Question-and-Answer Session
Operator
(Operator instructions) And we will take our first question from Michael Phillips with Stifel Nicolaus. Please go ahead.
Michael Phillips – Stifel Nicolaus
Thank you, good morning everybody.
Terry Cavanaugh
Good morning, Michael.
Philip Garcia
Good morning.
Michael Phillips – Stifel Nicolaus
I want to start out on the investment side. I usually don't hit on that, so I thought I would start with that this time. It might be helpful if you could just spend a second or two kind of going through a little of the history of kind of why we are in some of the alternative investments that we are in, just as a bit of a backdrop. And then kind of segue into that, the question really is how committed are you to staying in those, I guess particularly the private equity? That's obviously quite lumpy.
Phil Garcia
Okay. So we have in the portfolio you are referring to, the alternative investments, you’re talking about the Exchange or Indemnity?
Michael Phillips – Stifel Nicolaus
Well, I guess both – if it makes a difference for your answer in terms in terms of historical. But obviously, I’m just looking at the Indemnity now in terms of the lumpiness with your earnings.
Phil Garcia
All right. With respect to the Exchange, as you know, we have been fairly aggressive investors. On our portfolio in the Exchange we match off our insurance liabilities with very conservative investment-grade corporate bonds and munis. We then invest the surplus of the Exchange, which is substantial. Generally about half the surplus is invested in common stocks and the other half is invested in alternative assets. There are three portfolios within the alterative assets. There’s mezzanine, which we view as part of our high yield investment portfolio. There is private equity, which we view as a play on the common stock portfolio of the Exchange. And then we also have the real estate. We are not direct real estate investors, so about half that portfolio of alternative assets is invested in real estate around the world with partners that are experts in real estate. So, that’s the strategy at the Exchange. The same sort of strategy exists at Erie Indemnity Company. We have about $300 million there, about half of that portfolio is real estate investments.
Michael Phillips – Stifel Nicolaus
Okay. That's helpful. It sounds like just from that the commitment to stay this way is – you’ve seen a lot of companies –
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