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

Thank you, Karen and good morning everyone. We appreciate you joining us on call today. On today’s call management will discuss our third 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 20 minutes, following those remarks we’ll open the call for question. We issued our earnings and additional supplements yesterday afternoon. If you need a copy of the press release or any of the exhibit, you can find these in 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 Erie Indemnity Company will share important information about the current and future initiatives, being undertaken at the company. As a result, certain forward looking statements may be incorporated in to 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 our latest 10-Q filing with the SEC dated October 29, 2009, and in the related press release 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 p.m. eastern time. Your participation on this call will constitute consents to the recording, publication, webcast, broadcast and use of your name, voice and comments by Erie Indemnity, if you do not agree with these terms please disconnect at this time. And now Erie’s President and CEO Terry Cavanaugh. Terry?

Thank you Karen. Good morning and thank you for joining us on today’s call. I’ll begin with a high level review of the quarter, and talk briefly about some current initiatives. Then Marcia will provide more detail on the quarter’s financials. Some key points, I would like to highlight as we move through this discussion. First, the year-over-year comparison and our net and operating income reflects the improvement in the investment markets. I am sure we all are painfully recall, what happened during the third quarter of 2008. I am pleased to say more than a year later, things are getting better. Second, even as the economy shows the first signs of movement towards recovery, high unemployment and a weak consumer spending continue to have a dampening impact on exposures in both personal lines and commercial. This is reflected in the decline in our average premium per policy. And finally, as people continue to look for value and savings they are actively shopping insurance. Erie is seeing benefit from this behavior, as a result of our value proposition which reflected on our polices enforced growth. Now on to our results. Erie has finished the third quarter of 2009 with net income per share of $0.69 compared to $0.07 per share at the close of the third quarter in 2008. Net operating income per share for the third quarter 2009, was $0.66, compared to $0.54 a year ago. Our earnings this quarter were primarily affected by positive earnings from investment operations, the first positive results in four quarters. This again, reflects the strengthening investment markets, as well as improved earnings from our ownership interest and Erie family life. Second, a profitable underlying performance with a GAAP combined ratio of 98.1%. And finally, reduced operating margins and our management operations segment. This…

Thanks, Terry and good morning everyone. Today, I will share a summary of overall results. And additional detail on our management operation, underwriting and investment performance for the third quarter of 2009. Net income was $39.7 million. On a per diluted share basis, net income was $0.69 per share, compared to $0.7 per share in the third quarter of 2008. Net operating income per share was $0.66 per share, compared to $0.54 per share in the same quarter last year. All of our operating segments contributed positively to our net income results for the quarter. So let’s take a look now at each of our operating segments, beginning with management operations. Income before taxes from our management operations was $47.2 million, compared to $49.4 million in the third quarter of 2008. This result for the current quarter was impacted by two primary factors. First, a 2% increase in management fee revenue. And second an increase in operating expenses of 3.6%. The growth in management fee revenue is consistent with a 2% increase and the Profit and Casualty Groups direct written premium. As Terry said, this increase was driven by year-over-year policy enforced growth of 3.4%. This growth in policy volumes offset the decline in average premium per policy of 2.2% from the prior year. Premiums from new business increased 4.8%. And on renewal business premiums were up 1.6%. Majority of the premium increase came from our personal lines. With new business premiums, increasing by 6.5%, and renewal premiums increasing 3.7%. Commercial lines with new business premiums were up 1.1%, while renewal premiums were down 4.5%, reflecting declines and exposures. Given the economic pressures on small and mid-sized businesses is no surprise that we continue to see reductions in commercial average premium for policy especially in workers compensation product as a…

(Operator Instructions). We will take our first question from Michael Phillips with Stifel Nicolaus

Can you talk about personal auto agency bonuses and anything you might be doing there to kind of any changes you might be making to may be spur new business, winning business from larger agencies versus other agencies?

I am going to led George handle the bulk of this. But as we did just recently revise our compensation to agents in the personal automobile line where we’ve gone to a standardized 15% for new business and have worked on a bonus for convergence of that business versus applications to policy. So we think it’s a much more positive formula and it will drive positive results.

We just announced two weeks ago today that we were chasing our (Inaudible) bonus roughly eliminating the current program in February 21, 2010 and replacing it as Terry mentioned a 15% first year auto commission and a 10% fuel commission. We did retain a bonus program that’s roughly based on converting and close that application ratio. There is still a bonus whether or not if [credit reporting] agencies were quoting or writing or qualifying business with Erie employee at a high ratio and so we are very confident that this is going to respond with the desires of our agencies. The gull program was well intended by looking at it.

The current program is competitive so its 50% new, 10% renewed and then the kind of very close to half, how is any of that different than what you currently have?

The old program was strictly based upon a number of new lines submitted and for the first year it was just a $50 bonus and then about 18 months ago we moved to a escalating bonus. And so this one now is indexed to what the revenue is in relationship to the policies so its 15% on the premium per policy and then we have a very attractive bonus plan that will allow those agents that are good at converting business to us to get more money.

Okay so it's not really what I was just trying to get in the beginning of a different structure program for the base on the size of the agency.

No

Fair enough. Going to specific line of business here are workers comp we did strong field in our development it is necessary and what year is that coming from?

Those were from prior years but they are not currently acclaimed.

I mean how far back, it was prior year but 1992 or 1975?

George is saying 4, 5 years.

Okay thank you.

2004

2004, George?

It was revolved around, basically around one claim.

This quarter was all on one claim.

Correct.

It was one workers comp and one other commercial claim.

Okay thank you. And I'll jump off.

Commercial claim was occurred from last year.

Thanks. I will jump off and come back when I need to.

(Operator Instructions) Next we will go to Dan Schlemmer with FPK & Associates.

Hi good morning. Nice quarter, congratulations. Sort of following up on, Michael's, question actually. The favorable development and there it sounds like it was a pretty decent size number but really two claims driving it. Are they actually closed or are you just reevaluating the reserve on them at this point or can you give us a little more color on what caused, what specifically caused you to revalue the claims?

Both of those claims are actually resettled and so the settlement amount was materially lower than the reserve that has been in place for those claims.

Great thank you. And then I hope I didn’t miss it in the early comments. Terry you had talked about last quarter a yearend agency number you were looking for 2100 agencies 9000 representatives. Can you give us a sort of an update are you on track for that as how is that going with adding new agents?

Yeah we are relatively on track with that number we are not quite, we entered as a 2100, it was an annualized number for 2009 so we are a little under that I guess somewhere between 2075 or something like that.

No at the end September, 2056.

2056. And obviously there is a corresponding. The licensed representatives pretty much tag along with the individual agencies that we appoint. So that is a positive number there. The good news is that we continue to get good uplift on all the agents. And we spend a lot of time making sure that we are getting better performance from all 2000. And we’ve done a very good job we think of making sure that the last, I will call it, 400 to 450 there but appointed over the last four or five years are getting the resource that they need to be effective and are producing the numbers that we want. And we are very excited about the prospects going forward.

Great. Thanks. And then Terry sticking with another one of your comments you had said in your prepared remarks today you are talking about people are actively shopping and I guess you know in a weak economy that sort of intuitively what you would expect, what’s your comfort level or how do you think about that as a net benefit. The benefit is of course most people shopping, so you get more look. The downside of course is some of your own insured are looking. And how do you think about that in terms of what the net impact will be or what you are doing to try to capitalize that on a net inflow, outflow basis.

Well, as you can see the good news is that our retention actually is getting better. And so we kind of have the best of both worlds and I think we are a fortunate company that people look at our total value proposition which obviously includes our great distribution system, the service they give our customers on a daily basis in the time that they operate in, our products and our price. And once they get to Erie they find the reason to stay with us. And so I think that’s a win-win proposition. Unlike some companies that struggled with retention.

As a follow up on the retention, in particular, I looked at your personalized numbers and I say they can’t really go higher, can they? You are in the 91, 92% range. I mean do you think, do you have an outlook on that and I see the half and just you can’t go higher but there’s a cap either 100% if you are not going to get there. So what are you thinking about the current retention numbers and is there potential to push that or where is that going, is there anywhere to go but down?

No I think again as you point there’s another 80 points to go up. So it becomes more difficult but again we believe service is a strong part of our culture and we believe that it is very important to be able to look at that number and not be satisfied with it. Those retention numbers are holding but growing a little bit, that’s very important to our model and we are building loyalty in our customers on a daily basis. So it’s a balancing act in terms of all we do for them. But the good news is and I would suggest in some of the toughest economic times that we've had as an industry and as the country, our value proposition is being recognized and we are growing.

Great. Last question, in terms of the cost on the management operations piece jump that sort of came in and I just think I was characterized as contract labor. For those of us that try to model this forward on a forward basis can you comment on what that jump is more specifically and may be how that will look going forward.

I am not going to talk about things going forward.

How about if I ask you, are those costs that are ongoing at this point is that a little favor.

We continue to make investments in our platform. Although I would say, it’s a lumpy spend. So I would not, there’s no big, we are building a business based upon Erie is important but incremental changes and as a result we are not looking for big banks, we are looking to again continue or improve our platform both for our agents and our customers and I think we are very comfortable in terms of how we are spending that money.

Great. Thank you.

(Operator Instructions). We will next go to James Pan with CP&E Partners.

Hi, guys. Thanks for more of a treat than a trick on that, say it in terms of your (inaudible).

You are welcome, James.

Just a broad question, I know that we have been a little less than active in the share repurchase in the last nine months. And that could be understandable given the economic conditions. I was wondering what internal financial conditions or operational conditions that Erie would have to produce or general economic situations on a macro level it would have to happen for you to repurchase your shares. And the only reason I asked it because the last time you repurchased your shares were I think in the 50 we had a five in front of it. And now, your stock is seemingly a lot of lower and then it just seems like a better deal now than it was when obviously had a 50 in it?

James first of all, none of this management team bought any shares with a 50 on it. Okay. So, we have this as a tool in our tool kit. Obviously, you talked about the issues that we have to deal with both internal and external considerations, having to deal with how do we use our cash in the most effective way for the benefit of the organization long-term and for our shareholders. And we look at this on a quarterly basis.

What financial ratios that you are looking at? It just seems that was a pretty, not a very shareholder friendly answer with all due respect, can you be more specific in terms of how you think about it I mean how often you are going to be using the cash flow, basically all your earnings is free cash flow where you can pay back 80% of your earnings either via increased dividends or buybacks what are you going to do with that extra cash?

James this is Marcia I think what I have been trying to say is that we continue to evaluate it and as you know we have authorization for $100 million of share buyback. And on a quarterly basis we do look at it not just on a ratio basis, but on an ongoing basis of the cash flow needs of the entity and that factors in lots of things like our dividend levels looking forward at other growth opportunities that we may have. And as well as the share buyback and so that is something that we actively look at and will continue to look at going forward.

Okay and then you mentioned other growth opportunities, what kind of after tax return when you need for that other growth opportunity versus buying back your shares at these levels, but what type of rate of return would you require?

Clearly that’s something that we continue to look at as far as what is the right level of return based on the different opportunities that are in the market so.

I am asking you that what is the right level of return?

And I am suggesting that it depends upon the opportunity.

Not very inspiring guys' thanks a lot.

We’ll now take a follow up question from Dan Schlemmer.

Yeah sort of following up on my earlier question actually on the PIF and the retention levels You know you do have pretty phenomenal levels on the personal lines and actually they are quite good on commercial as well, but commercial you see more its more flat may be a little bit down versus the personal lines has improved over the last couple of years. Can you sort of is that purely market conditions or is there something else driving that I think we generally the commercial lines might be more competitive, but just curious if that’s the differential in the two or if there’s something else?

You are referring specifically to the commercial lines piece.

Yeah. Well I mean why is the commercial lines the (Inaudible) and the retention level why is it not as good as the personal lines and may be the trend line on the commercial is also not as good as personal.

I think the primary driver would be the economy, in terms of what we see there. I think we also have a more underwriting issues that we deal with on a commercial account when you are trying to sell them, three or four different lines of business and you say historically and in the industry those retention levels have always been greater than personal lines. We are not seeing anything particularly troubling in terms of other issues. It’s just that it’s a tough economy and Mike do you have any other commentary there?

The only thing I would to add to that is there is a pricing floor for the risk you take and sometimes some of our [product] competitor is willing to be a little irresponsible in market place and taking the accounts on new commercials because there’s a larger dollar account as Gary said there’s multiple polices that adds up together.

This is George Lucore. We also in anticipation of a hardening commercial market, we see the ever present phenomena in advance of those expected markets a little bit of soft pricing to acquire business to take advantage of the coming price increases so we are experiencing that as well, despite the fact that businesses may fail, but the people working on this businesses still have their orders and rules and so the person wise retention ratio I think naturally survives to a greater extent in commercial in these kinds of economies.

A lot of good color. Thank you. And then completely changing gears back can you just comment a little bit on the real estate limited partnerships and realizing you don’t have a specific may be forward view on it, but can you tell us a little bit where the loss is coming from or if there is anything specific and may be a little background on how many different partnerships are you involved in and are you seeing a particular trend that the losses are coming from a particular type, particular geography etc.

When you think about our alternative investments we have about $1 billion in investments overall about 64% of that from taxable bonds and taxes in some [of these] markets, I’ll get to your question in a minute. With the balance is in common stock and alternative investment is differed. When you look at our alternative investment portfolio about 44% of its in real estate of which about 60% is in the US and 40% is international. And I would say that overall it's really just the softness from the commercial real estate market related to occupancy rates and other things that are pressuring pretty much across the board and we may have a pretty well diversified real estate portfolio and different types of real estate. But again it’s just that overall commercial real estate pressure based on the economy that we are seeing coming through.

Just if I can clarify are you saying your portfolio is focused on commercial or you are saying the losses in your portfolio are predominantly coming from the commercial portion of your portfolio?

44% of our alternative investments are in commercial real estate.

Okay.

Okay.

Very helpful. Thank you.

Welcome.

And thus time there are no further questions. Ms. Kraus Phillips, please go ahead.

Just a reminder that a recording of the call will be post on our website erieinsurance.com after 12:30 Eastern Time today. If you have any questions at all, please call me at 814-870-4665. And thanks again everyone and make it a great day.

Once again that does conclude our conference for today. Thank you again for your participation.