UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

For the quarterly period ended March 31, 2004

OR

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

For the transition period from                     to                    

Commission file number 2-39458

ERIE FAMILY LIFE INSURANCE COMPANY

Not applicable

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

     Yes  X       No      

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

     Yes            No  X 

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: 9,450,000 shares of Common Stock outstanding on May 10, 2004.

1

INDEX

ERIE FAMILY LIFE INSURANCE COMPANY

2

PART I. FINANCIAL INFORMATION

ERIE FAMILY LIFE INSURANCE COMPANY

3

ERIE FAMILY LIFE INSURANCE COMPANY
STATEMENTS OF FINANCIAL POSITION

4

ERIE FAMILY LIFE INSURANCE COMPANY

5

ERIE FAMILY LIFE INSURANCE COMPANY

6

ERIE FAMILY LIFE INSURANCE COMPANY

7

ERIE FAMILY LIFE INSURANCE COMPANY

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in conformity with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accrual) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on March 8, 2004.

NOTE B — RECLASSIFICATIONS

Certain amounts previously reported in the 2003 financial statements have been reclassified to conform to the current period’s presentation. Such reclassifications did not impact earnings or total Shareholders’ Equity.

NOTE C — INVESTMENTS

At March 31, 2004 and 2003, marketable equity securities consist of nonredeemable preferred stock while fixed maturities consist of bonds, notes and redeemable preferred stock. Management considers all fixed maturities as available-for-sale. Management determines the appropriate classification of fixed maturities at the time of purchase and reevaluates such designation as of each statement of financial position date. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of deferred federal income taxes, reported as a separate component of Comprehensive Income and Shareholders’ Equity.

8

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

NOTE C — INVESTMENTS (Continued)

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

9

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

NOTE C — INVESTMENTS (Continued)

Realized gains and losses on the sales of investments are recognized in income using the specific identification method. Investments that have declined in value below cost and for which the decline is considered to be other-than-temporary by management are written down to estimated realizable value. The impairments are made on an individual security basis and are recorded as a component of net realized gains on investments in the Statements of Operations.

The components of net realized gains on investments as reported in the Statements of Operations are included below. There were no impairment charges recorded in the first quarter of 2004.

Included in the first quarter of 2003 gross realized losses are impairment charges of $3.5 million related to fixed maturities.

10

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

NOTE C — INVESTMENTS (Continued)

The gross unrealized losses at March 31, 2004 span the various investment categories of fixed maturities and equity securities. The gross unrealized losses are aged as follows:

The Company participates in a securities lending program whereby certain securities from its portfolio are loaned to other institutions for short periods of time. A fee is paid to the Company by the borrower. Company policy requires collateral equal to 102% of the fair value of the loaned securities. The Company maintains full ownership rights to the securities loaned and continues to earn interest on them. In addition, the Company has the ability to sell the securities while they are on loan. The Company has an indemnification agreement with the lending agent in the event a borrower becomes insolvent or fails to return securities. Securities lending collateral is recorded by the Company as a liability. The proceeds from the collateral are invested in cash and short-term investments and are reported on the Statements of Financial Position as cash and cash equivalents. The Company shares a portion of the interest received on these short-term investments with the lending agent. Revenue received for the three months ended March 31, 2004 and 2003, related to this program totaled $28 and $21, respectively.

The Company had loaned securities with a market value of $77.5 million and $64.1 million and secured collateral of $79.2 million and $65.5 million at March 31, 2004 and December 31, 2003, respectively. The Company records the loaned securities on its Statements of Financial Position as part of its invested assets. The Company has incurred no losses on the loan program since the program’s inception.

11

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

NOTE C — INVESTMENTS (Continued)

Limited partnerships at March 31, 2004 include U.S. and foreign real estate and mezzanine debt investments. Real estate limited partnerships represent 91.0%, while mezzanine debt limited partnerships represent 9.0%, of the total carrying value at March 31, 2004. These partnerships are recorded using the equity method. The Company has not guaranteed any of the partnership liabilities.

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

NOTE D — DEFERRED POLICY ACQUISITION COST (DAC) ASSET

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

The DAC on traditional life insurance products is amortized in relation to estimated gross premiums in accordance with FAS 60. The DAC on the annuity and universal life products is amortized in relation to estimated gross profits in accordance with FAS 97.

In the third quarter of 2003 the Company began adjusting the unamortized balance of DAC for the impact on estimated future gross profits as if net unrealized appreciation and depreciation on investments had been realized as of the balance sheet date. The impact of this adjustment, net of tax, is included in Accumulated Other Comprehensive Income in Shareholders’ Equity. As of March 31, 2004, the adjustment to DAC resulting from this change in unrealized investment gains was $20.1 million. The amount charged to Accumulated Other Comprehensive Income was $13.1 million, net of $7.0 million of tax.

During the first quarter of 2004, management of EFL, in response to the material weakness in internal control over accounting for DAC that was reported in the Company’s 2003 Annual Report on Form 10-K, continued its’ evaluation of its’ DAC accounting processes. See Item 4 of Part I of this Form 10-Q report for further discussion of this matter.

12

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

NOTE E — SEGMENT INFORMATION

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