021                % Change                  2022                2021                % Change
                                                         (Unaudited)                                                    (Unaudited)
Net investment income                           $        8,268    $ 13,650           (39.4)    %             $      18,772          $ 30,747           (38.9)    %
Net realized and unrealized investment
(losses) gains                                         (10,324)      2,769                  NM                     (17,603)            3,573            

NM


Net impairment (losses) recoveries
recognized in earnings                                     (38)         (1)                 NM                        (254)               86            

NM


Total investment (loss) income                  $       (2,094)   $ 16,418                  NM %             $         915          $ 34,406           (97.3)    %


NM = not meaningful


Net investment income
Net investment income includes interest and dividends on our fixed maturity and
equity security portfolios and the results of our limited partnership
investments, net of investment expenses. Net investment income decreased $5.4
million in the second quarter of 2022 and $12.0 million for the six months ended
June 30, 2022, compared to the same periods in 2021, primarily due to lower
equity in earnings of limited partnerships. Included in net investment income is
$0.3 million of limited partnership losses in the second quarter of 2022
compared to earnings of $6.2 million for the same period in 2021 and $2.5
million of limited partnership earnings for the six months ended June 30, 2022
compared to earnings of $15.2 million for the same period in 2021.

Net realized and unrealized investment (losses) gains A breakdown of our net realized and unrealized investment (losses) gains is as follows:



                                                    Three months ended June 30,              Six months ended June 30,
(in thousands)                                        2022               2021                  2022                 2021
Securities sold:                                            (Unaudited)                             (Unaudited)
Available-for-sale securities                     $   (2,422)         $    397          $        (4,502)         $  1,880
Equity securities                                        (51)              128                     (409)             (293)
Equity securities change in fair value                (7,851)            2,243                  (12,694)            1,985
Miscellaneous                                              0                 1                        2                 1
Net realized and unrealized investment
(losses) gains                                    $  (10,324)         $  2,769          $       (17,603)         $  3,573




Net realized and unrealized losses during the three and six months ended June
30, 2022 and net realized and unrealized gains for the same periods in 2021 were
primarily due to market value adjustments on equity securities and disposals of
available-for-sale securities.

Net impairment (losses) recoveries recognized in earnings Net impairment (losses) recoveries during the three and six months ended June 30, 2022 and 2021 were primarily related to available-for-sale securities.


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Financial condition of Erie Insurance Exchange
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 through assessing its financial stability and 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
second highest financial strength rating, which is assigned to companies that
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. On July 27, 2021, the outlook for the
financial strength rating was affirmed as stable. As of December 31, 2021, only
approximately 12% of insurance groups, in which the Exchange is included, are
rated A+ or higher.

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 U.S. generally accepted accounting principles. Statutory direct written
premiums of the Exchange and its wholly owned property and casualty subsidiaries
grew 7.8% to $4.3 billion in the first six months of 2022 compared to the first
six months of 2021. 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 $10.6 billion at
June 30, 2022 and $11.7 billion at December 31, 2021. The Exchange and its
wholly owned property and casualty subsidiaries' year-over-year policy retention
ratio continues to be high at 90.3% at June 30, 2022, 90.1% at December 31, 2021
and 89.9% at June 30, 2021.

We have prepared our financial statements considering the financial strength of
the Exchange based on its A.M. Best rating and strong level of surplus. We are
monitoring risks resulting from the COVID-19 pandemic and current economic
environment on an ongoing basis and believe that the Exchange falls within
defined risk tolerances. However, see Part I. Item 1A. "Risk Factors" included
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as
filed with the Securities and Exchange Commission on February 24, 2022 for
possible outcomes that could impact that determination.

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FINANCIAL CONDITION

Investments

Our investment portfolio is managed with the objective of maximizing after-tax returns on a risk-adjusted basis. The following table presents the carrying value of our investments as of:




(dollars in thousands)         June 30, 2022       % to total      December 31, 2021       % to total
                                        (Unaudited)
Fixed maturities              $      889,727             83  %    $          946,085             83  %
Equity securities                     71,448              7                   87,743              8
Agent loans (1)                       70,839              7                   66,368              6
Other investments                     38,298              3                   36,846              3
Total investments             $    1,070,312            100  %    $        1,137,042            100  %

(1)The current portion of agent loans is included with prepaid expenses and other current assets in the Statements of Financial Position.




Fixed maturities
Under our investment strategy, we maintain a fixed maturity portfolio that is of
high quality and well diversified within each market sector.  This investment
strategy also achieves a balanced maturity schedule. Our fixed maturity
portfolio is managed with the goal of achieving reasonable returns while
limiting exposure to risk.

Fixed maturities are carried at fair value with unrealized gains and losses, net
of deferred taxes, included in shareholders' equity. Net unrealized losses on
fixed maturities, net of deferred taxes, totaled $45.7 million at June 30, 2022,
compared to net unrealized gains of $6.2 million at December 31, 2021.

The following table presents a breakdown of the fair value of our fixed maturity portfolio by industry sector and rating as of:



(in thousands)                                                                              June 30, 2022 (1)
                                                                                                                               Non-
                                                                                                                            investment             Fair
                                                   AAA                 AA                 A                 BBB                grade              value
                                                                                                (Unaudited)
Basic materials                                $       0          $       0          $   3,021          $       0          $    6,974          $   9,995
Communications                                         0              8,261              7,957             12,831              14,524             43,573
Consumer                                               0              2,985             15,468             68,705              34,787            121,945
Diversified                                            0                  0                  0                  0               1,405              1,405
Energy                                                 0              3,937              7,223             20,132               7,118             38,410
Financial                                              0                  0             84,231            118,118              14,133            216,482

Industrial                                             0                  0              9,314             15,942              19,871             45,127
Structured securities (2)                        117,557            171,493             22,519             13,885                   0            325,454
Technology                                         4,898                  0              5,410             21,610              11,658             43,576
U.S. Treasury                                          0             11,151                  0                  0                   0             11,151
Utilities                                              0                  0              3,466             24,891               4,252             32,609
Total                                          $ 122,455          $ 197,827          $ 158,609          $ 296,114          $  114,722          $ 889,727

(1)Ratings are supplied by S&P, Moody's, and Fitch. The table is based upon the lowest rating for each security.

(2)Structured securities include residential and commercial mortgage-backed securities, collateralized debt obligations, and asset-backed securities.





Equity securities
Equity securities primarily include nonredeemable preferred stocks and are
carried at fair value in the Statements of Financial Position with all changes
in unrealized gains and losses reflected in the Statements of Operations.

The following table presents an analysis of the fair value of our equity
securities by sector as of:
(in thousands)           June 30, 2022       December 31, 2021
                          (Unaudited)

Consumer                $        2,625      $            3,314

Energy                           4,817                   6,448
Financial services              57,841                  71,722

Utilities                        6,165                   6,259
Total                   $       71,448      $           87,743


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LIQUIDITY AND CAPITAL RESOURCES



We continue to monitor the sufficiency of our liquidity and capital resources
given the potential impact of the ongoing COVID-19 pandemic and recent
geopolitical events and resulting conditions, including rising interest rates
and inflationary costs. While we did not see a significant impact on our sources
or uses of cash in the first half of 2022, future disruptions in the markets
could occur which may affect our liquidity position. If our normal operating and
investing cash activities were to become insufficient to meet future funding
requirements, we believe we have sufficient access to liquidity through our cash
position, liquid marketable securities and our $100 million bank revolving line
of credit that does not expire until October 2026. See broader discussions of
potential risks to our operations in the Operating Overview contained within
this report and Part I. Item 1A. "Risk Factors" included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2021 as filed with the
Securities and Exchange Commission on February 24, 2022.

Sources and Uses of Cash
Liquidity is a measure of a company's ability to generate sufficient cash flows
to meet the short- and long-term cash requirements of its business operations
and growth needs.  Our liquidity requirements have been met primarily by funds
generated from management fee revenue and income from investments.  Cash
provided from these sources is used primarily to fund the costs of our
management operations including commissions, salaries and wages, pension plans,
share repurchases, dividends to shareholders, the purchase and development of
information technology, and other capital expenditures.  The funding policy for
our pension plan 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%. Accordingly, we plan to make a $25 million contribution to our
pension plan during the third quarter of 2022. We expect that our operating cash
needs will be met by funds generated from operations. Cash in excess of our
operating needs is primarily invested in investment grade fixed maturities. As
part of our liquidity review, we regularly evaluate our capital needs based on
current and projected results and consider the potential impacts to our
liquidity, borrowing capacity, financial covenants and capital availability.

Volatility in the financial markets presents challenges to us as we do
occasionally access our investment portfolio as a source of cash.  Some of our
fixed income investments, despite being publicly traded, may be illiquid.
Volatility in these markets could impair our ability to sell certain fixed
income securities or cause such securities to sell at deep discounts. We believe
we have sufficient liquidity to meet our needs from sources other than the
liquidation of securities.

Cash flow activities
The following table provides condensed cash flow information as follows:

                                                      Six months ended June 30,
(in thousands)                                           2022                 2021
                                                             (Unaudited)
Net cash provided by operating activities       $      106,274             $ 127,720
Net cash used in investing activities                  (42,196)             

(35,511)


Net cash used in financing activities                 (157,456)             

(97,411)


Net decrease in cash and cash equivalents       $      (93,378)            $  (5,202)




Net cash provided by operating activities was $106.3 million in the first six
months of 2022, compared to $127.7 million for the same period in 2021.
Decreased cash provided by operating activities was primarily due to an increase
in cash paid for agent commissions of $28.5 million due to higher scheduled
commissions driven by premium growth, an increase in administrative services
expenses paid of $22.9 million and an increase in agent bonuses paid of $11.2
million. Partially offsetting this decrease in cash provided by operating
activities was an increase in management fees received of $33.7 million driven
by growth in direct and affiliated assumed premiums written by the Exchange, and
an increase in administrative services reimbursements received of $16.3 million.

Net cash used in investing activities was $42.2 million in the first six months
of 2022, compared to $35.5 million for the same period in 2021. Net cash used in
investing activities was primarily driven by an increase in loans to agents of
$5.8 million. The increase in purchases of investments was mostly offset by a
similar increase in proceeds from sales and maturities/calls.

Net cash used in financing activities totaled $157.5 million in the first six
months of 2022, compared to $97.4 million for the same period in 2021. The
increase in cash used was primarily due to the repayment of the remaining $93.2
million balance on the term loan in May 2022, partially offset by $40 million in
net proceeds from our bank revolving line of credit.

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Capital Outlook
We regularly prepare forecasts evaluating the current and future cash
requirements for both normal and extreme risk events, including the current
COVID-19 pandemic.  Should an extreme risk event result in a cash requirement
exceeding normal cash flows, we have the ability to meet our future funding
requirements through various alternatives available to us.

Outside of our normal operating and investing cash activities, future funding
requirements could be met through: 1) cash and cash equivalents, which total
approximately $90.3 million at June 30, 2022, 2) $59.1 million available on our
bank revolving line of credit, and 3) liquidation of unpledged assets held in
our investment portfolio, including preferred stock and investment grade bonds,
which totaled approximately $744.1 million at June 30, 2022.  Volatility in the
financial markets could impair our ability to sell certain fixed income
securities or cause such securities to sell at deep discounts.  Additionally, we
have the ability to curtail or modify discretionary cash outlays such as those
related to shareholder dividends and share repurchase activities.

In October 2021, we entered into a new credit agreement with PNC Bank National
Association to provide for a $100 million bank revolving line of credit with a
$25 million letter of credit sublimit that expires on October 29, 2026. As of
June 30, 2022, outstanding borrowings on the line of credit totaled $40 million
and outstanding letters of credit totaled $0.9 million, which reduces
availability under the line of credit and letters of credit to $59.1 million and
$24.1 million, respectively. The outstanding borrowings accrue interest at the
rate of 1.92% per annum and are expected to be repaid by September 30, 2022.
Investments with a fair value of $108.7 million were pledged as collateral on
the line at June 30, 2022. The investments pledged as collateral have no trading
restrictions and are reported as available-for-sale securities and cash and cash
equivalents in the Statement of Financial Position.  The banks require
compliance with certain covenants, which include leverage ratios and debt
restrictions.  We were in compliance with our bank covenants at June 30, 2022.


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CRITICAL ACCOUNTING ESTIMATES



We make estimates and assumptions that have a significant effect on the amounts
and disclosures reported in the financial statements.  The most significant
estimates relate to investment valuation and retirement benefit plans for
employees.  While management believes its estimates are appropriate, the
ultimate amounts may differ from estimates provided.  Our most critical
accounting estimates are described in Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for the year ended
December 31, 2021 of our Annual Report on Form 10-K as filed with the Securities
and Exchange Commission on February 24, 2022.  See Part I, Item 1. "Financial
Statements - Note 5, Fair Value, of Notes to Financial Statements" contained
within this report for additional information on our valuation of investments.

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