Karen Kraus Phillips - Corporate Communications Terrence W. Cavanaugh - President and Chief Executive Officer Marcia A. Dall - Executive Vice President and Chief Financial Officer George R. Lucore, CPCU, CIC, LUTCF, AAM, AIC, AIM, AIT - Executive Vice President, Field Operations Michael S. Zavasky, CPCU, CIC, ARe - Executive Vice President, Insurance Operations

Michael Phillips - Stifel Nicolaus

Hello and welcome to the Erie Indemnity Company First Quarter 2009 Earnings Conference. At the request of Erie Indemnity, this conference is being recorded for replay purposes. At this time, all participants are in a listen-only mode. Following prepared remarks of management, we will open the call for questions and answers. Now, I would like to introduce your host for today's conference call, Karen Kraus Phillips, Vice President and Director of Investor Relations.

Thank you, Patrick, and good morning, everyone. We appreciate all of you joining us today. On today's call, management will discuss our first quarter 2009 results. Joining me are Terry Cavanaugh, President and CEO, Marcia Dall, Executive Vice President and Chief Financial Officer, Jim Tanous, Executive Vice President, Secretary and General Counsel, Mike Zavasky, Executive Vice President, Insurance Operations, and George Lucore, Executive Vice President, Field Operations. Today's prepared remarks will be approximately 30 minutes. Following those remarks, we'll open the call for questions. We issued our earnings release and additional supplements yesterday afternoon. If you need a copy of the press release or any of these exhibits, you can find these in the Investor Relations section of our website at erieinsurance.com. We also filed Form 10-Q with the SEC. On today's call, the management of the Erie Indemnity Company will share important information about current and future initiatives being undertaken at the company. As a result, certain forward-looking statements maybe incorporated into their comment. These forward-looking statements reflect the company's current views about future events, and are based on assumptions, subject to known and unknown risks and uncertainties. These risks and uncertainties may cause results to differ materially from those anticipated, as described in those statements. Many other factors that will determine future events or achievements are beyond our ability to control or predict. For information on important factors that may cause such differences, please see the Safe Harbor statements in our latest 10-Q filing with the SEC dated April 30, 2009, and in the related press release and 8-K. In this call, we will discuss some non-GAAP measures. You can find a reconciliation of those measures to GAAP measures in the press release and in the supplement posted on our investor website at erieinsurance.com. This call is being recorded, and the recording is the property of Erie Indemnity Company. It is not intended for reproduction or rebroadcast by any other party, without the prior written consent of Erie Indemnity Company. A replay will be available on our website today at 12:30 PM Eastern Time. Your participation on this call will constitute to consent to the recording, publication, webcast, broadcast, and use of your name, voice and comments by Erie Indemnity. If you do not wish to or agree with these terms, please disconnect at this time. And now Erie's President and CEO, Terry Cavanaugh. Terry? Terrence W. Cavanaugh: Thank you, Karen. Good morning and thanks for joining us this morning. Today Marcia and I will talk briefly about our first quarter 2009 results. And then the entire group will respond to your questions. One of the most significant things that happened during the first quarter was the announcement that Marcia Dall joined Erie at its new Chief Financial Officer. I like to welcome Marcia to our first quarterly call. She and I are both looking forward to meeting with many of you in the months ahead, and of course, seeing you at our upcoming Annual Shareholder's Meeting next Tuesday, May 5. Now, to our first quarter discussion. The impact of the financial market disruption continued through the first quarter of 2009. Net income per share diluted decreased to $0.19, compared to the $0.51 at the end of the first quarter 2008, reflecting the impact of losses from our limited partnership investments, and underwriting losses from increased catastrophes during the quarter. Operating income per share decreased $0.29 at March 31, 2009, compared to $0.78 per share for the same quarter a year earlier. From an underwriting perspective, we experienced two catastrophic events during the first quarter of 2009. These two events contributed nearly eight points to our GAAP combined ratio. The first was the windstorm that hit Ohio and Pennsylvania in February. The second was hailstorm that hit Harrisburg, Pennsylvania in late March. It's during these situations that Erie really shines. I want to commend the agents and employees who worked together, to ensure that our customers were taken care of quickly, affectively and fairly. As expected, rate reductions we took in early 2008 for our personal lines, continued to flow through during the first quarter of 2009, bringing down our average written premium per policy. We expect that to turn during the second quarter, given the rating actions we have taken in the later part of 2008, and thus far, in 2009. Clearly, people are looking for service and financial protection they can count on in this economy. Our operating financial strengths have helped us to continue to attract and retain more customers. Policies increase by more than 3% during the first quarter of 2009, compared to a year earlier, reflecting solid growth in auto and home personal lines. Retention in personal lines continues to climb, and new personal lines policies sold have increased by nearly 6%, compared to first quarter of 2008. The effect of the economy is more evident on our commercial lines, as businesses are making changes to their insurance coverages to reduce cost, and exposure growth has also slowed. These factors have had an impact on top-line premium growth. Commercial policies in force were up more than 2% for the quarter, compared to a year earlier, which is encouraging, but not enough to offset declines in average written premium per policy. We are working closely with our agents to promote our commercial business. And we're beginning to see an increase in commercial activity. During the first quarter of 2009, we appointed 31 new agencies to represent Erie. All of these appointments are in territories where we have opportunity for growth. As we indicated on the fourth quarter call, we expect to appoint 127 new agencies in 2009. In 2008, we appointed 156 new agencies, surpassing our goal of 140 new agency appointments. Before I turn the call over to Marcia, I'd like to touch on expense management. Our long-term goal is to better align the expense growth with premium growth. However, it is imperative that Erie continued to invest in information technology, to further its position in the marketplace. We have appointed a new Senior Vice President of Information Technology, who is in the process of refining our technology governance and processes, with an even more disciplined approach to technology spending. We expect the growth in non-commissioned operating expenses for 2009 will be lower than our original projection. Now, I'll turn the call over to Marcia, who will go through the financial results for the quarter. Marcia A. Dall: Thanks Terry and good morning, everyone. As you know, I joined Erie about a month ago. I am very pleased to be part of the Erie team. And I am looking forward to meeting with many of you in the upcoming months. Today, I will share summary of our broad results, and additional detail on our management operations, underwriting and investment performance. For the first quarter of 2009, net income decreased to 11 million, compared to 30 million in the first quarter of 2008. As Terry mentioned, the earnings decreased in the first quarter was driven primarily by losses from our limited partnership investments and insurance underwriting loses, primarily from increased catastrophic events in the quarter. Losses from limited partnerships, which reflects fourth quarter 2008 activity, was $0.32 per share after-tax for the first quarter, compared to earnings of $0.09 per share after-tax for the first quarter of 2008. Insurance underwriting losses totaled $0.07 per share after-tax for the first quarter, compared to gains of $0.04 per share after-tax in the first quarter of 2008. Now, I'll provide some additional detail on the results of our management operations. Management fee revenue was essentially flat in the first quarter, compared to last year. The management fee rate for both years was 25%. The direct written premium for Property and Casualty Group was flat from the previous year, with growth in policies in force, offset by a decline in average premium per policy. Polices in force grew 3%, reflecting growth of over 124,000 policies year-over-year. Most of this growth was offset by dropping year-over-year average premium per policy. This was not unexpected, as rate reductions we took in 2008, continue to move through our book of business, primarily in our renewal premiums. Premiums from new business increased 4% to 99 million. And strong new business growth in personal lines, was partially offset by a decline in commercial lines' new business. Personal lines new business premiums written grew 12% to 66 million in the first quarter, reflecting solid growth in new policies in force, offset by a slight decline in year-over-year average premium per policy. Our commercial new business premiums written decreased 8% to 33 million in first quarter, reflecting a slight decrease in new policies in force, offset by a marginal increase in the average premium per policy. Premiums generated from the new business were essentially flat year-over-year, reflecting an overall retention ratio -- a higher overall retention ratio, offset by a decline in average renewal premium. The overall retention ratio has been steadily improving, increasing to 12 months moving average of 90.8% in the first quarter, up from 90.6% at December 31, 2008, and up from 90.4% at March 31, 2008. The decline in average renewal premiums reflects the impact of rate reduction taken in early 2008, and slower exposure growth. We expect the pricing actions we have taken in the latter part of 2008 and in 2009, to result in a net increase in direct written premium in 2009. The total cost of management operations increased by almost one point during the first quarter, compared to the first quarter of 2008. Commissions related to our independent agents, which makes up the majority of our management costs, were relatively flat period-to-period. The cost of management operations, excluding commission costs, increased 3% for the first quarter, primarily as a result of higher levels of contract labor costs related to various technology initiatives. Now, I'll provide more detail on the results of our insurance underwriting operations. The GAAP combined ratio for the company was 111% in the first quarter of this year, compared to 92% last year. This resulted in an underwriting loss for the first quarter of 6 million, compared to an underwriting profit of 4 million in 2008. There were three primary drivers of this result. First, catastrophic losses contributed eight points to the GAAP combined ratio. Second, the loss and loss adjustment expense ratio related to the current accident year, excluding cap, was 74% in the first quarter, three points higher than the first quarter 2008. And third, development of higher accident year loss reserves resulted in adverse development of four points in the first quarter, compared to favorable development of five points for the first quarter of 2008. The average development was primarily the result of one large workers compensation claim, combined with increasing loss cost trends on automobile bodily injury, and commercial liability claims. Now, I'll review the results of our investment operations. The company's investment operations recorded a loss of 26 million during the first quarter, compared to a loss of 5 million for the same period in 2008. This was driven primarily, by losses from our investments in limited partnership. As we said previously, there was a quarter lag in the financial statements we received from our general partners, which stated our primary basis for valuation of limited partnership interest. The losses in limited partnerships recorded in the first quarter, represents actual results in the fourth quarter of 2008, which was significantly affected by volatile market conditions. Equity and losses related to our limited partnership investments were 28 million for the first quarter, compared to earnings of 8 million in the first quarter of 2008. These losses were primarily related to investments in real estate limited partnership. Net realized losses on investments in the first quarter totaled 8 million, compared to 25 million in first quarter of 2008. We did see an increase in net investment income for the first quarter, up 7% to 13 million, compared to last year driven by increase bond amortization. And last, related to our investment in Erie Family Life Insurance Company, we reflected a loss of 1.7 million in the first quarter, primarily driven by losses from limited partnership investments in the Erie Family Life Insurance portfolio. We continue to maintain a strong cash position, as cash and cash equivalents totaled 78 million at March 31, 2009. In the first quarter, the company repurchased 42,200 shares of its outstanding Class A common stock at a total cost of 1.2 million, in conjunction with its stock repurchase plan. Approximately 89 million of repurchase authority remains under this plan through June 30, 2009. In summary, the balance sheet of the Erie Indemnity Company and the Erie Insurance Exchange, remains strong and are well-positioned to support our growth. On a personal note, I am delighted to be able to join such a wonderful company. During my short time here, I have met numerous agents, policyholders, employees and business partners, who care deeply for Erie Insurance and they provide the heart and soul that make us such a great company. Karen, we can open the call to questions.

Thank you. Patrick, if you would open the call.

Yes ma'am. [Operator instructions]. And we will take our first question from Michael Phillips with Stifel Nicolaus. Michael Phillips - Stifel Nicolaus: Hi, thanks. Good morning, everybody.

Good morning, Michael. Michael Phillips - Stifel Nicolaus: Good morning to you Marcia. Look forward to meeting you.

Good morning. Michael Phillips - Stifel Nicolaus: First question is on just line item stuff, line of business, one of the stuffs. First on personal lines, but I hear your comments, we know what you did in '08 with your early rate reductions and that are kind of your flipping the switch recently with rate changes there, which is clearly help at some. I think can you just go down with more on some of the details that's put up the personal lines comments and the home and personal. I guess, specifically when I look at the back of your supplements and see the average rates are still down for both the two, moving at kind of the same direction, as you keep moving favorably for both auto and home. But then, when I look at just the overall direct written premium, those two lines are sort of moving in the opposite direction. And trying to help me understand that for a, some of these (ph) don't play well and moving out. And auto is showing that drop in product changes. But what's going behind the scenes between the two? Is that too much that I talked to you about.

No. Michael Phillips - Stifel Nicolaus: Sometimes I do. So, then I get like...

We would follow. I guess, you don't Mike Zavasky would like to take a shot at it, then we can follow-up on that. Michael Phillips - Stifel Nicolaus: Finally, I hook it.

One of the things that's still flowing through rate changes we took in early '08 that are still flowing through in the first quarter, particularly in one of the compensation in Pennsylvania and Maryland. So actually, you are seeing that. So, those changes are bringing out on March 31. So, in the second quarter you will see that start to swing in the other direction.

The other piece that we do sort of have built-in inflation number there into the property business there that allows us and most people, I will say, who are very concerned about there home these days. They want to make sure it's properly insured to value. And we're also having inflation guarantee ability at our renewal to build in the recognition of what it would to cost to replace our homes that we insured. Unlike the auto business, where again, we actually have some people that are instead of buying a new car every four years is now holding on to those automobiles, and may in fact, be dropping coverage as a result of that. Michael Phillips - Stifel Nicolaus: Okay. I think...

You have two different dynamics giving some exposure standpoint that there also. Michael Phillips - Stifel Nicolaus: Right, absolutely. I miss the comment. I am sorry, I miss the comment on the workers comp. Could you say it again?

On workers?

While roughly, we had the rate reductions that took place in the first quarter of '08 that run out in -- by March 31, they ran out. Michael Phillips - Stifel Nicolaus: Okay. And so on comp how much of your -- besides that rate there, but when you think about workers compensations really, is that aligned, you're worried about at all? Is there any kind of conscious thoughts of maybe we need to pullback here given trends and the amount of costs, how do you think about that?

Well, we are always looking at the underwriting trends, and how they correlate to the premium we can achieve in the marketplace. And we adjust our risk appetite based upon what we know the marketplace will enable us to achieve. Workers compensation has been a competitive line, and so we monitor it very carefully. George Lucore, : This is George Luke. I'd like to add that because it is such a competitive line that we have instituted in the 18 months some significant changes on how we manage to claims in workers compensation, because it is such a cost driver. But, we've made significant improvements to claims management process. We've closed nearly 500 old claims out that were totaling, which had a net to positively impact on reserves in that situation. And so, we are managing that much more aggressively, and expect to improve return into the future. Michael Phillips - Stifel Nicolaus: Okay. Thanks for the note, very helpful. Last one from me, and I'll circle back perhaps, I guess. The comment on the non-commission and the IT spending for the year, and how that's probably lower than your initially guidance. Any - and on those, if they're coming up or not, if it is maybe historical, and what he's seeing as priorities and plans for the year, and how that might be different than what was in place before he took over?

Yeah, he is not in the room. So, I'll take it and Mike can certainly handle it all. So, we've got Mike heading up the technology world for us at the executive level. It's not a redirection, it's more of a refinement that we are looking to make sure we spend more money, more effectively. And we are doing a -- we're beginning to do a much more effective job of disciplined vendor management. We are very much more focused on our knowledge transfer to make sure that when you use outside contract labor that that technology and that knowledge is being transferred to our employees. So, we can further that kind of capability going forward. I think we continue to have focus on making sure that ABC portal is going to be build out to be effective. We are very committed to obviously, our agents as our sole distribution method. And the more that we can do for them in terms of making assure that we have an effective portal, both from an underwriting and sales standpoint that will work well for us. We are focusing on more customer contact than a customer portal, as well as then continuing to build out more effective technology capability in the backbone of the underwriting side of the commercial lines arena. We have made some nice strides in terms of personal lines side. And so, I think those are the main points, along with again, getting better at data management, and business intelligence. So, I think that's sort of my commentary at a 25,000 foot level. Mike then, if you want to... Michael Zavasky, : The only thing I would add to that is with a lot more emphasis on project management and the governance process around IT, we are finding we're being a little more effective.

So -- and I will say that the issue we have kind of the way the Indemnity accounts for its expenses, versus again, building technology for the whole enterprise, including the Exchange. Our technology spending can be a bit lumpy from quarter-to-quarter. So, I would also caution the fact that we still have a need, we'll still spend the money. But, I think we'll do it in a much more deliberative matter, where we'll get better bang for our book over the course of the next 24 months. Michael Phillips - Stifel Nicolaus: Okay. Thanks so much. I'll hop out for now. Thanks.

(Operator Instructions). We do have a follow-up question from Michael Phillips with Stifel Nicolaus. Michael Phillips - Stifel Nicolaus: Yeah, it's still me. I'll just hang out all day, this is fine. No, excuse me, just to talk more then. I don't understand the intra-network kind of chat (ph) about this earlier, but, the limited partnership stuff. And just to make those additional spending straight away in this quarter, is that you have to make the $80 million through 2012?

Yeah, go ahead.

Michael, the way I would think about it is, these are funding commitments that existed through 2012. And we continue to work with our partners to monitor the fund performance, and ensure that they are apparently managing those investments that those are not triggered in particular in any one quarter. Michael Phillips - Stifel Nicolaus: All right. So, that's whatever is 80 some million, that's not right away, that's towards the next two or whatever...

That's right, through 2012. Michael Phillips - Stifel Nicolaus: Got you. Okay, thank you. And then, I was first surprised by the amount of income growth in the quarter. And you gave the reason, why. But clearly, about everybody else is seeing. And any thoughts on how that term plays out for the rest of this year?

Yeah, this is really related to amortization and related to some previously impaired bonds that we accept our old income maturity, and where we'll recover all of our principle and related interest. Once the new accounting rules are adopted in second quarter, these increments of bond amortization will go away. So, we would not expect that that trend would continue. Michael Phillips - Stifel Nicolaus: Okay, thanks. And I guess, I'll just wrap it up with this, just Marcia for you, anything in early days you see is kind of just a bit of need to attention, or this is great and designated or just early thoughts?

As I said in my closing, I think the strength of this company is really the all of the employees and all the agents and the policy holders, the strength of their -- the service mission for the company. And I'm really glad to be part of the team. Michael Phillips - Stifel Nicolaus: Okay, good. That's all I have. Thanks Marcia.

Thank you, Michael.

And it appears we have no additional questions at this time. I'd like to turn it back over to management for any closing remarks.

Just a reminder that the recording of the call will be posted on our website erieinsurance.com after 12.30 PM Eastern Time today. If you have any questions at all, as always, please call me at 814-870-4665. Thanks again. And make it a great day.

Thank you.

Thank you.

This concludes today's conference. We thank everyone for their participation.