<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1998
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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 399-5700
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
--- ---
As of May 5, 1998, 10,706,247 shares of common stock were outstanding.
<PAGE>
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Report of Independent Public Accountants 1
Consolidated Balance Sheets as of March 31, 1998 2
(unaudited) and December 31, 1997
Unaudited Consolidated Statements of Operations -
Three-Month Periods
Ended March 31, 1998 and 1997 3
Unaudited Consolidated Statements of Cash Flows -
Three-Month Periods
Ended March 31, 1998 and 1997 4
Notes to Unaudited Consolidated Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 11
</TABLE>
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
United Fire & Casualty Company:
We have reviewed the accompanying consolidated balance sheet of UNITED FIRE &
CASUALTY COMPANY (an Iowa corporation) AND SUBSIDIARIES as of March 31, 1998,
and the related consolidated statements of operations for the three-month
periods ended March 31, 1998 and 1997, and the consolidated statements of cash
flows for the three-month periods ended March 31, 1998 and 1997. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of United Fire & Casualty Company and
Subsidiaries as of December 31, 1997, and, in our report dated February 19,
1998, we expressed an unqualified opinion on that statement. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 1997, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
Arthur Andersen LLP
Chicago, Illinois
May 5, 1998
1
<PAGE>
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- --------------------------------------------------------------------------------------------------------
ASSETS 1998 1997
UNAUDITED Audited
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENTS
Fixed maturities
Held-to-maturity, at amortized cost (market
value $687,249 in 1998 and $709,867 in 1997) $ 654,674 $ 677,360
Available-for-sale, at market (cost $198,394
in 1998 and $145,019 in 1997) 199,997 146,932
Equity securities (cost $25,951 in 1998 and $26,296 in 1997) 128,796 128,698
Mortgage loans 2,839 2,862
Policy loans 8,368 8,405
Other long-term investments, at market (cost $10,018 in 1998
and $9,000 in 1997) 14,017 12,448
Short-term investments 13,841 19,195
- --------------------------------------------------------------------------------------------------------
$1,022,532 $ 995,900
CASH AND CASH EQUIVALENTS 8,989 2,378
ACCRUED INVESTMENT INCOME 14,177 14,159
ACCOUNTS RECEIVABLE 46,283 44,060
DEFERRED POLICY ACQUISITION COSTS 64,347 60,215
PROPERTY AND EQUIPMENT 13,859 14,443
REINSURANCE RECEIVABLES 14,730 14,430
PREPAID REINSURANCE PREMIUMS 3,934 4,064
INTANGIBLES 1,019 1,082
OTHER ASSETS 4,852 7,191
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TOTAL ASSETS $1,194,722 $1,157,922
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- --------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Future policy benefits and losses, claims and settlement expenses
Property and casualty insurance $ 240,503 $ 231,768
Life insurance 508,373 482,437
Unearned premiums 110,523 108,296
Accrued expenses and other liabilities 11,704 18,373
Employee benefit obligations 9,150 8,665
Income taxes payable 1,337 3,307
Deferred income taxes 29,093 27,868
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TOTAL LIABILITIES $ 910,683 $ 880,714
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STOCKHOLDERS' EQUITY
Common stock $ 35,697 $ 35,758
Additional paid-in capital 8,623 9,331
Retained earnings 169,074 161,906
Net unrealized appreciation, net of applicable income taxes of
$37,753 in 1998 and $37,549 in 1997 70,694 70,213
Less: treasury stock 49 -
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TOTAL STOCKHOLDERS' EQUITY $ 284,039 $ 277,208
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,194,722 $1,157,922
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The Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
</TABLE>
2
<PAGE>
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per
Share Data and Number of Shares)
- --------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Net premiums earned $ 59,336 $ 59,256
Investment income, net 16,226 15,037
Realized investment gains and other 4,203 696
Commission and policy fee income 464 441
- --------------------------------------------------------------------------------------------
80,229 75,430
- --------------------------------------------------------------------------------------------
Benefits, Losses and Expenses
Losses and settlement expenses 41,106 36,965
Increase in liability for future policy 1,373 1,263
Amortization of deferred policy 10,929 11,723
Other underwriting expenses 8,756 9,807
Interest on policyholders' accounts 6,187 5,499
- --------------------------------------------------------------------------------------------
68,351 65,257
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Income before income taxes 11,878 10,173
Federal income taxes 2,996 2,770
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Net Income $ 8,882 $ 7,403
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- --------------------------------------------------------------------------------------------
Earnings per common share $ 0.83 $ 0.69
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- --------------------------------------------------------------------------------------------
Weighted average common shares outstanding 10,720,430 10,727,712
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Cash dividends declared per common share $ 0.16 $ 0.15
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The Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
</TABLE>
3
<PAGE>
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(Dollars in Thousands)
- --------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 8,882 $ 7,403
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Adjustments to reconcile net income to net cash provided
operating activities
Net bond discount accretion (45) (1)
Depreciation and amortization 805 712
Realized investment gains (4,203) (696)
Changes in:
Accrued investment income (18) (455)
Accounts receivable (2,223) (2,664)
Deferred policy acquisition costs (4,132) (1,742)
Reinsurance receivables (300) (525)
Prepaid reinsurance premiums 130 (44)
Income taxes receivable - 2,353
Other assets 2,339 595
Future policy benefits and losses, claims and
settlement expenses 10,341 3,079
Unearned premiums 2,227 2,371
Accrued expenses and other liabilities (4,953) (1,398)
Employee benefit obligations 485 365
Income taxes payable (1,970) -
Deferred income taxes 968 416
Other, net (194) -
- --------------------------------------------------------------------------------------------
Total adjustments $ (743) $ 2,366
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Net cash provided by operating activities $ 8,139 $ 9,769
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Cash Flows From Investing Activities
Proceeds from sale of available-for-sale investments $ 6,612 $ 617
Proceeds from call and maturity of held-to-maturity 29,577 10,101
Proceeds from call and maturity of available-for-sale 8,540 1,797
Proceeds from sale of other investments 15,218 22,983
Purchase of investments held-to-maturity (6,848) (25,566)
Purchase of investments available-for-sale (64,112) (8,491)
Purchase of other investments (10,439) (9,695)
Proceeds from sale of property and equipment 16 -
Purchase of property and equipment (175) (317)
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Net cash used in investing activities $(21,611) $ (8,571)
--------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Policyholders' account balances
Deposits to investment and universal life type $ 44,028 $ 26,930
Withdrawals from investment and universal life type (19,698) (19,130)
Purchase and retirement of common stock (768) -
Payment of cash dividends (3,430) (3,218)
Purchase of common stock (49) -
--------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 20,083 $ 4,582
--------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents $ 6,611 $ 5,780
Cash and Cash Equivalents at Beginning of Year 2,378 14,389
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Cash and Cash Equivalents at End of Period $ 8,989 $ 20,169
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
The Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
</TABLE>
4
<PAGE>
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
In the opinion of the management of United Fire & Casualty Company and
Subsidiaries (the "Company"), the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the financial position, the results of operations,
and cash flows for the periods presented. The results for the interim periods
are not necessarily indicative of the results of operations that may be expected
for the year. The financial statements contained herein should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
December 31, 1997. The review report of Arthur Andersen LLP accompanies the
unaudited consolidated financial statements included in Item 1 of Part I.
NOTE 2.
The Company maintains its records in conformity with the accounting
practices prescribed or permitted by the Insurance Department of the State of
Iowa. To the extent that certain of these practices differ from generally
accepted accounting principles ("GAAP"), adjustments have been made in order to
present the accompanying financial statements on the basis of GAAP.
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 financial statements for the previous year
have been reclassified to conform with the financial statement presentation at
March 31, 1998.
NOTE 3.
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, net of refunds for the three month
periods ended March 31, 1998 and 1997 were $4,000,000 and zero, respectively.
There were no significant payments of interest through March 31, 1998 and 1997,
other than interest credited to policyholders' accounts.
5
<PAGE>
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4.
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 March 31, 1998 is as follows.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- -------------------------------------------------------------------------------------------------------------------------
MARCH 31, 1998 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 $ 26,896 $ 536 $ 33 $ 27,399
Mortgage-backed securities 18,173 1,699 - 19,872
All others 3,391 344 3 3,732
States, municipalities and political subdivisions 225,882 13,761 114 239,529
Foreign 6,724 393 - 7,117
Public utilities 73,506 1,713 48 75,171
Corporate bonds
Collateralized mortgage obligations 92,174 4,263 362 96,075
All other corporate bonds 207,928 10,694 268 218,354
- -------------------------------------------------------------------------------------------------------------------------
Total held-to-maturity $654,674 $ 33,403 $ 828 $687,249
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
AVAILABLE-FOR-SALE
Fixed Maturities
Bonds
United States Government,
government agencies and authorities
Collateralized mortgage obligations $ 47,778 $ 1,666 $ 78 $ 49,366
Mortgage-backed securities 51 5 - 56
All others 7,656 151 - 7,807
States, municipalities & political subdivisions 31,663 578 88 32,153
Foreign 6,144 26 92 6,078
Public utilities 6,220 32 28 6,224
Corporate bonds
Collateralized mortgage obligations 13,961 306 768 13,499
All other corporate bonds 84,921 581 688 84,814
- -------------------------------------------------------------------------------------------------------------------------
Total available-for-sale fixed maturities $198,394 $ 3,345 $ 1,742 $199,997
- -------------------------------------------------------------------------------------------------------------------------
Equity securities
Common stocks
Public utilities $ 3,525 $ 7,892 $ - $ 11,417
Banks, trust and insurance companies 11,660 69,807 - 81,467
All other common stocks 9,921 25,128 146 34,903
Nonredeemable preferred stocks 845 174 10 1,009
- -------------------------------------------------------------------------------------------------------------------------
Total equity securities $ 25,951 $103,001 $ 156 $128,796
- -------------------------------------------------------------------------------------------------------------------------
Total available-for-sale $224,345 $106,346 $ 1,898 $328,793
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Other long-term investments $ 10,018 $ 4,008 $ 9 $ 14,017
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and fair value of held-to-maturity and
available-for-sale fixed maturities at March 31, 1998 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)
- -----------------------------------------------------------------------------------------------------
MARCH 31, 1998 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 $ 7,163 $ 7,237 $ 257 $ 258
Due after one year through five years 132,397 138,728 12,144 11,979
Due after five years through ten 152,468 161,079 56,517 56,393
Due after ten years 225,403 236,859 67,686 68,446
Mortgage-backed securities 18,173 19,872 51 56
Collateralized mortgage obligations 119,070 123,474 61,739 62,865
- -----------------------------------------------------------------------------------------------------
$654,674 $687,249 $198,394 $199,997
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
NOTE 5.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share" effective December, 1997. This standard
supersedes APB Opinion No. 15 "Earnings Per Share" and simplifies the standards
for computing and presenting earning per share ("EPS"). Under the new standard,
the presentation of primary EPS has been replaced with a presentation of basic
EPS. Basic EPS is computed excluding dilution caused by common stock
equivalents such as stock options. The Company does not currently issue stock
options or other stock-based awards, and therefore, basic and diluted EPS are
equal.
In February, 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 129, "Disclosure of Information about Capital Structure." SFAS No.
129, adopted by the Company effective December 31, 1997, contains disclosure
requirements including liquidation preferences of preferred stock, rights and
privileges of outstanding equity securities and the redemption amounts for all
issues of capital stocks that are redeemable. As the Company does not issue
these types of securities, SFAS No. 129 does not have a material effect on the
Company's Consolidated Financial Statements.
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", governing the reporting and presentation of comprehensive
income and its components which includes traditional net income and items
previously recorded directly in equity, such as the change in unrealized gains
or losses on securities available-for-sale. In accordance with the interim
reporting guidelines of SFAS No. 130, comprehensive income was $9,363,000 for
the quarter ended March 31, 1998 and $8,145,000 for the quarter ended March 31,
1997.
7
<PAGE>
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In June, 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" requiring that public businesses report
financial and descriptive information about its reportable operating segments.
SFAS No. 131 is effective for annual periods beginning after December 15, 1997
for the initial year of adoption and interim periods thereafter. The impact of
adopting SFAS No. 131 will require additional disclosure in the Consolidated
Financial Statements and is not expected to have a material effect on the
Company's Consolidated Financial Statements or Notes to Consolidated Financial
Statements.
In February, 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", effective for fiscal years
beginning after December 15, 1997. The new statement standardizes the
disclosure requirements for these benefit plans and the impact is not expected
to have a material effect on the Company's Consolidated Financial Statements or
Notes to Consolidated Financial Statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ASSETS
At the end of the first quarter of 1998, the Company's assets were
$1,194,722,000, an increase of $36,800,000 over December 31, 1997. The fixed
income portfolio, comprised primarily of long-term, high-quality securities,
generated a majority of the growth. During the second half of 1997 and
continuing into 1998, the Company's strategy has been to classify all of its
fixed income security purchases as available-for-sale. The percentage of this
category to the total fixed income security portfolio was 23% at March 31,
1998, compared to 18% at December 31, 1997. The Company expects this trend to
continue throughout 1998. The Company did not hold trading securities during
1998 or 1997. Unrealized gains of $1,603,000 were recorded on the Company's
available-for-sale fixed income securities through the first quarter of 1998,
compared to $1,913,000 for the year ended 1997.
There have been no additions to the Company's collateralized mortgage
obligation ("CMO") holdings during the first quarter of 1998. At March 31,
1998, CMO's accounted for 21% of the fixed income portfolio, compared to 22%
as of December 31, 1997. Returns are not as attractive as those found in
other investment alternatives. In connection with the CMOs that the Company
does hold, prepayment risk was minimized 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 concentrated on buying issues with an expected maturity in the
seven-to-twelve-year range.
Other available-for-sale investments include common and preferred
stocks. Other long-term investments are primarily holdings in limited
partnership funds investing in banks and insurance companies. Net unrealized
appreciation on stocks and other long-term investments increased $994,000, or
1% in 1998 compared to 1997.
During the last half of 1997, and continuing into 1998, the Company
began writing covered call options to generate additional portfolio income.
At March 31, 1998, options were written on 6% of the equity portfolio,
compared to 1% at December 31, 1997.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Property and casualty premium writings during the first quarter of 1998
were slightly higher than writings during the last quarter of 1997. For this
reason, accounts receivable from property and casualty insurance agents and
brokers increased $2,223,000 or 5% through March 31, 1998. When comparing
premium writings between the first quarter of 1998 and 1997, current year volume
is down.
The Company's deferred acquisition costs include expenses such as
commissions, premium taxes and other costs associated with underwriting
insurance policies. In order to achieve a matching of revenue to expenses, the
Company establishes an asset for these expenses and amortizes the asset over the
duration of the policy periods. Decreased premium volume in the property and
casualty segment has resulted in moderate growth in the asset of $690,000 or 4%.
The life segment's DAC asset increased $3,442,000 or 8% over December 31, 1997.
Reinsurance receivables include losses, expenses and reserves that are
due to the Company from reinsurance brokers. This balance increased by
$300,000 or 2% through March, 1998. The Company has not experienced
significant collection problems with regard to reinsurance receivables and
has no information indicating that any of its current reinsurance balances
are uncollectible.
Other assets decreased by $2,339,000 or 33%. On February 27, 1998, the
Company sold most of the assets of Crabtree Premium Finance Company, a small
subsidiary. Under the provisions of the sale, no material gain or loss was
recognized. Almost all of the other asset decrease was attributable to this
sale.
CASH FLOW AND LIQUIDITY
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 and operating expenses. Net cash
provided by the Company's operating activities was $8,139,000 in the first
quarter of 1998, compared to $9,769,000 in the first quarter of 1997. Operating
cash flows continue to be ample to meet policyholders obligations.
Short-term investments, composed of money market accounts and fixed income
securities are available for the Company's short-term cash needs. In addition, a
$6,000,000 line of credit is maintained with a local bank. No funds were
borrowed through the first quarters of 1998 and 1997.
LIABILITIES
The property and casualty segment's gross liability before reinsurance for
losses and settlement expenses increased 4% between March 31, 1998 and December
31,1997. The Company has limited exposure to environmental pollution and
asbestos claims. The Company's underwriters are aware of these exposures and use
riders or endorsements to limit their exposure.
The liability for future policy benefits and interest on policyholders'
accounts increased by $25,936,000 or 5% during the first quarter of 1998. This
liability is increased immediately by the full premiums paid for the life
segment's annuity products and most universal life products. In 1998, the
Company received premiums of $26,669,000 in non internal rollovers on annuity
products and $3,536,000 on universal life products. These same two product
lines had $6,187,000 of interest credited and $11,259,000 in decreases for
surrenders, risk charges and deaths during 1998. Fluctuations in the other life
product lines account for the remainder of the change.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Accrued expenses and other liabilities decreased $6,669,000 or 36%. This
is typical at the end of the first quarter. Expenses that were accrued for at
year end 1997, such as contingent commissions and premium taxes are paid during
the first quarter of each year.
Income taxes payable decreased by $1,970,000 or 60% compared to December
31, 1997. The Company made a federal income tax extension payment of $4,000,000
in the month of March, 1998.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
PROPERTY AND CASUALTY OPERATIONS
The property and casualty segment had a statutory combined ratio (net
losses incurred and net loss adjustment expenses incurred to net premiums
earned, plus expenses incurred to premiums written) of 102% for the first
quarter of 1998, compared to 98% for the same period of 1997.
Premium writings are down through the first quarter of 1998 and will
probably remain so throughout the rest of this year. Stiff competition within
the industry has had the effect of lowering prices and the Company's philosophy
is to avoid pursuing business which is inadequately priced.
Losses incurred by the property and casualty segment were almost identical
for the first quarters of 1998 and 1997, while loss expenses incurred increased
$2,639,000 or 39%. Loss expense payments for the past thirty-six months have
been rising as a percentage of loss payments for some of the Company's liability
lines due to a higher number of claims in litigation. This has the effect of
driving up the reserves for loss expenses.
The property and casualty segment's underwriting and acquisition expenses
have decreased by $630,000 or 8% between the first quarter of 1998 and 1997.
The decrease in premium volume has reduced many of the expenses incurred in
connection with the writing of insurance policies.
LIFE OPERATIONS
The life segment's earnings before taxes increased to $3,017,000 or 16% in
the first quarter of 1998, compared to the same period in 1997. Growth in the
segment's premiums earned and investment income has contributed to the favorable
results.
Losses incurred increased $1,762,000. Claim activity was up as a result of
both a higher number of death clams for larger amounts that experienced in prior
years. The life segment is beginning to experience losses on policies where the
retention is higher($100,000 per life versus $40,000 to $60,000 per life) as the
block of ordinary life policies age. Due to growth in new premium production,
the life segment is deferring more acquisition costs than in the first quarter
of 1997, which has had the effect of reducing other underwriting expenses.
INVESTMENT RESULTS
The Company's investment income increased $1,189,000 or 8% between March
31, 1998 and 1997 and net realized gains of $4,203,000 were recognized,
primarily on our equity portfolio due principally to the exercise of written
covered call options.
OTHER
Effective September 1, 1998, the Company is moving the operations of
Addison Insurance Company (a wholly owned subsidiary) to its home office in
Cedar Rapids, from Lombard, Illinois. This move will result in a decrease in
operating expenses.
10
<PAGE>
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 11 - Computation of Earnings Per Common Share
27 - Financial Data Schedule
(b) The Company filed one report on Form 8-K dated April 28, 1998 concerning
the moving of Addison Insurance Company (a wholly owned subsidiary of United
Fire & Casulaty Company) operations from Lombard, Illinois to the parent
Company's home office in Cedar Rapids, Iowa, effective September 1, 1998.
SIGNATURES
Pursuant to the requirements 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
- --------------------------------------------------------------------------
(REGISTRANT)
MAY 5, 1998
- --------------------------------------------------------------------------
(DATE)
- --------------------------------------------------------------------------
JOHN A. RIFE
PRESIDENT
- --------------------------------------------------------------------------
K.G. BAKER
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER
11
<PAGE>
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM PAGE
- ------ ------ ----
<S> <C> <C>
11 Computation of Earnings Per Common Share 12
27 Financial Data Schedule 13
</TABLE>
12
<PAGE>
Exhibit 11. Computation of Earnings Per Common Share
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share
Data and Number of Shares)
- ------------------------------------------------------------------------------------------------
Weighted Average
Three-Month Periods Ended Number of Shares Net Earnings Per
March 31, Outstanding Income Common Share
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 10,720,430 $ 8,882 $ 0.83
1997 10,727,712 7,403 0.69
- ------------------------------------------------------------------------------------------------
</TABLE>
Computation of weighted average number of common
and common equivalent shares:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Three-Month Periods Ended March 31, 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Common shares outstanding beginning of the period 10,727,322 10,727,712
Weighted average of the common
shares purchased and retired or reissued (6,892) -
- --------------------------------------------------------------------------------------------
Weighted average number of common shares 10,720,430 10,727,712
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 199,997
<DEBT-CARRYING-VALUE> 654,674
<DEBT-MARKET-VALUE> 687,249
<EQUITIES> 128,796
<MORTGAGE> 2,839
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,022,532
<CASH> 8,989
<RECOVER-REINSURE> 14,730
<DEFERRED-ACQUISITION> 64,347
<TOTAL-ASSETS> 1,194,722
<POLICY-LOSSES> 748,876
<UNEARNED-PREMIUMS> 110,523
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 35,697
<OTHER-SE> 248,342
<TOTAL-LIABILITY-AND-EQUITY> 1,194,722
59,336
<INVESTMENT-INCOME> 16,226
<INVESTMENT-GAINS> 4,203
<OTHER-INCOME> 464
<BENEFITS> 42,479
<UNDERWRITING-AMORTIZATION> 10,929
<UNDERWRITING-OTHER> 14,943
<INCOME-PRETAX> 11,878
<INCOME-TAX> 2,996
<INCOME-CONTINUING> 8,882
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,882
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
