AM Best Information Services

JUNE 17, 2010 12:00 AM (EDT)

A.M. Best Affirms Ratings of Erie Insurance Group, Erie Family Life Insurance Company and Erie Indemnity Company

Maurice Thomas—P/C
(908) 439-2200, ext. 5794

Raj Shah—L/H
(908) 439-2200, ext. 5409

Public Relations
Rachelle Morrow
(908) 439-2200, ext. 5378

Jim Peavy
(908) 439-2200, ext. 5644


OLDWICK, N.J. - JUNE 17, 2010 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of "aa-" of Erie Insurance Group (Erie) and its property/casualty members. Concurrently, A.M. Best has affirmed the ICR of "a+" of Erie's management company, Erie Indemnity Company (Erie Indemnity) [NASDAQ: ERIE].

Additionally, A.M. Best has affirmed the FSR of A (Excellent) and ICR of "a" of Erie's life affiliate, Erie Family Life Insurance Company (Erie Family Life). All companies are domiciled in Erie, PA. The outlook for all ratings is stable. (See below for a detailed list of the companies.)

The rating affirmations reflect Erie's superior risk-adjusted capitalization, strong long-term operating performance and well established regional market presence. The group benefits from the strength of its balance sheet, its high service reputation and agency partnering approach, which helps to strengthen agency loyalty. Also, Erie maintains prudent risk management capabilities and continues to enhance its effective enterprise risk management process, which identifies measures and monitors existing and emerging risks.

Somewhat offsetting these positive rating attributes are Erie's geographic business concentration, which subjects its earnings to weather-related catastrophe losses. As part of its catastrophe management approach, Erie utilizes catastrophe modeling and establishes risk limits to control catastrophic loss exposures. In 2009, the group's underwriting results remained profitable despite challenging economic conditions. Pricing sophistication, market segmentation and technology enhancements were all key factors driving this result. Erie's operating results in 2009 further benefited from a fairly light catastrophe season coupled with recovery from the financial markets. As a result, surplus grew over 11% to $4.8 billion from $4.3 billion in the prior year.

The affirmation of the ICR for Erie Indemnity recognizes its sound financial position, with income derived primarily from management fee and service agreement revenue, which is partially offset by management operating costs. Management fees are paid by Erie Insurance Exchange and are based upon the management fee rate, determined by Erie's board of directors. The management fee rate was set at 25%, the maximum rate for both 2009 and 2008. The management fee rate for 2010 again has been set at the maximum rate of 25%. Erie Indemnity serves as attorney-in-fact for the insurance operations, with approximately $928 million in shareholders' equity and no long-term debt obligations as of March 2010.

The affirmation of Erie Family Life's ratings acknowledges its integral position within Erie as evidenced by a substantial cash contribution to the company in 2009, consistent positive statutory operating results and favorable level of risk-adjusted capitalization based on Best's Capital Adequacy Ratio. Partially offsetting these positive rating factors are Erie Family Life's large exposure to interest-sensitive fixed annuities and the recent sizable capital losses from its investment portfolio.

The FSR of A+ (Superior) and ICRs of "aa-" have been affirmed for Erie Insurance Group and its following property/casualty members:

- Erie Insurance Exchange

- Erie Insurance Company

- Erie Insurance Company of New York

- Erie Insurance Property & Casualty Company

- Flagship City Insurance Company

For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit Best's Ratings & Analysis.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at Best's Credit Rating Methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.

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