Hello and welcome to the Erie Indemnity Company's fourth quarter 2007 earnings conference. At the request of Erie Indemnity, this conference is being recorded for instant replay purposes. At this time, all participants are in a listen-only mode. Following prepared remarks from management, we'll open the call for questions and answers. Now, I'd like to introduce your host for today's conference call, Karen Kraus Phillips, Vice President and Manager of Corporate Communications and Investor Relations.

Thank you Antony and good morning. Joining me for today's call are John Brinling, President and CEO, Executive Vice President and Chief Financial Officer, Phil Garcia, and Jim Tanous, Executive Vice President, Secretary and General Counsel. 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 the exhibits, you can find these in the Investor Relations section of our website at erieinsurance.com. We also filed a Form 10-K with the SEC. On today's call, the management of Erie Indemnity Company will share important information about current and future initiatives being undertaken at the company. As a result, certain forward-looking statements may be incorporated into their comments. 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 of the 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 the latest 10-K filing with the SEC dated February 27, 2008 and in a 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 investment 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 consent of Erie Indemnity Company. A replay will be available on our website this afternoon at 12.30 Eastern Time. Your participation on this call will constitute consent to the recording, publication, webcast broadcast, and use of use of your names, voice and comments by Erie Indemnity. if you do not agree with these terms, please disconnect at this time. And now, I will turn the call over to Erie's President and CEO, John Brinling. John?

Thank you Kraus. Good morning everyone. Today, Phil and I will cover the fourth quarter and full-year 2007 results. We will touch on the management changes we announced yesterday and where we see the business headed in 2008. We'll also give you an update on the CEO search. So, let's get started. Erie Indemnity turned in solid results in the fourth quarter, capping off the year with net operating income of $40.9 [ph] million or $0.69 per share. Our net income result was negatively affected by impairments of our securities, which Phil will discuss later in the call. Our revenue from management operations increased by more than 10% and our underwriting operations produced a nearly $5 million underwriting profit. A significant improvement over fourth quarter 2006 result. The fourth quarter 2007 GAAP combined ratio for Indemnity's Property and Casualty subsidiaries was 90.5%, down nearly 10 points from the 2006 fourth quarter, as a result of lower catastrophe losses and better loss development in the fourth quarter of 2007. Net investment income for the quarter was down considerably due in part to our share repurchase activity, which has decreased the funds available for investing. The performance of our limited partnership portfolio turned in a comparable result to the same quarter last year, which was quite strong. As I said, we had $16.8 million of investment impairments during the quarter, which contributed to $12.7 million realized loss for the quarter. Phil will give you more detail on these and other factors affecting our investment results. We ended the year with net operating income of $216 [ph] million. Net operating income per share was up $3.48, up 11.9% form 2006. The primary drivers of this result were strong underwriting and investment operations performance. A higher management fee rate in 2007, 25% compared to…

Thanks John and thanks to all of you for joining us on today's call. First, I will provide you with some highlights of the fourth quarter and talk in detail about certain aspects of our investment portfolios and those of the Erie Insurance Exchange, and then I will briefly discuss our full-year results. As we highlighted in our earnings release, our net income in the fourth quarter of '07 was affected by net realized losses on investments, which included $16.8 million of impairments of securities, as well as some tax adjustments that resulted in a higher effective tax rate. As a result, net income was $32.6 million for the fourth quarter of '07, down from $45.5 million for the same period in '06. Our net income per share diluted decreased to $0.55 per share compared to $0.71 per share last year. However, we matched the strong fourth quarter 2006 net operating income per share of $0.69 per share. I will take a few moments to explain more of the details behind our fourth quarter results, starting with the management operations segment. Our management fee revenue increased 1.1% in the fourth quarter of 2007, primarily because our management fee rate was set at 25% in 2007, compared to 24.75% in 2006. Our management fee revenue, as you know, is based on our direct return premium, which decreased 0.5% in the fourth quarter of '07 compared to the fourth quarter of '06. The decrease was largely a result of premium rate decreases that are designed to enhance our competitive position. The total cost of management operations decreased 0.6% to $189.2 million in the fourth quarter of '07 from $190.3 million in the fourth quarter of '06. Our commission costs increased 1.7% to $132.8 million from $130.6 million in the fourth quarter of…

Ladies and gentlemen, the question-and-answer session will be conducted electronically. [Operator Instructions]. We'll take our first question from Michael Phillips with Stifel Nicolaus.

Good morning, everybody.

Hi, Michael.

Good morning. A couple of questions. First one, is kind of just a high-level strategy question and then a couple of numbers of questions after that. First question, if you would think about your growth strategy, how do you prioritize the two prongs of this of one… putting new agents versus kind of going after the current agency base and helping them grow? You thinking about those two things, does one standout more than the other in your strategy or are they even? What are your thoughts there?

Mike, this is John Brinling. I would say that… divide would be about 50-50 because we are focusing on appointing new agents as you saw the… we anticipate putting 214 this year. But, certainly, with a large base of existing agents and insurance in force, we want to get more business from those existing agents and we're focusing on them as well. So, it’s a two-pronged approach.

Okay. That's understandable, thanks. The more detailed questions. I think last quarter, you said overall plans for '08 in terms of rate action, you thought it would be about neutral on a consolidated basis, I guess, because updates on that? And if we can get details on a specific lines, that will be helpful.

Michael, in the third quarter we reported about $4 million increase, which is really flat for the year from rate actions. If you read the disclosure in the K now, we're down to a minus 9, so that's about a $14 million… $13 million swing, but still flat for the year, for 2008, and pretty much… 2008, our rate filings have pretty much been made for 2008 and so there is no other… no other action so we are going to taking rate wise, they are really going to have a big influence on that 2008 numbers.

If I look at some of your disclosures in the K, comp looks like it’s still kind of coming down, but I couldn't tell what your thoughts were there on say auto and home?

Basically, they're all flat, rate wise across every line of business, comp is flat, auto is flat, home is flat. So, for 2008, we are not going to great any rate. Now that's better than 2007, where the number, as we disclosed, was a minus 85. So, relative to '07, '08 is a good rate year. We are going to get $80 million more in premium.

Okay, thanks. The accelerated bonuses that you paid to the newly recruited agents, can you describe what is that for? You're paying a bonus for them to sign up with you? Since they are new, the is no experience – is that what that is?

Mike, we're one of the few independent agency companies that will help an agent start from scratch. And to do that until they get a book of business established they have got to eat. So, our bonus structure is essentially to subsidize them to get up and running until they have a book of business and renewals that can support them. So, it really is to get them up and running and we found that to be a very effective approach. The agents that we've brought up that way have been very loyal over the years, have stuck with us. So, we think it's a good investment.

Okay. And then finally, any guidance on the tax rate going forward and the growth in non-commission expenses for '08?

Our tax rate, we have some adjustments during the quarter. So, we want to use a tax rate of about 32.7%, 32.8% for our effective tax rate going forward. Expenses, last year, we gave you guidance on expenses, at the end of the first quarter, we plan to do that again. You saw there are non-commission operating expenses for the year grew about five. I was going to use that number. You want to use the number north of that until we give you more specific guidance at the first quarter.

I'm sorry, north of the four.

North of the five. Yes, I think it was 4.6, right?

4.6 right.

For the year. That's pretty low.

Okay.

If I were to give you a number today, which I am not going to, I would give you a little guidance to say you should be north of 4.6 in your forecast.

Okay. That's helpful. Thanks everybody. I appreciate it.

[Operator Instructions]. [inaudible] has our next question.

I was hoping you could give a little bit more background on the average development. It sounds like it's coming from really old claims and I'm just curious. How many claims are we talking about and what's driving the change there on such old claims?

Yes, they are really old claims. Dan, this is Jim Tanous, you haven't been on too many of our calls, but this is something we have disclosed frequently the last year or two. So, we have about 100 claims. They are mostly auto claims. There are some workers’ comp claims that relate to pre-law in Pennsylvania prior to 1986. Basically, we have unlimited liability on these claims. It's about 100 claims. Last year, we took a hard look at the healthcare cost inflation assumption we were using to reserve these claims and we adjusted it upward. So, in the fourth quarter you see that we had some high adverse development on those. We took a hard look at this year-end at the mortality assumption we're using. Again, these are severely impaired people, mostly paraplegics or quadriplegics, the life expectancy of people that have those sorts of injuries are subject to some variation. So, we took a hard look at the mortality assumption that we were assuming for the 100 claimants and we adjusted that upwards. So, what that means is, we adjusted their expected life expectancy upward. The effects of that are washing through our financial statements for the fourth quarter.

Thanks. Great. Thank you. Did you disclose or can you tell us what the adverse or favorable development during the quarter was excluding that specific piece?

That was almost all of it.

Okay. So, essentially flat, excluding that?

Yes.

Okay. Secondly, the retention ratio, the increase in the retention ratio just curious if you can maybe expand on that a little bit. Have you historically seen a pattern to that retention ratio as part of the pricing cycle or do you attribute it to something specifically… or I guess what is your view on what's driving the 89.5 up to 90.2 from '06 to '07, obviously somewhat forward looking, do you have a view?

Well, we think that it's reflective of two things. Obviously, one is the reflection of our competitiveness, our improved position with respect to other competitors. So, price has a piece of it. In terms of a pattern, it's been steadily improving since about the middle of '06, it goes back to '05. The numbers I am looking at right now in terms of private passenger have improved steadily over the quarters. So, that's part of it. The second part is, we're getting very high marks, for example, at J.D. Power in terms of our service. So, it's not just price, it’s people having experience with our company and enjoying the way their claim was handled and staying with us. So, we target retention and improvement in retention. We recognize that every policy we don't lose, is one less we have to replace.

Great. Thank you.

We will now go to Mr. Michael Phillips with Stifel Nicolaus with our next question.

Hey, I'm back sorry. I have two more for you. I'll left this out earlier. What can you share with what you are with seeing competitor rate changes in some of your larger markets?

As I mentioned in my remarks, Mike, for the most part, they are flat. There have been some indications from some of the larger, particularly direct writers that they intend to start taking some rate to avoid underwriting losses, but we haven't yet seen anything dramatic yet. We've seen some indication that they are starting to go up. They certainly have reduced the rate of decline and in most cases flat or going up.

Okay, that’s helpful. Any details you can share on a what you're seeing in loss trends in homeowner [ph] specifically?

I don't have that information with me right now.

Can I call you back?

Yes.

Absolutely, Michael, we will get that for you.

Okay, thanks. That's all I have.

Okay.

And it does appear we have no further questions at this time. I would now like to turn the conference back over to you for any additional or closing remarks.

Before we end the call today, I would like to take a moment to acknowledge Bill Hirt, our former Chairman of the Board, who passed away in July. Bill was a truly great man and leader. He dedicated much of his life to ensure Erie’s success. Bill exemplified our founding value, the golden rule, treating everyone with kindness, respect, and dignity. His perspectives and excellent business sense helped build Erie the company it is today. We truly miss him and are forever grateful to him. Thanks again for joining us on today's call. We look forward to seeing many of you in our annual shareholders’ meeting on April 22.

And 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.

That does conclude our conference for today. We appreciate your attendance and please have a wonderful day.