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FORM 10-K

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		(NO FEE REQUIRED)
		For the fiscal year ended December 31, 2002
		OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		[NO FEE REQUIRED]
		For the transition period from ________ to

Commission File Number 2-39458

ERIE FAMILY LIFE INSURANCE COMPANY

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.40 par value

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

          Yes x      No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Company’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

           Yes ___     No  x

Indicate the number of shares outstanding of each of the Company’s classes of common stock, as of the latest practicable date: 9,450,000 shares of Common Stock outstanding on February 28, 2003.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Company’s Annual Report to shareholders for the fiscal year ended December 31, 2002 (the “Annual Report”) are incorporated by reference into Parts II and III of this Form 10-K Report.

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INDEX

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PART I

ITEM 1.  BUSINESS

		Erie Family Life Insurance Company (hereinafter referred to as the “Company” or “Erie Family Life”) is incorporated in the Commonwealth of Pennsylvania and is primarily engaged in the business of underwriting and selling nonparticipating individual and group life insurance policies, including universal life, annuity and disability income products.
		The Company is owned 21.6% by the Erie Indemnity Company (EIC), 53.5% by the Erie Insurance Exchange (Exchange) and the remaining 24.9% by public shareholders, who are predominantly directors, agents and employees of EIC. EIC is a Pennsylvania business corporation formed in 1925 to be the attorney-in-fact for the Exchange, a Pennsylvania-domiciled reciprocal insurance exchange. EIC, as attorney-in-fact, has a fiduciary duty to act in this capacity on behalf of the policyholders of the Exchange in addition to a fiduciary duty to its own shareholders. EIC operates predominantly as a provider of sales, underwriting and policy issuance services to the Exchange. EIC also is engaged in the property/casualty insurance business through its wholly owned subsidiaries, Erie Insurance Company, Erie Insurance Company of New York and Erie Insurance Property & Casualty Company and through a subsidiary of the Exchange, Flagship City Insurance Company. The Company, EIC, the Exchange and its subsidiary and affiliates operate collectively under the name “Erie Insurance Group.”

Products

		The Company’s portfolio of life insurance includes permanent life, endowment and term policies, including whole life, mortgage and decreasing term, group, and universal life insurance. In terms of face value, new life business issued in 2002, 2001 and 2000 had a ratio of 11:1, 8:1 and 8:1, respectively, of term insurance to whole life insurance coverage. Contributing to the increase in this ratio has been the introduction of three new term life insurance products since late 1999. The ERIE Flagship TermSM, introduced in late 1999, was designed for sale of face amounts of $300,000 and above. In late 2001, the Company rolled out its two newest products – ERIE Target TermSM and ERIE Flagship Term2SM. The ERIE Target Term product has a minimum face amount of $100,000 and offers rate guarantees for 10 years on all plans. The ERIE Flagship Term2, now Erie Family Life’s most comprehensive term insurance plan for individuals desiring substantial coverage, offers a minimum face amount of $100,000 and replaced the ERIE Flagship Term product for new policy sales after October 1, 2001.
		Life insurance premiums and annuity deposits have been the primary sources of cash inflows for the Company. Net life insurance premiums by class, as a percentage of total sales, are as follows:

Certain elements of revenue and expense reflect the requirements of Financial Accounting Standard (FAS) 97. FAS 97 prescribes a uniform method by which life insurance companies record certain long-term contracts, specifically annuities, universal life, and other interest-sensitive products. This method involves separating the premium income into the “premium” portion (shown in revenue) which represents insurance protection purchased, and the “deposit” portion, which represents funds to be held at interest for future uses. Under this standard, the “deposit” portion of the premium received is accounted for using methods applicable to comparable “interest bearing obligations” of other types of financial institutions. Annuity product offerings compete with other available investment products including, but not limited to, common and preferred stocks, bonds, mutual funds and other instruments. The Company’s ability to attract policyholders depends in large part on the relative attractiveness of its products compared to other investment alternatives available. Factors such as the interest rate environment and the performance of the stock market influence this ability.

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		The Erie Insurance Group affiliated property and casualty insurance companies periodically purchase annuities from the Company in connection with the structured settlement of claims. Considerations recorded as annuity deposits in the Company’s Statements of Financial Position from structured settlement annuities sold to affiliated property/casualty companies totaled $18,563,579, $12,878,769 and $16,167,642 in 2002, 2001, and 2000, respectively. Also included in the annuity deposits are annuity contracts purchased by the Erie Insurance Group Retirement Plan for Employees. These annuity contracts totaled $148,705 in 2002, $4,513,441 in 2001 and $5,626,892 in 2000. Due to the current interest rate environment, the Erie Insurance Group Retirement Plan for employees reduced the annuities purchased from the Company in 2002.
		Deposits by class are as follows:

		The Company reinsures a portion of its business under a number of different reinsurance agreements. The purpose of this reinsurance is to enable the Company to write a policy in an amount larger than the Company is willing to assume for itself. The Company currently reinsures with other insurance companies the portion of the insurance coverage above desired retentions. The retention limit on an acceptable risk is generally $300,000 per life for individual coverage. For its disability income product, the Company has a 50% coinsurance agreement with a nonaffiliated reinsurer. The Company has a 50% coinsurance agreement, with a maximum retention of $300,000, with nonaffiliated reinsurers for its ERIE Flagship TermSM and ERIE Flagship Term2SM products. For its Erie Target TermSM product, the Company has a 90% coinsurance agreement, with a maximum retention of $300,000, with nonaffiliated reinsurers.
		Life insurance in force totaled $23.2 billion, $18.9 billion and $16.5 billion at December 31, 2002, 2001 and 2000, respectively. As of December 31, 2002, 2001 and 2000, $7.0 billion, $4.1 billion and $2.6 billion, respectively, of life insurance in force was ceded to other companies. The Company’s most significant reinsurance business is with Business Men’s Assurance Company of America (BMA), which reinsures a portion of the Company’s life and accident and health business. At December 31, 2002, 2001 and 2000, the amount of in force life insurance ceded to BMA totaled approximately $4.2 billion, $2.7 billion and $1.3 billion, respectively.

Marketing

 

The Company markets its products through independent agents in eleven jurisdictions. The 2002 statutory direct premiums and annuity considerations for those jurisdictions is made up of: Pennsylvania (62.5%), Virginia (9.6%), Maryland (6.0%), Ohio (5.6%) and North Carolina (5.0%). West Virginia, Indiana, Tennessee, Illinois, Wisconsin and the District of Columbia together accounted for 9.2% of direct premiums and annuity considerations. The policies sold are evaluated by the Company’s Underwriting Department which accepts or declines applicants for insurance. Premium on policies which are accepted may be standard or rated, depending on the nature of the risk.

Competition

The Company operates in a highly competitive industry which consists of numerous stock and mutual life insurance companies. A large number of established insurance companies compete in states in which the Company transacts business and many of these companies offer more diversified lines of insurance coverage and have substantially greater financial resources than does the Company. Competition is based primarily on price, product features, availability of insurance products and the financial strength of the Company.

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		Congress is considering legislation that would create an optional federal charter for insurers. The Insurance Industry Modernization Act would establish an Office of National Insurers within the Treasury Department. The office would have the power to charter, license and regulate “national insurers” and its director would be required to establish a Division of Consumer Affairs within the office. The proposed legislation would repeal the McCarran-Ferguson Act, except for the sharing of historical loss data and activities associated with participation in mandatory residual market and workers’ compensation mechanisms.
		Federal chartering has the potential to create an uneven playing field for insurers. Federally chartered companies could be subject to different regulatory requirements than state chartered insurers in the areas of market conduct oversight, solvency regulation, guaranty fund participation and premium tax burdens. If this occurs, federally chartered insurers may obtain a competitive advantage over state licensed carriers. The federal proposal also raises the specter of a matrix of regulation and costly duplicative, or conflicting, federal and state requirements. The repeal of the McCarran-Ferguson Act and its partial exemption for the insurance industry from federal antitrust laws would make it extremely difficult for insurers to compile and share loss data, develop standard policy forms and manuals and predict future loss costs.

Insurance Liabilities

		The Company establishes and maintains actuarial reserves to meet its obligations on life insurance, disability income, and annuity policies. These reserves are amounts which, with additions from premiums to be received on outstanding policies and with interest on such reserves compounded annually at certain assumed rates, are calculated to be sufficient to meet policy obligations at death, disability or maturity in accordance with the mortality and morbidity assumptions employed when the policies are issued.
		Reserves for life insurance and income-paying annuity future policy benefits have been computed primarily by the net level premium method with assumptions as to anticipated mortality, withdrawals, lapses and investment yields. Disability income reserves are calculated as two-year preliminary term mid-terminal reserves plus unearned premium reserves. Deferred annuity future policy benefit liabilities have been established at accumulated values without reduction for surrender charges. Reserves for universal life and deposit contracts are based on the contract account balance, if future benefit payments in excess of the account balance are not guaranteed, or the present value of future benefit payments when such payments are guaranteed. Variations are inherent in such calculations due to the estimates and assumptions necessary in the calculations. Interest rate assumptions for non-interest sensitive life insurance range from 3.5% to 4.0% on policies issued in 1980 and prior years and 6.0% to 7.25% on policies issued in 1981 and subsequent years. Mortality and withdrawal assumptions are based on tables typically used in the industry, modified to reflect actual experience where appropriate.
		Universal life and annuity deposits are credited with varying interest rates determined at the discretion of the Company subject to certain minimums. During 2002, interest rates credited ranged from 5.25% to 6.75% on universal life deposits and 4.00% to 6.00% on annuity deposits.

Government Regulation

		The Company is subject to the corporate governance standards set forth in the recently enacted Sarbanes-Oxley Act of 2002 and other recent changes to the federal securities laws, as well as any rules or regulations that may be promulgated by the Securities and Exchange Commission or the Nasdaq Stock MarketSM. Compliance with these standards, rules and regulations, as well as with accelerated filing requirements that have recently been enacted, impose additional administrative costs and burdens on the Company.
		The Sarbanes-Oxley Act of 2002 (Act) was designed to better protect investors by improving the accuracy and reliability of public company disclosures. Some requirements of the Act were effective immediately while others are scheduled to become effective throughout 2003. Management has initiated the appropriate process both within the Company and with the Board of Directors to ensure timely compliance with the requirements. New requirements introduced by the Act are projected to become effective in 2003.

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		The Company is also subject to supervision and regulation by the insurance departments of the states in which it does business. Although the extent of the regulation varies from state to state, generally the supervisory agencies are vested with broad regulatory powers relating to the granting and revocation of licenses to transact business, regulation of trade practices, licensing of agents, approval of policy forms, deposits of securities as for the benefits of policy owners, and investments and maintenance of specified reserves and capital, all designed primarily for the protection of policy owners. In accordance with the rules of the National Association of Insurance Commissioners (NAIC), the Company is examined periodically by one or more of the state supervisory agencies. The last completed examination of the Company was conducted by the Pennsylvania Insurance Department and covered the five years ended December 31, 2000.
		The Commonwealth of Pennsylvania follows the statutory accounting practices minimum risk-based capital requirements on domestic insurance companies that were developed by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. The formulas for determining the amount of risk-based capital specify various weighing factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. These formulas determine a ratio of the company’s regulatory total adjusted capital to its authorized control level risk-based capital, as defined by the NAIC.
		The NAIC levels and ratios are as follows:

		Erie Family Life has regulatory total adjusted capital of almost $94.6 million and a ratio of total adjusted capital to authorized control level risk-based capital of more than 5:1 at December 31, 2002. The Company’s ratios significantly exceed the minimum NAIC risk-based capital requirements.
		The NAIC adopted the Codification of Statutory Accounting Practices (Codification), effective January 1, 2001, as the NAIC-supported basis of accounting. The Codification was approved with a provision allowing for prescribed or permitted accounting practices to be determined by each states’ insurance commissioner. Accordingly, such discretion will continue to allow prescribed or permitted accounting practices that may differ from state to state. The Company follows complete NAIC statutory accounting practices, with no permitted or prescribed deviations from the Pennsylvania Insurance Department.

Employees

Services of 145 full-time employees are provided through EIC. Five of the employees are officers. Employee expenses along with other operating expenses are paid by EIC and reimbursed by the Company on a monthly basis. None of the employees are covered by collective bargaining agreements and the Company believes its employee relations are good.

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995: Certain forward-looking statements contained herein involve risks and uncertainties. These statements include certain discussions relating to underwriting, premium and investment income volume, business strategies, profitability and business relationships and the Company’s other business activities during 2002 and beyond. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential” and similar expressions. These forward-looking statements reflect the Company’s current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that may cause results to differ materially from those anticipated in those statements. Many of the factors that will determine future events or achievements are beyond our ability to control or predict.

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ITEM 2.  PROPERTIES

The Company owns real property for investment purposes as provided in Schedule I “Summary of Investments other than Investments in Related Parties.” This investment property, located in Allentown, Pennsylvania, is leased to EIC and a nonaffiliated business. Rental income for 2002 was $396,000. The executive and administrative offices of the Company are located in the headquarters office of Erie Insurance Group in Erie, Pennsylvania. The Company pays other members of the Erie Insurance Group an amount determined by an agreement for office space and for the use of facilities, equipment and services.

ITEM 3.  LEGAL PROCEEDINGS

The Company is not involved in any material pending legal proceedings other than ordinary routine litigation incidental to its business.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted for a vote to shareholders during the fourth quarter of 2002.

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PART II

ITEM 5.  MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

The information set forth in the “Market for the Registrant’s Common Stock and Related Shareholder Matters” section of the Company’s 2002 Annual Report with respect to dividends declared to shareholders, is incorporated herein by reference.

The Company’s common stock is traded on the OTC Bulletin Board (OTCBB) under the symbol “ERIF.”

The following sets forth the range of high and low closing prices of the Company’s stock by quarter:

The amount of dividends the Company can pay to its shareholders without the prior approval of the Pennsylvania Insurance Commissioner is limited by statute to the greater of: (a) 10 percent of its statutory surplus as regards policyholders as shown on its last annual statement on file with the commissioner, or (b) the net income as reported for the period covered by such annual statement, but shall not include pro rata distribution of any class of the insurer’s own securities. Accordingly, the maximum dividend payout which may be made in 2003 without prior Pennsylvania Commissioner approval is $8,953,893. This limitation could restrict the amount of dividends the Company can declare in 2003.

ITEM 6.  SELECTED FINANCIAL DATA

The information set forth in the “Selected Financial Data” section of the Company’s 2002 Annual Report is incorporated herein by reference.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information set forth in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Company’s 2002 Annual Report is incorporated herein by reference.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Company’s 2002 Annual Report is incorporated herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The 2002 Financial Statements and the Company’s Independent Auditors’ Report set forth in the “Report of Management” section of the Company’s 2002 Annual Report are incorporated herein by reference, as is the unaudited information set forth in the Notes to the Financial Statements under the caption “Quarterly Results of Operations (Unaudited).”

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ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On September 10, 2002, the Erie Family Life Insurance Company’s Audit Committee selected Ernst & Young, LLP to be the Company’s independent accountants to audit the Company’s 2003 Financial Statements. On March 28, 2003, Ernst & Young, LLP will be engaged as the Company’s independent auditors. On March 27, 2003, Malin, Bergquist & Company, LLP was dismissed as the Company’s independent auditors.

The Audit Committee of the Company annually considers the selection of the Company’s independent auditors. In previous years, the Audit Committee would recommend the appointment of the independent auditors to the Company’s Board of Directors for shareholder ratification. At its meeting of September 9, 2002, the Company’s Board of Directors amended the Bylaws of the Company consistent with the provisions of the Sarbanes-Oxley Act of 2002, to give the Audit Committee sole authority to engage the Company’s independent auditors.

Malin, Bergquist & Company, LLP’s reports on the Company’s financial statements for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the two most recent fiscal years and any subsequent interim period preceding the date of this Form 10-K, (i) there were no disagreements with Malin, Bergquist & Company, LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Malin, Bergquist & Company, LLP, would have caused Malin, Bergquist & Company, LLP to make a reference to the subject matter of the disagreement in connection with its report in the financial statements for such years, and (ii) there were no reportable events as defined in Item 304 of Regulation S-K.

The Company has provided Malin, Bergquist & Company, LLP with a copy of the disclosure in this Item 9 and has requested that Malin, Bergquist & Company, LLP furnish the Company with a letter to update the letter previously provided pursuant to Item 304(a)(3) of Regulation S-K, which was included as Exhibit 16 to the Company’s Form 8-K dated September 13, 2002. The updated letter is included as Exhibit 16 to this Form 10-K.

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PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors are elected to one year terms at the Company’s annual meeting of Shareholders. Following are the Company’s officers and directors:

¹ Member of Executive Committee
²  Member of Audit Committee
³  Member of Executive Compensation and Development Committee
⁴  Member of Nominating Committee
⁵  Member of Investment Committee
^C Committee Chairman

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¹  Member of Executive Committee
²  Member of Audit Committee
³  Member of Executive Compensation and Development Committee
^*  F. William Hirt is the brother of Susan Hirt Hagen
^C Committee Chairman

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¹  Member of Executive Committee
⁴  Member of Nominating Committee
⁵  Member of Investment Committee
^C Committee Chairman

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²  Member of Audit Committee
³  Member of Executive Compensation and Development Committee
⁴  Member of Nominating Committee
⁵  Member of Investment Committee
^C Committee Chairman

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ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The Company is a member of an insurance holding company system pursuant to Pennsylvania law under which insurance companies are required to have nominating, audit and executive compensation committees composed solely of directors who are not officers, employees or controlling shareholders of the Company or any entity controlling the Company. Insurance companies can satisfy this requirement if the insurance company is controlled by an insurer or a publicly held corporation that has committees that comply with this requirement. Erie Indemnity Company (EIC), holder of 21.6% of the Company’s stock directly and 53.5% of the Company’s stock as attorney-in-fact for the Exchange, has committees which meet these requirements.

The following table sets forth the compensation during each of the three fiscal years ended December 31, 2002, 2001, and 2000, awarded to, earned by or paid to the Chief Executive Officer and the four other most highly compensated executive officers during 2002 for services rendered in all capacities to the Company, EIC, the Exchange and their subsidiaries and affiliates. The executive and senior officers of the Company also participate in certain pension and deferred compensation plans of EIC. All amounts presented in the Executive Compensation section, herein, are total payments received and earned for all entities of the Erie Insurance Group, a portion of which is borne by Erie Family Life based on allocation of the respective work efforts of the executive officer. All amounts exhibited are before individual income taxes.