Key questions and answers from the first quarter fiscal 2008 earnings call conducted by Erie Indemnity Co on May 1, 2008.

Michael Phillips (Stifel Nicolaus): On the new policy administration system and impact on non-commission expenses, what are the benefits of the new system? How you think about the increasing expenses there in light of what that might to do the margins in 2008?

John J. Brinling, Jr.: There are a number of things that we would like to progress to, and principal among them is a real-time system. The system that we have right now is a batch system, meaning that the processing is done overnight in a batch. That causes some problems in terms of doing multiple changes that are done in sequence, they need to be done overnight, and it spreads it out over a couple of day, where more modern technology would give us real time, so we could do those sequentially in no time at all. There's also other benefits that we'd realize, particularly in terms of interface with our agents being able to download to their systems and so forth. There's a number of functional things that we would benefit from, and quite frankly, some improved processes that would allow us to operate much more efficiently with less person power at the home office. We could gain some financial advantages by reducing personnel here in the processing area and be able to service our policyholders and agents more efficiently.

Michael Phillips (Stifel Nicolaus): You did mention agent bonuses down a bit this quarter. They're based on a three-year profitability. I assume 2008 means 2008 minus two years; is that correct?

John J. Brinling, Jr.: Yes. They're on a three-year rolling and we're this year looking at the three best years in our history. Our projections are that our loss experience will deteriorate some, which will bring the most recent year down. There's also a change in the way we handle our life bonuses, and those were paid through the Indemnity Company in the past and reimbursed by the Life Company, and we've changed that. That's affecting the change as well.

Michael Phillips (Stifel Nicolaus): You mentioned that you expected rate reductions to continue to be solid in 2008. Can you talk about the magnitude of how that's going to continue in 2008 versus what we saw in 2007 as far as rate reductions?

Philip A. Garcia: The changes that we announced were modest. At yearend, we said that we thought our rate changes for 2008 would be a minus $8 million, which is nothing on a $4 billion premium base. We've extended that to $23 million and there is a $15 million delta there. It's due to some rate decreases that were mandated in Maryland Home that we had to take, and some minor work comp changes we had to take in Pennsylvania because of the Bureau. It was the loss comp adjustment for the Work Comp Bureau in Pennsylvania. It's still only $23 million out of $4 billion. It's a modest decline. You saw in our forward-looking comments around 2009 that we're thinking about a 2% to 3% average rate increase in 2009.

Dan Schlemmer (Fox-Pitt Kelton): On the rates, can you give us a little more breakdownby line, and if there's any upward pricing or if it's all downward? In particular, can you give a little background on whether your rate actions are mostly you think mirroring the market or if it's a response to market or what, how it fits in across the general market conditions?

John J. Brinling, Jr.: The rate actions we take now really don't kick in until 2009 and beyond. We're looking overall at a rather modest increase in the neighborhood of 3% looking into 2009 and 2010. That's just keeping up with inflation. I would say that we're somewhat reflecting the market. We're certainly not leading it in terms of rate increases, but particularly after three years of significant rate decrease, we see that leveling off.

Dan Schlemmer (Fox-Pitt Kelton): Your policy retention numbers have somewhat favorable trend. What you attribute the underlying causes, whether it's rate or agent incentives or the overall market? Can you give your view on the changes in those policy retention and the underlying causes?

John J. Brinling, Jr.: I'd like to think that principal among it is our service. We focus on giving above all in service to our policyholders have gotten a lot of positive comments in a recent Newsweek and on JD Power. Our policyholders are satisfied with the claim and non-claim service that they're receiving. But I think second of all, there's less shopping going on. Customers are not being shocked by rate increases, so they're not spending as much time shopping the market for price, and with the anticipation of switching. It's a combination of our rate reductions and the fact that they're satisfied with our service, and overall in the marketplace softening and less shopping going on.

Ron Bobman (Capital Returns): What is the mix of new business? Is it largely sort of the same distribution of business, auto, home, and commercial in their relatives that the in-force book has been, or is there any marginal shift towards one category segment account side?

John J. Brinling, Jr.: There hasn't been any significant shift in our mix. It's spread over our personal lines, auto and home protector and commercial.

Philip A. Garcia: Our policies in-force are growing and that is the basic mix. You can see that auto is growing a little bit more slowly than the other lines. Our 12-month year-over-year auto growth is about 1.2, which is a little slower. Obviously, we were growing 2.5. The auto growth has been a little slower, that's something we want to turn around.

Ron Bobman (Capital Returns): In the past, system expenditures in some form have been a little bit of a black hole for the company. I'm wondering if managing this process, if there are differences in management of the process or of the people that ensure a better spend of this money?

John J. Brinling, Jr.: We're infinitely familiar with the results of our prior attempts, and certainly don't want to repeat history. It was an expensive learning experience, but we would like to think that we've learned some lessons from it. We are spending much more resource in the evaluation process. In fact, we're still in that evaluation process trying to make a very deliberate decision, and put in place the appropriate governance, so that this can be a more successful attempt.