<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 for the fiscal year ended December 31, 1996
-----------------
Transition Report Pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 for the transition period from to
-------- -----------
Commission File Number 2-39621
UNITED FIRE & CASUALTY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Iowa 42-0644327
- ----------------------------------------- -----------------------------------
(State of Incorporation) (IRS Employer Identification No.)
118 Second Avenue, S.E.
Cedar Rapids, Iowa 52407-3909
- ----------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 399-5700
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. X
-----
As of March 1, 1997, 10,727,712 shares of common stock were outstanding. The
aggregate market value of voting stock held by non-affiliates of the registrant
as of March 1, 1997, was approximately $139,423,556
<PAGE> 2
FORM 10-K TABLE OF CONTENTS
PAGE
----
PART I:
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security
Holders 8
PART II:
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 41
PART III:
Item 10. Directors and Executive Officers of the Registrant 41
Item 11. Executive Compensation 44
Item 12. Security Ownership of Certain Beneficial Owners
and Management 47
Item 13. Certain Relationships and Related Transactions 47
PART IV:
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 48
Signatures 49
<PAGE> 3
PART I.
ITEM 1. BUSINESS
GENERAL
United Fire & Casualty Company and its insurance subsidiaries (the "Company")
are engaged in the business of property and casualty insurance and life
insurance. The Company is an Iowa corporation incorporated in January, 1946. Its
principal executive office is located at:
118 Second Avenue S.E.
P.O. Box 73909
Cedar Rapids, Iowa 52407-3909
(319-399-5700).
The Company's subsidiaries are: Lafayette Insurance Company, a wholly owned
property and casualty insurer, with its wholly owned subsidiary, a general
agency, Insurance Brokers & Managers, Inc.; Addison Farmers' Insurance Company,
a wholly owned property and casualty insurer, with its wholly owned
subsidiaries, a general agency, Addison Insurance Agency, and a premium finance
company, Crabtree Premium Finance Company; and United Life Insurance Company, a
wholly owned life insurance company. As of December 31, 1996, the Company and
its subsidiaries employed 575 full-time employees.
The Company and its property and casualty subsidiaries market most forms of
property and casualty insurance products, including fidelity and surety bonds
and reinsurance, through independent agencies and brokers. The Company and its
property and casualty subsidiaries also underwrite and broker a limited amount
of excess and surplus lines insurance.
United Life Insurance Company underwrites and markets ordinary life
(primarily universal life), annuities (primarily single premium) and credit life
products to individuals and groups through independent agencies.
A table reflecting premiums, operating results and assets attributable to the
property and casualty and life segments is included in Note 10 of the Notes to
Consolidated Financial Statements.
The following table shows the consolidated net premiums written and annuity
deposits during the last three years by major category.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fire and allied lines (1) $ 66,081 $ 57,049 $ 51,997
Automobile 52,325 44,457 39,003
Other liability 32,182 31,025 27,467
Workers' compensation 23,526 24,807 22,215
Fidelity and surety 16,586 16,215 15,113
Reinsurance 30,648 23,259 18,346
Other 586 734 1,500
Life and accident and health 23,598 25,181 30,088
Annuities 64,277 54,515 35,371
- ----------------------------------------------------------------------------------------
$309,809 $277,242 $241,100
========================================================================================
</TABLE>
(1) "Fire and allied lines" includes farmowners, homeowners, commercial multiple
peril and inland marine.
PROPERTY AND CASUALTY INSURANCE
The Company and its property and casualty subsidiaries underwrite both
commercial and personal lines of insurance. Homeowners and automobile insurance
comprise most of the personal lines of business. Business package policies,
workers' compensation, other liability and fidelity and surety bonds represent a
major part of the commercial business. Specialty policies written include the
Commercial Uni-Saver, a commercial package policy with a simplified rating plan,
blanket mortgage security, insurance on boats, outboard motors, recreational
vehicles, umbrella liability and some forms of errors and omissions insurance.
1
<PAGE> 4
The Company acts as a reinsurer assuming both property and casualty
reinsurance from approximately 400 companies. The bulk of the business assumed
is property reinsurance with the emphasis on catastrophe covers. The business
originates through approximately 50 brokers with the largest producer accounting
for approximately 16% of the reinsurance assumed.
The combined ratios below, which relate to the non- life segments, are the
sum of the following: the loss ratio, calculated by dividing net losses and net
loss adjustment expenses incurred by net premiums earned; and the expense ratio,
calculated by dividing underwriting expenses incurred by net premiums written.
The ratios in the table have been prepared on the basis of statutory financial
information and on a GAAP basis. Generally, if the combined ratio is below 100
percent, there is an underwriting profit; if it is above 100 percent, there is
an underwriting loss.
[A bar graph displaying statutory combined ratios for the Company as compared
with the Insurance Industry from 1992 to 1996 appears here.]
<TABLE>
<CAPTION>
STATUTORY COMBINED RATIOS
Company Industry
<S> <C> <C>
1992 115.5% 114%
1993 102.5 109
1994 97.6 109
1995 95.8 107
1996 104.0 107
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(Dollars in Thousands)
- --------------------------------------------------------------------------------------------
Statutory GAAP
- --------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net premiums written $221,934 $197,546 $175,641 $221,934 $197,546 $175,641
Net premiums earned 215,781 185,994 166,852 215,470 185,994 166,852
- --------------------------------------------------------------------------------------------
Loss and loss
adjustment expenses 72.7% 63.8% 65.6% 72.3% 63.6% 65.2%
Underwriting expenses 31.7 32.0 32.0 33.0 31.0 31.9
- --------------------------------------------------------------------------------------------
Combined ratios 104.4% 95.8% 97.6% 105.3% 94.6% 97.1%
- --------------------------------------------------------------------------------------------
Underwriting margin (4.4)% 4.2% 2.4% (5.3)% 5.4% 2.9%
============================================================================================
</TABLE>
The following table sets forth the aggregate direct and assumed premiums
written, ceded reinsurance and net premiums written for the three years ended
December 31, 1996, 1995 and 1994.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(Dollars in Thousands)
- --------------------------------------------------------------------------------------------
PERCENT Percent Percent
Years Ended December 31, 1996 OF TOTAL 1995 of Total 1994 of Total
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fire and allied lines (1) $ 83,704 38% $ 74,254 38% $ 66,640 38%
Automobile 54,234 24 46,060 23 40,687 23
Other liability 35,272 16 34,101 17 30,116 17
Workers' compensation 23,834 11 25,246 13 22,836 13
Fidelity and surety 17,610 8 17,322 9 16,060 9
Reinsurance assumed 33,943 15 26,436 13 22,433 13
Other 808 0 1,011 1 3,692 2
- --------------------------------------------------------------------------------------------
Aggregate direct and assumed
premiums written 249,405 112 224,430 114 202,464 115
Reinsurance ceded 27,471 12 26,884 14 26,823 15
- --------------------------------------------------------------------------------------------
Net premiums written $221,934 100% $197,546 100% $175,641 100%
============================================================================================
</TABLE>
(1) "Fire and allied lines" includes farmowners, homeowners, commercial multiple
peril and inland marine.
2
<PAGE> 5
The following table sets forth statutory property and casualty net premiums
earned, net losses incurred (excluding net loss adjustment expenses) and the
loss ratio (ratio of net losses incurred to net premiums earned), by lines of
insurance written, for the three years ended december 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fire and allied lines (1)
Net premiums earned $ 62,806 $ 54,150 $ 48,784
Net losses incurred 41,487 30,551 24,826
Loss ratio 66.1% 56.4% 50.9%
- ----------------------------------------------------------------------------------------
Automobile
Net premiums earned $ 50,513 $ 42,026 $ 38,369
Net losses incurred 42,292 30,682 28,833
Loss ratio 83.7% 73.0% 75.1%
- ----------------------------------------------------------------------------------------
Other liability
Net premiums earned $ 31,953 $ 29,282 $ 26,404
Net losses incurred 10,682 10,304 11,679
Loss ratio 33.4% 35.2% 44.2%
- ----------------------------------------------------------------------------------------
Workers' compensation - involuntary
Net premiums earned $ 1,847 $ 3,179 $ 3,735
Net losses incurred 211 1,357 1,732
Loss ratio 11.4% 42.7% 46.4%
- ----------------------------------------------------------------------------------------
Workers' compensation - voluntary
Net premiums earned $ 22,360 $ 20,776 $ 17,898
Net losses incurred 11,944 5,458 3,035
Loss ratio 53.4% 26.3% 17.0%
- ----------------------------------------------------------------------------------------
Workers' compensation - total
Net premiums earned $ 24,207 $ 23,955 $ 21,633
Net losses incurred 12,155 6,815 4,767
Loss ratio 50.2% 28.4% 22.0%
- ----------------------------------------------------------------------------------------
Fidelity and surety
Net premiums earned $ 17,321 $ 14,592 $ 12,592
Net losses incurred 2,195 1,269 468
Loss ratio 12.7% 8.7% 3.7%
- ----------------------------------------------------------------------------------------
Reinsurance
Net premiums earned $ 28,390 $ 21,117 $ 17,648
Net losses incurred 20,768 15,789 16,088
Loss ratio 73.2% 74.8% 91.2%
- ----------------------------------------------------------------------------------------
Other
Net premiums earned $ 591 $ 872 $ 1,422
Net losses incurred 114 334 734
Loss ratio 19.3% 38.3% 51.6%
- ----------------------------------------------------------------------------------------
Total property and casualty
Net premiums earned $215,781 $185,994 $166,852
Net losses incurred 129,693 95,744 87,395
Loss ratio 60.1% 51.5% 52.4%
========================================================================================
</TABLE>
(1) "Fire and allied lines" includes farmowners, homeowners, commercial multiple
peril and inland marine.
3
<PAGE> 6
LIFE INSURANCE
The principal life insurance product is universal life of which the Life
subsidiary has seven different plans. The universal life plans represent about
57% of the total insurance in-force at December 31, 1996 and 66% at December 31,
1995. The maximum retention is $200,000 per life policy.
The following table presents life insurance net earned premium information
for the last three years.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Universal life $ 7,381 $ 7,926 $ 6,386
Ordinary life (other than universal) 6,760 9,647 8,431
Accident and health 2,191 1,822 1,515
Annuities 1,434 902 441
Credit life 1,528 1,217 993
Group accident and health 141 125 130
- ----------------------------------------------------------------------------------------
Total net premiums earned $19,435 $21,639 $17,896
========================================================================================
</TABLE>
REINSURANCE CEDED
The Company follows the industry practice of reinsuring a portion of their
exposure and ceding to reinsurers a portion of the premium received on the
policies reinsured. Reinsurance is purchased to reduce the net liability on
individual risks to predetermined limits and to protect against catastrophic
losses such as hurricanes and tornadoes. Such catastrophe protection is
purchased on both direct and assumed business.
The ceding of reinsurance does not legally discharge the Company from primary
liability under its policies and the ceding company must pay the loss if the
reinsurer fails to meet its obligation. The Company is not aware of any of its
reinsurers experiencing financial difficulties that would result in a material
impact on the Company's financial statements. The Company follows the industry
practice of accounting for insurance written and losses incurred net of
reinsurance ceded.
The Company uses many reinsurers, both domestic and foreign. There are no
concentrations of credit risk associated with reinsurance. Principal reinsurers
include Swiss Re of America (formerly North American Reinsurance Corporation),
Munich American Assurance Company, ERC Life Reinsurance Corporation,
Transamerica Occidental Life, Employers Reinsurance Corporation and AXA
Reassurances.
RESERVES
Applicable insurance laws require the Company's property and casualty segment
to maintain reserves for losses and loss adjustment expenses with respect to
both reported and unreported losses. With respect to life reserves, the reserves
are based upon applicable statutory Iowa insurance laws and actuarial analysis
determined by independent consulting actuaries.
The Company's property and casualty segment establishes reserves for reported
losses based upon historical experience and upon a case-basis evaluation of the
type of loss, knowledge of the circumstances surrounding each loss and the
policy provisions relating to the type of loss. The amount of reserves for
unreported losses is determined by estimating unreported losses on the basis of
historical and statistical information for each line of insurance with respect
to the probable number and nature of losses arising from occurrences which have
not yet been reported. Established reserves are closely monitored and are
adjusted as needed.
Loss reserves are estimates at a given time of the ultimate amount expected
to be paid on incurred losses based on facts and circumstances known when the
estimates are made. Reserves are not discounted. The loss settlement period on
insurance losses may be many years, and as additional facts regarding individual
losses become known, it often becomes necessary to refine and adjust the
estimates of liability on a loss. Inflation is implicitly provided for in the
reserving function through review of cost trends, historical reserving results
and projections of future economic conditions.
4
<PAGE> 7
Reserves for loss adjustment expenses are intended to cover the actual cost
of investigating losses and defending lawsuits arising from losses. These
reserves are continuously revised based on historical analysis and management's
expectations.
The limits on risks retained by the Company's property and casualty segment
vary by line of business, and risks in excess of the retention limits are
reinsured. For the property lines of business, the retention is $1,000,000.
The following table presents the casualty business retention levels which
depend on the accident year of the claim.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Accident Years Casualty Retention
- -----------------------------------------------------------------------------------------
<S> <C>
1983 and prior $225,000
1984 through 1986 300,000
1987 through 1991 500,000
1992 through 1994 750,000
1995 and later 1,000,000
=========================================================================================
</TABLE>
The following table shows the calendar year development of the unpaid losses
and loss adjustment expenses of the Company and its property and casualty
segment for 1987 through 1996. The top line of the table shows the estimated
liability for unpaid losses and loss adjustment expenses recorded at the balance
sheet date for each of the indicated years. This liability represents the
estimated amount of losses and loss adjustment expenses for losses arising in
all prior years that are unpaid at the balance sheet date, including losses that
had been incurred but not yet reported, net of applicable ceded reinsurance. The
upper portion of the table shows the reestimated amount of the previously
recorded liability based on experience as of the end of each succeeding year.
The estimate is increased or decreased as more information becomes known.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- --------------------------------------------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liability for Unpaid
Losses and LAE $ 71,067 $ 85,012 $ 103,607 $ 113,572 $ 123,219 $ 158,825 $ 170,798 $ 180,653 $ 188,700 $ 209,876
Liability re-
estimated as of:
One year later 69,417 79,869 96,487 111,804 128,042 154,572 153,691 160,776 159,571
Two years later 67,948 80,395 96,976 112,390 125,888 148,507 142,572 172,546
Three years later 68,357 76,698 97,295 111,276 124,428 144,159 158,312
Four years later 67,322 76,469 95,752 113,898 122,384 134,309
Five years later 66,735 75,368 96,345 113,703 118,568
Six years later 66,058 75,257 97,159 103,303
Seven years later 66,599 75,912 79,024
Eight years later 67,526 69,518
Nine years later 61,083
- --------------------------------------------------------------------------------------------------------------------------------
Redundancy $ 9,984 $ 15,494 $ 24,583 $ 10,269 $ 4,651 $ 24,516 $ 12,486 $ 8,107 $ 29,129
================================================================================================================================
Cumulative amount of
liability paid through:
One year later $ 23,681 $ 27,277 $ 37,598 $ 39,497 $ 44,694 $ 54,291 $ 51,550 $ 80,246 $ 56,618
Two years later 39,028 41,865 56,574 63,589 69,296 84,074 102,637 109,281
Three years later 46,139 52,551 69,767 77,141 87,052 96,976 119,349
Four years later 51,404 57,658 76,443 87,627 95,059 107,420
Five years later 54,061 61,795 82,013 85,379 99,483
Six years later 56,292 64,912 67,021 88,558
Seven years later 58,425 60,026 69,314
Eight years later 52,990 61,339
Nine years later 54,198
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
INVESTMENTS
The management of the investment portfolio is primarily handled internally.
During 1996, an external investment advisor was employed by the Company. This
advisor is primarily involved with the mortgage-backed securities in the
portfolio, and has management responsibilities over $53 million (book value) of
such securities. The external advisor works closely with the Company's
investment department.
The Company primarily invests in fixed income securities. The Company
considers itself to be a long-term investor, and intends, at the time of
purchase, to hold most of the fixed income securities that it buys to maturity.
Effective January 1, 1994, the Company adopted SFAS No. 115, " Accounting for
Certain Investments in Debt and Equity Securities." This position was later
reassessed in December of 1995. Consistent with our investment philosophy, the
Company has classified the majority of its fixed income securities as
held-to-maturity, and will continue to do so with future purchases. See Notes 1
and 2 of the Notes to Consolidated Financial Statements for further discussion
and information concerning SFAS No. 115.
Historically, the property and casualty segment has emphasized investments in
tax-exempt fixed income securities. At the same time, an attempt is made to
maintain a balanced portfolio that reflects the Company's changing tax
situation, as well as changes in the tax law. Based on the Company's
underwriting philosophy and goals for this segment, the emphasis toward
tax-exempt securities will continue.
The life insurance segment has emphasized, and will continue to emphasize,
investing in high quality, taxable, fixed income securities (primarily bonds
issued by corporations and mortgage-backed securities including collateralized
mortgage obligations.)
The Company strives to maintain diversification among issues, issuers, and
industries, as well.
Investment results for the years indicated are summarized in the following
table.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------
Annualized Yield
Years Ended Average Investment on Averagetment
December 31, Invested Assets (1) Income, net(2) Invested Assets
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996 $825,319 $56,936 6.9%
1995 733,608 53,603 7.3
1994 635,948 46,420 7.3
========================================================================================
</TABLE>
(1) Average of amounts at beginning and end of year.
(2) Investment income after deduction of investment expenses, but before
applicable income tax.
MARKETING
The Company markets its products principally through independent agencies.
The Company is licensed as a property and casualty insurer in 35 states,
primarily in the Midwest and West. Approximately 1,700 independent agencies
represent the Company's property and casualty segment. The life insurance
subsidiary is licensed in 24, primarily Midwestern and Western, states and is
represented by approximately 1,200 independent agencies. The Home Office and
branch offices of the Company and the offices of the insurance subsidiaries are
staffed with underwriting, claims and marketing representatives, and
administrative technicians, all of whom provide support and assistance to the
independent agencies. In addition, Home Office staff technicians and specialists
provide support to the subsidiaries and branch offices as well as to independent
agencies. The Company's Home Office also monitors subsidiary and branch offices
for overall results and conformity to Company policy through the use of
management reports.
6
<PAGE> 9
In 1996, direct premium writings on a statutory basis by state were as follows.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------
Life, Accident and
Property and Health Insurance,
Casualty Insurance Including Annuities
- ----------------------------------------------------------------------------------------
Percent Percent
Amount of Total Amount of Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California $ 10,139 4.9% $ - - %
Colorado 11,543 5.5 4,249 4.8
Idaho 2,950 1.4 305 0.3
Illinois 20,550 9.9 5,844 6.5
Iowa 42,144 20.2 43,768 48.9
Kansas 8,721 4.2 2,307 2.6
Louisiana 27,323 13.1 55 0.1
Minnesota 16,120 7.7 9,722 10.9
Mississippi 5,366 2.6 64 0.1
Missouri 19,910 9.5 2,609 2.9
Nebraska 13,982 6.7 5,010 5.6
South Dakota 9,562 4.6 2,503 2.8
Wisconsin 6,676 3.2 9,004 10.1
Wyoming 3,019 1.4 383 0.4
Other 10,575 5.1 3,623 4.0
- ----------------------------------------------------------------------------------------
$208,580 100.0% $89,446 100.0%
========================================================================================
</TABLE>
The insurance industry is highly competitive, and the Company competes not
only with other stock insurance companies, but also with mutual companies, the
underwriters at Lloyds of London and reinsurance reciprocals.
Since the Company relies heavily on independent agencies, it utilizes a
profit sharing contract with the agencies as an incentive to place high quality
business with the Company. For 1996, 322 agencies will receive profit sharing
commissions of an estimated $4,849,000.
ITEM 2. PROPERTIES
The Company owns two buildings in Cedar Rapids, Iowa, which it occupies as
its Home Office. One building is a five-story building which is occupied
entirely by the Company. The other is an eight-story office building in which
the first floor is leased to tenants. The Company occupies the fourth through
eighth floors of this building and rents the third floor and an office on the
second floor to its subsidiary, United Life Insurance Company. The two buildings
are connected with a skywalk.
The Company owns a small parking lot adjacent to the eight-story building and
a parking lot adjacent to the five-story building.
Lafayette Insurance Company owns one building in New Orleans, Louisiana which
serves as its Home Office. The building consists of two floors of office space
and a floor of parking, as well as a parking lot located adjacent to the
building.
Management believes that the properties of the Company are adequate for
conducting its business.
7
<PAGE> 10
ITEM 3. LEGAL PROCEEDINGS
The registrant has no pending legal proceedings other than ordinary routine
litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market under the
NASDAQ symbol UFCS. On March 1, 1997, there were 957 holders of record of the
Company's common stock. The following table sets forth, for the calendar periods
indicated, the high and low bid quotations for the common stock and cash
dividends declared. These quotations reflect inter-dealer prices without retail
markups, markdowns or commissions and may not necessarily represent actual
transactions.
The Company's policy has been to pay quarterly cash dividends and the Company
intends to continue that policy. Payments of any future dividends and the
amounts of such dividends, however, will depend upon factors such as net income,
financial condition, capital requirements and general business conditions. The
Company has paid dividends every quarter since March, 1968.
State law permits the payment of dividends only from statutory accumulated
earned profits arising from business. The Company's subsidiaries are also
subject to state law restrictions on dividends. See Note 7 in the Notes to
Consolidated Financial Statements.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Cash
Share Price Dividends
High Low Declared
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996
QUARTER ENDED
MARCH 31 $37 1/4 $27 3/8 $.150
JUNE 30 40 29 3/16 .150
SEPTEMBER 30 35 1/2 30 .150
DECEMBER 31 38 30 .150
1995
Quarter Ended
March 31 $19 3/8 $17 7/8 $.133
June 30 19 1/2 18 1/8 .133
September 30 24 5/8 18 1/2 .133
December 31 29 1/8 23 1/8 .150
========================================================================================
</TABLE>
Share prices and cash dividends declared per common share have been
retroactively restated for additional shares issued as a result of a three for
two stock split to stockholders of record as of December 18, 1995.
8
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Data)
- -------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $1,024,835 $937,594 $828,126 $733,020 $644,394
Operating revenues
Net premiums earned 234,797 207,528 184,748 174,137 170,434
Investment income, net 56,936 53,603 46,420 40,233 36,312
Realized investment gains and other
income 6,726 1,698 796 1,860 3,133
Commission and policy fee income 1,815 1,761 1,881 1,713 1,387
Net income 21,960 28,803 22,521 18,645 1,702
Net income per common share 2.04 2.66 2.08 1.72 .16
Cash dividends declared
per common share .60 .55 .49 .45 .43
=========================================================================================
</TABLE>
Net income per common share and cash dividends declared per common share have
been retroactively restated for additional shares issued as a result of a three
for two stock split to stockholders of record as of December 18, 1995.
The selected Financial Data herein has been derived from the financial
statements of the Company and its subsidiaries. The data should be read in
conjunction with "The Chairman's Report," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related Notes.
[A bar graph displaying net income per common share and dividends declared for
the five years ended December 31, 1996 appears here.]
<TABLE>
<CAPTION>
NET INCOME PER COMMON SHARE
Net Income Per Dividends
Common Share Declared
<S> <C> <C>
1992 0.16 0.43
1993 1.72 0.45
1994 2.08 0.49
1995 2.66 0.55
1996 2.04 0.60
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ASSETS
The Company's fixed maturity portfolio, composed primarily of high quality
securities, grew by 7% to $719,040,000 in 1996. The portion of the portfolio
that was investment grade (defined by the National Association of Insurance
Commissioners ("NAIC") - Securities Valuation Office and issued with NAIC code
class 1 or class 2), as of December 31, 1996 and 1995, was 95% and 94%,
respectively, for the property and casualty segment, and 93% and 92%,
respectively, for the life segment.
The Company considers itself a long-term investor, and classifies a majority
of its fixed maturity securities as held-to-maturity. Available-for-sale fixed
maturities comprise 9% of the total fixed maturity portfolio, and the Company
holds no trading securities. Net unrealized losses of $1,415,000 were recorded
in 1996 on the available-for-sale fixed maturity securities, compared to net
unrealized gains of $4,243,000 in 1995.
9
<PAGE> 12
During 1995, concurrent with its adoption of the implementation guide on
Statement of Financial Accounting Standards ("SFAS") No. 115, the Financial
Accounting Standards Board allowed a one-time reassessment of the SFAS No. 115
classifications of all securities currently held. Any reclassifications would be
accounted for at fair value in accordance with SFAS No. 115 and any
reclassifications from the held-to-maturity portfolio that resulted from this
one-time reassessment would not call into question the intent of the Company to
hold other debt securities to maturity in the future. We did use the opportunity
under this one-time reassessment to reclassify $79,131,000 in securities from
held-to-maturity to the available-for-sale category. In connection with this
reclassification, gross unrealized gains of $5,145,000 and gross unrealized
losses of $908,000 were recorded in available-for-sale securities and in
stockholders' equity in 1995.
Approximately 26% of the fixed maturities are collateralized mortgage
obligations ("CMOs"), compared to 31% at December 31, 1995. The Company
minimizes its prepayment risk by buying most issues priced at a slight discount.
While buying at a discount does not prevent prepayment, the yield is not
penalized as is the case when a premium is paid. In addition, although the
stated maturity is longer than the average life of the issues, the Company is
concentrating on buying issues with expected maturity in the
seven-to-twelve-year range.
The Company also holds readily marketable common and preferred stocks, all of
which are classified as available-for-sale. Other long-term investments are
primarily holdings in limited partnership funds investing in banks. Net
unrealized appreciation on stocks and other long-term investments increased
between 1996 and 1995 by $15,807,000, or 31%.
Most of the cash that the Company receives is generated from insurance
premiums paid by policyholders. The premiums are invested in assets maturing at
regular intervals in order to meet the Company's obligations to pay policy
benefits, claims and claim adjusting expenses.
The Company's short-term investments, comprised of money market accounts,
overnight repurchase agreements and fixed maturities, are utilized to meet
anticipated short-term cash requirements. In addition, the Company also
maintains a $5 million line of credit with a local bank, which we did not
utilize during 1996. Short-term investments increased from $21,530,000 to
$29,330,000 in 1996.
Accounts receivable are balances due from property and casualty insurance
agents and brokers for premiums written less commissions, and losses receivable
from assumed brokers. In 1996, this asset grew by $4,813,000 or 12%, due to
premium growth and the Company's deferred payment plan.
The Company's deferred policy acquisition costs ("DAC") are expenses such as
commissions, premium taxes and other costs associated with procuring and
servicing insurance policies. The asset is established at the beginning of the
policy periods and is then amortized over the lives of the respective policy
terms to achieve a matching of expenses to revenue. The Company's premium growth
has created a corresponding increase in deferred policy acquisition costs.
Reinsurance receivables are losses, expenses and reserves that are due the
Company from reinsurers. The balance in this asset increased by $1,793,000 or
17% in 1996, when compared to 1995. The Company does not anticipate collection
problems with regard to any of its reinsurance receivables.
LIABILITIES
The property and casualty segment's gross liability before reinsurance for
losses and settlement expenses increased $22,804,000 between 1996 and 1995.
Gross reserves remaining on the 1994 Northridge earthquake were $4,599,000 as of
December 31, 1996, compared to $3,733,000 at December 31, 1995.
The Company is not aware of any significant contingent liabilities as far as
environmental issues are concerned. Because of the type of business the Company
writes, i.e. property coverage, there exists the potential for exposure for
environmental pollution and asbestos claims. The Company's underwriters are
aware of these exposures and use limited riders or endorsements to limit
exposure.
The liability for future policy benefits and interest on policyholders'
accounts saw an increase of $37,979,000 for 1996 due to the addition of new
premiums and growth in existing account balances.
10
<PAGE> 13
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996,
COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
PROPERTY AND CASUALTY OPERATIONS
Property and casualty premiums earned increased 16%, or $29,476,000 in 1996,
when compared to 1995. Our direct business has provided a majority of the
growth, with much of the increase concentrated in the midwestern states and
Louisiana.
Loss and settlement expenses incurred by the property and casualty segment
for 1996 increased 32% or $37,589,000 over 1995. While the last two years
produced an unusually large number of hurricanes, the Company did not have much
exposure related to these storms. Several other factors did contribute to
underwriting results. The Company's consistent and long-term growth has
inevitably led to a higher number of claims. During the first quarter of 1996,
frigid weather causing frozen water pipes resulted in substantial water damage.
Several large fire losses also occurred during the first few months of the year.
Wind and hail storms occurring during the summer months in the midwestern states
led to an increase in loss activity. In addition, a small number of large
commercial auto liability losses were incurred throughout the year.
In 1996, the Company's largest catastrophe loss incurred year-to-date was the
1994 Northridge earthquake, with gross losses incurred of $3,149,000 in 1996
compared to $3,847,000 in 1995 and $10,342,000 in 1994. Ceded losses incurred
related to this catastrophe were $2,882,000 in 1996, compared to $3,005,000 in
1995 and $4,319,000 in 1994. Gross incurred on other catastrophe losses for the
years ending 1996, 1995 and 1994 were $10,200,000, $10,089,000 and $5,784,000,
respectively. Ceded incurred on all other catastrophes for the years ending
1996, 1995 and 1994 were $(43,000), $114,000 and $(17,000), respectively.
The $12,280,000 increase in property and casualty underwriting and
acquisition expenses was primarily due to an increase in commissions, premium
taxes and other policy issue expenses, associated with growth in premiums.
LIFE OPERATIONS
The decrease of $2,204,000 in premiums earned is attributable to a decrease
in collected traditional life premiums of $2,854,000. One product, single
premium whole life, saw a decrease of $3,591,000.
Other underwriting and operating expenses decreased $1,979,000 due to a
larger deferral of expenses associated with acquisition of new business. An
increase in premiums collected of $10,305,000 in the single premium deferred
annuity block along with additional acquisition expenses is responsible for 50%
of this decrease. The balance of the decrease is due to a combination of slight
increases in premiums collected and refinement in the way deferrable acquisition
expenses are determined and allocated.
Interest credited was flat in 1996 for two reasons. First, one block of
universal life had withdrawals of $15,125,000 in December, 1995, and $15,561,000
in the first two months of 1996, which caused a reduction of approximately
$2,025,000 in interest credited in 1996 compared to 1995. Second, deferred
annuity policies with a five-year interest rate guaranteed between 7.1% and
8.0%, renewed in 1996 at a rate between 5.0% and 5.5% representing approximately
a $500,000 decrease in interest credited. Also, all deferred annuity policies
with guarantees of less than 6.5% earned up to 1.0% less in 1996.
INVESTMENT RESULTS
Growth in the Company's fixed maturity portfolio contributed to the 6%
increase in investment income. The unusual increase in realized gains and other
income resulted primarily from two sources. The Company took advantage of market
conditions and sold a small number of its available-for-sale fixed income
securities. In addition, the settlement of a Federal income tax Revenue Agent
Review for previous tax years resulted in the receipt of $2,074,000 in interest,
which is included in realized investment gains and other income.
11
<PAGE> 14
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995,
COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
PROPERTY AND CASUALTY OPERATIONS
The Company's property and casualty segment reported record operating
earnings of $30,718,000 in 1995, compared to $22,922,000 in 1994. Premiums
earned increased 11%, or $19,142,000. Much of the growth was direct business
concentrated in four midwestern states. In addition, the Company had to pay less
for its ceded protection due to a decrease in ceded premium rates.
Loss and loss adjustment expenses increased 9% over 1994. An absence of
significant exposure to 1995 catastrophes and a reduction in loss expenses
contributed to the Company's favorable results. Gross losses incurred related to
the 1994 Northridge earthquake were $3,847,000 in 1995, compared to $10,342,000
in 1994. Ceded losses incurred related to this catastrophe were $3,005,000 in
1995, compared to $4,319,000 in 1994. Gross incurred on other catastrophe losses
for the years ending 1995, 1994 and 1993 were $10,089,000, $5,784,000 and
$13,876,000, respectively. Ceded incurred on all other catastrophes for the
years ending 1995, 1994 and 1993 were $114,000, $(17,000) and $158,000,
respectively.
The increase in the property and casualty segments' other underwriting
expenses (including amortization of deferred acquisition costs) of $4,904,000 or
9% resulted primarily from an increase in commissions paid to our agents, due to
the increase in premium writings.
LIFE OPERATIONS
The increase of $3,743,000 in premiums earned was comprised mainly of a
$1,181,000 increase in collected traditional life premiums and a $1,479,000
increase in collected credit premiums. During 1995, we increased our anticipated
future lapses and wrote off $1,300,000 of deferred acquisition costs due to the
withdrawal of one block of universal life business totaling $15,559,000 in the
first two months of 1996.
Interest credited increased $3,468,000 due to an increase in total
universal life and annuity balances from an average of $281,000,000 during 1994
to $322,000,000 during 1995. Note that the interest credited increased by around
20%, while total average assets increased by only 15%. The balance of the
increase was due to higher rates credited during 1995.
INVESTMENT RESULTS
Investment income rose 15% in 1995, over 1994, which was largely attributable
to a growing fixed income portfolio. The Company's investment yield was a
consistent 7% for 1995, 1994 and 1993. Realized gains increased by $902,000,
most of which was due to the sale of an available-for-sale preferred stock
holding.
INSURANCE REGULATION
The Company is required by the NAIC and governing state insurance departments
to calculate a risk-based capital formula. This calculation establishes minimum
capital requirements based on an individual company's insurance risk. The
results are used by the NAIC and state insurance departments to identify
companies that merit regulatory attention or the initiation of regulatory
action. At December 31, 1996 and 1995, the property and casualty segment and the
life segment each had adjusted capital well in excess of the required capital
levels.
The NAIC is currently working on a project to codify insurance statutory
accounting practices. Currently, these practices are prescribed in a variety of
publications, as well as state laws, regulations, and general administrative
rules. The project, expected to be completed by January 1, 1998, would have some
effect on the Company's statutory results. Due to the incomplete and complex
proposed changes, it is impossible to estimate the impact at this time. The
changes would not affect the accompanying financial statements, which are based
on generally accepted accounting principles ("GAAP").
The Company is not aware of any other current recommendations by the NAIC or
other regulatory authorities in the states in which the Company conducts
business which, if or when implemented, would have a material effect on the
Company's liquidity, capital resources or operations.
12
<PAGE> 15
OUTLOOK
There were management changes within your Company during 1996. In November,
Gary Huber, President and Chief Operating Officer resigned and Scott McIntyre
Jr., Chairman of the Board and Chief Executive Officer, assumed the titles and
responsibilities of President and Chief Operating Officer.
In July, the Company accepted the resignation of Randy Scheive, President of
Addison Farmers' Insurance Company. He was replaced by E.A. (Spike) Hulit in
September. Spike was the manager of our Lincoln Branch. Spike had turned the
Lincoln Branch from a marginal operation into a profitable one with hard work
and tough decisions.
Your Company offers a multiple line of products for its agents and plans to
continue. We are spending $2.5 to $3.0 million to update our personal lines
administration system. When complete, our agents will be able to submit
applications electronically and we will print policies in our agents' offices.
Our life segment is growing and prospering. It continues to offer universal life
and annuity products as well as traditional life products.
We are always looking for new areas and products to offer our customers.
Lafayette Insurance Company continues to increase its volume in Arkansas and
Mississippi. Addison Farmers' Insurance Company plans to change its name to
Addison Insurance Company to better reflect the diverse customer base it
services.
CHAIRMAN'S REPORT
With total assets, as of December 31, of $1,025,000,000, sometime during 1996
your Company passed a milestone when its assets exceeded one billion dollars for
the first time in its history. Now, while we'll be the first to admit that a
billion dollars isn't nearly what it used to be, still as Senator Dirkson once
said, "A billion here and a billion there, and pretty soon your talking real
money!"
Unfortunately, this milestone was not accompanied with record earnings. For
the year, your Company earned $21,960,000 or $2.04 per share, 24% less than the
previous year and not quite as much as it did in 1994. Stockholders' equity
increased $19,106,000 to $227,859,000 and the book value of your shares is
$21.24 per share.
After starting off the year with record earnings of $8,755,000 in the first
quarter, property and casualty experience deteriorated for the next two quarters
before recovering in the fourth, so that our statutory combined ratio (i.e.
losses incurred to premiums earned, plus expenses incurred to premiums written)
for the year ended up at a mediocre 104%. While this is still better than the
industry as a whole which had an estimated combined ratio of 107%, we are not
satisfied. Property and casualty premiums written increased 12% to $222,000,000,
which is substantially more than the industry which grew only an estimated 4%.
Contributing to our poor underwriting results were the disastrous results of
the Addison Farmers' Insurance Company (this year we plan to change its name to
the Addison Insurance Company) which had a combined ratio of 143% and continued
poor loss ratios in the automobile liability, both private passenger and
commercial lines. Addison Farmers' has new management. E. A. (Spike) Hulit
transferred from our Lincoln Regional office to the Addison office and was named
its president. In Lincoln, Spike did an outstanding job of turning around that
office and giving it direction. Improving our automobile experience is this
year's number one priority.
Fortunately, except for a series of tornadoes that struck central Illinois
and Missouri in April, and cost us approximately $2,000,000, we were able to
escape most of 1996's storm activity.
While the weather was not a major problem, on December 19 we were once again
reminded what it meant to be in the business of insuring against the unexpected.
A tanker with a Chinese crew lost power rounding a bend in the Mississippi River
and crashed into the Riverwalk Mall in downtown New Orleans. We had seven
properties insured in that development.
13
<PAGE> 16
The Lafayette has been expanding to Arkansas and Mississippi by taking over
the business of other companies, while limiting its exposure in the New Orleans
area. When we originally purchased the Lafayette in 1979, it was doing business
in Mississippi as well as Louisiana, but its experience in the state was so bad
and the quality of the business so poor that we eventually had to withdraw and
let the business run off the books. Therefore, we are pleased to be able to
report that we have successfully reentered the state and our experience is
acceptable.
United Life Insurance Company with earnings of $8,132,000 and a return on
equity of 12% had a very good year. The interest rate environment (stable to
falling rates) were favorable for the life insurance and annuity business.
Annuities which now account for $275,000,000 of our life reserves continue to
grow. Our principle annuity product is simple Single Premium Deferred Annuity
without any of the gimmicks which are so common in other companies' offerings.
United Life now counts for over half of your Company's assets.
A majority of the annuities we write comes from banks or marketing
organizations that work primarily with small town banks. While "banks in
insurance" has become a highly controversial topic in the insurance business, it
is primarily an agent's problem and one we're afraid the agents are going to
lose. (After all, those were bankers, not insurance agents, who paid big money
to have coffee in the White House.) As it is evolving, banks particularly small
town banks, are becoming an important source of business for us, not a
competitor. But then small town banks have always been an important source of
business for your Company.
Management consultants, those "experts" who know how to run everyone's
business but their own and can solve all the world's problems but how to deliver
what they promise, are forever inventing new buzz words to sell second-hand
ideas. Two that have recently become popular in the lexicon are "niche player"
and "core competence" . Unfortunately, the insurance business has not been
immune from these fads as companies, large and small, have fallen all over each
other trying to recast themselves as a niche player with a core competence
whether it be health care, substandard automobile, reinsurance, or what have
you, forgetting, apparently, what has been one of the basic justifications for
multiple-line underwriting and a foundation of the insurance business - "spread
of risk".
Even though it may be out of vogue, your Company is still committed to that
principle and believes it is basic to managing a sound insurance enterprise. The
virtue of "not putting all your eggs in one basket" has been demonstrated over
and over again. Over the years, readers of these epistles have been treated to a
litany of disasters that can befall an insurance company, be they tornadoes,
hurricanes, insolvent contractors, politicians, inadequate rates, et al., but
there usually has been enough profitable business in our portfolio to save the
day. While 1996 was only a mediocre year for the property and casualty business,
for your Company, the year was saved by our life insurance business which had an
excellent year and our earnings, while down, did not go into the tank. In recent
years, several property and casualty companies have disposed of their life
insurance affiliates, but we believe life insurance is another example of how we
spread our risks.
When people buy a stock they naturally want to buy it at the lowest possible
price and likewise when people sell stock they want to obtain the best price
they can. Unfortunately for most of this year, neither the buyers or sellers of
our stock have gotten a very good deal as the spread (or as our actuary likes to
call it, "the skim"), i.e., the difference between the "bid" and the "asked,"
has been far too wide. In fact it has been so wide you could drive an 18-wheel
rig through it. We sympathize with anyone trying to buy or sell our stock, but
do what we may, nothing seems to reduce that spread for long and for most of
this year it seemed to get even wider. Stock splits are suppose to increase the
float, attract more activity and reduce the spread. They only seem to work for
awhile. If William Shakespeare had taken the Globe Theater public and listed it
on NASDAQ, perhaps our favorite line from Hamlet would read, "First we'll kill
all the market makers and then we'll kill the lawyers."
On December 31, 1996, a good friend of all our stockholders and a very
special friend of mine retired. Thirty-eight years ago, Mary Schoop started with
us typing policies part time. A year later, my father asked her to be my
secretary and implied she had no choice. Since then, she has kept me out of a
lot of trouble and I'll miss her. Many companies fill the pages of their annual
reports with pictures of balding, middle-aged men in dark blue suits. While we
have never succumbed to that temptation, Mary is an exception and you'll find
her picture on page 37 of the annual report. Not only is she a lot better
looking than the typical corporate officer, she's a much better dresser.
14
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------------------
(Dollars in Thousands Except
Number of Shares)
- --------------------------------------------------------------------------------------------
ASSETS 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENTS (Notes 2 and 3)
Fixed maturities
Held-to-maturity, at amortized cost
(market value $668,541 in 1996 and $617,915 in 1995) $ 651,138 $589,687
Available-for-sale, at market (cost $69,317
in 1996 and $80,464 in 1995) 67,902 84,707
Equity securities (cost $25,898 in 1996 and $25,558 in 1995) 91,314 75,678
Mortgage loans 2,959 3,041
Policy loans 7,591 7,163
Other long-term investments, at market (cost $8,395 in 1996
and $7,563 in 1995) 9,970 8,627
Short-term investments 29,330 21,530
- --------------------------------------------------------------------------------------------
$ 860,204 $790,433
CASH AND CASH EQUIVALENTS 14,389 6,998
ACCRUED INVESTMENT INCOME (Note 3) 12,195 11,517
ACCOUNTS RECEIVABLE (net of allowance for doubtful accounts
of $597 in 1996 and $282 in 1995) 43,433 38,620
DEFERRED POLICY ACQUISITION COSTS 56,083 52,670
PROPERTY AND EQUIPMENT, primarily land and buildings, at cost,
less accumulated depreciation of $15,443 in 1996 and $13,253 in 1995 12,630 13,252
REINSURANCE RECEIVABLES (Note 5) 12,490 10,697
PREPAID REINSURANCE PREMIUMS 4,229 3,652
INTANGIBLES 1,335 1,589
INCOME TAXES RECEIVABLE (Note 8) 709 1,005
OTHER ASSETS 7,138 7,161
- --------------------------------------------------------------------------------------------
TOTAL ASSETS $1,024,835 $937,594
============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Future policy benefits and losses, claims and settlement expenses (Notes 5 and 6)
Property and casualty insurance $ 221,207 $198,403
Life insurance (Note 3) 431,582 393,603
Unearned premiums 105,008 96,812
Accrued expenses and other liabilities 19,721 23,376
Employee benefit obligations (Note 9) 6,764 5,693
Deferred income taxes (Note 8) 12,694 10,954
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 796,976 $728,841
- --------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $3.33 1/3 par value; authorized 20,000,000 shares; (Note 12)
10,727,712 shares issued and outstanding in 1996
10,829,461 shares issued and outstanding in 1995 $ 35,759 $ 36,098
Additional paid-in capital 9,342 12,031
Retained earnings (Note 7) 139,933 124,430
Net unrealized appreciation, net of applicable income taxes of
$22,750 in 1996 and $19,232 in 1995 (Note 2) 42,825 36,194
- --------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 227,859 $208,753
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,024,835 $937,594
============================================================================================
The notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>
15
<PAGE> 18
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Data
and Number of Shares)
- -------------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Net premiums earned (Note 5) $ 234,797 $ 207,528 $ 184,748
Investment income, net (Note 2) 56,936 53,603 46,420
Realized investment gains and other income (Note 2) 6,726 1,698 796
Commission and policy fee income 1,815 1,761 1,881
- -------------------------------------------------------------------------------------------------
$ 300,274 $ 264,590 $ 233,845
- -------------------------------------------------------------------------------------------------
BENEFITS, LOSSES AND EXPENSES
Losses and settlement expenses $ 161,293 $ 125,548 $ 115,558
Increase in liability for future policy benefits 8,817 7,695 6,804
Amortization of deferred policy acquisition costs 48,364 44,557 37,364
Other underwriting expenses 33,722 28,212 28,310
Interest on policyholders' accounts 20,701 20,528 17,060
- -------------------------------------------------------------------------------------------------
$ 272,897 $ 226,540 $ 205,096
- -------------------------------------------------------------------------------------------------
Income before income taxes $ 27,377 $ 38,050 $ 28,749
Federal income taxes (Note 8) 5,417 9,247 6,228
- -------------------------------------------------------------------------------------------------
NET INCOME $ 21,960 $ 28,803 $ 22,521
=================================================================================================
Net Income per common share (Note 12) $ 2.04 $ 2.66 $ 2.08
=================================================================================================
Weighted average common shares outstanding (Note 12) 10,773,591 10,829,606 10,829,706
=================================================================================================
Cash dividends declared per common share (Note 12) $ .60 $ .55 $ .49
=================================================================================================
The Notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>
16
<PAGE> 19
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
(Dollars in Thousands Except Number of Shares)
- ---------------------------------------------------------------------------------------------
Additional Net
Common Paid-In Retained Unrealized Total
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1993 $16,045 $12,049 $104,460 $22,038 $154,592
Net income - - 22,521 - 22,521
Cash dividend declared on
common stock, $.49 per share - - (5,343) - (5,343)
Change in net unrealized
appreciation, net of
applicable income taxes - - - (1,117) (1,117)
Three for two stock split
(Note 12) 8,021 - (8,021) - -
- ---------------------------------------------------------------------------------------------
Balances, December 31, 1994 $24,066 $12,049 $113,617 $20,921 $170,653
Net income - - 28,803 - 28,803
Cash dividend declared on
common stock, $.55 per share - - (5,957) - (5,957)
Change in net unrealized
appreciation, net of
applicable income taxes - - - 15,273 15,273
Three for two stock split 12,033 - (12,033) - -
(Note 12)
Purchase and retirement of
372 shares of common stock (1) (18) - - (19)
- ---------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 $36,098 $12,031 $124,430 $36,194 $208,753
NET INCOME - - 21,960 - 21,960
CASH DIVIDEND DECLARED ON
COMMON STOCK, $.60 PER SHARE - - (6,457) - (6,457)
CHANGE IN NET UNREALIZED
APPRECIATION, NET OF
APPLICABLE INCOME TAXES - - - 6,631 6,631
PURCHASE AND RETIREMENT OF
101,958 SHARES OF COMMON STOCK (339) (2,689) - - (3,028)
- ---------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 $35,759 $ 9,342 $139,933 $42,825 $227,859
=============================================================================================
The notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>
17
<PAGE> 20
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(Dollars in Thousands)
- --------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income $ 21,960 $ 28,803 $ 22,521
- --------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities
Net bond discount accretion $ (489) $ (1,244) $ (357)
Depreciation and amortization 2,104 1,229 2,115
Realized investment gains (4,651) (1,698) (796)
Realized gain on sale of property (2) - -
Changes in:
Accrued investment income (678) (1,106) (243)
Accounts receivable (4,813) (4,756) (3,001)
Deferred policy acquisition costs (3,413) (5,125) (4,894)
Reinsurance receivables (1,793) 9,348 (8,773)
Prepaid reinsurance premiums (577) (637) (567)
Income taxes receivable/payable 296 (1,831) 1,047
Other assets 23 231 258
Future policy benefits and losses, claims and
settlement expenses 32,105 6,308 26,425
Unearned premiums 8,196 13,381 9,538
Accrued expenses and other liabilities (3,640) 3,391 1,517
Employee benefit obligations 1,071 807 1,199
Deferred income taxes (1,778) 2,232 (70)
- --------------------------------------------------------------------------------------------
Total adjustments $ 21,961 $ 20,530 $ 23,398
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 43,921 $ 49,333 $ 45,919
- --------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Proceeds from sale of available-for-sale investments $ 35,251 $ 1,344 $ 246
Proceeds from call and maturity of held-to-maturity
investments 67,696 33,154 51,054
Proceeds from call and maturity of available-for-sale
investments 10,562 3,313 1,956
Proceeds from sale of other investments 19,012 2,593 18,296
Purchase of investments held-to-maturity (127,982) (108,582) (124,050)
Purchase of investments available-for-sale (30,872) (3,793) (957)
Purchase of other investments (28,149) (15,456) (28,524)
Proceeds from sale of property and equipment 735 2,133 381
Purchase of property and equipment (1,961) (3,368) (2,382)
- --------------------------------------------------------------------------------------------
Net cash used in investing activities $(55,708) $(88,662) $(83,980)
- --------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Policyholders' account balances
Deposits to investment and universal life type
contracts $ 96,890 $ 87,041 $ 72,680
Withdrawals from investment and universal life
type contracts (68,212) (45,173) (32,869)
Purchase and retirement of common stock (3,028) (19) -
Payment of cash dividends (6,472) (5,777) (5,198)
- --------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 19,178 $ 36,072 $ 34,613
- --------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents $ 7,391 $ (3,257) $ (3,448)
Cash and Cash Equivalents at Beginning of Year 6,998 10,255 13,703
- --------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 14,389 $ 6,998 $ 10,255
============================================================================================
The Notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>
18
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS,
PRINCIPLES OF CONSOLIDATION AND BASIS OF REPORTING
The Consolidated Financial Statements have been prepared on the basis of
generally accepted accounting principles ("GAAP") which differ in some respects
from those followed in reports to insurance regulatory authorities.
United Fire & Casualty Company and its insurance subsidiaries (the "Company")
are engaged in the business of property and casualty insurance and life
insurance.
The Company and its property and casualty subsidiaries market most forms of
commercial and personal property and casualty insurance products, including
fidelity and surety bonds and reinsurance. The business is generated through
approximately 1,700 independent agencies and brokers in 35 states, with 66% of
the Company's direct premiums originating in eight Midwestern states in 1996.
United Life Insurance Company underwrites and markets ordinary life
(primarily universal life), annuities (primarily single premium) and credit life
products to individuals and groups through independent agencies.
The accompanying Consolidated Financial Statements include United Fire &
Casualty Company and its wholly owned subsidiaries, United Life Insurance
Company, Lafayette Insurance Company, Insurance Brokers & Managers, Inc.,
Addison Farmers' Insurance Company, Addison Insurance Agency and Crabtree
Premium Finance Company. All material intercompany items have been eliminated in
consolidation.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Certain amounts included in the Consolidated Financial Statements for prior
years have been reclassified to conform with the 1996 financial statement
presentation.
PROPERTY AND CASUALTY OPERATIONS
Premiums are reflected in income on a daily pro rata basis over the terms of
the respective policies. Unearned premium reserves are established for the
portion of premiums written applicable to the unexpired term of policies in
force.
Certain costs of underwriting new business, principally commissions, premium
taxes and variable underwriting and policy issue expenses, have been deferred.
Such costs are being amortized as premium revenue is recognized. The method
followed in computing deferred policy acquisition costs limits the amount of
such deferred costs to their estimated realizable value, which gives effect to
the premium to be earned, losses and expenses, and certain other costs expected
to be incurred as the premium is earned.
Unpaid losses and settlement expenses are based on estimates of reported and
unreported claims and related settlement expenses. While management believes the
reserve for claims and settlement expenses is adequate, the reserve is
continually reviewed and as adjustments become necessary, they are reflected in
current operations.
LIFE OPERATIONS
On traditional business, premiums are reported as earned when due, and
benefits and expenses are associated with premium income so as to result in the
recognition of profits over the lives of the related contracts. On universal
life and annuity (nontraditional) business, income and expenses are reported as
charged and credited to policyholder account balances through the use of the
retrospective deposit method. This method results in the recognition of profits
over the lives of the related contracts. These associations are accomplished by
means of the provision for future policy benefits and the deferral and
subsequent amortization of life policy acquisition costs.
19
<PAGE> 22
The costs of acquiring new life business, principally commissions and certain
variable underwriting, agency and policy issue expenses, have been deferred and
are being amortized to income over the premium paying period of the related
traditional policies in proportion to the ratio of the expected annual premium
revenue to the expected total premium revenue and over the anticipated lives of
nontraditional policies in proportion to the ratio of the expected annual gross
margins to the expected total gross margins. The expected premium revenue and
gross margins are based upon the same mortality and withdrawal assumptions used
in determining future policy benefits.
Liabilities for future policy benefits are computed by the net level premium
method using interest assumptions ranging from 4.5% to 8.0% and withdrawal,
mortality and morbidity assumptions appropriate at the time the policies were
issued. Health reserves are stated at amounts determined by estimates on
individual cases and estimates of unreported claims based on past experience.
Liabilities for universal life type and investment contracts are stated at
policyholder account values before surrender charges. Liabilities for
traditional immediate annuities are based primarily upon statutory reserves.
Policy claim liabilities are determined using actuarial estimates. These
estimates are based on historical information along with certain assumptions
about future events. Changes in assumptions for such things as medical costs,
environmental hazards, and legal actions, as well as changes in actual
experience could cause these estimates to change in the near term.
The Company expects to realize a spread of approximately 1.5% to 1.75%
between interest earned and interest credited on its Universal Life Plans and
deferred annuities, for which the liability is equal to total policy account
values plus deferred front-end loads.
INVESTMENTS
Investments in held-to-maturity fixed maturities are recorded at amortized
cost. The Company has the ability and intent to hold these investments until
maturity. If, however, a permanent impairment occurs in a security, the Company
writes the security down to the new value. Available-for-sale fixed maturities,
equity securities and other long-term investments are recorded at fair value.
Mortgage loans are recorded at the unpaid balance amount. Policy loans and
short-term investments are recorded at cost. Included in investments at December
31, 1996 and 1995, are securities on deposit with various regulatory authorities
as required by law with carrying values of $481,703,000 and $434,605,000,
respectively.
Realized gains or losses on disposition of investments are included in the
computation of net income. Cost of investments sold is determined by the
specific identification method. Changes in unrealized appreciation and
depreciation resulting from available-for-sale fixed maturities, equity
securities and other long-term investments, are reported as direct increases or
decreases in stockholders' equity, less applicable income taxes.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
and non-negotiable certificates of deposit with original maturities of three
months or less. Income taxes paid during 1996, 1995 and 1994 were $8,201,000,
$8,801,000, and $5,784,000, respectively. The Company received $2,074,000 in
interest on Federal income taxes in 1996, and paid $532,000 in interest on
Federal income taxes in 1994. There were no other significant payments of
interest other than interest credited on policyholders' accounts in 1996, 1995
or 1994.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment is carried at cost less accumulated depreciation.
Depreciation is computed primarily by the straight-line method over the
estimated useful lives of the underlying assets.
AMORTIZATION OF INTANGIBLES
Intangibles, including goodwill and agency relationships, are being amortized
by the straight-line method over periods of up to twenty-eight years.
20
<PAGE> 23
INCOME TAXES
The Company files a consolidated federal income tax return. Deferred tax
assets and liabilities are determined at the end of each period, based on
differences between the financial statement bases of assets and liabilities and
the tax bases of those same assets and liabilities, using the currently enacted
statutory tax rates. Deferred income tax expense is measured by the change in
the net deferred income tax asset or liability during the year.
BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all
employees. Under the plan, retirement benefits are primarily a function of the
number of years of service and the level of compensation. It is the Company's
policy to fund the plan on a current basis to the extent deductible under
existing tax regulations.
The Company has a defined benefit postretirement health care plan that covers
substantially all full-time employees. The plan pays stated percentages of most
necessary medical and dental expenses incurred by retirees, after subtracting
payments by Medicare or other providers and after a stated deductible has been
met. Participants become eligible for the benefits if they retire from the
Company after reaching age 59 1/2 with ten or more years of service and were a
member of the group medical plan for ten consecutive years. The plan is
contributory, with retiree contributions adjusted annually.
ACCOUNTING CHANGES
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". SFAS No. 115 addresses the accounting and reporting
for investments in equity securities that have readily determinable fair values
and for all investments in debt securities. The statement requires that those
investments be classified into the following three categories: 1) debt
securities that the enterprise has the positive intent and ability to hold to
maturity are classified as held-to-maturity securities and reported at amortized
cost; 2) debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities
and reported at fair value, with unrealized gains and losses included in
earnings; and 3) debt securities and marketable equity securities not classified
as either held-to-maturity securities or trading securities are classified as
available-for-sale securities and reported at fair value, with unrealized gains
and losses excluded from earnings and reported in a separate component of
stockholders' equity. Pursuant to the adoption of an implementation guide on
SFAS No. 115, the Company has reclassed a portion of its held-to-maturity
securities to the available-for-sale portfolio. Gross unrealized gains and
losses were recorded in available-for-sale securities. See Note 2 for discussion
of the reclassification.
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", effective
January 1, 1996. SFAS 121 requires the separation of long-lived assets and
certain identifiable intangibles into two categories for purposes of accounting
for an impairment of assets: those to be held and used and those to be disposed
of. The Company has intangibles to be held and used from the purchase of Addison
Farmers' Insurance Company and the assumption of a book of business in 1990.
SFAS 121 requires that intangibles to be held and used should be reviewed
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. The Company has determined that its intangible assets are
not impaired and has not written down their value.
The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for
Stock-Based Compensation" in October 1995, effective for fiscal years beginning
after December 15, 1995. SFAS No. 123 establishes an alternative fair
value-based method of accounting for stock options and other equity instruments.
The standard also requires significantly expanded disclosure on stock and equity
options. The Company does not issue equity instruments to employees or others in
exchange for goods or services, and therefore this statement has no impact on
the Company.
NOTE 2.
SUMMARY OF INVESTMENTS
In the fourth quarter of 1995, concurrent with the adoption of its
implementation guide on SFAS No. 115, the Financial Accounting Standards Board
allowed a one-time reassessment of the SFAS No. 115 classifications of all
securities currently held. Any reclassifications would be accounted for at fair
value in accordance with SFAS No. 115 and any reclassifications from the
held-to-maturity portfolio that resulted from this one-time reassessment would
not call into question the intent of the Company to hold other debt securities
to maturity in the future. The Company used the opportunity under this one-time
reassessment to reclassify $79,131,000 in securities from held-to-maturity to
the
21
<PAGE> 24
available-for-sale portfolio. In connection with this reclassification, gross
unrealized gains of $5,145,000 and gross unrealized losses of $908,000 were
recorded in available-for-sale securities and in stockholders' equity.
Approximately 26% of the current fixed maturity portfolio is collateralized
mortgage obligations ("CMOs"), compared to 31% at December 31, 1995. The Company
minimizes its prepayment risk by buying most issues priced at a slight discount.
While buying at a discount does not prevent prepayment, the yield is not
penalized as is the case when a premium is paid. In addition, although the
stated maturity is longer than the average life of the issues, the Company is
concentrating on buying issues with expected maturity in the
seven-to-twelve-year range.
A reconciliation of the amortized cost to fair values of investments in
held-to-maturity and available-for-sale fixed maturities, marketable equity
securities and other long-term investments as of December 31, 1996 and 1995 is
as follows.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Year Ended December 31, 1996 (Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Type of Investment Cost Appreciation Depreciation Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HELD-TO-MATURITY
Fixed Maturities
Bonds
United States
Government, government agencies and authorities
Collateralized mortgage obligations $ 27,552 $ 340 $ 849 $ 27,043
Mortgage-backed securities 22,780 1,938 2 24,716
All others 3,351 300 28 3,623
States, municipalities and political subdivisions 208,332 8,532 786 216,078
Foreign 6,842 199 45 6,996
Public utilities 79,793 381 1,077 79,097
Corporate bonds
Collateralized mortgage obligations 97,757 2,963 762 99,958
All other corporate bonds 204,731 7,252 953 211,030
- -----------------------------------------------------------------------------------------------------
Total held-to-maturity $651,138 $21,905 $4,502 $668,541
=====================================================================================================
AVAILABLE-FOR-SALE
Fixed Maturities
Bonds
United States
Government, government agencies and authorities
Collateralized mortgage obligations $ 49,899 $ 667 $1,320 $ 49,246
Mortgage-backed securities 64 5 - 69
All others 6,684 75 5 6,754
Public utilities 206 - 10 196
Corporate bonds
Collateralized mortgage obligations 11,848 87 928 11,007
All other corporate bonds 616 18 4 630
- -----------------------------------------------------------------------------------------------------
Total available-for-sale fixed maturities $ 69,317 $ 852 $2,267 $ 67,902
- -----------------------------------------------------------------------------------------------------
Equity securities
Common stocks
Public utilities $ 3,525 $ 4,973 $ - $ 8,498
Banks, trust and insurance companies 12,009 42,618 - 54,627
All other common stocks 9,514 18,106 308 27,312
Nonredeemable preferred stocks 850 47 20 877
- -----------------------------------------------------------------------------------------------------
Total equity securities $ 25,898 $65,744 $ 328 $ 91,314
- -----------------------------------------------------------------------------------------------------
Total available-for-sale $ 95,215 $66,596 $2,595 $159,216
=====================================================================================================
Other long-term investments $ 8,395 $ 1,612 $ 37 $ 9,970
=====================================================================================================
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
========================================================================================================
Year Ended December 31, 1995 (Dollars in Thousands)
- --------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Type of Investment Cost Appreciation Depreciation Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HELD-TO-MATURITY
Fixed Maturities
Bonds
United States
Government, government agencies and authorities
Collateralized mortgage obligations $ 27,751 $ 463 $ 183 $ 28,031
Mortgage-backed securities 28,141 2,394 - 30,535
All others 4,075 451 2 4,524
States, municipalities and political subdivisions 183,924 11,355 312 194,967
Foreign 6,856 535 - 7,391
Public utilities 52,178 653 509 52,322
Corporate bonds
Collateralized mortgage obligations 98,900 2,580 847 100,633
All other corporate bonds 187,862 12,124 474 199,512
- --------------------------------------------------------------------------------------------------------
Total held-to-maturity $589,687 $30,555 $ 2,327 $617,915
========================================================================================================
AVAILABLE-FOR-SALE
Fixed Maturities
Bonds
United States
Government, government agencies and authorities
Collateralized mortgage obligations $ 67,976 $ 4,626 $ 85 $ 72,517
Mortgage-backed securities 70 5 - 75
All others 331 8 1 338
Public utilities 206 - 7 199
Corporate bonds
Collateralized mortgage obligations 11,173 500 822 10,851
All other corporate bonds 708 23 4 727
- --------------------------------------------------------------------------------------------------------
Total available-for-sale fixed maturities $ 80,464 $ 5,162 $ 919 $ 84,707
- --------------------------------------------------------------------------------------------------------
Equity securities
Common stocks
Public utilities $ 3,561 $ 5,093 $ - $ 8,654
Banks, trust and insurance companies 11,964 30,142 102 42,004
All other common stocks 9,183 15,328 304 24,207
Nonredeemable preferred stocks 850 1 38 813
- --------------------------------------------------------------------------------------------------------
Total equity securities $ 25,558 $50,564 $ 444 $ 75,678
- --------------------------------------------------------------------------------------------------------
Total available-for-sale $106,022 $55,726 $ 1,363 $160,385
========================================================================================================
Other long-term investments $ 7,563 $ 1,215 $ 151 $ 8,627
========================================================================================================
</TABLE>
23
<PAGE> 26
The amortized cost and fair value of held-to-maturity and available-
for-sale fixed maturities at December 31, 1996, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------
DECEMBER 31, 1996 Held-to-maturity Available-for-sale
- ------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 8,367 $ 8,477 $ 49 $ 49
Due after one year through five years 135,034 140,756 874 879
Due after five years through ten years 160,797 164,934 3,247 3,259
Due after ten years 198,851 202,657 3,336 3,393
Mortgage-backed securities 22,780 24,716 64 69
Collateralized mortgage obligations 125,309 127,001 61,747 60,253
- -----------------------------------------------------------------------------------------
$651,138 $668,541 $69,317 $67,902
=========================================================================================
</TABLE>
Proceeds from sales of available-for-sale investments during 1996, 1995 and
1994 were $35,251,000, $1,344,000, and $246,000, respectively. Gross gains of
$3,499,000, $790,000 and $10,000, respectively, were realized on those sales.
Gross losses of $342,000 were realized on those sales in 1996. No losses were
realized on those sales in 1995 or 1994.
A summary of realized investment gains (losses) resulting from sales, calls
and maturities and net changes in unrealized investment appreciation
(depreciation), less applicable income taxes, is as follows.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(Dollars in Thousands)
- -------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Realized investment gains (losses)
Fixed maturities $ 2,966 $ 692 $ 1,055
Equity securities 1,843 791 (82)
Other investments (158) 215 (177)
- -------------------------------------------------------------------------------------------
$ 4,651 $ 1,698 $ 796
- -------------------------------------------------------------------------------------------
Net changes in unrealized investment appreciation
Available-for-sale fixed maturities,
equity securities and other long-term investments $ 10,149 $23,496 $ (1,462)
Income taxes (3,518) (8,223) 345
- -------------------------------------------------------------------------------------------
$ 6,631 $15,273 $ (1,117)
===========================================================================================
Net changes in unrealized investment appreciation
(depreciation), fixed maturities $(16,483) $54,671 $(52,761)
===========================================================================================
</TABLE>
24
<PAGE> 27
The net investment income for the years ended December 31, 1996, 1995 and
1994 is composed of the following.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
(Dollars in Thousands)
- ---------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income
Interest on fixed maturities $53,459 $50,913 $43,833
Dividends on equity securities 2,352 2,276 1,986
Interest on other long-term investments 1,819 1,075 1,696
Interest on mortgage loans 232 239 260
Interest on policy loans 571 530 497
Other 1,653 1,734 1,088
- ---------------------------------------------------------------------------------------
Total investment income $60,086 $56,767 $49,360
Less investment expenses 3,150 3,164 2,940
- ---------------------------------------------------------------------------------------
Investment income, net $56,936 $53,603 $46,420
=======================================================================================
</TABLE>
NOTE 3.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimated the fair value of its financial instruments, based on
relevant market information or by discounting estimated future cash flows at
estimated current market discount rates appropriate to the particular asset or
liability shown.
In most cases, quoted market prices were used in determining the fair value
of fixed maturities, equity securities and short-term investments. Where quoted
market prices were unavailable, the estimate was based on recent trading. Market
values for collateralized mortgage obligations were provided by a custodian.
Other long-term investments, consisting primarily of holdings in limited
partnership funds, are valued by the Fund Manager based on quoted market prices
for the underlying equity securities. In management's opinion, these values
reflect fair value at December 31, 1996 and 1995.
The estimated fair value of mortgage loans was based on the estimated
discounted future cash flows using 6.5% at December 31, 1996 and 7.0% at
December 31, 1995.
The book value of policy loans is considered to be fair value as the interest
rate is fixed and in management's opinion the interest rates in the existing
portfolio are comparable to current policy loan interest rates.
For accrued investment income, carrying value is a reasonable estimate of
fair value, due to its short-term nature.
The fair value of the liabilities for annuity products which are in a benefit
payment phase, guaranteed investment contracts and structured settlements are
based on a discount rate of 6.5% at December 31, 1996 and 1995. The fair value
of annuities currently in an accumulation phase is based on the net cash
surrender value.
25
<PAGE> 28
A summary of the carrying value and estimated fair value of assets and
liabilities meeting the definition of financial instruments at December 31, 1996
and 1995 is as follows.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------
At December 31, 1996 1995
- -----------------------------------------------------------------------------------------
FAIR CARRYING Fair Carrying
Assets VALUE VALUE Value Value
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments
Held-to-maturity fixed maturities $668,541 $651,138 $617,915 $589,687
Available-for-sale fixed maturities 67,902 67,902 84,707 84,707
Equity securities 91,314 91,314 75,678 75,678
Mortgage loans 3,425 2,959 3,683 3,041
Policy loans 7,591 7,591 7,163 7,163
Other long-term investments 9,970 9,970 8,627 8,627
Short-term investments 29,330 29,330 21,530 21,530
Other Assets
Accrued investment income 12,195 12,195 11,517 11,517
- -----------------------------------------------------------------------------------------
$890,268 $872,399 $830,820 $801,950
=========================================================================================
Liabilities
Policy Reserves
Annuity (Accumulations) $264,136 $273,419 $226,154 $232,718
Annuity (On-Benefits) 2,469 2,719 2,609 2,621
Structured settlements 240 411 359 325
Guaranteed investment contracts 1,638 2,111 1,287 1,617
- -----------------------------------------------------------------------------------------
$268,483 $278,660 $230,409 $237,281
=========================================================================================
</TABLE>
NOTE 4.
SHORT-TERM BORROWINGS
The Company maintains a $5 million line of credit with a local bank. Under
the terms of the agreement, interest on outstanding notes would be payable at
the lender's then prevailing prime rate.
The following is a summary of the Company's short-term borrowings that were
payable to a bank for the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at end of year $ - $ - $ 25
Maximum outstanding during the year - 35 925
Average amount outstanding during the year - 28 63
- ----------------------------------------------------------------------------------------
Weighted average interest rate - % 8.50% 7.46%
Weighted average interest rate during the year - 8.50 7.46
========================================================================================
</TABLE>
26
<PAGE> 29
NOTE 5.
REINSURANCE
PROPERTY AND CASUALTY OPERATIONS
The property and casualty insurance companies cede portions of their
insurance business to other insurance companies on both a pro rata and excess of
loss basis. Insurance ceded by the property and casualty insurance companies
does not relieve their primary liability as the originating insurers. Earned
premiums ceded were $27,106,000, $26,053,000 and $26,256,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. The Company believes all amounts
are collectible with regard to reinsurance receivables. There are no
concentrations of credit risk associated with reinsurance.
The property and casualty insurance companies also assume portions of their
insurance business from other insurance companies. Assumed premiums earned for
the years ended December 31, 1996, 1995 and 1994 were $38,545,000, $33,014,000
and $31,152,000, respectively.
LIFE OPERATIONS
United Life Insurance Company follows the policy of reinsuring that portion
of the risk in excess of $200,000 on the life of any individual. Policy benefit
reserves and claims are stated after deduction of reserves and claims applicable
to reinsurance ceded to other companies; however, United Life Insurance Company
is contingently liable for these amounts in the event such companies are unable
to pay their portion of the claims. The Company is contingently liable for ceded
insurance in force of $432,836,000 and $455,422,000 at December 31, 1996 and
1995, respectively. Approximately 70% of the Company's ceded life insurance in
force has been ceded to two reinsurers. The Company believes all amounts are
collectible with regard to reinsurance receivables.
NOTE 6.
LIABILITY FOR PROPERTY AND CASUALTY LOSSES AND SETTLEMENT EXPENSES
The following table provides an analysis of losses and loss adjustment
expenses ("LAE"), including a reconciliation of beginning and ending liability
balances for 1996 and 1995.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- -------------------------------------------------------------------------------------------------
At December 31, 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross liability for losses and LAE at beginning of year $198,403 $199,734
Less reinsurance receivables 9,703 19,081
- -------------------------------------------------------------------------------------------------
Net liability for losses and LAE at beginning of year $188,700 $180,653
Provision for losses and LAE for claims occurring in the current year 186,132 138,109
Decrease in estimated losses and LAE for claims occurring in prior years (29,129) (19,877)
- -------------------------------------------------------------------------------------------------
$345,703 $298,885
- -------------------------------------------------------------------------------------------------
Losses and LAE payments for claims occurring during
Current year $ 79,209 $ 55,323
Prior years 56,618 54,862
- -------------------------------------------------------------------------------------------------
$135,827 $110,185
- -------------------------------------------------------------------------------------------------
Net liability for losses and LAE at end of year $209,876 $188,700
Plus reinsurance receivables 11,331 9,703
- -------------------------------------------------------------------------------------------------
Gross liability for losses and LAE at end of year $221,207 $198,403
=================================================================================================
</TABLE>
The Consolidated Financial Statements include the estimated liability for
unpaid losses and LAE of the property and casualty lines of business. The
liabilities for losses and LAE are determined using case-basis evaluations and
represent estimates of the ultimate net cost of all unpaid losses and LAE
incurred (both reported and not reported) through December 31 of each year.
These estimates are continually reviewed and, as experience develops and new
information becomes known, the liability is adjusted as necessary. Such
adjustments, if any, are reflected in current operations.
In 1996, the Company experienced favorable loss development of $29,129,000 on
losses occurring in prior years. The lines of business contributing to this
redundancy included commercial multiple peril, other liability, personal auto
liability and workers' compensation lines.
27
<PAGE> 30
The Company is not aware of any significant contingent liabilities as far as
environmental issues are concerned. Because of the type of business the Company
writes, i.e. property coverage, there exists the potential for exposure for
environmental pollution and asbestos claims. The Company's underwriters are
aware of these exposures and use limited riders or endorsements to limit
exposure.
NOTE 7.
STATUTORY REPORTING, CAPITAL REQUIREMENTS AND DIVIDEND AND RETAINED EARNINGS
RESTRICTIONS
Statutory stockholders' surplus and net income at December 31, 1996, 1995 and
1994 and for the years then ended are as follows.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------
Statutory
Stockholders' Statutory
Surplus Net Income
- ----------------------------------------------------------------------------------------
<S> <C> <C>
1996
PROPERTY AND CASUALTY $177,263 $ 9,202
LIFE, ACCIDENT AND HEALTH 49,491 3,812
- ----------------------------------------------------------------------------------------
1995
Property and casualty $158,055 $23,213
Life, accident and health 45,911 2,224
- ----------------------------------------------------------------------------------------
1994
Property and casualty $125,317 $19,621
Life, accident and health 34,450 2,042
========================================================================================
</TABLE>
The Company and its insurance subsidiaries prepare their statutory financial
statements in conformity with practices prescribed or permitted by their state
of domicile. Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners ("NAIC"), as
well as state laws, regulations, and general administrative rules. Permitted
statutory accounting practices are used when prescribed statutory practices do
not address the accounting for transactions. The Company does not use permitted
practices that individually or in the aggregate materially affect statutory
surplus or risk-based capital.
The State of Iowa Insurance Department imposes certain capital requirements
on insurance companies on a statutory basis. Under the applicable regulations,
United Fire & Casualty Company is required to maintain minimum capital stock of
$2,500,000 and minimum additional paid-in capital and retained earnings in the
aggregate amount of $2,500,000. At December 31, 1996, United Fire & Casualty
Company's capital stock was $35,759,000 and total statutory paid-in capital
and retained earnings were $141,504,000
The amount of dividends that may be paid to stockholders without prior
approval by the State of Iowa Insurance Department is limited to the excess of
statutory retained earnings over contributed surplus. Contributed surplus as of
December 31, 1996, was $8,069,000. Based upon this restriction, the Company
could make a maximum of $125,366,000 in dividend distributions to stockholders
in 1997. Dividend payments by the insurance subsidiaries to the Company are
subject to similar restrictions in the states in which they are domiciled. The
Company received no dividends from its subsidiaries in 1996 or 1995.
In addition, the insurance departments governing the Company and its
subsidiaries have imposed risk-based capital ("RBC") requirements. The
regulation is based on a model adopted by the NAIC. An RBC formula establishes
capital requirements for insurance companies based on an individual company's
major areas of risk, including assets, credit, underwriting and off-balance
sheet risk. The results are used by the NAIC and state insurance departments to
identify companies that merit regulatory attention or the initiation of
regulatory action. At December 31, 1996 and 1995, the life and property and
casualty segments had adjusted capital well in excess of the required capital
levels.
28
<PAGE> 31
NOTE 8.
FEDERAL INCOME TAXES
Federal income tax expense is composed of the following.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $ 7,195 $7,015 $6,298
Deferred (1,778) 2,232 (70)
- ----------------------------------------------------------------------------------------
Total $ 5,417 $9,247 $6,228
========================================================================================
</TABLE>
A reconciliation of income tax expense computed at the applicable Federal tax
rate of 35% in 1996, 1995 and 1994 to the amount recorded in the Consolidated
Financial Statements is as follows.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected rate $9,489 $13,318 $10,062
Reduction for tax-exempt municipal bond interest income (4,227) (4,057) (4,015)
Reduction of nontaxable dividend income (534) (520) (458)
Other, net 689 506 639
- ----------------------------------------------------------------------------------------
Federal income taxes, as provided $5,417 $ 9,247 $ 6,228
========================================================================================
</TABLE>
The significant components of the net deferred tax liability at December 31,
1996 and 1995 are as follows.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------
At December 31, 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Financial statement reserves in excess of income tax reserves $18,344 $15,848
Unearned premium adjustment 6,606 6,240
Postretirement benefits other than pensions 1,279 1,024
Salvage and subrogation 646 536
Pension 1,065 969
Other 2,758 3,827
- ------------------------------------------------------------------------------------------
Gross deferred tax assets $30,698 $28,444
- ------------------------------------------------------------------------------------------
Deferred tax liabilities
Deferred acquisition costs $17,215 $16,370
Net unrealized appreciation 22,750 19,232
Depreciation on assets 1,198 1,191
Net bond discount accretion and premium amortization 1,378 1,613
Other 851 992
- ------------------------------------------------------------------------------------------
Gross deferred tax liability $43,392 $39,398
- ------------------------------------------------------------------------------------------
Net deferred tax liability $12,694 $10,954
==========================================================================================
</TABLE>
29
<PAGE> 32
NOTE 9.
EMPLOYEE BENEFIT OBLIGATIONS
As permitted by SFAS No. 87, "Employers' Accounting for Pensions", the
Company uses September 30 as the date for measuring plan assets and liabilities
in order to obtain information necessary for the preparation of the financial
statements on a timely basis.
The following table sets forth the funded status of the Company's qualified
pension plan and amounts recognized in the Consolidated Financial Statements.
<TABLE>
<CAPTION>
==================================================================================================
(Dollars in Thousands)
- --------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of accumulated obligation at September
30, 1996, 1995 and 1994
Vested benefit obligation $(14,301) $(10,697) $ (7,955)
==================================================================================================
Accumulated benefit obligation $(14,713) $(11,122) $ (8,466)
==================================================================================================
Projected benefit obligation $(18,299) $(14,307) $ (10,264)
Plan assets at fair value at September 30, 1996, 1995 and 1994 15,045 13,318 11,520
- --------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) projected benefit
obligation at September 30, 1996, 1995 and 1994 $ (3,254) $ (989) $ 1,256
Unrecognized net asset (established January 1, 1987) (137) (185) (232)
Unrecognized prior service cost 1,229 4 4
Unrecognized net loss (911) (1,598) (3,548)
- ---------------------------------------------------------------------------------------------------
Pension liability $ (3,073) $ (2,768) $ (2,520)
==================================================================================================
Net pension cost includes the following components
Service cost-benefits earned during the period $ 655 $ 505 $ 958
Interest cost on projected benefit obligations 1,051 806 817
Actual return on plan assets (1,753) (2,165) (980)
Net amortization and deferral 640 1,102 331
- --------------------------------------------------------------------------------------------------
Net periodic pension cost $ 593 $ 248 $ 1,126
==================================================================================================
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of projected benefit obligation was 7.5% at September 30, 1996,
7.0% at September 30, 1995 and 8.25% at September 30, 1994. The rate of increase
in future compensation levels was 4.5% at September 30, 1996 and 4.0% at
September 30, 1995 and 1994. The expected long-term rate of return on plan
assets was 8.0% at September 30, 1996, and 7.5% at September 30, 1995 and 1994.
The Company has a profit sharing plan in which employees who meet age and
service requirements are eligible to participate. The amount of the Company's
contribution is discretionary and is determined annually but cannot exceed the
amount deductible for Federal income tax purposes. The Company's contribution to
the plan for the years ended December 31, 1996, 1995 and 1994 was $717,000,
$1,561,000 and $649,000, respectively.
The Company also has an Employee Stock Ownership Plan for the benefit of
eligible employees and their beneficiaries. All employees are eligible to
participate in the plan upon completion of one year of service and attaining age
twenty-one. Contributions to this plan are made at the discretion of the Board
of Directors. These contributions are based upon a percentage of total payroll
and are allocated to participants on the basis of compensation. Contributions
are made in cash which is used by the Trustee to acquire shares of the Company
stock to allocate to participants' accounts. As of December 31, 1996, 1995 and
1994, the Trustee owned 92,806, 86,712 and 86,306 shares of Company stock,
respectively. The Company's incurred contribution to the Plan was $142,000 for
the year ended December 31, 1996 and zero for the years ended December 31, 1995
and 1994.
30
<PAGE> 33
The following table reconciles the accrued postretirement benefit liability
and amounts recognized in the Consolidated Financial Statements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------
At December 31, 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation
Retirees $(1,831) $(1,411)
Other fully eligible participants (901) (901)
Other active participants (2,899) (2,578)
- ------------------------------------------------------------------------------
(5,631) (4,890)
Unrecognized prior service cost 206 247
Unrecognized actuarial loss 1,734 1,718
- ------------------------------------------------------------------------------
Accrued postretirement benefit liability $(3,691) $(2,925)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- -------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits attributed to service during the year $ 356 $ 239 $ 201
Interest cost on accumulated postretirement benefit obligation 342 286 222
Amortization of prior service cost 40 40 40
Amortization of actuarial loss 132 45 79
- -------------------------------------------------------------------------------------------------
Net postretirement benefit expense $ 870 $ 610 $ 542
=================================================================================================
</TABLE>
The unrecognized prior service cost and actuarial loss are being amortized on
a straight-line basis over an average period of eight years. This period
represents the average remaining employee service period until the date of full
eligibility.
For medical claims, a health care cost trend rate of 9.5% was assumed for
1997, decreasing annually to 6.0% in 2006. For dental claims, a health care cost
trend rate of 7.0% was assumed for 1997, decreasing annually to 5.5% in 2006.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1996 by $1,232,000 and the
aggregate of the service and interest cost components of net postretirement
benefit expense for the year then ended by $178,000. The weighted-average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% and 7.0% as of December 31, 1996 and 1995, respectively.
31
<PAGE> 34
NOTE 10.
OPERATIONS IN DIFFERENT INDUSTRIES
The Company conducts its operations principally in two industries, property
and casualty insurance and life insurance.
Total revenue by industry includes sales to both outside customers and
intersegment sales which are eliminated to arrive at the total revenues as
reported in the Company's Consolidated Statements of Operations. Intersegment
sales are accounted for on the same basis as sales to outside customers. The
following table sets forth certain data for each of the Company's business
segments.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property and casualty insurance
Net premiums earned $215,470 $185,994 $166,852
Loss and loss adjustment expenses 155,820 118,231 108,810
Underwriting and acquisition expenses 73,371 61,091 56,187
- ----------------------------------------------------------------------------------------
Underwriting income (loss) $(13,721) $ 6,672 $ 1,855
Investment income, net 21,349 21,009 19,006
Realized investment gains and other income 5,365 1,174 172
Commission and policy fee income 1,904 1,863 1,889
- ----------------------------------------------------------------------------------------
Operating earnings $ 14,897 $ 30,718 $ 22,922
========================================================================================
Assets $496,808 $453,854 $413,350
========================================================================================
Life insurance
Net premiums earned $ 19,435 $ 21,639 $ 17,896
Investment income, net 35,720 32,609 27,659
Realized investment gains and other income 1,361 524 624
- ----------------------------------------------------------------------------------------
Total revenues $ 56,516 $ 54,772 $ 46,179
Benefits, underwriting and acquisition expenses 44,036 47,440 40,352
- ----------------------------------------------------------------------------------------
Operating earnings $ 12,480 $ 7,332 $ 5,827
========================================================================================
Assets $528,027 $483,740 $410,580
========================================================================================
Premium revenue between segments $ 108 $ 105 $ 100
========================================================================================
</TABLE>
Depreciation expense and property and equipment acquisitions for the years ended
December 31, 1996, 1995 and 1994 are reflected in the property and casualty
insurance segment.
32
<PAGE> 35
NOTE 11.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth selected quarterly financial information of the
Company.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Data)
- ----------------------------------------------------------------------------------------------
Quarters First Second Third Fourth Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1996
TOTAL REVENUES $74,101 $71,592 $76,316 $78,265 $300,274
==============================================================================================
NET INCOME $ 8,755 $ 5,161 $ 1,299 $ 6,745 $ 21,960
==============================================================================================
NET INCOME PER COMMON SHARE $ . 81 $ .48 $ .12 $ .63 $ 2.04
==============================================================================================
Fiscal year ended December 31, 1995
Total revenues $64,593 $64,362 $66,902 $68,733 $264,590
==============================================================================================
Net income $ 6,248 $ 7,243 $ 6,561 $ 8,751 $ 28,803
==============================================================================================
Net income per common share $ .58 $ .67 $ .60 $ .81 $ 2.66
==============================================================================================
</TABLE>
Net income per common share has been retroactively restated for additional
shares issued as a result of a three for two stock split to stockholders of
record as of December 18, 1995.
NOTE 12.
NET INCOME AND DIVIDENDS PER COMMON SHARE
The Company declared a three for two stock split in the form of a 50% stock
dividend to stockholders of record as of December 15, 1994 and again, as of
December 18, 1995. Cash dividends per common share of $.60 and $.55 were
declared in 1996 and 1995, respectively. Net income per common share, weighted
average common shares outstanding and cash dividends declared per common share
have been retroactively restated for all periods presented.
33
<PAGE> 36
(THIS PAGE INTENTIONALLY LEFT BLANK)
34
<PAGE> 37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF UNITED FIRE & CASUALTY COMPANY:
We have audited the accompanying consolidated balance sheets of United Fire &
Casualty Company (an Iowa corporation) and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These consolidated financial statements and the schedules referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements and schedules
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Fire & Casualty Company
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary data (Schedule III -
Supplementary insurance information, Schedule IV - Reinsurance, and Schedule VI
- - Supplemental information concerning property and casualty insurance
operations) are presented for purposes of additional analysis and are not a
required part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Chicago, Illinois
February 20, 1997
35
<PAGE> 38
(THIS PAGE INTENTIONALLY LEFT BLANK)
36
<PAGE> 39
INDEX TO SUPPLEMENTARY SCHEDULES
Consolidated Schedules
III -- Supplementary insurance information 38
IV -- Reinsurance 39
VI -- Supplemental information concerning property and
casualty insurance operations 40
All other schedules have been omitted as not required, not applicable, not
deemed material or because the information is included in the Consolidated
Financial Statements.
37
<PAGE> 40
<TABLE>
<CAPTION>
SCHEDULE III. SUPPLEMENTARY INSURANCE INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
Future
Policy
Benefits, Benefits, Amortization
Deferred Losses, Claims, of Deferred Other Interest on
Policy Claims Earned Realized Net Losses and Policy Under- Policy-
Acquisition and Loss Unearned Premium Investment Investment Settlement Acquisition writing holders' Premiums
Costs Expenses Premiums Revenue Gains Income Expenses Costs Expenses Accounts Written
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1996
Property and casualty $18,376 $221,207 $ 99,840 $215,470 $ 5,365 $21,216 $155,820 $43,912 $29,249 $ - $221,934
Life, accident and health 37,707 431,582 5,168 19,327 1,361 35,720 14,290 4,452 4,473 20,701 20,305(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Total $56,083 $652,789 $105,008 $234,797 $ 6,726 $56,936 $170,110 $48,364 $33,722 $20,701 $242,239
====================================================================================================================================
(1) Accident and health insurance premiums written.
<CAPTION>
Year Ended
December 31, 1995
Property and casualty $19,266 $198,403 $ 92,798 $185,994 $ 1,174 $20,994 $118,231 $39,208 $21,775 $ - $197,546
Life, accident and health 33,404 393,603 4,014 21,534 524 32,609 15,012 5,349 6,437 20,528 22,072(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Total $52,670 $592,006 $ 96,812 $207,528 $ 1,698 $53,603 $133,243 $44,557 $28,212 $20,528 $219,618
====================================================================================================================================
(1) Accident and health insurance premiums written.
<CAPTION>
Year Ended
December 31, 1994
Property and casualty $15,870 $203,911 $ 80,629 $166,852 $ 172 $18,761 $108,810 $33,950 $22,099 $ - $175,641
Life, accident and health 31,675 344,096 2,821 17,896 624 27,659 13,552 3,414 6,211 17,060 18,338(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Total $47,545 $548,007 $ 83,450 $184,748 $ 796 $46,420 $122,362 $37,364 $28,310 $17,060 $193,979
====================================================================================================================================
(1) Accident and health insurance premiums written.
Certain amounts included in this schedule for earlier years have been
reclassified to conform with the 1996 financial statement presentation.
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
SCHEDULE IV. REINSURANCE
- ---------------------------------------------------------------------------------------
(Dollars in Thousands)
- ---------------------------------------------------------------------------------------
Percentage
Gross Ceded to Assumed Net of Amount
Amount Other From Other Amount Assumed to
Earned Companies Companies Earned Net Earned
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Life insurance in force $3,230,213 $432,836 $ - $2,797,377 0.0%
Premiums:
Property and casualty $ 204,031 $ 27,106 $38,545 $ 215,470 17.89%
Life insurance 18,338 1,059 - 17,279 0.00%
Accident and health insurance 2,237 189 - 2,048 0.00%
- ---------------------------------------------------------------------------------------
Total $ 224,606 $ 28,354 $38,545 $ 234,797 16.42%
=======================================================================================
Year ended december 31, 1995
Life insurance in force $3,133,052 $455,422 $ - $2,677,630 0.0%
Premiums:
Property and casualty $ 179,033 $ 26,053 $33,014 $ 185,994 17.75%
Life insurance 20,881 1,066 - 19,815 0.00%
Accident and health insurance 1,915 196 - 1,719 0.00%
- ---------------------------------------------------------------------------------------
Total $ 201,829 $ 27,315 $33,014 $ 207,528 15.91%
=======================================================================================
Year ended december 31, 1994
Life insurance in force $3,222,695 $531,558 $ - $2,691,137 0.0%
Premiums:
Property and casualty $ 161,956 $ 26,256 $31,152 $ 166,852 18.67%
Life insurance 18,218 1,837 - 16,381 0.00%
Accident and health insurance 1,692 177 - 1,515 0.00%
- ---------------------------------------------------------------------------------------
Total $ 181,866 $ 28,270 $31,152 $ 184,748 16.86%
=======================================================================================
Certain amounts included in this schedule for earlier years have been
reclassified to conform with the 1996 financial statement presentation.
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
SCHEDULE VI. SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE
OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
Claims and Claim
Affiliation with Reserves Adjustment Expenses
Registrant: for Unpaid Incurred Related to Amoritization
Company and Deferred Claims and -------------------- of Deferred Paid Claims
consolidated Policy Claim Realized Net (1) (2) Policy and Claim
property and Acquisition Adjustment Unearned Earned Investment Investment Current Prior Acquisition Adjustment Premiums
casualty subsidiaries Costs Expenses Premiums Premiums Gains Income Year Years Costs Expenses Written
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1996 $18,376 $ 221,207 $ 99,840 $215,470 $ 5,365 $21,216 $ 186,132 $ (29,129) $ 43,912 $ 135,827 $221,934
====================================================================================================================================
Year Ended
December 31, 1995 $19,266 $ 198,403 $ 96,812 $185,994 $ 1,174 $20,994 $ 138,109 $ (19,877) $ 41,814 $ 110,185 $197,546
====================================================================================================================================
Year Ended
December 31, 1994 $15,870 $ 203,911 $ 80,629 $166,852 $ 172 $18,761 $ 125,918 $ (17,107) $ 33,950 $ 98,956 $175,641
====================================================================================================================================
Certain amounts included in this schedule for earlier years have been
reclassified to conform with the 1996 financial statement presentation.
</TABLE>
40
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS OF THE COMPANY:
NAME (AGE) PRESENT POSITION, NAME AND PRINCIPAL BUSINESS OF
DIRECTOR
Scott McIntyre Jr. (63) Chairman of the Board, President and Chief
Executive Officer,
United Fire & Casualty Company
Robert J. Bevenour (68) Retired
James T. Brophy (69) Vice Chairman of the Board
Jack B. Evans (48) President, Hall-Perrine Foundation
Roy L. Ewen (74) Retired
Harold A. Hagen (70) Retired
Casey D. Mahon (45) Vice President and General Counsel, McLeod, Inc.,
Cedar Rapids, Iowa
Leonard J. Marshall (67) Retired
Thomas K. Marshall (63) Retired
Byron G. Riley (66) Attorney, Firm of Bradley & Riley, P.C.
EXECUTIVE OFFICERS OF THE COMPANY:
NAME (AGE) OFFICE HELD (TENURE IN YEARS)
Scott McIntyre Jr. (63) Chairman of the Board, President, and Chief
Executive Officer,
General Manager (30) and Director (40)
Kent G. Baker (53) Vice President and Chief Financial Officer (12)
John R. Cruise (55) Vice President, Reinsurance (10)
E. Dean Fick (52) Vice President, Claims (5), employed by Grinnell
Mutual Reinsurance Company
24 years prior, serving as Senior Vice President,
Claims (1987-1991)
Shona Frese (52) Corporate Secretary, employed by the Company for
the past 30 years
Maynard L. Hansen (65) Vice President, Fidelity and Surety (8)
David L. Hellen (44) Vice President, Denver Branch Office (9)
Wilburn J. Hollis (56) Vice President, Human Resources, employed by the
Company since June, 1996. Director of Human
Resources at Norwest Financial in Des Moines,
Iowa from 1989-1996
E. Addison Hulit (57) Vice President, Lombard Branch Office (1),
employed by the Company for the past 4 years,
employed by Transamerica Insurance from 1991 to
1993; and Traveler's Insurance for the 21 years
prior
Robert B. Kenward (54) Vice President, Data Processing (4), employed by
the Company for the past 18 years
Gerald D. Seidl (63) General Counsel (28)
Richard B. Swain (39) Vice President, Lincoln Branch Office since
November, 1996, employed by the Company for the
past 3 years, employed by the Allied Group for
the 7 years prior
Galen E. Underwood (56) Treasurer (18)
Stanely A. Wiebold (52) Vice President, Underwriting (11)
41
<PAGE> 44
DIRECTORS OF SUBSIDIARY COMPANIES:
UNITED LIFE INSURANCE COMPANY ADDISON FARMERS' INSURANCE INSURANCE BROKERS &
C. Richard Ekstrand COMPANY MANAGERS, INC.
John A. Rife James T. Brophy Kent G. Baker
Byron G. Riley E. Addison Hulit Carlyn K. Lewis
Gerald D. Seidl Scott McIntyre Jr. Scott McIntyre Jr.
Gerald D. Seidl
LAFAYETTE INSURANCE COMPANY CRABTREE PREMIUM FINANCE
COMPANY
P. Eric Croussilac
Carylyn K. Lewis Scott McIntyre Jr.
Scott McIntyre Jr. E. Addison Hulit
Gerald D. Seidl
Leo F. Wegmann Jr.
OFFICERS OF THE COMPANY:
UNITED FIRE & CASUALTY COMPANY
Chairman, President and Chief Executive Officer
Scott McIntyre Jr.
General Counsel
Gerald D. Seidl
Vice Presidents
Kent G. Baker
John R. Cruise
E. Dean Fick
Maynard L. Hansen
David L. Hellen
Wilburn J. Hollis
E. Addison Hulit
Robert B. Kenward
Richard B. Swain
Stanley A. Wiebold
Secretary
Shona Frese
Assistant Secretaries
Lucretia L. Canning
Donna M. Fugate
Treasurer
Galen E. Underwood
Assistant Vice Presidents
John T. Anderson Jr.
Robert J. DeCamp
Dayton E. Roberts
42
<PAGE> 45
OFFICERS OF SUBSIDIARY COMPANIES:
UNITED LIFE INSURANCE COMPANY CRABTREE PREMIUM FINANCE COMPANY
Chairman Chairman and President
Scott McIntyre Jr. Scott McIntyre Jr.
President Vice President
John A. Rife Theresa J. McArthur
Vice Presidents Secretary
Ronald D. Brandt Christine Prete
Rickey L. Pettyjohn
Treasurer
Secretary Kent G. Baker
Jean N. Newlin Schnake
Treasurer INSURANCE BROKERS & MANAGERS, INC.
Samuel E. Hague Chairman
Scott McIntyre Jr.
LAFAYETTE INSURANCE COMPANY
Chairman President
Scott McIntyre Jr. P. Eric Croussilac
President Secretary
Carlyn K. Lewis Betty S. Castro
Secretary Treasurer
Leo F. Wegmann Jr. Kent G. Baker
ADDISON FARMERS' INSURANCE
COMPANY
Chairman
Scott McIntyre Jr.
President
E. Addison Hulit
Vice Presidents
Robert A. Andretich
Russell P. Shulfer
Secretary
Linda J. Pearson
Treasurer
Kent G. Baker
43
<PAGE> 46
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation includes the amount expensed for financial reporting
purposes under the Company's qualified profit sharing (401(k)) plan. All
employees of the Company are eligible to participate after they have completed
six months of service with the Company and have attained twenty-one years of
age. The plan is not integrated with social security, and provides for employer
contributions in such amounts as the Board of Directors may annually determine.
The benefit payable under the plan is equal to the vested account balance.
Executive Compensation includes the amounts expensed for financial reporting
purposes as contributions to the Company's pension plan for the named
individuals. The pension plan is a noncontributory plan which is integrated with
social security. All employees of the Company are eligible to participate after
they have completed one year of service, attained twenty-one years of age and
have met hourly requirements with the Company. The normal retirement pension
payable under the plan is based on the employee's highest average monthly
earnings for five (5) consecutive years of employment, and provides a benefit of
1.25% of average annual wages, plus .5% of average annual wages in excess of
covered compensation all times years of service with a maximum of 35 years.
The pension plan owned 101,029 shares of the Company common stock as of
December 31, 1996, and has made deposits with United Life Insurance Company to
be used by the plan to purchase retirement annuities from that company. The
annuity fund maintained by United Life Insurance Company is credited with
compound interest on the average fund balance for the year. The interest rate
will be equivalent to the ratio of net investment income to mean assets of
United Life Insurance Company.
In 1983, the Company adopted the United Lafayette Employee Stock Ownership
Plan. Effective January 1, 1988, the Plan was amended to convert the Tax Credit
Employee Stock Ownership Plan to an Employee Stock Ownership Plan. The Plan is
for the benefit of eligible employees and their beneficiaries. All employees are
eligible to participate in the Plan upon completion of one year of service,
attaining age twenty-one and have met hourly requirements with the Company.
Contributions to this plan are made at the discretion of the Board of Directors.
These contributions are based upon a percentage of total payroll and are
allocated to participants on the basis of compensation. Contributions are made
in cash which is used by the Trustee to acquire shares of the Company stock to
allocate to participants' accounts. As of December 31, 1996, 1995 and 1994, the
Trustee owned 92,806, 86,712 and 86,306 shares of Company common stock,
respectively. The Company's incurred contribution to the Plan was $142,000 for
the year ended December 31, 1996 and zero for the years ended December 31, 1995
and 1994.
The following table summarizes the compensation of the Company's Chief
Executive Officer, the four most highly compensated executive officers, and a
former executive officer, for the last three years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (1)
ANNUAL COMPENSATION
================================================================================================
Principal
Name Position Year Salary Bonus
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scott McIntyre, Jr. Chairman, President & CEO 1996 $270,000.00(2) $75,000.00(3)
Scott McIntyre, Jr. Chairman & CEO 1995 250,000.00 57,500.00
Scott McIntyre, Jr. Chairman and CEO 1994 230,000.00 -
- ------------------------------------------------------------------------------------------------
Gary L. Huber Former President and Former COO 1996 $160,000.00(4) $24,000.00(3)
Gary L. Huber President and COO 1995 150,000.00 21,150.00
Gary L. Huber President and COO 1994 141,000.00 -
- ------------------------------------------------------------------------------------------------
E. Dean Fick Vice President - Claims 1996 $120,000.00(4) $17,520.00(5)
E. Dean Fick Vice President - Claims 1995 109,500.00 7,799.99
E. Dean Fick Vice President - Claims 1994 103,999.93 -
- ------------------------------------------------------------------------------------------------
Maynard L. Hansen Vice President - Fidelity and Surety 1996 $115,497.19(4) $16,000.01(5)
- ------------------------------------------------------------------------------------------------
Kent G. Baker Vice President and CFO 1996 $ 94,668.96(4) $13,600.01(5)
- ------------------------------------------------------------------------------------------------
Stanley A. Wiebold Vice President - Underwriting 1996 $ 93,044.13(4) $13,360.01(5)
- ------------------------------------------------------------------------------------------------
</TABLE>
Footnotes to summary compensation table are on the following page.
44
<PAGE> 47
Footnotes to summary compensation table:
(1) Pursuant to SEC rules, the column "Other Annual Compensation" was omitted
because, in all cases, the amounts were less than the minimum required to be
reported.
(2) Fixed by Compensation Committee in February of each year. Present salary was
fixed at February, 1997 meeting.
(3) Bonus, if any, determined at the regular meeting of the Directors in
February of each year based on prior year performance.
(4) Determined by Chairman and CEO. Salary is determined in December of each
year and will be reviewed annually in December.
(5) Determined by the bonus plan in effect for all salaried employees based on
the performance for the preceding year.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
- ---------------------------------------------------------------------------------------
Years of Service
- ---------------------------------------------------------------------------------------
Salary 15 20 25 30 35
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
88,000 21,032 28,042 35,053 42,063 49,074
90,000 21,557 28,742 35,928 43,113 50,299
95,592 23,024 30,699 38,374 46,049 53,724
100,000 24,182 32,242 40,303 48,363 56,424
120,000 29,432 39,242 49,053 58,863 68,674
150,000 37,307 49,742 62,178 74,613 87,489
160,000 39,932 53,242 66,553 79,863 93,174
- ---------------------------------------------------------------------------------------
</TABLE>
The pension plan provides a benefit of 1.25% of average annual wages, plus
.5% of average annual wages in excess of covered compensation, all times years
of service (maximum 35 years). Wages are limited to $150,000 for pension plan
purposes by the IRS (this limit will be increased to $160,000 effective January
1, 1997).
Pension figures for Scott McIntyre, Jr., Chairman, President and CEO and
Gary L. Huber, former President and former COO are based on $150,000 annual
salary. Pension figures for E. Dean Fick, Vice President - Claims, are based on
$120,000 annual salary. Pension figures for Maynard L. Hansen, Vice President -
Fidelity and Surety are based on $95,592 annual salary. Pension figures for Kent
G. Baker, Vice President and CFO are based on $90,000 annual salary. Pension
figures for Stanley A. Wiebold, Vice President - Underwriting are based on
$88,000 annual salary. Bonuses paid to officers are not included in pensionable
wages.
Director Compensation
- ---------------------
Non-employee directors are paid a fee of $500 per meeting attended, plus
direct expenses, for attendance at director's meetings. When there is a
committee meeting, the director serving on that committee receives an additional
$400. An annual retainer of $2,500 is paid to each non-employee director with
the exception of the Vice Chairman who receives an annual retainer of $10,000.
45
<PAGE> 48
The following graph compares the cumulative total stockholder return on Common
Stock for the last five fiscal years with the cumulative total return of the S&P
500 Index and S&P Property-Casualty Insurance Index, assuming an investment of
$100 in each of the above at their closing prices on December 31, 1991 and
reinvestment of dividends.
TOTAL SHAREHOLDER RETURNS
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
INDEXED RETURNS
YEARS ENDING
Company/Index Dec91 Dec92 Dec93 Dec94 Dec95 Dec96
<S> <C> <C> <C> <C> <C> <C>
UNITED FIRE & CAS CO 100 136.79 136.99 149.89 233.47 299.16
S&P Property-Casualty Insurance 100 117.11 115.04 120.67 163.38 198.53
S&P 500 Index 100 107.62 118.46 120.03 165.13 203.05
</TABLE>
46
<PAGE> 49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The following table sets forth information as of March 1, 1997, with
respect to ownership of the Company's $3.33 1/3 par value common stock by
principal security holders. Except as otherwise indicated, each of the persons
named below has sole voting and investment powers with respect to the shares
indicated.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Amount
and Nature Percent
of Beneficial of
Name of Beneficial Owner Address of Beneficial Owner Ownership Class
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Scott McIntyre, Jr. (1) Cedar Rapids, Iowa 1,547,683 14.43%
Mildred R. McIntyre (1) Cedar Rapids, Iowa 1,176,121 10.96%
General Accident Corporation of America Philadelphia, Pennsylvania 2,650,680 24.71%
Susan M. Carlton (1) Orchard Park, New York 366,536 3.42%
Margaret Pless (1) Durham, North Carolina 335,537 3.13%
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Scott McIntyre Jr., Mildred R. McIntyre, Susan M. Carlton and Margaret pless
are all members of the same family. Included in the number of shares owned by
Scott McIntyre, Jr. are 371,812 shares which he owns in his capacity as Trustee
of three trusts, one of which his children are the beneficiaries, one of which
his wife is the beneficiary, and the other of which all of Mildred R. McIntyre's
grandchildren are the beneficiaries. Included in the number of shares owned by
Mildred R. McIntyre are 533,245 shares which she owns in her capacity as Trustee
of a trust in which she also has a life interest, and in which Scott McIntyre
Jr., Susan M. Carlton and Margaret Pless each have an equal interest in the
remainder.
(B) SECURITY OWNERSHIP OF MANAGEMENT.
The following table sets forth information as of March 1, 1997, with
respect to ownership of the Company's $3.33 1/3 par value common stock by
management. Except as otherwise indicated, each of the persons named below has
sole voting and investment powers with respect to the shares indicated.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Percent
Amount and Nature of
Name of Beneficial Owner of Beneficial Ownership Class
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Scott McIntyre, Jr. (1) 1,547,683 14.43%
Roy L. Ewen 83,601 0.78%
Harold A. Hagen 4,282 0.04%
Robert J. Bevenour 3,200 0.03%
Byron G. Riley, Jr. 2,806 0.03%
James T. Brophy 11,500 0.11%
Thomas K. Marshall 2,192 0.02%
Leonard J. Marshall 1,000 0.01%
Casey D. Mahon 2,000 0.02%
Jack B. Evans 4,134 0.04%
Christopher R. Drahozal 104,739 0.98%
32 officers and directors as a group 1,792,807 16.71%
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Included in the number of shares owned by Scott McIntyre Jr., are
121,500 shares held in the name of J. Scott McIntyre, Trustee of the
Mildred Reynolds McIntyre trust, and 225,000 shares held in the name of
Scott Mcintyre Jr., or successor, Dee Ann McIntyre Trust and 25,312 shares
held in the name of Scott McIntyre, Jr., Irrevocable Trust.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
47
<PAGE> 50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
----
(a) 1. and 2. Financial statements and financial statement schedules 15
(a) 3. Exhibits
3 (i) Articles of Incorporation of United Fire &
Casualty Company, incorporated by reference from
Registrant's Registration Statement, (File No.
2-39621) filed with the Commission on May 1, 1986.
3 (ii) By Laws of United Fire & Casualty Company, as
amended, incorporated by reference from the
Registrant's Registration Statement,
(File No. 2-39621) filed with the Commission on
May 1, 1986.
11 Computation of Earnings Per Share
21 Subsidiaries of the Registrant
27 Financial Data Schedule
28 Information from reports furnished to State
Insurance Regulatory Authorities (filed by paper)
(b) A report on Form 8-K was filed on November 21, 1996, regarding the
announcement that Gary L. Huber resigned from United Fire &
Casualty Company as President and Chief Operating Officer. Scott
McIntyre Jr., Chairman and Chief Executive Officer of United Fire
& Casualty Company was elected President and Chief Operating
Officer.
48
<PAGE> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNITED FIRE & CASUALTY COMPANY
By: /s/ Scott McIntyre Jr.
-----------------------------------------------
Scott McIntyre Jr.
Chairman, President and Chief Executive Officer
Date: March 26, 1997
By: /s/ Kent G. Baker
-----------------------------------------------
Kent G. Baker
Vice-President, Principal Accounting Officer
and Chief Financial Officer
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: /s/ Scott McIntyre Jr. By: /s/ Harold A. Hagen
------------------------------- --------------------------------
Scott McIntyre Jr., Harold A. Hagen,
Chairman and Director Director
Date: March 26, 1997 Date: March 26, 1997
By: /s/ James T. Brophy By: /s/ Casey D. Mahon
------------------------------ -------------------------------
James T. Brophy, Casey D. Mahon,
Director Director
Date: March 26, 1997 Date: March 26, 1997
By: /s/ Robert J. Bevenour By: /s/ Jack B. Evans
------------------------------ -------------------------------
Robert J. Bevenour, Jack B. Evans,
Director Director
Date: March 26, 1997 Date: March 26, 1997
By: /s/ Roy L. Ewen By: /s/ Byron G. Riley
------------------------------- -----------------------------
Roy L. Ewen, Director Byron G. Riley, Director
Date: March 26, 1997 Date: March 26, 1997
By: /s/ Leonard J. Marshall
-------------------------------
Leonard J. Marshall, Director
Date: March 26, 1997
49
<PAGE> 52
(THIS PAGE INTENTIONALLY LEFT BLANK)
50
<PAGE> 53
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT
(1) Four copies of the annual stockholders report for the year ended
December 31, 1996 will be furnished to the Securities Exchange
Commission by April 1, 1997.
(2) Proxy statements will be furnished to security holders subsequent
to the filing of the 10-K. Four copies of the proxy statement will
be furnished to the Securities Exchange Commission when they are
mailed to security holders.
51
<PAGE> 1
EXHIBIT 11. COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Data)
- -------------------------------------------------------------------------------
Weighted Average Earnings
Number of Shares Net Per
Years Ended December 31, Outstanding Income Common Share
- -------------------------------------------------------------------------------
<C> <C> <C> <C>
1996 10,773,591 $ 21,960 2.04
1995 10,829,606 28,803 2.66
1994 10,829,706 22,521 2.08
===============================================================================
</TABLE>
Computation of weighted average number of common and common equivalent shares:
<TABLE>
<CAPTION>
COMPUTATION OF WEIGHTED AVERAGE
- -------------------------------------------------------------------------------------
Years Ended December 31,
- -------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shares outstanding beginning of the period 10,829,461 10,829,706 10,829,706
Weighted average of the common
shares purchased and retired or reissued (55,870) (100) -
- --------------------------------------------------------------------------------------
Weighted average number of common shares 10,773,591 10,829,606 10,829,706
======================================================================================
</TABLE>
Earnings per common share, common shares outstanding and weighted average common
shares outstanding have been retroactively restated for additional shares issued
as a result of a three for two stock split to stockholders of record as of
December 18, 1995.
<PAGE> 1
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT
United Life Insurance Company is an Iowa Corporation.
Lafayette Insurance Company is a Louisiana Corporation.
Addison Farmers' Insurance Company is an Illinois Corporation.
The Registrant owns 100% of the voting common stock of United Life Insurance
Company, Lafayette Insurance Company and Addison Farmers' Insurance Company.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary information extracted from the Form 10-K and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000101199
<NAME> UNITED FIRE & CASUALTY CO.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 67,902
<DEBT-CARRYING-VALUE> 651,138
<DEBT-MARKET-VALUE> 668,541
<EQUITIES> 91,314
<MORTGAGE> 2,959
<REAL-ESTATE> 0
<TOTAL-INVEST> 860,204
<CASH> 14,389
<RECOVER-REINSURE> 12,490
<DEFERRED-ACQUISITION> 56,083
<TOTAL-ASSETS> 1,024,835
<POLICY-LOSSES> 652,789
<UNEARNED-PREMIUMS> 105,008
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 35,759
<OTHER-SE> 192,100
<TOTAL-LIABILITY-AND-EQUITY> 1,024,835
234,797
<INVESTMENT-INCOME> 56,936
<INVESTMENT-GAINS> 6,726
<OTHER-INCOME> 1,815
<BENEFITS> 170,110
<UNDERWRITING-AMORTIZATION> 48,364
<UNDERWRITING-OTHER> 54,423
<INCOME-PRETAX> 27,377
<INCOME-TAX> 5,417
<INCOME-CONTINUING> 21,960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,960
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 2.04
<RESERVE-OPEN> 188,700
<PROVISION-CURRENT> 186,132
<PROVISION-PRIOR> (29,129)
<PAYMENTS-CURRENT> 79,209
<PAYMENTS-PRIOR> 56,618
<RESERVE-CLOSE> 209,876
<CUMULATIVE-DEFICIENCY> (29,129)
</TABLE>
