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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, 1995
[ ] 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 0-5544
OHIO CASUALTY CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 31-0783294
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
136 NORTH THIRD STREET, HAMILTON, OHIO 45025
(Address of principal executive offices) (Zip Code)
(513) 867-3000
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Shares, Par Value $.125 Each
(Title of Class)
Common Share Purchase Rights
(Title of Class)
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 this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value as of March 1, 1996 of the voting stock held by
non-affiliates of the registrant was $1,174,876,392.
On March 1, 1996 there were 35,402,446 shares outstanding.
Page 1 of 112
Index To Exhibits On Page 27
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DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the registrant's fiscal year ended December
31, 1995 is incorporated herein by reference for the following items:
PART I
Item 1. Business.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 8. Financial Statements and Supplementary Data.
The Proxy Statement of the Board of Directors for the fiscal year ended December
31, 1995 for the Annual Shareholders meeting to be held April 17, 1996 is
incorporated herein by reference for the following items:
PART III
Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.
2
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PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
Ohio Casualty Corporation (the Corporation) was incorporated under the laws of
Ohio in August, 1969. The Corporation operates primarily as a holding company
and is principally engaged, through its direct and indirect subsidiaries, in the
business of property and casualty insurance and insurance premium finance.
The Corporation has two industry segments: property and casualty insurance and
insurance premium finance. The Corporation conducts its property and casualty
insurance business through The Ohio Casualty Insurance Company ("Ohio
Casualty"), an Ohio corporation organized in 1919, the Ohio Casualty's three
operating property and casualty insurance subsidiaries: West American Insurance
Company ("West American"), an Indiana corporation (originally incorporated under
the laws of the State of California) acquired in 1945; Ohio Security Insurance
Company ("Ohio Security"), an Ohio corporation acquired in 1962; and American
Fire and Casualty Company ("American Fire"), an Ohio corporation (originally
incorporated under the laws of the State of Florida) acquired in 1969. This
group of companies presently underwrites most forms of property and casualty
insurance. The Corporation conducts its premium finance business through Ocasco
Budget, Inc. ("Ocasco"), an Ohio corporation (originally incorporated under the
laws of the State of California) organized in 1960. Ocasco is a direct
subsidiary of Ohio Casualty. On May 31, 1995 the states of domicile of West
American and Ocasco changed to Indiana and Ohio, respectively, in connection
with the withdrawal from property and casualty insurance operations in
California as previously announced and as discussed elsewhere herein.
During 1995, the Corporation's third industry segment, life operations, was
discontinued. We found it increasingly difficult to achieve our required 16%
rate of return in this segment of our business. After extensive analysis, it was
determined that a 16% return could not be achieved without extensive capital
contributions and a dramatic overhaul of the life operations. Since this was a
small segment of our overall business, it was decided that this would not be a
prudent use of our capital. Therefore, on October 2, 1995, the Corporation
signed the final documents to reinsure the existing blocks of business and enter
a marketing agreement with Great Southern Life Insurance Company. This will
provide our agents and policyholders access to quality life insurance products
to meet their financial needs. The existing blocks of business were reinsured
through a 100% coinsurance arrangement with Employer's Reassurance Corporation.
As of December 31, 1995, $16.7 million of the net ceding commission from the
transaction remains unamortized. This will be amortized into income over the
expected life of the underlying reinsured policies, in this case, 15 years. An
assumption is scheduled for January 1, 1997 whereby Great Southern will legally
replace Ohio Life as the primary carrier on these policies at which time the
remaining unamortized gain will be recognized. Net income from discontinued
operations amounted to $4.4 million or $.12 per share in 1995 compared with $5.9
million or $.16 per share in 1994 and $6.8 million or $.19 per share in 1993.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The revenues, operating profit and identifiable assets of each industry segment
for the three years ended December 31, 1995 are set forth in Note 10, Industry
Segment Information, in the Notes to the Consolidated Financial Statements on
page 33 of the Annual Report to Shareholders for the fiscal year ended December
31, 1995.
3
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ITEM 1. CONTINUED
PREMIUMS
The following table shows the total net premiums written (gross premiums less
premiums ceded pursuant to reinsurance treaties) by line of business by Ohio
Casualty, West American, American Fire, Ohio Security and Ohio Life as a group
(collectively, the "Ohio Casualty Group") for the periods indicated. Life
insurance premiums reflect adjustments for FAS 97 "Accounting and Reporting by
Insurance Enterprises for Certain Long-duration Contracts and Realized Gains and
Losses from the Sale of Investments" which was implemented in 1989.
Ohio Casualty Group
Net Premiums Written
By Line of Business
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Auto liability $ 403,781 $ 420,031 $ 430,852 $ 493,214 $ 467,604
Auto physical damage 207,534 212,005 210,987 240,913 229,049
Homeowners
multiple peril 160,444 160,089 156,797 185,518 181,643
Workers' compensation 140,558 145,641 165,577 199,402 218,387
Commercial
multiple peril 131,553 135,595 136,559 147,894 133,589
Other liability 108,483 112,906 107,983 122,277 132,427
All other lines 96,842 98,714 95,562 116,450 126,314
----------- ---------- ---------- ---------- ----------
Property and casualty
premiums $ 1,249,195 $1,284,981 $1,304,317 $1,505,668 $1,489,013
=========== ========== ========== ========== ==========
Premium finance
revenues $ 2,314 $ 2,528 $ 2,887 $ 4,313 $ 4,979
=========== ========== ========== ========== ==========
Discontinued operations-
Statutory premiums:
Individual life $ (126,979) $ 22,238 $ 38,409 $ 36,698 $ 20,938
Annuity (195,870) 18,104 19,530 16,983 18,780
Other (22,012) 8,606 6,716 7,113 5,215
----------- ---------- ---------- ---------- ----------
Total (344,861) 48,948 64,655 60,794 44,933
FAS 97 adjustments (1,533) (26,173) (44,748) (41,582) (27,086)
----------- ---------- ---------- ---------- ----------
Discontinued operations
revenues $ (346,394) $ 22,775 $ 19,907 $ 19,212 $ 17,847
=========== ========== ========== ========== ==========
</TABLE>
(C) NARRATIVE DESCRIPTION OF BUSINESS
The Ohio Casualty Group is represented on a commission basis by approximately
4,367 independent insurance agencies. In most cases, these agencies also
represent other unaffiliated companies which may compete with the Ohio Casualty
Group. The 47 claim and 36 underwriting and service offices operated by the Ohio
Casualty Group assist these independent agencies in the producing and servicing
of the Group's business.
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ITEM 1. CONTINUED
The following table shows consolidated direct premiums written for the Ohio
Casualty Group's ten largest states:
Ohio Casualty Group
Ten Largest States
Direct Premiums Written
From Continuing Operations
(in thousands)
<TABLE>
<CAPTION>
Percent Percent Percent
1995 of Total 1994 of Total 1993 of Total
---- -------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New Jersey $220,373 17.6 New Jersey $211,233 16.4 New Jersey $194,813 14.9
Pennsylvania 128,603 10.3 Pennsylvania 145,687 11.3 Pennsylvania 170,681 13.1
Ohio 126,622 10.1 Ohio 129,303 10.0 Ohio 133,256 10.2
Kentucky 80,498 6.4 Kentucky 79,710 6.2 Kentucky 83,006 6.4
Illinois 64,352 5.1 Illinois 63,682 4.9 Illinois 66,326 5.1
Maryland 56,741 4.5 Florida 56,846 4.4 Florida 59,574 4.6
Indiana 49,353 3.9 Maryland 56,637 4.4 Maryland 56,867 4.4
Texas 43,036 3.4 Indiana 47,817 3.7 Indiana 46,991 3.6
Florida 42,061 3.4 Texas 45,171 3.5 Texas 46,943 3.6
North Carolina 33,955 2.7 Michigan 32,846 2.6 Michigan 34,350 2.6
-------- ---- -------- ---- -------- ----
$845,594 67.4 $868,932 67.5 $892,807 68.5
======== ==== ======== ==== ======== ====
</TABLE>
Property and casualty net premiums written decreased 2.8% in 1995. New Jersey
premiums written increased 4.1% primarily as a result of an 11.1% increase in
private passenger automobile, due to continuing legislation requiring insurers
to accept all automobile risks meeting broad underwriting guidelines.
Pennsylvania premiums written decreased 11.8% principally due to a 13.9%
reduction in workers' compensation, as a result of management's decision to
limit writing due to poor underwriting experience.
INVESTMENT OPERATIONS
Each of the Ohio Casualty Group companies must comply with the insurance laws of
its domiciliary state and of the other states in which it is licensed for
business. Among other things, these laws prescribe the kind, quality and
concentration of investments which may be made by insurance companies. In
general, these laws permit investments, within specified limits and subject to
certain qualifications, in federal, state and municipal obligations, corporate
bonds, preferred and common stocks, real estate mortgages and real estate.
The distribution of invested assets of the Ohio Casualty Group is determined by
a number of factors, including insurance law requirements, the Corporation's
liquidity needs and taxable position, and general market conditions.
Accordingly, adjustments are made to the asset allocation from time to time. The
Corporation has no investment real estate or commercial mortgages. Assets
relating to property and casualty operations are invested to maximize after-tax
returns with appropriate diversification of risk.
The following table sets forth the carrying values and other data of the
consolidated invested assets of the Ohio Casualty Group as of the end of the
years indicated:
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ITEM 1. CONTINUED
<TABLE>
<CAPTION>
Ohio Casualty Group
Distribution of Invested Assets
(in millions)
1995
Average % of % of % of
Rating 1995 Total 1994 Total 1993 Total
------- --------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. government AAA $ 116.5 3.8 $ 88.0 2.9 $ 102.9 3.3
Tax exempt bonds
and notes AA+ 898.5 29.1 694.3 22.8 1,109.4 35.3
Debt securities
issued by foreign
governments A+ 3.4 0.1 38.1 1.3 0 0
Corporate securities BBB+ 986.4 32.0 1,091.9 35.9 839.9 26.8
Mortgage backed
securities
U.S. government AAA 170.2 5.5 371.9 12.2 448.8 14.3
Other AA 232.9 7.6 225.7 7.4 128.2 4.1
Total bonds AA- 2,407.9 78.1 2,509.9 82.5 2,629.2 83.8
Common stocks 627.4 20.3 459.5 15.1 442.8 14.1
Preferred stocks 33.7 1.1 60.5 2.0 49.4 1.6
Total stocks 661.1 21.4 520.0 17.1 492.2 15.7
Short-term 14.4 0.5 13.6 0.4 16.2 0.5
Total investments $3,083.4 100.0 $3,043.5 100.0 $3,137.6 100.0
Total market value
of investments $3,083.4 $3,043.5 $3,316.2
Total amortized cost
of investments $2,617.5 $2,938.1 $3,137.6
</TABLE>
The consolidated fixed income portfolio (identified as "Total Bonds" in the
foregoing table) of the Ohio Casualty Group had a weighted average Standard &
Poor rating of "AA-" and an average stated maturity of ten years as of December
31, 1995. The mortgage-backed portfolio, which represents 16.7% of fixed
maturity investments, has experienced a significantly increased level of
prepayments over the last few years causing reinvestment of proceeds at the
lower rates prevalent at that time. As rates have risen, prepayments have slowed
and the fair value of the lower yielding bonds has decreased.
Investments in taxable high yield (less than investment grade, Standard & Poor
rated below "BBB-") and unrated securities had an aggregate carrying value of
$490.2 million and an aggregate amortized cost of $475.0 million at year-end
1995. At year-end 1994 and 1993, respectively, carrying values were $306.6
million and $206.0 million and market values were $322.7 million and $220.6
million. The taxable high yield securities had a weighted average Standard &
Poor rating of "BB-" and an average maturity of ten years.
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ITEM 1. CONTINUED
Approximately 99.7% of the Corporation's high yield and unrated investments
(based on carrying value) are performing in accordance with contractual terms
and are making principal and interest payments as required. The securities in
the Corporation's high yield and unrated portfolio have been issued by 171
corporate borrowers in approximately 46 industries. At December 31, 1995, the
Corporation's five largest investments in high yield and unrated securities
totaled $37.1 million, and had an approximate amortized cost of $34.3 million.
None of these holdings individually exceeded $8.9 million.
At December 31, 1995, the fixed income portfolio relating to property and
casualty operations totaled $2.3 billion which consisted of 90.5% investment
grade securities and 9.5% high yield securities. At December 31, 1995, the fixed
income portfolio relating to discontinued operations totaled $80.1 million which
consisted of 93.8% investment grade securities and 6.2% high yield securities.
Investments in high yield and, in many instances, unrated securities have
greater risks than investments in investment grade securities. The risk of
default by borrowers which issue high yield securities is significantly greater
because these securities are generally unsecured and often subordinated to other
debt and these borrowers are often highly leveraged and are more sensitive to
adverse economic conditions such as a recession or a sharp increase in interest
rates. Furthermore, the market for high yield and unrated securities is often
thinly traded and market quotations may be unavailable or available only from a
small number of dealers. Investment grade securities are also subject to
significant adverse risks including the risks of re-leveraging and changes in
control of the issuer. In most instances, investors are unprotected with respect
to such risks, the effects of which can be substantial. The Corporation has no
investment with a single issuer exceeding 3.1% of shareholders' equity.
Yield (based on cost of investments) for the taxable fixed income portfolio was
8.7% and 8.6% at December 31, 1995 and 1994, respectively. Unrated and high
yield securities were yielding 10.1% and 9.5% at December 31, 1995 and 1994,
respectively, while investment grade securities were yielding 7.5% in 1995 and
8.4% in 1994. Yield for tax exempt securities was 6.3% at December 31, 1995 and
6.7% at December 31, 1994; however, this yield is not directly comparable to
taxable yield due to the complexity of federal taxation of insurance companies.
High yield and unrated corporate debt securities provided approximately 19.3% of
consolidated net investment income before tax in 1995 and 12.7% in 1994. Because
the Corporation has generally purchased high yield and unrated securities with
the intention of holding them to maturity and has managed its investment
portfolio so as to not be dependent on these securities to meet its liquidity
needs, the Corporation has been willing to accept the relative lack of liquidity
for these securities.
Investment income is affected by the amount of new investable funds and
investable funds arising from maturities, prepayments, calls and exchanges as
well as the timing of receipt of such funds. In addition, other factors such as
interest rates at time of investment and the maturity, income tax status, credit
status and other risks associated with new investments are reflected in
investment income. Future changes in the distribution of investments and the
factors described above could affect overall investment income in the future;
however, the amount of any increase or decrease cannot be predicted. Further
details regarding investment distribution and investment income are described in
Note 2, Investments, in the Notes to Consolidated Financial Statements on pages
29 and 30 of the 1995 Annual Report to Shareholders.
7
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ITEM 1. CONTINUED
Purchases of taxable fixed income securities in 1995 were as follows: $480.9
million of investment grade securities, $56.7 million of high yield securities
and $53.8 million of unrated securities. Purchases of tax-exempt and equity
securities in 1995 totaled $352.7 million and $86.5 million, respectively.
Disposals (including maturities, calls, exchanges and scheduled prepayments) of
taxable fixed income securities in 1995 were as follows: $850.6 million of
investment grade securities, $132.9 million of high yield securities and $39.4
million of unrated securities. Dispositions of tax-exempt and equity securities
in 1995 totaled $39.6 million and $137.4 million, respectively. During 1993, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards 115, "Accounting for Certain Investments in Debt and Equity
Securities". This statement was adopted on January 1, 1994, and required the
Corporation to classify equity securities and debt securities into the following
categories: 1) held to maturity securities; 2) trading securities; 3) available
for sale.
All fixed income holdings were placed in the available for sale category. This
accounting change increased shareholders' equity $116.1 million in 1994.
Consolidated net realized investment gains in 1995 totaled $6.1 million, $.17
per share. Included in this amount are approximately $16.0 million in writedowns
of the carrying values of certain securities the Corporation determined had an
other than temporary decline in value.
SHARE REPURCHASES
During 1990 the Board of Directors of Ohio Casualty Corporation authorized the
additional purchase of as many as 3,000,000 (as adjusted for 1994 stock split)
shares of its common stock through open market or privately negotiated
transactions. 613,900 shares were repurchased during 1995 for $20.9 million.
50,000 shares were repurchased during 1994 for $1.4 million. No shares were
repurchased during 1993. The remaining repurchase authorization is 2,336,100
shares as of December 31, 1995.
LIABILITIES FOR UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
Liabilities for loss and loss adjustment expenses are established for the
estimated ultimate costs of settling claims for insured events, both reported
claims and incurred but not reported claims, based on information known as of
the evaluation date. As more information becomes available and claims are
settled, the estimated liabilities are adjusted upward or downward with the
effect of increasing or decreasing net income at the time of adjustments. Such
estimated liabilities include direct costs of the loss under terms of insurance
policies as well as legal fees and general expenses of administering the claims
adjustment process. The liabilities for claims incurred in accident years 1994,
1993 and 1992 were reduced in the subsequent year as shown below:
8
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ITEM 1. CONTINUED
<TABLE>
<CAPTION>
Accident Year Loss and Loss Adjustment Expense Liabilities
Subsequent Year Adjustment
(in millions)
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Property $11 $ 31 $22
Auto 30 26 18
Workers' compensation
and other liability 35 51 18
---- ---- ---
Total reduction $76 $108 $58
==== ==== ===
</TABLE>
In the normal course of business, the Ohio Casualty Group is involved in
disputes and litigation regarding terms of insurance contracts and the amount of
liability under such contracts arising from insured events. The liabilities for
loss and loss adjustment expenses include estimates of the amounts for which the
Ohio Casualty Group may be liable upon settlement or other conclusion of such
litigation.
Because of the inherent future uncertainties in estimating ultimate costs of
settling claims, actual loss and loss adjustment expenses may deviate
substantially from the amounts recorded in the Corporation's consolidated
financial statements. Furthermore, the timing, frequency and extent of
adjustments to the estimated liabilities cannot be accurately predicted since
conditions and events which established historical loss and loss adjustment
expense development and which serve as the basis for estimating ultimate claims
cost may not occur in the future in exactly the same manner, if at all.
The anticipated effect of inflation is implicitly considered when estimating the
liability for losses and loss adjustment expenses based on historical loss
development trends adjusted for anticipated changes in underwriting standards,
policy provisions and general economic trends.
The following table presents an analysis of property and casualty losses and
loss adjustment expenses and related liabilities for the periods indicated. The
accounting policies used to estimate liabilities for losses and loss adjustment
expenses are described in Note 1, Accounting Policies, paragraph E, in the Notes
to Consolidated Financial Statements on page 28 of the 1995 Annual Report to
Shareholders.
9
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ITEM 1. CONTINUED
<TABLE>
<CAPTION>
Reconciliation of Liabilities for Losses and Loss Adjustment Expense
(in thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net liabilities, beginning of year $1,606,487 $1,693,551 $1,673,868
Provision for current accident year
claims 1,008,321 1,084,072 1,131,055
Increase (decrease)in provisions for
prior accident year claims (104,998) (153,717) (71,799)
---------- ---------- ----------
903,323 930,355 1,059,256
Payments for claims occurring during:
Current accident year 444,558 483,129 477,777
Prior accident years 508,187 534,290 561,796
---------- ---------- ----------
952,745 1,017,419 1,039,573
Net liabilities, end of year 1,557,065 1,606,487 1,693,551
Reinsurance recoverable 74,119 65,336 75,738
---------- ---------- ----------
Gross liabilities, end of year $1,631,184 $1,671,823 $1,769,289
========== ========== ==========
</TABLE>
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Item 1. Continued
Analysis of Development of Loss and Loss Adjustment Expense Liabilities
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31 1985 1986 1987 1988 1989 1990 1991 1992
- ---------------------- --------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liability as originally
estimated: $ 806,474 $ 981,335 $1,171,392 $1,252,404 $1,370,054 $1,483,985 $1,566,139 $1,673,205
Cumulative payments as of:
One year later 337,235 380,290 438,195 440,173 489,562 506,246 526,973 561,133
Two years later 518,446 598,478 667,894 695,364 745,766 783,948 822,634 869,620
Three years later 641,649 730,106 828,325 845,472 902,081 955,666 1,007,189 1,060,433
Four years later 711,344 828,365 922,744 937,034 1,000,299 1,063,508 1,123,591
Five years later 769,317 884,606 977,575 996,353 1,061,173 1,131,012
Six years later 800,238 919,026 1,015,889 1,033,508 1,100,683
Seven years later 822,163 942,572 1,041,563 1,055,972
Eight years later 837,332 959,174 1,057,509
Nine years later 849,845 968,586
Ten years later 856,355
Liability reestimated as of:
One year later 827,244 989,512 1,131,539 1,179,052 1,285,233 1,403,172 1,515,129 1,601,406
Two years later 876,906 1,029,086 1,139,684 1,175,861 1,299,428 1,407,197 1,500,890 1,555,452
Three years later 899,911 1,032,435 1,139,584 1,193,127 1,296,215 1,388,381 1,467,256 1,524,054
Four years later 902,062 1,028,893 1,156,930 1,195,712 1,281,246 1,368,530 1,449,789
Five years later 898,292 1,048,419 1,160,997 1,186,680 1,268,193 1,366,676
Six years later 918,089 1,054,589 1,159,372 1,178,126 1,270,734
Seven years later 925,473 1,049,447 1,154,169 1,184,233
Eight years later 920,223 1,046,494 1,162,837
Nine years later 917,127 1,049,464
Ten years later 919,896
Decrease (increase) in
original estimates: $(113,422) $ (68,129) $ 8,555 $ 68,171 $ 99,320 $ 117,309 $ 116,350 $ 149,151
<CAPTION>
Year Ended December 31 1993 1994 1995
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Liability as originally
estimated: $1,692,895 $1,605,526 $1,553,131
Cumulative payments as of:
One year later 533,634 510,219
Two years later 833,399
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
Liability reestimated as of:
One year later 1,539,178 1,500,528
Two years later 1,510,943
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
Decrease (increase) in
original estimates: $ 181,952 $ 104,998
</TABLE>
This table presents the current period effects of changes in estimated loss and
loss adjustment expense liabilities of the most recent and all prior accident
years. Since conditions and trends that have affected loss and loss adjustment
expense development in the past may not occur in the future in exactly the same
manner, if at all, future results may not be reliably predicted by extrapolation
of the data presented.
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Gross liability - end of year $1,670,862 $1,624,197
Reinsurance recoverable 65,336 71,066
Net liability - end of year 1,605,526 1,553,131
Gross re-estimated liability - latest 1,562,411
Re-estimated recoverable - latest 61,883
Net re-estimated liability - latest 1,500,528
Gross cumulative deficiency 108,451
</TABLE>
11
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ITEM 1. CONTINUED
COMPETITION
More than 2,600 property and casualty insurance companies compete in the United
States and no one company or company group has a market share greater than
approximately 15.0%. The Ohio Casualty Group ranked as the forty-fifth largest
property and casualty insurance groups in the United States based on net
insurance premiums written in 1994, the latest year for which statistics are
available. The Ohio Casualty Group competes with other companies on the basis of
service, price and coverage.
STATE INSURANCE REGULATION
General. The Corporation and the Ohio Casualty Group are subject to regulation
under the insurance statutes, including the holding company statutes, of various
states. Ohio Casualty, American Fire and Ohio Security are all domiciled in
Ohio. West American is domiciled in Indiana. Collectively, the Ohio Casualty
Group is authorized to transact the business of insurance in the District of
Columbia and all states except Maine. The Ohio Casualty Group is subject to
examination of their affairs by the insurance departments of the jurisdictions
in which they are licensed.
The insurance holding company laws and regulations vary from state to state, but
generally require insurance holding companies to register and file with the
state regulatory authority certain reports, including information concerning
their capital structure, ownership, financial condition and general business
operations.
State laws also require prior notice or regulatory agency approval of changes in
control of an insurer or its holding company and of certain material
intercorporate transfers of assets within the holding company structure. Under
applicable provisions of the Indiana insurance statutes ("Indiana Insurance
Law") and the Ohio insurance statutes (the "Ohio Insurance Law"), a person would
not be permitted to acquire direct or indirect control of the Corporation or any
of the Ohio Casualty Group companies domiciled in such state, unless such person
had obtained prior approval of the Indiana Insurance Commissioner and the Ohio
Superintendent of Insurance, respectively, for such acquisition. For the
purposes of the Indiana Insurance Law and the Ohio Insurance Law, any person
acquiring more than 10% of the voting securities of a company is presumed to
have acquired "control" of such company.
Proposition 103 was passed in the State of California in 1988 in an attempt to
legislate premium rates for that state. Even after considering investment
income, total returns in California have been less than what would be considered
"fair" by any reasonable standard. During the fourth quarter of 1994, the State
of California billed the Corporation $59.9 million for Proposition 103
assessment. In February 1995, California revised this billing to $47.3 million
due to California Senate Bill 905 which permits reduction of the rollback due to
commissions and premium taxes paid. The billing was revised again in August of
1995 and at present the State has indicated the Corporation should not be
required to pay in excess of $42.1 million plus interest as a Proposition 103
assessment. As a result, the Corporation's reserve for this alleged liability is
$70.2 million. The Corporation will continue to challenge the validity of any
rollback and plans to continue negotiations with Department officials. It is
uncertain when this will be resolved.
12
<PAGE> 13
ITEM 1. CONTINUED
The State of New Jersey has historically been a profitable state for the
Corporation. In recent years, however, the legislative environment in that state
has deteriorated. Due to legislative rules and regulations designed to make
insurance less expensive and more easily obtainable for New Jersey residents,
our results have been adversely impacted. In order to meet our state imposed
assessment obligations under the Fair Automobile Insurance Reform Act, the
Unsatisfied Claim and Judgment fund, the New Jersey Surtax and the Market
Transition Facility, the Corporation has incurred expenses of $3.7 million in
1995, $6.4 million in 1994 and $19.1 million in 1993. These assessments have
negatively affected our combined ratios by .3, .5 and 1.4 points in the three
years, respectively.
National Association of Insurance Commissioners. The National Association of
Insurance Commissioners (the "NAIC") annually calculates a number of financial
ratios to assist state insurance regulators in monitoring the financial
condition of insurance companies. A "usual range" of results for each ratio is
used as a benchmark. Departure from the usual range on four or more of the
ratios could lead to inquiries from individual state insurance commissioners as
to certain aspects of a company's business. None of the property and casualty
companies of the Ohio Casualty Group had more than one NAIC financial ratio that
was outside the usual range in the last five calendar years.
Beginning in 1994, the NAIC requires inclusion of a risk-based capital
calculation in the Annual Statements. The risk-based capital model is used to
establish standards which will relate insurance company statutory surplus to
risks of operations and assist regulators in determining solvency requirements.
The model is based on four risk factors in two categories: asset risk,
consisting of investment risk and credit risk; and underwriting risk, composed
of loss reserves and premiums written risks. Based on current calculations, all
of the Ohio Casualty Group companies have at least twice the necessary capital
to conform with the risk-based capital model.
The NAIC has developed a model law limiting dividend payments by insurance
companies. This model law allows dividends to equal the greater of 10% of
policyholders surplus or net income determined as of the preceding year end
without prior approval of the Insurance Department. The State of Ohio signed
this model into law on September 30, 1993. For 1995, $116.3 million of
policyholder surplus are not subject to restrictions or prior dividend approval.
EMPLOYEES
At December 31, 1995, the Ohio Casualty Group had approximately 3,681 employees
of which approximately 1,372 were located in Hamilton, Ohio.
ITEM 2. PROPERTIES
The Ohio Casualty Group owns and leases office space in various parts of the
country. The principal office building consists of an owned facility in
Hamilton, Ohio.
13
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Corporation or its
subsidiaries other than litigation arising in connection with settlement of
insurance claims as described on page 9 and Proposition 103 hearings described
on page 12.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
There were no matters submitted during the fourth quarter of the fiscal year
covered by this report to a vote of Shareholders through the solicitation of
proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is related to executive officers of the Corporation
who are not separately reported in the Corporation's Proxy Statement:
Chief Financial Officer and Treasurer Age
Barry S. Porter....................................................... 59
Mr. Porter has been an officer of the Corporation and its subsidiaries for more
than five years.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
See inside front cover and page 36 of the Annual Report to Shareholders for the
fiscal year ended December 31, 1995.
ITEM 6. SELECTED FINANCIAL DATA
See pages 16 and 17 of the Annual Report to Shareholders for the fiscal year
ended December 31, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
See pages 18 through 23 of the Annual Report to Shareholders for the fiscal year
ended December 31, 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and Schedules.
(See Index to Financial Statements attached hereto.)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE> 15
PART III
ITEM 10. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages 4 through 6 of the Proxy Statement of the Board of Directors for the
fiscal year ended December 31, 1995 and Executive Officers of the Registrant
separately captioned under Part I of this annual report.
ITEM 11. EXECUTIVE COMPENSATION
See pages 7 through 12 of the Proxy Statement of the Board of Directors for the
fiscal year ended December 31, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See pages 1 through 3 of the Proxy Statement of the Board of Directors for the
fiscal year ended December 31, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See page 6 of the Proxy Statement of the Board of Directors for the fiscal year
ended December 31, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial statements and financial statement schedules required to
be filed by Item 8 of this Form and Regulation S-X
(b) Exhibit I - Fourth Amendment to Rights Agreement dated September 5,
1995. A report on Form 8-K was filed September 5, 1995.
(c) Exhibits. (See index to exhibits attached hereto.)
15
<PAGE> 16
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.
OHIO CASUALTY CORPORATION
(Registrant)
March 26, 1996 By: /s/ Lauren N. Patch
------------------------------
Lauren N. Patch, President and
Chief Executive Officer
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.
March 26, 1996 /s/ Joseph L. Marcum
------------------------------------------------------
Joseph L. Marcum, Chairman of the Board
March 26, 1996 /s/ William L. Woodall
------------------------------------------------------
William L. Woodall, Vice Chairman of the Board
March 26, 1996 /s/ Lauren N. Patch
------------------------------------------------------
Lauren N. Patch, President and Chief Executive Officer
March 26, 1996 /s/ Arthur J. Bennert
------------------------------------------------------
Arthur J. Bennert, Director
March 26, 1996 /s/ Jack E. Brown
------------------------------------------------------
Jack E. Brown, Director
March 26, 1996 /s/ Catherine E. Dolan
------------------------------------------------------
Catherine E. Dolan, Director
March 26, 1996 /s/ Wayne R. Embry
------------------------------------------------------
Wayne R. Embry, Director
March 26, 1996 /s/ Vaden Fitton
------------------------------------------------------
Vaden Fitton, Director
March 26, 1996 /s/ Jeffery D. Lowe
------------------------------------------------------
Jeffery D. Lowe, Director
March 26, 1996 /s/ Stephen S. Marcum
------------------------------------------------------
Stephen S. Marcum, Director
March 26, 1996 /s/ Stanley N. Pontius
------------------------------------------------------
Stanley N. Pontius, Director
March 26, 1996 /s/ Howard L. Sloneker III
------------------------------------------------------
Howard L. Sloneker III, Director
March 26, 1996 /s/ Barry S. Porter
------------------------------------------------------
Barry S. Porter, Chief Financial Officer and Treasurer
March 26, 1996 /s/ Michael L. Evans
------------------------------------------------------
Michael L. Evans, Vice President
16
<PAGE> 17
FORM 10-K, ITEM 14
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
OHIO CASUALTY CORPORATION
The following statements are incorporated by reference to the Annual Report to
Shareholders for registrant's fiscal year ended December 31, 1995:
<TABLE>
<CAPTION>
Page Number
in Annual Report
----------------
<S> <C>
Consolidated Balance Sheet at December 31, 1995, 1994, 1993 24
Statement of Consolidated Income for the years ended
December 31, 1995, 1994 and 1993 25
Statement of Consolidated Shareholders' Equity for the years
ended December 31, 1995, 1994 and 1993 26
Statement of Consolidated Cash Flows for the years ended
December 31, 1995, 1994 and 1993 27
Notes to Consolidated Financial Statements 28-35
<CAPTION>
Page Number
in this Report
--------------
Report of Independent Accountants
The following financial statement schedules are included herein:
Schedule I - Consolidated Summary of Investments Other Than
Investments in Related Parties at December 31, 1995 19
Schedule III - Condensed Financial Information of Registrant for
the years ended December 31, 1995, 1994 and 1993 20
Schedule V - Consolidated Supplementary Insurance Information
for the years ended December 31, 1995, 1994 and 1993 21-23
Schedule VI - Consolidated Reinsurance for the years ended
December 31, 1995, 1994 and 1993 24
Schedule VIII - Valuation and Qualifying Accounts for the years
ended December 31, 1995, 1994 and 1993 25
Schedule X - Consolidated Supplemental Information Concerning
Property and Casualty Insurance Operations for the
years ended December 31, 1995, 1994 and 1993 26
</TABLE>
Schedules other than those listed above are omitted for the reason that they are
not required or are not applicable or the required information is disclosed
elsewhere in the financial statements and related notes.
17
<PAGE> 18
[COOPERS & LYBRAND letterhead]
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Ohio Casualty Corporation
We have audited the consolidated financial statements of Ohio Casualty
Corporation and subsidiaries as of December 31, 1995, 1994 and 1993 and for the
years then ended, which financial statements are included on pages 24 through 35
of the 1995 Annual Report to Shareholders of Ohio Casualty Corporation and
incorporated by reference herein. We have also audited the financial statement
schedules listed in the index on page 17 of this Form 10-K. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement 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 consolidated financial position of Ohio Casualty
Corporation and subsidiaries as of December 31, 1995, 1994 and 1993, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
As discussed in Notes 1 and 6 to the consolidated financial statements, the
Corporation changed its method of accounting for debt and equity securities and
post-employment benefits in 1994.
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Columbus, Ohio
February 3, 1996
18
<PAGE> 19
Schedule I
Ohio Casualty Corporation and Subsidiaries
Consolidated Summary of Investments
Other than Investments in Related Parties
(In thousands)
<TABLE>
<CAPTION>
December 31, 1995
Amount shown
Type of investment Cost Value in balance sheet
- ------------------ ---- ----- ----------------
<S> <C> <C> <C>
Fixed maturities
Bonds:
United States govt. and
govt. agencies with auth. $ 110,628 $ 116,487 $ 116,487
States, municipalities and
political subdivisions 845,729 898,466 898,466
Debt securities issued by
foreign governments 3,000 3,423 3,423
Corporate securities 927,375 986,398 986,398
Mortgage-backed securities:
U.S. government guaranteed 168,219 170,193 170,193
Other 221,199 232,886 232,886
---------- ---------- ----------
Total fixed maturities 2,276,150 2,407,853 2,407,853
Equity securities:
Common stocks:
Banks, trust and insurance
companies 53,338 139,939 139,939
Industrial, miscellaneous and
all other 244,030 487,477 487,477
Preferred stocks:
Non-redeemable 18,006 18,951 18,951
Convertible 11,625 14,787 14,787
---------- ---------- ----------
Total equity securities 326,999 661,154 661,154
Short-term investments 14,399 14,399 14,399
---------- ---------- ----------
Total investments $2,617,548 $3,083,406 $3,083,406
========== ========== ==========
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
Schedule III
Ohio Casualty Corporation
Condensed Financial Information of Registrant
(In thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Condensed Balance Sheet:
Investment in wholly-owned
subsidiaries, at equity $1,156,718 $905,250 $949,546
Investment in bonds 20,165 22,618 15,335
Cash and other assets 2,468 4,725 3,041
---------- -------- --------
Total assets 1,179,351 932,593 967,922
Bank note payable 60,000 70,000 103,000
Other liabilities 8,337 11,803 2,584
---------- -------- --------
Total liabilities 68,337 81,803 105,584
Shareholders' equity $1,111,014 $850,790 $862,338
========== ======== ========
Condensed Statement of Income:
Dividends from subsidiaries $ 80,018 $ 91,098 $ 73,130
Equity in undistributed net
income of subsidiaries 21,431 8,727 16,441
Operating (expenses) (1,714) (2,934) (2,586)
---------- -------- --------
Net income $ 99,735 $ 96,891 $ 86,985
========== ======== ========
Condensed Statement of Cash Flows:
Cash flows from operations
Net distributed income $ 78,304 $ 88,174 $ 70,544
Other 2,971 (15,712) (24,048)
---------- -------- --------
Net cash from operations 81,275 72,462 46,496
Investing
Purchase of bonds 4,555 14,452 20,389
---------- -------- --------
Net cash from investing 4,555 14,452 20,389
Financing
Note payable (10,000) (33,000) (17,000)
Exercise of stock options 578 244 1,485
Purchase of treasury stock (21,193) (1,412) 0
Dividends paid to shareholders (54,335) (52,597) (51,145)
---------- -------- --------
Net cash from financing (84,950) (86,765) (66,660)
Net change in cash 880 149 225
Cash, beginning of year 1,797 1,648 1,423
---------- -------- --------
Cash, end of year $ 2,677 $ 1,797 $ 1,648
========== ======== ========
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
Schedule V
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplementary Insurance Information
(In thousands)
December 31, 1995
Deferred Future policy Benefits, Amortization
policy benefits Net losses and of deferred
acquisition losses and Unearned Premium investment loss acquisition
costs loss expenses premiums revenue income expenses costs
----------- ------------- -------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Segment
- -------
Property and
casualty insurance:
Underwriting
Automobile $ 36,990 $ 608,689 $185,735 $ 620,866 $ $ 490,036 $129,058
Workers' compensation 10,767 403,440 55,861 142,004 93,272 30,196
Gen. liability, A&H 14,736 335,428 48,042 110,487 67,201 37,785
Homeowners 27,209 74,599 92,099 161,116 123,140 46,523
CMP, fire and allied lines,
inland marine 32,270 225,004 98,098 195,014 123,179 65,875
Fidelity, surety, burglary 11,358 17,037 25,936 33,719 5,554 17,618
Investment 184,585
-------- ---------- -------- ---------- -------- --------- --------
Total property and
casualty insurance 133,330 1,664,197 505,771 1,263,206 184,585 902,382 327,055
Life ins.
(discontinued operations) (13,535) 367,061 7 (346,394) 4,143 (350,121) 4,097
Premium finance 257 2,370 522
Corporation 196 3,000
-------- ---------- -------- ---------- -------- --------- --------
Total $119,795 $2,031,258 $506,035 $ 919,378 $192,250 $ 552,261 $331,152
======== ========== ======== ========== ======== ========= ========
<CAPTION>
General
operating Premiums
expenses written
--------- ----------
<S> <C> <C>
Segment
- -------
Property and
casualty insurance:
Underwriting
Automobile $23,246 $ 611,315
Workers' compensation 10,806 140,558
Gen. liability, A&H 12,236 108,283
Homeowners 12,747 160,444
CMP, fire and allied lines,
inland marine 18,237 193,477
Fidelity, surety, burglary 4,904 35,118
Investment
------- ---------
Total property and
casualty insurance 82,176 1,249,195
Life ins.
(discontinued operations) 1,471 (346,394)
Premium finance 1,819 2,314
Corporation 5,975
------- ----------
Total $91,441 $ 905,115
======= ==========
</TABLE>
1. Net investment income has been allocated to principal business segments on
the basis of separately identifiable assets.
2. The principal portion of general operating expenses has been directly
attributed to business segment classifications incurring such expenses with
the remainder allocated based on premium volume.
21
<PAGE> 22
<TABLE>
<CAPTION>
Schedule V
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplementary Insurance Information
(In thousands)
December 31, 1994
Deferred Future policy Benefits, Amortization
policy benefits Net losses and of deferred
acquisition losses and Unearned Premium investment loss acquisition
costs loss expenses premiums revenue income expenses costs
----------- ------------- -------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Segment
- -------
Property and
casualty insurance:
Underwriting
Automobile $ 40,416 $ 617,871 $195,096 $ 639,604 $ $495,209 $131,815
Workers' compensation 12,385 421,422 57,175 151,257 89,992 35,089
Gen. liability, A&H 16,577 304,028 49,923 113,684 53,577 38,992
Homeowners 26,686 77,043 90,696 158,077 157,347 46,173
CMP, fire and allied lines,
inland marine 34,003 227,735 100,119 200,937 131,267 69,765
Fidelity, surety, burglary 10,817 22,763 24,425 32,579 2,003 16,212
Investment 183,811
-------- ---------- -------- ---------- -------- -------- --------
Total property and
casualty insurance 140,884 1,670,862 517,434 1,296,138 183,811 929,395 338,046
Life ins. (discontinued operations) 24,749 353,360 22,775 28,082 29,509 3,630
Premium finance 641 2,607 332
Corporation 115 1,565
-------- ---------- -------- ---------- -------- -------- --------
Total $165,633 $2,024,222 $518,075 $1,321,635 $213,790 $958,904 $341,676
======== ========== ======== ========== ======== ======== ========
<CAPTION>
General
operating Premiums
expenses written
--------- ----------
<S> <C> <C>
Segment
- -------
Property and
casualty insurance:
Underwriting
Automobile $20,493 $ 632,036
Workers' compensation 9,173 145,641
Gen. liability, A&H 9,906 114,656
Homeowners 11,829 160,089
CMP, fire and allied lines,
inland marine 18,164 199,350
Fidelity, surety, burglary 4,802 33,209
Investment
------- ----------
Total property and
casualty insurance 74,367 1,284,981
Life ins. (discontinued operations) 11,516 22,775
Premium finance 1,912 2,528
Corporation 6,139
------- ----------
Total $93,934 $1,310,284
======= ==========
</TABLE>
1. Net investment income has been allocated to principal business segments on
the basis of separately identifiable assets.
2. The principal portion of general operating expenses has been directly
attributed to business segment classifications incurring such expenses with
the remainder allocated based on premium volume.
22
<PAGE> 23
<TABLE>
<CAPTION>
Schedule V
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplementary Insurance Information
(In thousands)
December 31, 1993
Deferred Future policy Benefits, Amortization
policy benefits Net losses and of deferred
acquisition losses and Unearned Premium investment loss acquisition
costs loss expenses premiums revenue income expenses costs
----------- ------------- -------- ------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Segment
- -------
Property and
casualty insurance:
Underwriting
Automobile $ 39,951 $ 630,728 $203,010 $ 666,813 $ $ 503,438 $145,385
Workers' compensation 15,441 461,707 62,858 183,294 153,447 41,310
Gen. liability, A&H 15,977 332,677 48,950 117,275 87,327 41,791
Homeowners 26,687 76,265 88,782 167,729 141,068 50,238
CMP, fire and allied lines,
inland marine 35,645 243,441 101,759 209,063 167,255 48,352
Fidelity, surety, burglary 9,693 23,815 23,795 33,378 6,064 46,726
Investment 190,395
-------- ----------- -------- ---------- -------- ---------- --------
Total property and
casualty insurance 143,394 1,768,633 529,154 1,377,552 190,395 1,058,599 373,802
Life ins. (discontinued operations) 25,441 319,375 19,907 26,898 25,189 3,817
Premium finance 721 3,109 204
Corporation 13 1,891
-------- ---------- -------- --------- -------- ---------- --------
Total $168,835 $2,088,008 $529,875 $1,400,581 $219,388 $1,083,788 $377,619
======== ========== ======== ========== ======== ========== ========
<CAPTION>
General
operating Premiums
expenses written
---------- ----------
<S> <C> <C>
Segment
- -------
Property and
casualty insurance:
Underwriting
Automobile $ 44,665 $ 641,837
Workers' compensation 8,190 165,577
Gen. liability, A&H 12,235 109,996
Homeowners 6,993 156,797
CMP, fire and allied lines,
inland marine 72,076 198,963
Fidelity, surety, burglary (51,703) 31,148
Investment
-------- ----------
Total property and
casualty insurance 92,456 1,304,318
Life ins. (discontinued operations) 11,352 19,907
Premium finance 2,115 2,887
Corporation 6,239
-------- ----------
Total $112,162 $1,327,112
======== ==========
</TABLE>
1. Net investment income has been allocated to principal business segments on
the basis of separately identifiable assets.
2. The principal portion of general operating expenses has been directly
attributed to business segment classifications incurring such expenses with
the remainder allocated based on premium volume.
23
<PAGE> 24
<TABLE>
<CAPTION>
Schedule VI
Ohio Casualty Corporation and Subsidiaries
Consolidated Reinsurance
(In thousands)
December, 1995, 1994 and 1993
Percent of
amount
Ceded to Assumed assumed
Gross other from other Net to net
amount companies companies amount amount
----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
Life insurance in force $ 5,207,297 $5,298,297 $ 91,000 $ 0 0.0%
=========== ========== ========== ==========
Premiums
Property and casualty insurance $ 1,251,079 $ 41,252 $ 39,692 $1,249,519 3.2%
Life insurance 38,456 384,974 136 (346,382) 0.0%
Accident and health insurance 1,456 1,780 1,521 1,197 127.1%
----------- ---------- ---------- ----------
Total premiums 1,290,991 428,006 41,349 904,334 4.6%
Premium finance charges 2,314
Life insurance - FAS 97 adjustment (1,533)
----------
Total premiums and finance charges written 905,115
Change in unearned premiums and finance charges 14,263
----------
Total premiums and finance charges earned 919,378
Miscellaneous income 3,810
Discontinued operations - life insurance 345,081
----------
Total premiums & finance charges earned -
continuing operations $1,268,269
==========
Year Ended December 31, 1994
Life insurance in force $ 5,254,705 $1,534,389 $ 91,000 $3,811,316 2.4%
=========== ========== ========== ==========
Premiums
Property and casualty insurance $ 1,284,511 $ 44,592 $ 43,473 $1,283,392 3.4%
Life insurance 53,910 5,436 231 48,705 0.5%
Accident and health insurance 1,766 177 243 1,832 13.3%
----------- ---------- ---------- ----------
Total premiums 1,340,187 50,205 43,947 1,333,929 3.3%
Premium finance charges 2,528
Life insurance - FAS 97 adjustment (26,173)
----------
Total premiums and finance charges written 1,310,284
Change in unearned premiums and finance charges 11,351
----------
Total premiums and finance charges earned 1,321,635
Discontinued operations - life insurance (22,774)
----------
Total premiums & finance charges earned -
continuing operations $1,298,861
==========
Year Ended December 31, 1993
Life insurance in force $ 5,037,383 $1,467,192 $ 91,000 $3,661,191 2.5%
=========== ========== ========== ==========
Premiums
Property and casualty insurance $ 1,300,725 $ 43,448 $ 45,915 $1,303,192 3.5%
Life insurance 68,739 4,607 247 64,379 0.4%
Accident and health insurance 1,297 172 270 1,395 19.4%
----------- ---------- ---------- ----------
Total premiums 1,370,761 48,227 46,432 1,368,966 3.4%
Premium finance charges 2,887
Life insurance - FAS 97 adjustment (44,748)
----------
Total premiums and finance charges written 1,327,105
Change in unearned premiums and finance charges 73,469
----------
Total premiums and finance charges earned 1,400,574
Discontinued operations - life insurance (19,900)
----------
Total premiums & finance charges earned -
continuing operations $1,380,674
==========
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
Schedule VIII
Ohio Casualty Corporation and Subsidiaries
Valuation and Qualifying Accounts
(In thousands)
Balance at Balance at
beginning Charged to end of
of period expenses Deductions period
<S> <C> <C> <C> <C>
Year ended December 31, 1995
Reserve for bad debt 4,500 (1,000) 0 3,500
Year ended December 31, 1994
Reserve for bad debt 6,300 (1,800) 0 4,500
Year ended December 31, 1993
Reserve for bad debt 6,791 (491) 0 6,300
</TABLE>
25
<PAGE> 26
Schedule X
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplemental Information Concerning Property and
Casualty Insurance Operations
(In thousands)
<TABLE>
<CAPTION>
Claims and claim
Reserves for adjustment expenses
Deferred unpaid claims incurred related to
policy and claim Discount Net ---------------------
Affiliation with acquisition adjustment of Unearned Earned investment Current Prior
registrant costs expenses reserves premiums premiums income year years
----------- ------------- --------- -------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property and casualty
subsidiaries
Year ended December 31,
1995 $133,330 $1,664,197 $ 0 $505,771 $1,263,206 $ 184,585 $1,007,380 $(104,998)
======== ========== ========== ======== ========== ========= ========== =========
Year ended December 31,
1994 $140,884 $1,670,862 $ 0 $517,774 $1,296,138 $ 183,811 $1,083,112 $(153,717)
======== ========== ========== ======== ========== ========= ========== =========
Year ended December 31,
1993 $143,394 $1,768,633 $ 0 $529,154 $1,377,552 $ 190,395 $1,130,399 $ (71,799)
======== ========== ========== ======== ========== ========= ========== =========
<CAPTION>
Amortization Paid
of deferred claims
policy and claim
Affiliation with acquisition adjustment Premiums
registrant costs expenses written
------------ ---------- ----------
<S> <C> <C> <C>
Property and casualty
subsidiaries
Year ended December 31,
1995 $327,055 $ 954,777 $1,249,195
======== ========== ==========
Year ended December 31,
1994 $338,046 $1,016,763 $1,284,981
======== ========== ==========
Year ended December 31,
1993 $373,802 $1,038,910 $1,304,318
======== ========== ==========
</TABLE>
26
<PAGE> 27
FORM 10-K
OHIO CASUALTY CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
Exhibit 10b Coinsurance Life, Annuity and Disability Income Reinsurance
Agreement between Employer's Reassurance Corporation and
The Ohio Life Insurance Company dated as of October 2, 1995 28-37
Exhibit 11 Computation of Earnings Per Share on Primary and Fully Diluted
Basis for the years ended December 31, 1995, 1994 and 1993 38
Exhibit 13 Annual Report to Shareholders for the Registrant's fiscal year
ended December 31, 1995 39-78
Exhibit 21 Subsidiaries of Registrant 79
Exhibit 22 Proxy Statement of the Board of Directors for the fiscal year
ended December 31, 1995 80-96
Exhibit 23 Consent of Independent Accountants to incorporation of their
opinion by reference in Registration Statement on Form S-8 97
Exhibit 27 Financial Data Schedule 98
Exhibit 28 Information from Reports Furnished to State Insurance
Regulation Authorities 99-112
Exhibits incorporated by reference to previous filings:
Exhibit 3 Articles of Incorporation and By Laws amended 1986 and filed
with Form 8-K on January 15, 1987
Exhibit 4a Rights Agreement amended as of April 1, 1994 between Ohio
Casualty Corporation and Mellon Bank, N.A. as rights agent filed
with Form 8-K on April 1, 1994
Exhibit 4b First Supplement to Rights Agreement filed with Form 8-K
on November 6, 1990
Exhibit 4c Second Supplement to Rights Agreement filed with
Form 8-K on November 6, 1990
Exhibit 4d Rights Agreement amended as of September 5, 1995 between Ohio
Casualty Corporation and First Chicago Trust Company of New York
as rights agent filed with Form 8-K on September 5, 1995
Exhibit 10 Credit Agreement dated as of October 25, 1994 between Ohio
Casualty Corporation and Chase Manhattan Bank, N.A., as agent,
filed with Form 10-Q on November 1, 1994
Exhibit 10a Ohio Casualty Corporation 1993 Stock Incentive Program filed
with Form 10-Q as Exhibit 10d on May 31, 1993
</TABLE>
27
<PAGE> 1
EXHIBIT 10b
COINSURANCE LIFE, ANNUITY AND DISABILITY INCOME
REINSURANCE AGREEMENT
Entered into between
EMPLOYERS REASSURANCE CORPORATION
of
Overland Park, Kansas
(hereinafter called the CORPORATION)
and
OHIO LIFE INSURANCE COMPANY
of
Hamilton, Ohio
(hereinafter called the CEDANT)
EFFECTIVE DATE: January 1, 1995
TRANSFER DATE: October 2, 1995
In consideration of the mutual covenants hereinafter contained, the parties
hereto do hereby agree as follows:
ARTICLE I
APPLICATION OF AGREEMENT. This agreement applies to loss under the policies
described in the following Schedule (hereinafter called policies or policy) paid
by the CEDANT on or after the effective date of this agreement.
Policy Form Schedule
All individual life, annuity and disability income insurance contracts
of the CEDANT in force on the effective date of this agreement and
issued by the CEDANT to become effective on or after the effective date
of this agreement, including all riders originally written therewith or
later added thereto.
All supplementary insurance contracts of the CEDANT in force on the
effective date of this agreement and issued by the CEDANT to become
effective on or after the effective date of this agreement.
All structured settlements of the CEDANT in force on the effective date
of this agreement and written by the CEDANT to become effective on or
after the effective date and prior to the transfer date of this
agreement.
-28-
<PAGE> 2
Policy Form Schedule (continued)
All individual accident and health insurance contracts issued by Ohio
Casualty Insurance Company before the effective date of this agreement
and reinsured by CEDANT, including all riders originally written
therewith.
All group life insurance of the CEDANT (including plans issued to its
agents and to its affiliates) in force on the effective date of this
agreement and issued by the CEDANT to become effective on or after the
effective date of this agreement.
All group accident and health insurance of the CEDANT (including
accidental death and dismemberment plan issued to its affiliate) in
force on the effective date of this agreement and issued by the CEDANT
to become effective on or after the effective date of this agreement.
All group life insurance policies reinsured by the CEDANT prior to the
effective date of this agreement and certificates issued thereunder to
become effective on or after the effective date of this agreement.
All group accident and health insurance policies (including long term
care) reinsured by the CEDANT prior to the effective date of this
agreement and certificates issued thereunder to become effective on or
after the effective date of this agreement.
The word "policies" includes conversions, replacements, exchanges and
reinstatements thereof.
The term "other reinsurance" means those contracts entered into by the CEDANT
with insurance companies other than the CORPORATION which reinsure the policies.
ARTICLE II
REINSURANCE AND MISCELLANEOUS OBLIGATIONS. The CORPORATION is obligated to the
CEDANT for 100% of loss to which this agreement applies.
The CORPORATION is also obligated to the CEDANT for 100% of each of the
following three items: (1) experience refund payments made by the CEDANT under
the policies; (2) premium and other deposit fund payments made by the CEDANT to
the insureds under the policies; (3) supplementary contract payments made by the
CEDANT to the insureds under the policies. For purposes of this paragraph, the
word "insureds" includes policy owners and policy beneficiaries. The three
preceding items are hereinafter referred to as miscellaneous obligation
payments.
-29-
<PAGE> 3
ARTICLE III
DEFINITION OF LOSS. The word "loss" means only those amounts which are actually
paid by the CEDANT for benefits afforded under the policies, in settlement of
claims for benefits under the policies, or in satisfaction of judgments for
benefits under the policies, provided that, in the event of insolvency of the
CEDANT, "loss" shall mean the amount of policy benefits which the CEDANT has
incurred or is liable for, and payment by the CORPORATION shall be made to the
liquidator, receiver or other statutory successor of the CEDANT in accordance
with the provisions of the Insolvency Clause attached to and made a part of this
agreement. The word "loss" includes cash values paid by the CEDANT because of
policy surrenders. The word "loss" includes policy settlement options which have
been selected even though they remain unpaid by the CEDANT. The word "loss"
excludes:
(a) claim expenses;
(b) salaries paid to employees of the CEDANT;
(c) any amount paid by the CEDANT for punitive, exemplary or compensatory
damages arising out of the conduct of the CEDANT in the investigation,
trial or settlement of any claim or failure to pay or delay in payment
of any benefits under any policy; provided that, this subparagraph (c)
shall not apply if the CORPORATION has, in advance of any such conduct
by the CEDANT, counseled with the CEDANT and concurred in the CEDANT'S
course of conduct;
(d) any statutory penalty imposed upon the CEDANT because of any unfair
trade practice or any unfair claim practice;
(e) claims under litigation as of the effective date of this agreement,
including, but not limited to, those which are listed by attachment to
this agreement;
(f) claims with respect to which litigation is overly threatened prior to
the effective date of this agreement, including, but not limited to,
those which are listed by attachment to this agreement;
(g) amounts collected under other reinsurance.
ARTICLE IV
POLICY LOANS. The CORPORATION shall be obligated to the CEDANT for the policy
loan increases. The CEDANT shall be obligated to the CORPORATION for the policy
loan decreases.
-30-
<PAGE> 4
ARTICLE V
PRODUCER COMMISSION. The CORPORATION is obligated to the CEDANT for the
commissions paid by the CEDANT to its producers of the policies.
ARTICLE VI
INITIAL CONSIDERATION. The CEDANT is obligated to the CORPORATION for an initial
consideration equal to 100% of the life and accident and health policy reserves
as of the effective date, plus miscellaneous reserves and liabilities as of the
effective date, less policy loans as of the effective date, and less
miscellaneous assets as of the effective date ($337,602,844). The obligation
calculated in accordance with the preceding sentence shall be segregated as
follows:
1. Assets pertaining to a $140,000,000 part thereof shall be deposited on
August 3, 1995 into a Custodial Account between CEDANT, the CORPORATION
and Great Southern Life Insurance Company; and
2. Assets pertaining to the remaining part thereof as of the effective date
shall be adjusted by the proportionate increase or decrease between July
28, 1995 an the last trading day preceding the transfer date in the
value of the 6.5% U.S. Treasury Bond due May 15, 2005, as quoted by
Solomon Brothers at 5:00 p.m. New York time.
The CORPORATION is obligated to the CEDANT for a ceding commission of
$48,200,000 minus the ceding commission adjustment.
The ceding commission shall also be increased or decreased by the decrease or
increase in subparagraph 1 above from July 28, 1995 to the transfer date and by
the decrease or increase in subparagraph 2 above from July 28, 1995 to the
transfer date.
The ceding commission adjustment is defined as the CEDANT'S statutory earnings
before taxes from the effective date of this agreement to the transfer date of
this agreement as taken from line 29 of the Analysis of Operations by Lines of
Business for the CEDANT's 1995 third quarter end statutory statement and as
computed by the CEDANT on a basis consistent with practices used by the CEDANT
as of December 31, 1994:
(a) less investment income assumed at the rate of 7.5% per annum for the
period from the effective date to the transfer date on the outstanding
balance of capital and surplus plus the Asset Valuation Reserve and the
Interest Maintenance Reserve all as of the effective date;
(b) plus 15% of general expenses incurred (direct and allocated), premium
taxes, licenses and fees incurred from the effective date to the
transfer date;
-31-
<PAGE> 5
(c) plus the increase or minus the decrease in the CEDANT's life and
accident and health policy reserves and miscellaneous reserves and
liabilities from the effective date to the transfer date;
(d) plus the decrease or minus the increase in the policy loans from the
effective date to the transfer date;
(e) plus the decrease or minus the increase in the miscellaneous assets from
the effective date to the transfer date;
(f) plus the losses incurred or minus the gains received between the
effective date and the transfer date on claims identified in
subparagraphs (e) and (f) of the definition of loss.
"Miscellaneous reserves and liabilities" means the sum of the following:
(1) reserves for supplementary contracts;
(2) policy and contract claims;
(3) liability for premium and other deposit funds;
(4) provision for experience rating refunds;
(5) due or accrued agents commissions;
(6) commissions and expense allowances on reinsurance described in the
Policy Form Schedule contained in Article I;
(7) premiums due or accrued on other reinsurance;
(8) advance premiums.
"Miscellaneous assets" means the sum of the following:
(1) gross due and deferred life premiums;
(2) gross due accident and health premiums;
(3) amounts recoverable under other reinsurance.
-32-
<PAGE> 6
ARTICLE VII
REINSURANCE PREMIUM. The CEDANT is obligated to the CORPORATION for reinsurance
premiums after the effective date of this agreement, in accordance with Article
VI. At the end of each calendar quarter after the transfer date, the CEDANT
shall owe the CORPORATION a reinsurance premium equal to the policies' insurance
premium collected by the CEDANT during the quarter, less premiums on other
reinsurance after reduction for allowances thereon, plus considerations for
supplementary contracts and other deposit funds collected by the CEDANT. The
CORPORATION shall owe the CEDANT an expense allowance equal to the following
percentages of this agreement's reinsurance premium after the transfer date:
<TABLE>
<S> <C>
Life reinsurance premium: 20%
Disability reinsurance premium: 20%
Annuity reinsurance premium: 6.5%
</TABLE>
The CORPORATION shall owe the CEDANT an expense allowance in an amount equal to
.0625% of the assets set forth in the 1995 Escrow Agreement between the
CORPORATION and Great Southern Life Insurance Company, as of the end of each
calendar quarter after the transfer date.
ARTICLE VIII
REPORTING, ACCOUNTING AND SETTLEMENTS. On the transfer date, the CEDANT will pay
the CORPORATION the estimated initial consideration calculated per the first
sentence of the first paragraph of Article VI, minus the ceding commission, as
adjusted by the third paragraph of Article VI and minus the ceding commission
adjustment. Within 30 days after the transfer date, the CEDANT shall pay the
CORPORATION the amount by which the actual net amount due under Article VI
exceeds the previously paid estimate (or the CORPORATION shall return the amount
by which the estimate exceeded the actual). Within 25 days after the end of each
calendar quarter after the transfer date, the CEDANT or its administrator shall
furnish to the CORPORATION a report (in a form satisfactory to the CORPORATION)
of the following information for the quarter:
A. The following amounts due the CORPORATION:
1. Reinsurance premium;
2. Policy loan decrease;
-33-
<PAGE> 7
B. The following amounts due the CEDANT:
1. Producer commission paid;
2. Reinsurance losses paid;
3. Expense allowance;
4. Policy loan increase;
5. Miscellaneous obligation payments;
C. Balance due CORPORATION or CEDANT.
If the amount shown in subparagraph C is due the CORPORATION, the CEDANT'S
payment thereof shall accompany the report. If the amount shown in subparagraph
C is due the CEDANT, the CORPORATION'S payment thereof shall be made to the
CEDANT within 25 days after the CORPORATION receives the CEDANT'S report.
The CEDANT agrees to pay to the CORPORATION simple interest on the estimated net
initial consideration per Article VI not received by the CORPORATION on the
transfer date and on the difference between estimated and actual from the
transfer date until the difference is received by the CORPORATION (or the
CORPORATION will pay the CEDANT interest on the part of the estimated which is
returned to the CEDANT). The CORPORATION and the CEDANT each agree to pay the
other simple interest on all amounts due and not remitted within 45 days after
the end of any calendar quarter.
The interest rate for the late quarterly payments and for funds remitted
subsequent to the transfer date is the three month LIBOR rate at noon indicated
by Solomon Brothers, New York, on the last day of the quarter involved or as of
September 30, 1995 with respect to transfer date payments.
The report for the third calendar quarter of each calendar year shall include
the information pertaining to the policies which is necessary for preparing the
CORPORATION'S Annual Statement. The report for the fourth calendar quarter of
each calendar year shall include the CEDANT'S cash flow analysis for the
policies which is sufficient for the CORPORATION'S use in preparing its
actuarial opinion.
ARTICLE IX
CLAIMS. The CEDANT shall itself investigate, pay, settle or defend all claims
arising under the policies or contract with another company (satisfactory to the
CORPORATION) to do so. Other than with respect to damages to which this
agreement may apply by virtue of subparagraph (c) of the definition of loss, the
CORPORATION will abide by the claim handling decisions of the CEDANT or of its
administrator.
-34-
<PAGE> 8
ARTICLE X
INSPECTION OF RECORDS. The CORPORATION may inspect the records of the CEDANT
pertaining to the policies.
ARTICLE XI
ADMINISTRATION. The CORPORATION has no responsibility or authority to administer
the insurance afforded by the policies. The CORPORATION has the right to review
and require changes to the administration agreement to be entered into by the
CEDANT with respect to the policies.
ARTICLE XII
INSOLVENCY CLAUSE. The Insolvency Clause attached to this agreement is hereby
made a part of this agreement.
ARTICLE XIII
ASSIGNMENTS AND CHANGES OF INTEREST. No assignment or change of either party's
interest hereunder, whether voluntary of involuntary and whether by merger or
reinsurance of its entire business with another company or otherwise, shall be
binding upon the other party, provided that this article does not apply to:
(1) the CORPORATION'S assignment of its interests and liabilities as the
reinsurer to Great Southern Life Insurance Company, but only with
respect to those policies on which said company is not named as the
direct insurer;
(2) the CEDANT's assignment of its rights and duties as the ceding company
to Great Southern Life Insurance Company, but only with respect to those
policies on which said company is named as the direct insurer.
ARTICLE XIV
OFFSET. The CEDANT or the CORPORATION may offset any balance, whether on account
of premiums, commissions, loss or claim expenses due from one party to the other
under this agreement or under any other reinsurance agreement heretofore or
hereafter entered into between the CEDANT and the CORPORATION, whether acting as
ceding company or assuming reinsurer.
-35-
<PAGE> 9
ARTICLE XV
ENTIRE AGREEMENT. This agreement shall constitute the entire agreement between
the parties with respect to the business being reinsured hereunder. There are no
other understandings between the parties other than as expressed in this
agreement. Any change or modification to this agreement shall be null and void
unless made by amendment to this agreement and signed by both parties.
ARTICLE XVI
RECAPTURE. The CORPORATION has no obligation to allow the CEDANT to recapture
the policies.
ARTICLE XVII
TERMINATION. Either party shall have the right to terminate this agreement with
respect to new business by giving to the other party not less than 90 days
advance notice, by registered mail or express delivery service, stating the
first day of any calendar quarter which shall be the termination date.
This agreement does not apply to policies issued to become effective on or after
the termination date.
If the CORPORATION does not permit recapture, the reinsurance afforded by this
agreement applicable to each policy in force on the termination date shall
continue to apply thereto until the policy naturally expires.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
in duplicate.
<TABLE>
<CAPTION>
EMPLOYERS REASSURANCE
OHIO LIFE INSURANCE COMPANY CORPORATION
<S> <C>
By:___________________________________ By:___________________________________
Title:________________________________ Title:________________________________
Date:_________________________________ Date:_________________________________
By:___________________________________ By:___________________________________
Title:________________________________ Title:________________________________
Date:_________________________________ Date:_________________________________
</TABLE>
-36-
<PAGE> 10
INSOLVENCY CLAUSE
The ceding insurer and the reinsurer agree that, in the event of the
insolvency of the ceding insurer, as to all reinsurance made, ceded, renewed or
otherwise becoming effective after the effective date of this agreement, the
reinsurance shall be payable by the reinsurer on the basis of the amount of
liability of the ceding insurer under the contract or contracts reinsured,
without diminution because of the insolvency of the ceding insurer; furthermore,
that such amount shall be paid directly to the ceding insurer or its liquidator,
receiver or other statutory successor.
It is understood and agreed, however, that the obligations of the ceding
company as set forth in the reinsurance contract, including, among others, the
duty to investigate, settle and defend all claims arising under policies with
respect to which reinsurance is afforded by this agreement, shall remain
unimpaired and unaffected by the insolvency of the ceding insurer and shall be
assumed by the liquidator, receiver or statutory successor of the ceding insurer
in the liquidation or receivership proceeding and that such liquidator, receiver
or statutory successor shall give written notice to the reinsurer of the
pendency of a claim against the ceding insurer on the policy reinsured within a
reasonable time after such claim is filed in the insolvency proceeding and that
during the pendency of such claim the reinsurer may investigate such claim and
interpose, at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses which it may deem available to the ceding
insurer, its liquidator, receiver or statutory successor. The expense thus
incurred by the reinsurer shall be chargeable, subject to court approval,
against the insolvent ceding insurer as a part of the expense of liquidation to
the extent of a proportionate share of the benefit which may accrue to the
ceding insurer solely as the result of the defense undertaken or asserted by the
reinsurer.
Where two or more reinsurers are involved in the same claim and a
majority in interest elect to interpose a defense to such claim, the expense
shall be apportioned in accordance with the terms of this reinsurance agreement
as though such expense had been incurred by the ceding insurer.
Nothing hereinabove set forth in this insolvency clause shall in anywise
change the relationship or status of the parties hereto, to wit, that of ceding
insurer and reinsurer, nor enlarge the obligations of either party to each
other, except as specifically hereinabove provided, to wit, to pay the statutory
successor on the basis of the amount of liability of the ceding insurer under
the contract or contracts reinsured, rather than on the basis of the actual
amount of loss (dividends) paid by the liquidator, receiver or statutory
successor to allowed claimants, nor shall anything in this insolvency clause in
any manner create any obligations or establish any rights against the reinsurer
in favor of any third parties or any persons not parties to this reinsurance
contract.
-37-
<PAGE> 1
Exhibit 11
Ohio Casualty Corporation and Subsidiaries
Computation of Earnings Per Share on Primary and Fully Diluted Basis
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net income applicable to common stock
(in thousands) $99,735 $96,891 $86,985
======= ======= =======
Average common shares outstanding
(shares in thousands) 35,750 36,033 36,016
Average number of common shares issuable upon
exercise of stock options, less common
shares assumed to have been repurchased
with the proceeds from the assumed exercise
of outstanding stock options. Number of
shares repurchased is based on the average
market price during year. 17 0 14
------- ------- -------
35,767 36,033 36,030
======= ======= =======
Net income per average share on a primary basis $ 2.79 $ 2.69 $ 2.42
======= ======= =======
Average common shares outstanding
(shares in thousands) 35,750 36,033 36,016
Average number of common shares issuable upon
exercise of stock options, less common
shares assumed to have been repurchased
with the proceeds from the assumed exercise
of outstanding stock options. Number of
shares repurchased is based on higher of
average market price during the year, or
market price at end of year. 17 5 12
------- ------- -------
35,767 36,038 36,028
======= ======= =======
Net income per average share on a fully
diluted basis $ 2.79 $ 2.69 $ 2.42
======= ======= =======
</TABLE>
38
<PAGE> 1
EXHIBIT 13
<TABLE>
<CAPTION>
OHIO CASUALTY CORPORATION & SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross premiums and finance charges $ 1,294,541 $ 1,332,279 $ 1,350,825
Investment income, less expenses 188,107 185,708 192,491
Income before investment gains 91,400 77,083 51,442
Realized investment gains, after taxes 3,963 14,231 28,701
Income from discontinued operations 4,372 5,896 6,842
Cumulative effect of accounting changes 0 (319) 0
Net income 99,735 96,891 86,985
Property and casualty combined ratio 104.0% 103.8% 110.3%
PER COMMON SHARE*
Income before investment gains $ 2.56 $ 2.14 $ 1.43
Realized investment gains, after taxes 0.11 0.40 0.80
Income from discontinued operations 0.12 0.16 0.19
Cumulative effect of accounting changes 0.00 (0.01) 0.00
Net income 2.79 2.69 2.42
Book value 31.39 23.64 23.93
Dividends 1.52 1.46 1.42
FINANCIAL CONDITION
Assets $ 3,980,142 $ 3,738,956 $ 3,816,753
Shareholders' equity 1,111,014 850,790 862,338
(See Note 1L to Consolidated Financial Statements)
Average shares outstanding* 35,750 36,033 36,016
Shares outstanding on December 31* 35,396 35,993 36,030
Number of shareholders 6,100 6,100 7,200
<FN>
*1993 share and per share amounts restated for 2-for-1 stock split (See Note 15).
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
Ohio Casualty Corporation & Subsidiaries
TEN-YEAR SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
(in millions) 1995 1994 1993 1992
================================================================================================
<S> <C> <C> <C> <C>
Consolidated Operations
Income after taxes
Property and casualty $ 92.5 $ 79.3 $ 53.5 $ 61.2
Premium finance 0.7 0.7 0.8 1.5
Corporate expenses (1.8) (2.9) (2.8) (4.9)
--------- ---------- ---------- ---------
Operating income 91.4 77.1 51.5 57.8
Realized investment gains (losses) 4.0 14.2 28.7 35.1
--------- ---------- ---------- ---------
Income from continuing operations 95.4 91.3 80.2 92.9
Discontinued operations 4.3 5.9 6.8 4.1
Cumulative effect of accounting changes 0 (0.3) 0 1.5
--------- ---------- ---------- ---------
Net income 99.7 96.9 87.0 98.5
========= ========== ========== =========
Income after taxes per average share outstanding
Property and casualty 2.59 2.20 1.49 1.70
Premium finance 0.02 0.02 0.02 0.04
Corporate expenses (0.05) (0.08) (0.08) (0.14)
--------- ---------- ---------- ---------
Operating income 2.56 2.14 1.43 1.60
Realized investment gains (losses) 0.11 0.40 0.80 0.98
Discontinued operations 0.12 0.16 0.19 0.12
Cumulative effect of accounting changes 0 (0.01) 0 0.04
--------- ---------- ---------- ---------
Net income 2.79 2.69 2.42 2.74
========= ========== ========== =========
Average shares outstanding 35.8 36.0 36.0 36.0
Total assets 3,980.1 3,739.0 3,816.8 3,760.7
Shareholders' equity 1,111.0 850.8 862.3 825.2
Book value per share 31.39 23.64 23.93 23.43
Dividends paid per share 1.52 1.46 1.42 1.34
Percent increase over previous year 4.1% 2.8% 6.0% 8.1%
Property and Casualty Operations
Gross premiums written 1,293.6 1,331.2 1,349.7 1,541.5
Net premiums written 1,250.6 1,286.4 1,306.0 1,508.5
Premiums earned 1,264.6 1,297.7 1,379.4 1,517.6
GAAP underwriting gain (loss) before taxes (68.8) (92.9) (147.3) (130.8)
Loss ratio 61.2% 61.6% 64.9% 63.7%
Loss expense ratio 10.2% 10.0% 11.8% 10.8%
Underwriting expense ratio 32.6% 32.2% 33.6% 33.5%
Combined ratio 104.0% 103.8% 110.3% 108.0%
Investment income before taxes 184.6 183.8 190.4 194.6
Per average share outstanding 5.16 5.10 5.29 5.41
Percent increase over previous year 1.2% (3.6)% (2.2)% 1.3%
Property and casualty reserves
Unearned premiums 505.8 517.8 529.6 596.1
Losses 1,268.1 1,303.6 1,378.0 1,309.2
Loss adjustment expense 356.1 367.3 390.6 364.0
Statutory policyholders' surplus 876.9 660.0 713.6 674.2
Percent increase (decrease) over previous year 32.9% (7.5)% 5.8% 4.8%
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION> 10-Year Compound
1991 1990 1989 1988 1987 1986 Annual Growth
=====================================================================================
%
<S> <C> <C> <C> <C> <C> <C>
$ 103.2 $ 93.4 $ 108.1 $ 133.4 $ 90.2 $ 61.9 10.7%
2.1 2.2 2.3 2.5 2.1 1.8 -5.2%
(6.2) (1.0) (1.1) (0.7) (0.3) (0.2) 23.9%
- ------- ---------- ---------- ---------- ---------- ----------
99.1 94.6 109.3 135.2 92.0 63.5 10.3%
9.8 (8.7) (10.5) (14.2) (17.9) 31.0 -3.3%
- ------- ---------- ---------- ---------- ---------- ----------
108.9 85.9 98.8 121.0 74.1 94.5 9.1%
(1.0) (1.8) 2.7 7.0 4.5 8.2 0.5%
0 0 0 0 0 0 ---
- ------- ---------- ---------- ---------- ---------- ----------
107.9 84.1 101.5 128.0 78.6 102.7 8.5%
======= ========== ========== ========== ========== ==========
2.88 2.43 2.53 3.06 2.00 1.37 13.3%
0.06 0.06 0.05 0.06 0.05 0.04 -3.1%
(0.17) (0.02) (0.02) (0.02) 0 0 26.7%
- ------- ---------- ---------- ---------- ---------- ----------
2.77 2.47 2.56 3.10 2.05 1.41 12.8%
0.27 (0.23) (0.25) (0.32) (0.41) 0.69 -1.1%
(0.03) (0.05) 0.06 0.16 0.10 0.17 2.8%
0 0 0 0 0 0 ---
- ------- ---------- ---------- ---------- ---------- ----------
3.01 2.19 2.37 2.94 1.74 2.27 11.0%
======= ========== ========== ========== ========== ==========
35.8 38.4 42.8 43.6 45.0 45.2 -2.3%
3,531.3 3,252.9 3,145.7 2,922.0 2,682.4 2,475.4 5.0%
774.5 651.2 775.0 718.5 615.7 606.0 7.5%
21.58 18.19 18.46 16.65 13.93 13.40 10.1%
1.24 1.16 1.04 0.94 0.84 0.75 8.1%
6.9% 11.5% 10.6% 11.9% 12.0% 7.1% ---
1,519.3 1,492.1 1,404.5 1,383.6 1,398.2 1,338.4 1.5%
1,492.3 1,468.4 1,377.6 1,353.2 1,359.6 1,301.7 1.4%
1,469.1 1,438.0 1,364.2 1,339.6 1,356.6 1,221.9 2.4%
(74.5) (79.4) (62.6) (16.3) (39.6) (57.0) ---
60.4% 61.4% 58.4% 55.2% 56.8% 60.0% ---
10.6% 10.9% 12.1% 11.8% 12.7% 11.8% ---
33.9% 33.0% 33.2% 33.8% 33.4% 32.6% ---
104.9% 105.3% 103.7% 100.8% 102.9% 104.4% ---
191.6 176.7 187.7 169.8 156.9 140.0 4.4%
5.34 4.59 4.38 3.89 3.48 3.10 6.8%
16.3% 4.8% 12.6% 11.8% 12.3% 16.1% ---
605.2 582.0 551.6 538.2 524.5 521.5 1.4%
1,216.1 1,148.9 1,061.5 979.3 929.4 790.9 6.9%
350.0 335.1 308.5 273.1 242.0 190.4 8.7%
643.4 465.8 531.6 452.1 442.4 452.5 8.6%
38.1% (12.4)% 17.6% 2.2% (2.2)% 18.9% ---
</TABLE>
<PAGE> 4
MANAGEMENT'S DISCUSSION & ANALYSIS
RESULTS OF OPERATIONS
Net income increased 2.9% for 1995 to $99.7 million or $2.79 per share
while the combined ratio increased by .2 points to 104.0%. Losses, loss
adjustment expenses and underwriting expenses are all down in relation to last
year, but the decline in premium caused the slight deterioration in the
combined ratio. Net premiums written declined for the third straight year to
$1.2 billion. The premium decline is attributable to the Corporation's
continued repositioning strategy where coastal exposures are reduced, agents
with insufficient premium volume are canceled, and states with poor regulatory
or legal environments are avoided. During 1995, 448 agents were canceled
accounting for more than $60 million in written premium. The largest decline
in premium occurred in the general liability line of business with a 5.2%
decline. The largest premium declines in individual states came in
Pennsylvania with a $16.3 million decline and Florida with a $12.6 million
decline. It is now felt that other than the State of Florida, our
repositioning strategy is nearly complete. Barring any unforeseen challenges,
a modest growth in premium is expected in 1996.
In spite of decreasing premiums, the Company produced positive cash flows
in 1995. Net cash used by operations was $74.7 million compared to cash
generated of $45.7 million in 1994 and $34.1 million in 1993. The life
reinsurance transaction caused a one time cash outflow of $142.2 million.
Excluding this transaction, cash flows from operations would have been $67.5
million. Investing activities produced net cash of $169.3 million in 1995, up
from $39.3 million in 1994 and $4.9 million in 1993. The increase in 1995 is
due primarily to the closing of the life reinsurance transaction. Dividend
payments were $54.3 million in 1995 compared to $52.6 million in 1994 and $51.1
million in 1993. Total cash used for financing activities was $85.0 million in
1995 compared to $86.8 million in 1994 and $66.7 million in 1993. Overall,
total cash generated in 1995 was $9.6 million, versus net cash used of $1.8
million in 1994 and $27.6 million in 1993.
The fourth quarter of 1995 yielded a combined ratio of 98.6%. During
1994, the Corporation achieved two quarters with combined ratios under 100%.
These quality results demonstrate the effects of implementing our strategic
plan and indicate that we are on the right path. Some of the other
measurements that we feel demonstrate the positive direction we are taking
include the inforce policies per employee, branch underwriting expense per
employee, and the five-year average return on equity. An increase in inforce
policies per employee indicates improved efficiency as we are able to handle
greater volumes of business without additional labor expense. At December 31,
1995, inforce policies per employee as 412, up from 400 at December 31, 1994.
Another key measure of operating efficiency is branch underwriting expense per
policy. For the year 1995, this measure was $50 per policy compared to $51 in
1994, an indication that our branch consolidation efforts are proving
beneficial.
In order to evaluate corporate performance relative to shareholders'
expectations, the Corporation calculates a five-year average return on equity.
Net income and unrealized gains and losses on investments are included in the
calculation to derive a total return. A five-year average is used to
correspond to our planning horizon and emphasize consistent long term returns,
not intermediate fluctuations. At December 31, 1995, our five-year average
return on equity was exactly 16%. This equals our stated goal and represents
an increase from the 12.8% average recorded last year. This surge in 1995 is
primarily the result of the gain in our investment portfolio this year.
PROPERTY AND CASUALTY
The midwestern states of Ohio, Indiana, Kentucky, Illinois, Tennessee and
Missouri, as well as other key states, continue to be our marketing focal
points. These states have traditionally provided our strongest base of
profitability, a fact that has not escaped our competitors. As a result,
competition for market share in this region continues to be formidable. To
meet this
<PAGE> 5
intrusion, we have begun work on products designed for customers within this
region. The first such program was introduced in 1995 and involved private
passenger automobile insurance for minivan owners. The program has been
received well and is being introduced nationwide. A better understanding of
the needs of our customers is enabling us to create products with a competitive
price to attract new customers and grow our business.
As part of this effort, we are developing rate of return models so that
we can better assess the profitability of a market before we enter it and
better manage profitability once established. Strategies are being developed
on a state-by-state basis in order to more closely tailor our programs to the
needs of the policyholder.
In addition to identifying new markets, we are working to improve
customer retention through improved service and better products thus leading to
increased premium income and profitability. The renewed focus on our
policyholders has increased policyholder retention from 82.7% in 1994 to 83.1%
in 1995. Our goal is to achieve an 85% retention ratio. By retaining valued
customers, the Corporation is able to improve premium volume while limiting the
higher expense associated with new business underwriting.
Property and casualty operating income was $92.5 million, $2.59 per
share, in 1995 compared with $79.3 million, $2.20 per share, in 1994 and $53.5
million, $1.49 per share in 1993. Catastrophe losses in 1995 totaled $27.3
million compared with $36.6 million in 1994 and $33.1 million in 1993. The
bulk of the 1995 losses occurred in the second quarter as a result of the
severe hail storms in the South and Midwest. Catastrophe losses added 2.2
points to the combined ratio in 1995 compared with 2.8 points in 1994 and 2.4
points in 1993.
Statutory surplus, a traditional insurance industry measure of strength
and underwriting capacity, was $876.9 million at December 31, 1995 compared
with $660.0 million at December 31, 1994 and $713.6 million at December 31,
1993. The increase in 1995 was due primarily to the unrealized gains in our
investment portfolio. The decrease in 1994 was brought about by the
Proposition 103 charge from California and the decline in bond values. The
1993 increase resulted primarily from statutory net income.
The ratio of premiums written to statutory surplus has not exceeded 1.7
to 1 for any property and casualty company in The Ohio Casualty Group in any of
the last three years. This ratio is one of the measures used by insurance
regulators to gauge the financial strength of an insurance company and
indicates the ability of the Corporation to grow by writing additional
business. Ratios below 3 to 1 generally indicate additional capacity and
financial strength.
The National Association of Insurance Commissioners has developed a "Risk
Based Capital" formula for property and casualty insurers and life insurers.
The formulas are intended to measure the adequacy of an insurer's capital given
the asset structure and product mix of the company. Under the current
formulas, all insurance companies in The Ohio Casualty Group have approximately
twice the necessary capital.
PREMIUM DISTRIBUTIONS BY TOP STATES
1995 1994 1993
New Jersey 18.1% 16.3% 15.1%
Pennsylvania 10.0% 11.0% 13.0%
Ohio 9.6% 9.7% 9.4%
Kentucky 6.5% 6.4% 6.8%
Illinois 5.1% 4.9% 5.2%
The premium growth in New Jersey is being driven primarily by the private
passenger auto line of business which grew 11.1% in 1995. New Jersey requires
insurers to write all auto business that meets underwriting guidelines
regardless of risk concentration. As a result, this state has grown to $226.5
million in net written premium for 1995, up from $209.4 million last year. Of
this amount, 49.5% is in the private passenger auto line of business.
PREMIUM FINANCE
Premium finance operating income amounted to $.7 million in 1995 and 1994
compared with $.8 million in 1993. Revenues were again down due to
repositioning and the movement away from premium financing to our commercial
lines direct billing system.
<PAGE> 6
COMBINED RATIOS
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
=================================================================================================
<S> <C> <C> <C> <C> <C>
Automobile 103.9% 101.9% 103.5% 101.0% 102.3%
Commerical Multiple Peril, Fire
and Inland Marine 105.7% 108.6% 124.2% 118.2% 101.8%
General Liability 105.3% 90.3% 120.6% 83.3% 92.9%
Workers' Compensation 93.7% 87.8% 111.3% 130.0% 120.4%
Homeowners 113.7% 135.7% 118.0% 118.9% 113.3%
Fidelity and Surety 84.5% 72.8% 79.1% 99.0% 86.0%
- -------------------------------------------------------------------------------------------------
Total 104.0% 103.8% 110.3% 108.0% 104.9%
=================================================================================================
</TABLE>
DISCONTINUED OPERATIONS
During 1995, the Corporation's life operations were discontinued. We
found it increasingly difficult to achieve our required 16% rate of return in
this segment of our business. After extensive analysis, it was determined that
a 16% return could not be achieved without extensive capital contributions and
a dramatic overhaul of the life operations. Since this was a small segment of
our overall business, it was decided that this would not be a prudent use of
our capital. Therefore, on October 2, 1995, the Corporation signed the final
documents to reinsure the existing blocks of business and enter a marketing
agreement with Great Southern Life Insurance Company. This will provide our
agents and policyholders access to quality life insurance products to meet
their financial needs. The existing blocks of business were reinsured through
a 100% coinsurance arrangement. As of December 31, 1995, $16.7 million of the
net ceding commission from the transaction remains unamortized. This will be
amortized into income over the expected life of the underlying reinsured
policies, in this case, 15 years. An assumption is scheduled for January 1,
1997 whereby Great Southern will legally replace Ohio Life as the primary
carrier on these policies at which time the remaining unamortized gain will be
recognized. Net income from discontinued operations amounted to $4.4 million
or $.12 per share in 1995 compared with $5.9 million or $.16 per share in 1994
and $6.8 million or $.19 per share in 1993.
REINSURANCE
In order to preserve capital and shareholder value, Ohio Casualty
Corporation purchases reinsurance to protect the Corporation against large or
catastrophic losses. The reinsurance program remains the same in 1996 as it
was in 1995. Three separate reinsurance programs have been established to
protect the Corporation. The Property Per Risk contract covers Ohio Casualty
in the event that an insured sustains a property loss in excess of $1.0 million
in a single insured event. The Casualty Per Occurrence contract covers the
Corporation in the event that an insured sustains a liability loss in excess of
$1.0 million in a single insured event. On both of these contracts, Ohio
Casualty pays the first $1.0 million in losses. Property reinsurance covers
$7.0 million in excess of the retention. Casualty reinsurance covers $11.0
million in excess of the retention; and workers' compensation reinsurance
covers $23.0 million in excess of the retention.
The Catastrophe Reinsurance contract protects the Corporation against an
accumulation of losses arising from one defined catastrophic occurrence or
series of events. The Corporation is responsible for the first $25.0 million
and approximately 10% of losses between $25.0 million and $150.0 million. The
reinsurers cover the other portion. If losses from a single catastrophe were
to exceed $150.0 million, the Corporation would be responsible for the excess.
Starting in 1995, reinsurers also cover 20% of the next $50.0 million in excess
of $150.0 million for catastrophe
<PAGE> 7
losses in New Jersey. Over the last twenty years, there were two events that
triggered coverage under our catastrophe contract. Losses and loss adjustment
expenses from the Oakland fires in 1991 and Hurricane Andrew in 1992 totaled
$31.1 million and $28.5 million, respectively. Both of these losses exceeded
our prior retention amount of $13.0 million. The Corporation recovered $29.7
million from reinsurers as a result of these events. Our reinsurance limits
are designed to cover our exposure to an event expected to occur once every 300
years.
Since the Corporation's reinsurance protection is an important component
in our financial plan, we closely monitor the financial health of each of our
reinsurers. Twice annually, financial statements are reviewed and various
ratios calculated to identify reinsurers who have ceased to meet our high
standards of financial strength. If any reinsurers fail these tests, they are
removed from the program at renewal.
LOSS AND LOSS ADJUSTMENT EXPENSES
The Corporation's largest liabilities are the reserves for losses and
loss adjustment expenses. Loss and loss adjustment expense reserves are
established for all incurred claims and are carried on an undiscounted basis
before any credits for reinsurance recoverable. These reserves amounted to
$1.6 billion at December 31, 1995. As claims are paid, the related reserves
are closed and any under-or over-estimation of the claim reserve is closed to
net income at that time.
In 1994, the Corporation began piloting the direct reporting of claims
from our insureds. In the event of loss, the insured calls an 800 number to
report the claim. Instead of getting back to the claimant in 24 or 48 hours,
the claims supervisor immediately establishes a conference call with the claims
adjuster. By offering immediate service, the Corporation hopes to control and
even decrease loss costs. By year-end, approximately 30% of our claims were
being reported this way.
In recent years, environmental liability claims have expanded greatly in
the insurance industry. Fortunately, Ohio Casualty has a substantially
different mix of business than the industry. We have historically written
small commercial accounts, and have not attracted significant manufacturing
liability coverage. As a result, our environmental liability claims are
substantially below the industry average. Our liability business reflected our
current mix of approximately 68% contractors, 13% building/premises, 15%
mercantile and only 4% manufacturers. Within the manufacturing category, we
have concentrated on the light manufacturers which further limits our exposure
to environmental claims. The Corporation continues to closely monitor its
exposure to this type of claim. Based on this examination, an estimated
liability of $14.4 million was established at year end 1995 compared with $10.4
million at year end 1994 and $13.2 million at the end of 1993. Approximately
$4.5 million in reserves are for asbestos claims. The remainder are primarily
for pre-1985 pollution claims. These loss estimates are based on the currently
available information. However, given the expansion of coverage and liability
by the courts and legislatures, there is some uncertainty as to the ultimate
liability. The Corporation's insurance subsidiaries change their pollution
exclusion policy language between 1985 and 1987 to effectively eliminate these
coverages.
CALIFORNIA WITHDRAWAL
On June 15, 1992, the Corporation announced its intention to withdraw its
business operations from California due to the lack of profitability and the
difficult regulatory environment. In December 1992, the Corporation stopped
writing business in California and filed a withdrawal plan with the California
Department of Insurance.
Under the terms of the plan, The Ohio Casualty Insurance Company, Ohio
Security Insurance Company, and West American Insurance Company would withdraw
from California, leaving American Fire and Casualty Company licensed to wind
down the affairs of the Group. Also, the plan required the withdrawing
companies to transfer their California liabilities to American Fire and
Casualty Company along with assets to secure those liabilities. In April 1995,
the California Department of Insurance gave final approval for withdrawal and
the Corporation implemented the withdrawal plan. Proposition 103 was passed in
the State of California in 1988 in an attempt to legislate premium rates for
<PAGE> 8
that state. Based on previous statements by the California Department of
Insurance and the Corporation's lack of profitability in the state, it was
concluded that no significant liability for premium rollbacks existed.
However, at the end of 1994, and again in 1995, the State of California billed
the Corporation for varying amounts. To date, the Corporation has received
three billings and one set of written testimony from the State, each asserting
a different liability. The most current indication of the State's position is
the filed written testimony of the State's expert witness indicating the
Corporation should not be required to pay in excess of $42.1 million plus
interest as a Proposition 103 assessment. Our current reserve of $70.2 million
is based on this testimony. Reserving for this alleged liability negatively
impacted net income by $14.9 million or $.42 per share in 1995 and $30.7
million or $.85 per share in 1994. The Corporation continues to challenge the
validity of any rollback and plans to continue negotiations with Department
officials.
INVESTMENTS
Consolidated pre-tax investment income from continuing operations
increased 1.3% to $188.1 million in 1995 from $185.7 million in 1994. This
compares with $192.5 million in 1993. On an after-tax basis, investment income
decreased to $138.4 million in 1995 from $142.5 million in 1994. After-tax
investment income in 1993 amounted to $149.9 million. Investment income growth
over the past few years has been negatively affected by the reduction of cash
available for investment. The main reason for this reduction is the decline in
written premium precipitated by our strategic repositioning. In addition, our
share repurchase program has reduced our cash available for other investments.
At year end 1995, consolidated investments had a carrying value of $3.1
billion. The excess of market value over cost was $465.9 million, compared
with a $104.9 million excess at year end 1994 and $367.0 million at year end
1993. This substantial increase in market value is attributable to the strong
performance of our stock and bond portfolios during 1995. After-tax realized
investment gains from continuing operations amounted to $4.0 million in 1995
compared with a $14.2 million gain in 1994 and $30.5 million in 1993.
We continue to have no position in futures, forwards, swaps, caps,
floors, or similar derivative instruments as defined by Statement of Financial
Accounting Standards No. 119. As of December 31, 1995, Ohio Casualty maintains
a $403.1 million mortgage-backed securities portfolio compared with $597.6
million at December 31, 1994. The majority of these bonds are less volatile
planned amortization class and sequential structures. About $27.8 million of
this portfolio is invested in more volatile bond classes (e.g. interest-only,
super-floaters, inverses). In 1995, funds from sales of these securities and
mortgage prepayments were reinvested in other asset classes, particularly
municipal bonds.
Ohio Casualty's fixed income strategy has been to maintain a portfolio
with laddered maturity structure and a five-year duration. We believe that our
portfolio structure and targeted duration continue to be appropriate for our
insurance business. Further, we do not try to time the financial markets.
Instead, we believe it prudent to remain fully invested at all times, subject
only to our liquidity needs.
Tax exempt bonds were 37.3% of the fixed income portfolio at year end
1995. This compares with 27.7% at December 31, 1994. Our greater allocation
to this asset class reflects our internal tax planning strategy as well as our
belief that municipals are currently attractive relative to taxable
alternatives at intermediate maturities.
Our commitment to a diversified, growth-oriented equity portfolio remains
unchanged. Equity investments have increased as a percentage of our
consolidated portfolio from 17.1% in 1994 to 21.4% at year end 1995. This
increase is attributable to market appreciation of existing investments as
opposed to commitment of new funds.
In 1994, the Corporation implemented SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities." This statement requires the
classification of security investments into three categories: held to maturity,
trading and available for sale. The Corporation has elected to place all of
our fixed income holdings in the available-for-sale category. Therefore, all
<PAGE> 9
of our bond investments are now valued at market for balance sheet purposes.
During 1995, Ohio Casualty Corporation purchased 613,900 shares of its
common stock at a cost of $20.9 million compared with 50,000 shares for $1.4
million in 1994. The Corporation is currently authorized to repurchase 2.3
million additional shares of its common stock to be held as treasury shares for
stock options or other general corporate purposes. Since the beginning of
1987, we have repurchased over 10.4 million shares at an average cost of less
than $22 per share. We believe that when the market value of our stock fails
to reflect the prospects of our operations, repurchasing shares is a prudent
use of our capital. In the future, we intend to continue repurchasing shares
when doing so makes economic sense for the Corporation and its shareholders.
<PAGE> 10
Ohio Casualty Corporation & Subsidiaries
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31 (in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments:
Fixed maturities:
Available for sale, at fair value $ 2,407,853 $ 2,509,961 $ 0
(Cost: 2,276,150; 2,585,927; 0)
Held to maturity, at amortized cost 0 0 2,629,167
(Fair Value: 0; 0; 2,807,850)
Equity securities, at fair value 661,154 520,025 492,232
(Cost: 326,999; 337,814; 303,913)
Short-term investments at cost 14,399 13,550 16,176
----------- ---------- ---------
Total investments 3,083,406 3,043,536 3,137,575
Cash 23,883 15,106 14,250
Premiums and other receivables 196,175 199,167 200,687
Deferred policy acquisition costs 119,795 165,633 168,835
Property and equipment 43,846 35,404 35,374
Reinsurance recoverable 446,167 87,748 94,074
Deferred income taxes 0 118,370 79,982
Other assets 66,870 73,992 85,976
--------- --------- ---------
Total assets $ 3,980,142 $ 3,738,956 $ 3,816,753
========= ========= =========
Liabilities
Insurance reserves:
Unearned premiums $ 506,035 $ 518,075 529,875
Losses 1,275,077 1,304,514 1,378,672
Loss adjustment expenses 356,107 367,309 390,617
Future policy benefits 360,074 352,400 318,719
Note payable 60,000 70,000 103,000
California Proposition 103 reserve 70,167 47,278 0
Deferred income taxes 2,112 0 0
Other liabilities 239,556 228,590 233,532
--------- --------- ---------
Total liabilities 2,869,128 2,888,166 2,954,415
--------- --------- ---------
Commitments and contingent liabilities (see Notes 1 and 8)
Shareholders' Equity
Common stock, $.125 par value 5,850 5,850 2,925
Authorized: 70,000,000 shares
Issued shares: 46,803,872; 46,803,872; 23,401,936 (See Note 15)
Additional paid-in capital 3,422 3,271 6,185
Unrealized gain (loss) on investments, net of applicable
income taxes 305,049 69,610 124,284
Retained earnings 1,030,468 985,068 940,774
Treasury stock, at cost (233,775) (213,009) (211,830)
(Shares: 11,407,745; 10,810,616; 5,386,924)
---------- ----------- -----------
Total shareholders' equity 1,111,014 850,790 862,338
----------- ------------ -----------
Total liabilities and shareholders' equity $ 3,980,142 $ 3,738,956 $ 3,816,753
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE> 11
Ohio Casualty Corporation & Subsidiaries
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Premiums and finance charges earned $ 1,268,269 $ 1,298,861 $ 1,380,674
Investment income less expenses 188,107 185,708 192,491
Investment gains (losses) realized, net 6,096 21,894 46,988
------------ ------------ ------------
Total income 1,462,472 1,506,463 1,620,153
Losses and benefits for policyholders 774,282 799,295 894,661
Loss adjustment expenses 128,099 130,100 163,939
General operating expenses 89,970 82,418 100,810
Amortization of deferred policy
acquisition costs 327,055 338,046 373,802
California Proposition 103 reserve 22,889 47,278 0
------------ ------------ ------------
Total expenses 1,342,295 1,397,137 1,533,212
Income from continuing operations
before income taxes 120,177 109,326 86,941
Income taxes
Current 23,514 26,948 22,576
Deferred 1,300 (8,936) (15,778)
------------ ------------ ------------
Total income taxes 24,814 18,012 6,798
------------ ------------ ------------
Income before cumulative effect of
accounting changes & discontinued
operations 95,363 91,314 80,143
Income from discontinued operations
net of taxes of $4,345, $1,636 and
$2,423 (see Note 17) 4,372 5,896 6,842
Cumulative effect of accounting changes
(see Notes 1B and 6) 0 (319) 0
------------ ------------ ------------
Net income $ 99,735 $ 96,891 $ 86,985
============ ============ ============
Average shares outstanding 35,750 36,033 36,016
------------ ------------ ------------
Earnings per share:
Income before cumulative effect of
accounting changes & discontinued
operations $ 2.67 $ 2.54 $ 2.23
Income from discontinued operations
per share 0.12 0.16 0.19
Cumulative effect of accounting changes
per share 0.00 (0.01) 0
------------ ------------ ------------
Net income per share $ 2.79 $ 2.69 $ 2.42
============ ============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE> 12
Ohio Casualty Corporation & Subsidiaries
STATEMENT OF CONSOLIDATED
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Unrealized Total
Common paid-in gain (loss) Retained Treasury shareholders'
Stock capital on investments earnings stock equity
------ --------- -------------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands)
Balance, January 1, 1993 $ 2,925 $ 6,185 $ 124,477 $ 904,067 $ (212,448) $ 825,206
Unrealized loss (283) (283)
Deferred income tax on
net unrealized loss 90 90
Net issuance of treasury
stock under stock option
plan and by charitable
donation (42,832 shares) 867 618 1,485
Net income 86,985 86,985
Cash dividends paid (51,145) (51,145)
($1.42 per share) -------- -------- --------- ----------- --------- ----------
Balance
December 31, 1993 $ 2,925 $ 6,185 $ 124,284 $ 940,774 $ (211,830) $ 862,338
Cumulative effect of
accounting change, net
of applicable taxes 116,144 116,144
Unrealized loss (262,117) (262,117)
Deferred income tax on
net unrealized loss 91,299 91,299
Net issuance of treasury
stock under stock option
plan and by charitable
donation (13,232 shares) 11 233 244
Repurchase of treasury
stock (50,000 shares) (1,412) (1,412)
Net income 96,891 96,891
Cash dividends paid
($1.46 per share) (52,597) (52,597)
Stock split (April 22, 1994) 2,925 (2,925) 0
-------- -------- --------- ----------- --------- ----------
Balance,
December 31, 1994 $ 5,850 $ 3,271 $ 69,610 $ 985,068 $ (213,009) $ 850,790
Unrealized gain 360,372 360,372
Deferred income tax on
net unrealized gain (124,933) (124,933)
Net issuance of treasury
stock under stock option 0
plan and by charitable
donation (16,771 shares) 151 427 578
Repurchase of treasury
stock (613,900 shares) (21,193) (21,193)
Net income 99,735 99,735
Cash dividends paid
($1.52 per share) (54,335) (54,335)
-------- -------- --------- ----------- --------- ----------
Balance,
December 31, 1995 $ 5,850 $ 3,422 $ 305,049 $ 1,030,468 $ (233,775) $1,111,014
======== ======== ========= =========== ========= ==========
See notes to consolidated financial statements
</TABLE>
<PAGE> 13
Ohio Casualty Corporation & Subsidiaries
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31 (in thousands) 1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from:
Operations
Net income $ 99,735 $ 96,891 $ 86,985
Adjustments to reconcile net income to
cash from operations:
Changes in:
Insurance reserves 116,397 (75,586) 65,455
Income taxes (7,157) 557 (22,123)
Premiums and other receivables 2,993 1,519 22,933
Deferred policy acquisition costs 45,838 3,201 27,348
Reinsurance recoverable (358,418) 6,326 (82,833)
Other assets (11,387) (12,408) (13,580)
Other liabilities 14,577 (10,257) (13,529)
California Proposition 103 reserves 21,353 47,278 0
Depreciation and amortization 12,600 11,123 13,278
Investment (gains) losses (11,199) (23,225) (49,806)
Cumulative effect of accounting changes 0 319 0
-------- -------- --------
Net cash from operations (74,668) 45,738 34,128
Investing
Purchase of securities:
Fixed income securities
Available for sale (944,077) (821,413) 0
Held to maturity 0 0 (816,673)
Equity securities (86,517) (116,852) (148,958)
Proceeds from sales:
Fixed income securities
Available for sale 929,890 699,383 0
Held to maturity 0 0 548,782
Equity securities 89,771 83,226 99,082
Proceeds from maturities and calls:
Fixed income securities
Available for sale 132,572 165,835 0
Held to maturity 0 0 300,617
Equity securities 47,605 29,078 22,058
-------- -------- --------
Net cash from investments 169,244 39,257 4,908
Financing
Note payable repayment (10,000) (33,000) (17,000)
Proceeds from exercise of stock options 578 244 1,485
Purchase of treasury stock (21,193) (1,412) 0
Dividends paid to shareholders (54,335) (52,597) (51,145)
-------- -------- --------
Net cash from financing (84,950) (86,765) (66,660)
Net change in cash and cash equivalents 9,626 (1,770) (27,624)
Cash and cash equivalents, beginning of year 28,656 30,426 58,050
-------- -------- --------
Cash and cash equivalents, end of year $ 38,282 $ 28,656 $ 30,426
======== ======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE> 14
OHIO CASUALTY CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ACCOUNTING POLICIES
A. The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles and include the accounts of Ohio
Casualty Corporation and its subsidiaries. All significant inter-company
transactions have been eliminated. All dollar amounts except share and per
share data are in thousands of dollars.
B. Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards 115, "Accounting for Certain Investments in Debt and
Equity Securities". Under the provisions of SFAS No. 115 investment securities
should be classified upon acquisition into one of the following categories:
(1) held to maturity securities
(2) trading securities
(3) available for sale securities
Available for sale securities are those securities that would be available
to be sold in the future in response to liquidity needs, changes in market
interest rates, and asset-liability management strategies, among others.
Available for sale securities are reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component of
shareholders' equity, net of deferred tax. Equity securities are carried at
quoted market values and include non-redeemable preferred stocks and common
stocks. Fair values of fixed maturities and equity securities are determined on
the basis of dealer or market quotations or comparable securities on which
quotations are available.
Prior to adoption of SFAS No. 115, securities purchased, where the
Corporation had both the intent and ability to hold to maturity, were recorded
at cost adjusted for accumulated amortization of premium and accretion of
discount. Securities purchased for trading purposes are immaterial and are not
presented separately in the Income Statement and the Balance Sheet.
As of January 1, 1994, the majority of fixed maturity investments,
including bonds, notes and redeemable preferred stock, were reclassified as
"available for sale". This necessitated them being marked to market. This
accounting change resulted in an increase to shareholder's equity of $116,100
net of tax as of January 1, 1994 and had an immaterial effect on net income.
Short-term investments include commercial paper and notes with original
maturities of 90 days or less and are stated at cost or amortized cost which
approximates market. Short-term investments are deemed to be cash equivalents.
Realized gains or losses on disposition of investments are determined on
the basis of specific cost of investments.
C. Property and casualty insurance premiums are earned principally on a
monthly pro rata basis over the term of the policy; the premiums applicable to
the unexpired terms of the policies are included in unearned premium reserve.
D. Acquisition costs incurred at policy issuance net of applicable ceding
commissions are deferred and amortized over the term of the policy for property
and casualty insurance, over the estimated life in proportion to future profits
of universal life type contracts and over the estimated premium paying period
for other life insurance contracts. Deferred policy acquisition costs are
reviewed to determine that they do not exceed recoverable amounts, including
anticipated investment income.
E. The reserves for unpaid losses and loss adjustment expenses are based on
estimates of ultimate claim costs, including claims incurred but not reported,
salvage and subrogation and inflation without discounting. The methods of
making such estimates are continually reviewed and updated, and any resulting
adjustments are reflected in earnings currently.
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Balance as of January 1, net of
reinsurance recoverables of
$65,336, $75,738 and $80,114 $1,606,487 $1,693,551 $1,673,868
Incurred related to:
Current year 1,008,321 1,084,072 1,131,055
Prior years (104,998) (153,717) (71,799)
---------- ---------- ----------
903,323 930,355 1,059,256
Paid related to:
Current year 444,558 483,129 477,777
Prior years 508,187 534,290 561,796
---------- ---------- ----------
Total paid 952,745 1,017,419 1,039,573
Balance as of December 31, net of
reinsurance recoverables of
$74,119, $65,336 and $75,738 $1,557,065 $1,606,487 $1,693,551
</TABLE>
As a result of favorable development in estimates for insured events of
prior years, the incurred related to prior years shows a negative development.
Inflation has historically affected operating costs, premium revenues and
investment yields as business expenses have increased over time. The long term
effects of inflation are considered when estimating the ultimate liability for
losses and loss adjustment expenses. The liability is based on historical loss
development trends which are adjusted for anticipated changes in underwriting
standards, policy provisions and general economic trends. It is not adjusted
to reflect the effect of discounting.
F. Reserves for asbestos-related illnesses and toxic waste cleanup claims
cannot be estimated with traditional loss reserving techniques. In
establishing liabilities for claims for asbestos-related illnesses and for
toxic waste cleanup claims, management considers facts currently known and the
current state of the law and coverage litigation. However, given the expansion
of coverage and liability by the courts and the legislatures in the past and
the possibilities of similar
<PAGE> 15
interpretations in the future, there is uncertainty regarding the extent of
remediation. Accordingly, additional liability could develop. Estimated
environmental claims of $14,467, $10,400 and $13,200 were included in loss and
loss adjustment expense reserves for 1995, 1994 and 1993, respectively.
G. The following table presents catastrophe losses incurred and the respective
impact on the loss ratio:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Incurred losses $27,277 $36,618 $33,149
Loss ratio 2.2% 2.8% 2.4%
effect
</TABLE>
The effect of catastrophes on the Corporation's results cannot be
accurately predicted. As such, severe weather patterns could have a material
adverse impact on the Corporation's results.
H. Liabilities for future policy benefits are computed based on contract terms
and issue date using interest rates ranging from 4 1/2% to 8 3/4%, select and
ultimate mortality experience and industry withdrawal experience. Interest
rates on $293,732 of such liabilities in 1995, $287,190 in 1994 and $264,945 in
1993 are periodically adjusted based on market conditions. Fair value is
determined by discounting cash flows at current market interest rates.
I. Deferred income taxes result from temporary differences between financial
and taxable income.
J. Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed principally on the straight-line method over the
estimated lives of the assets.
K. The Corporation's primary products consist of insurance for: personal
auto, commercial property, homeowners, workers' compensation and other
miscellaneous lines. Ohio Casualty operates through the independent agency
system in 38 states. During 1995, the Corporation had $1,268,269 in revenue.
Of net premiums written, approximately 18.1% was generated in the State of New
Jersey, 10.0% in Pennsylvania and 9.6% in Ohio. The insurance industry is
subject to heavy regulation that differs by state. A dramatic change in
regulation in a given state may have a material adverse impact on the
Corporation.
L. Net income per share of common stock is based on the weighted average
number of shares outstanding during the period. Dilution arising from stock
options is insignificant.
M. The Corporation is dependent on dividend payments from its insurance
subsidiaries in order to meet operating expenses and to pay dividends.
Insurance regulatory authorities impose various restrictions and prior approval
requirements on the payment of dividends by insurance companies and holding
companies. At December 31, 1995 approximately $116,275 of retained earnings
are not subject to restriction or prior dividend approval requirements.
N. The preparation of financial statements in conformity with generally
accepted accounting principles 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 financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 -- INVESTMENTS
Investment income is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Investment income from:
Fixed maturities $177,621 $176,975 $184,951
Equity securities 14,721 13,868 13,745
Short-term securities 3,096 1,852 1,213
-------- -------- --------
Total investment income 195,438 192,695 199,909
Investment expenses 7,331 6,987 7,418
-------- -------- --------
Net investment income $188,107 $185,708 $192,491
======== ======== ========
</TABLE>
Realized and unrealized gains (losses) on investments in securities are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturities $ (8,104) $ 8,406 $ 17,023
Equity securities 16,913 9,268 26,467
Other investments (2,713) 4,220 3,498
-------- -------- --------
$ 6,096 $ 21,894 $ 46,988
======== ======== ========
Unrealized gains (losses):
Securities $ 360,372 $(262,117) $ (283)
Deferred tax (125,746) 91,299 90
Cumulative effect of
accounting changes 0 116,144 0
-------- -------- --------
$ 234,626 $ (54,674) $ (193)
======== ======== ========
</TABLE>
The amortized cost and estimated market values of investments in debt and
equity securities are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
1995
- ------------------------------------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities available
for sale:
U.S. Government $ 110,628 $ 5,864 $ (5) $ 116,487
States, municipalities
and political
subdivisions 845,729 52,796 (59) 898,466
Debt securities issued
by foreign
governments 3,000 423 0 3,423
Corporate securities 927,375 66,309 (7,285) 986,398
Mortgage-backed
securities:
U.S. Government
Agency 168,219 7,556 (5,581) 170,193
Other 221,199 18,281 (6,594) 232,886
---------- ---------- ---------- ----------
Total fixed maturities 2,276,150 151,229 (19,524) 2,407,853
Equity securities 326,999 336,130 (1,974) 661,154
Short-term investments 14,399 0 0 14,399
---------- ---------- ---------- ----------
Total securities,
available for sale $2,617,548 $487,359 $(21,498) $3,083,406
========== ========== ========== ==========
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
1994 Cost Gains Losses Value
- ---------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Securities available
for sale
U.S. Government $ 89,565 $ 313 $ (1,838) $ 88,040
States, municipalities
and political
subdivisions 678,915 23,366 (7,961) 694,320
Debt securities issued
by foreign
governments 39,379 188 (1,502) 38,065
Corporate securities 1,140,432 6,904 (55,398) 1,091,938
Mortgage-backed
securities:
U.S. Government
Agency 397,486 1,540 (27,135) 371,891
Other 240,910 59 (15,262) 225,707
---------- ---------- --------- ----------
Total fixed maturities 2,586,687 32,370 (109,096) 2,509,961
Equity securities 337,814 202,501 (20,290) 520,025
Short-term investments 13,550 0 0 13,550
---------- ---------- --------- ----------
Total securities $2,938,051 $ 234,871 $(129,386) $3,043,536
========== ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
1993 Cost Gains Losses Value
- ---------------------------------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Securities held
to maturity:
U.S. Government $ 102,918 $ 6,712 $ (8) $ 109,622
States, municipalities
and political
subdivisions 1,109,375 102,785 (133) 1,212,027
Debt securities
issued by foreign
governments 0 0 0 0
Corporate securities 839,877 57,351 (2,768) 894,460
Mortgage-backed
securities:
U.S. Government
Agency 448,787 15,604 (842) 463,549
Other 128,210 257 (275) 128,192
---------- ---------- --------- ----------
Total fixed maturity 2,629,167 182,709 (4,026) 2,807,850
Equity securities 303,913 195,195 (6,876) 492,232
Short-term
investments 16,176 0 0 16,176
---------- ---------- --------- ----------
Total securities $2,949,256 $377,904 $(10,902) $3,316,258
========== ========== ========= ==========
</TABLE>
The amortized cost and estimated fair value of debt securities at December
31, 1995 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>
Estimated
Amortized Fair
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less $76,627 $78,200
Due after one year through
five years 376,390 396,648
Due after five years through
ten years 772,374 828,995
Due after ten years 661,341 700,931
Mortgage-backed securities:
U.S. Government Agency 168,219 170,193
Other 221,199 232,886
---------- ----------
Total fixed maturities $2,276,150 $2,407,853
</TABLE> ========== ==========
Certain securities were determined to have other than temporary declines in
book value and were written down through realized investment losses. Total
write-downs were $26,290, $19,030 and $21,513 during 1995, 1994 and 1993,
respectively, representing a reduction in value of $9,696, $6,910 and $13,342
on fixed maturities and $16,595, $12,120 and $8,171 on equity securities.
Proceeds from maturities and sales of investments in debt securities during
1995, 1994 and 1993 were $1,223,943, $865,218 and $849,399, respectively.
Gross gains of $20,834, $21,694 and $33,447 and gross losses of $24,500,
$13,276 and $13,801 were realized in those maturities and sales in 1995, 1994
and 1993, respectively.
Covered call options are written on stocks and bonds in the investment
portfolio. As a writer of options, a premium is received at the outset with
the risk of losing the appreciation if the price of the underlying financial
instrument rises above the option strike price. There were no options on stock
outstanding at December 31, 1995, 1994 or 1993. There were no options on bonds
outstanding at December 31, 1995, 1994 or 1993.
Market values of securities can fluctuate greatly in the near term based on
such factors as: interest rates, unemployment rates, inflation, monetary
policy and general economic conditions.
NOTE 3 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Corporation's financial instruments:
<TABLE>
<CAPTION>
CARRYING FAIR
1995 AMOUNT VALUE
-------- -----
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ 38,282 $ 38,282
SECURITIES - AVAILABLE FOR
SALE 3,069,007 3,069,007
LIABILITIES
FUTURE POLICY BENEFITS $ 360,074 $ 360,074
LONG-TERM DEBT 60,000 60,000
Carrying Fair
1994 Amount Value
-------- -------
Assets
Cash and cash equivalents $ 28,656 $ 28,656
Securities - available for
sale 3,029,986 3,029,986
Liabilities
Future policy benefits $ 352,400 $ 352,004
Long-term debt 70,000 70,000
Carrying Fair
1993 Amount Value
Assets -------- -----
Cash and cash equivalents $ 30,426 $ 30,426
Securities -- held to
maturity 3,121,399 3,300,082
Liabilities
Future policy benefits $ 318,719 $ 320,576
Long-term debt 103,000 103,000
</TABLE>
See footnote 1 for disclosure related to fair value determination.
NOTE 4 -- DEFERRED POLICY ACQUISITION COSTS
Changes in deferred policy acquisition costs are summarized as follows:
<PAGE> 17
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Deferred, January 1 $165,633 $168,835 $196,183
-------- -------- --------
Additions:
Commissions and brokerage 204,594 212,878 218,490
Salaries and employee benefits 43,867 49,937 60,457
Other 73,090 75,659 71,324
-------- -------- --------
Deferral of expense 321,551 338,474 350,271
-------- -------- --------
Amortization to expense
Discontinued operations 40,333 3,630 3,817
Continuing operations 327,056 338,046 373,802
-------- -------- --------
Deferred, December 31 $119,795 $165,633 $168,835
======== ======== ========
</TABLE>
The above schedule includes deferred policy acquisition costs for
discontinued life insurance operations of $(13,535), $24,749 and $25,441 as of
1995, 1994 and 1993, respectively. See Note 17 for additional information
regarding discontinued operations.
NOTE 5 -- INCOME TAX
The effective income tax rate is less than the statutory corporate tax rate of
35% for 1995, 1994 and 1993 for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Tax at statutory rate $42,062 $38,264 $ 30,429
Tax exempt interest (16,150) (17,282) (20,739)
Dividends received
deduction (DRD) (3,446) (3,472) (3,352)
Proration of DRD and tax
exempt interest 3,319 9,544 10,855
Miscellaneous (971) (9,042) (10,395)
------- ------- --------
Actual Tax $24,814 $18,012 $ 6,798
======= ======= ========
</TABLE>
Tax years 1990 through 1992 are being examined by The Internal Revenue
Service. Management believes there will not be a significant impact on the
financial position or results of operations of the Corporation as a result of
this audit.
The significant components of deferred federal income tax
(benefit)/obligation are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Deferred tax
(benefit)/obligation
exclusion of components
listed below $ 1,300 $(8,937) $(14,513)
Effect of change in tax rate 0 0 (1,265)
-------- ------- --------
Net deferred tax
(benefit)/obligation $ 1,300 $(8,937) $(15,778)
======== ======= ========
</TABLE>
The components of the net deferred tax asset (liability) were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Unearned premium proration $ 34,823 $ 35,805 $ 36,590
Accrued expenses 64,658 54,667 40,549
Postretirement benefits 26,331 25,118 23,450
Discounted loss and loss
expense reserves 88,589 95,295 102,155
-------- -------- --------
Total deferred tax assets 214,401 210,885 202,744
Deferred policy acquisition
costs (53,616) (55,363) (56,850)
Unrealized gains on
investments (162,897) (37,152) (65,912)
-------- -------- --------
Total deferred tax
liabilities (216,513) (92,515) (122,762)
-------- -------- --------
Net deferred tax asset
(liability) $ (2,112) $118,370 $ 79,982
======== ======== ========
</TABLE>
Taxes paid amounted to $37,346 in 1995, $17,886 in 1994 and $30,833 in
1993. Although realization of deferred assets is not assured, estimates
indicate that current levels of taxable income will comfortably support the
realization of the net deferred tax asset in future years. As such, no
valuation allowance has been recorded. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if
estimates of future taxable income are reduced.
NOTE 6 -- EMPLOYEE BENEFITS
The Corporation has a non-contributory defined benefit retirement plan and
contributory health care, life and disability insurance and savings plans
covering substantially all employees. Benefit expenses are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Employee benefit costs:
Retirement $ (1,689) $ (731) $(1,875)
Health Care 13,339 15,517 16,665
Life and disability
insurance 594 740 761
Savings plan 2,586 2,685 2,773
-------- -------- -------
$ 14,830 $ 18,211 $18,324
======== ======== =======
</TABLE>
The pension benefit is determined as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned
during the year $ 5,701 $ 6,077 $ 5,726
Interest cost on projected
benefit obligation 13,262 12,404 12,322
Actual return on plan
assets (34,448) (3,785) (15,852)
Amortization of
unrecognized net asset
existing at January 1 13,796 (15,427) (4,071)
------- -------- --------
Net pension benefit $(1,689) $ (731) $ (1,875)
======= ======== ========
</TABLE>
Pension plan funding at December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Plan assets at fair value
(primarily fixed income
and equity securities) $217,274 $193,010 $198,905
-------- -------- --------
Plan benefit obligations:
Vested benefits 157,371 141,353 145,672
Non-vested benefits 3,046 2,710 2,912
Future benefits due to salary
increases 30,591 26,685 27,119
-------- -------- --------
Total 191,008 170,748 175,703
-------- -------- --------
Excess plan assets over
obligations $ 26,266 $ 22,262 $ 23,202
======== ======== ========
Unrecognized net gain (loss) $ (3,082) $ (8,356) $ (9,276)
Unrecognized net assets 21,119 24,136 27,153
Unrecognized prior service cost (624) (683) (1,108)
Expected long-term return on
plan assets 8.50% 9.00% 8.25%
Discount rate on plan benefit
obligations 7.50% 8.00% 7.25%
Expected future rate of salary
increases 5.25% 5.75% 4.75%
</TABLE>
Pension benefits are based on service years and average compensation using
the five highest consecutive years of earnings in the last decade of
employment. The pension plan measurement date is October 1 for 1995 and
December 31 for 1994 and 1993. The measurement date was changed in 1995 to
allow for more timely actuarial calculations. The
<PAGE> 18
maximum pension expense deductible for income tax purposes has been funded.
Plan assets at December 31, 1995 include $32,637 of the Corporation's common
stock at market value.
Employee contributions to the health care plan have been established as a
flat dollar amount with periodic assessment in the future. The health care
plan is unfunded.
Accrued postretirement benefit liability at December 31:
1995 1994 1993
--------- --------- ---------
Accumulated postretirement
benefit obligation $(71,519) $(72,695) $(81,575)
Unrecognized net loss(gain) (2,481) 695 14,575
--------- --------- ---------
Accrued postretirement
benefit cost $(74,000) $(72,000) $(67,000)
========= ========= =========
Postretirement benefit cost at December 31:
1995 1994 1993
------ ------ ------
Service cost $1,883 $2,423 $2,325
Interest cost 5,144 5,368 6,247
Amortization of loss 0 45 135
Net periodic ------ ------ ------
postretirement benefit
cost $7,027 $7,836 $8,707
====== ====== ======
Postretirement benefit rate assumptions at December 31:
1995 1994 1993
----- ----- -----
Medical trend rate 10% 11% 11%
Dental trend rate 8% 9% 9%
Ultimate health care trend
rate 5% 5% 5%
Discount rate 8.0% 7.25% 7.25%
The postretirement plan measurement date is October 1 for 1995 and December
31 for 1994 and 1993. The measurement date was changed in 1995 to allow for
more timely actuarial calculations.
Increasing the assumed health care cost trend by 1 percentage point in each
year would increase the accumulated postretirement benefit obligation as of
December 31, 1995 by approximately $9,616 and increase the postretirement
benefit cost for 1995 by $1,546.
In 1994 the Corporation's health care plan was changed from an indemnity
plan to a predominately managed care plan. Retired employees continue to be
eligible to participate in the health care and life insurance plans. Benefit
costs are accrued based on actuarial projections of future payments. There are
currently 3,456 active employees and 1,301 retired employees covered by these
plans.
Employees may contribute a percentage of their compensation to a savings
plan. A portion of employee contributions is matched by the Corporation and
invested in Corporation stock purchased on the open market by trustees of the
plan.
In the first quarter of 1994, the Corporation adopted the provisions of
SFAS 112, "Employers Accounting for Post-Employment Benefits." The effect of
this accounting change in 1994 was a $644 after-tax reduction in net income.
NOTE 7 -- STOCK OPTIONS
The Corporation is authorized under provisions of the 1993 Stock Incentive
Program to grant options to purchase 800,000 shares of the Corporation's common
stock to key executive employees and directors at a price not less than the
fair market value of the shares on the dates the options are granted. The
options granted may be either "Incentive Stock Options" or "Nonqualified Stock
Options" as defined by the Internal Revenue Code; the difference in the option
plans affects treatment of the options for income tax purposes by the
individual employee and the Corporation. The options are exercisable at any
time for five years from the date of grant. At December 31, 1995, 1,242,500
remaining options may be granted.
In addition, the 1993 Stock Incentive Program provides for the grant of
Stock Appreciation Rights in tandem with the stock options. Stock Appreciation
Rights provide the recipient with the right to receive payment in cash or stock
equal to appreciation in value of the optioned stock from the date of grant in
lieu of exercise of stock options held. Option and appreciation rights range
of prices in the following tables are for the three years presented.
Transactions under the stock option plans were as follows:
1995 1994 1993
1993 Stock Incentive Plan ------- ------- -------
Incentive Stock Options:
Outstanding beginning of year 90,700 87,700 131,400
Granted ($28.00 to $32.375
per share) 12,000 18,000 21,000
Expired ($16.375 to $28.125
per share) 0 0 (2,800)
Exercised ($13.625 to $32.75
per share) (28,900) (15,000) (61,900)
Outstanding end of year ------- ------- -------
($28.00 to $32.375 per
share) 73,800 90,700 87,700
======= ======= =======
Stock Appreciation Rights:
Outstanding beginning of year 28,300 39,700 57,100
Expired ($28.125 to $28.125
per share) 0 0 (2,800)
Exercised ($13.625 to $28.125
per share) (11,000) (11,400) (14,600)
Outstanding end of year ------- ------- -------
($13.625 to $29.75 per
share) 17,300 28,300 39,700
======= ======= =======
Restated for 2-for-1 stock split in 1994.
NOTE 8 -- REINSURANCE AND OTHER CONTINGENCIES
In the normal course of business, the Corporation seeks to reduce the loss that
may arise from catastrophes or other events that cause unfavorable underwriting
results by reinsuring certain levels of risk with other insurers or reinsurers.
In the event that such reinsuring companies might be unable at some future date
to meet their obligations under the reinsurance agreements in force, the
Corporation would continue to have primary liability to policyholders for
losses incurred. The following amounts are reflected in the financial
statements as a result of reinsurance ceded:
<PAGE> 19
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Premiums earned $41,012 $45,133 $43,696
Losses incurred 22,030 8,727 24,258
Reserve for unearned
premiums 8,294 6,274 6,638
Reserve for losses and
future policy benefits 74,794 54,727 61,970
Reserve for loss
adjustment expenses 36,272 10,609 13,768
</TABLE>
Annuities are purchased from other insurers to pay certain claim
settlements; should such insurers be unable to meet their obligations under the
annuity contracts, the Corporation would be liable to claimants for remaining
amount of annuities. The total amount of unpaid annuities was $24,300, $24,300
and $24,500 at December 31, 1995, 1994 and 1993, respectively.
On October 2, 1995, as part of the transaction involving the reinsurance of
the Ohio Life business to Employers' Reassurance Corporation, Ohio Casualty
Insurance Company agreed to manage a $163,615 fixed income portfolio for
Employers' Reassurance. The term of the agreement is seven years, terminating
on October 2, 2002. There is no separate fee to Ohio Casualty for this
investment management service. The agreement requires that Ohio Casualty pay
an annual rate of 7.25% interest to Employers' Reassurance and maintain the
market value of the account at $163,615. In the event the market value falls
below this amount, Ohio Casualty is required to make up any deficiency. At the
termination of the contract, any excess over $163,615 is payable to Ohio
Casualty. At December 31, 1995, the market value of the account exceeded the
$163,615 required balance by $2,497. The annual interest obligation of 7.25%
was also being adequately serviced by the portfolio assets.
<TABLE>
<CAPTION>
NOTE 9 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1995 First Second Third Fourth
- --------------------------- ------ ----- ------
<S> <C> <C> <C> <C>
Premiums and
finance charges
earned $322,063 $317,936 $317,165 $308,608
Net investment
income 47,384 47,106 47,003 46,614
Investment gains
(losses) realized 893 (1,904) (430) 7,538
Income from
continuing
operations 14,406 25,543 10,275 45,139
Income from
discontinued
operations 706 366 2,942 358
Net income 15,112 25,909 13,217 45,497
Net income per
share 0.42 0.72 0.37 1.28
</TABLE>
<TABLE>
<CAPTION>
1994 First Second Third Fourth
- --------------------------- ------ ----- ------
<S> <C> <C> <C> <C>
Premiums and
finance charges
earned $320,944 $322,489 $329,421 $326,006
Net investment
income 46,663 46,388 46,743 45,914
Investment gains
(losses) realized 14,043 3,540 7,360 (3,069)
Income from
continuing
operations 7,587 39,133 33,951 10,324
Income from
discontinued
operations 1,753 1,532 69 2,542
Net income 9,340 40,665 34,020 12,866
Net income per
share 0.26 1.13 0.94 0.36
</TABLE>
During the fourth quarter of 1994, an adjustment of $4,500 was made to
eliminate the accrual for Alternative Minimum Tax liability, since the
Corporation was no longer in an AMT position. Income was decreased in 1994 by
$2,822 after tax due to a reduction in the basis for limited partnerships and
by $30,731 after tax for California Proposition 103.
<TABLE>
<CAPTION>
NOTE 10 -- INDUSTRY SEGMENT INFORMATION
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Property and Casualty
Insurance
Revenue $1,456,242 $1,501,883 $1,614,578
Income before taxes 121,741 112,796 89,721
Identifiable assets 3,457,750 3,250,625 3,334,732
Premium Finance and Other
Revenue 6,230 4,580 5,574
Loss before taxes (1,564) (3,470) (2,780)
Identifiable assets 26,939 69,392 95,969
Discontinued Operations (Life Insurance)
Revenue (335,835) 52,187 49,623
Income before taxes 8,717 7,532 9,265
Identifiable assets 511,818 418,939 386,023
</TABLE>
NOTE 11 -- STATUTORY ACCOUNTING INFORMATION
The following information has been prepared on the basis of statutory
accounting principles which differ from generally accepted accounting
principles. The principal differences relate to deferred acquisition costs,
required statutory reserves, assets not admitted for statutory reporting,
California Proposition 103 reserve and deferred federal income taxes.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Property and Casualty
Insurance
Statutory net income $103,802 $126,419 $ 99,137
Statutory policyholders'
surplus 876,918 659,997 713,565
Life Insurance
Statutory net income 38,981 2,780 2,860
Statutory policyholders'
surplus 92,297 43,090 40,694
</TABLE>
NOTE 12 -- BANK NOTE PAYABLE
In 1994, $70,000 was borrowed under a new credit facility to replace existing
debt. The new term loan has a final maturity in 2001 with equal semi-annual
installment payments of $5,000 beginning in April, 1995 and bears interest at a
periodically adjustable rate. The interest rate was 6.58% at December 31,
1995. The interest rate is determined on various bases including prime rates,
certificate of deposit rates and the London Interbank Offered Rate. Interest
incurred on borrowings amounted to $4,474, $4,102 and $4,785 in 1995, 1994 and
1993, respectively. Under the loan agreement, statutory surplus is $401,918 in
excess of the minimum amount required to be maintained at December 31, 1995.
NOTE 13 -- CALIFORNIA WITHDRAWAL
As a result of the lack of profitability and the difficult regulatory
environment, the Corporation announced its intention to withdraw from business
operation in California on June 15, 1992. In December 1992, the Corporation
stopped writing business in California and filed a withdrawal plan with
<PAGE> 20
the California Department of Insurance. Under the terms of the plan,
subsidiary American Fire and Casualty Company would wind down the affairs of
the Group. In November 1994, the California Department of Insurance published
the required notices of the withdrawal application. In April 1995, the
California Department of Insurance gave final approval for withdrawal, and the
Corporation implemented the withdrawal plan.
Proposition 103 was passed in the State of California in 1988 in an attempt
to legislate premium rates for that state. Even after considering investment
income, total returns in California have been less than what would be
considered "fair" by any reasonable standard. During the fourth quarter of
1994, the State of California billed the Corporation $59,867 for Proposition
103 assessment. In February 1995, California revised this billing to $47,278
due to California Senate Bill 905 which permits reduction of the rollback due
to commissions and premium taxes paid. The billing was revised again in August
of 1995 and at present the State has indicated the Corporation should not be
required to pay in excess of $42,100 plus interest as a Proposition 103
assessment. As a result, the Corporation's reserve for this alleged liability
is $70,167. The Corporation will continue to challenge the validity of any
rollback and plans to continue negotiations with Department officials. It is
uncertain when this will be resolved.
NOTE 14 -- SHAREHOLDER RIGHTS PLAN
On December 15, 1989 the Board of Directors adopted a Shareholder Rights Plan
and declared a dividend of one Common Share Purchase Right Expiring in 1999 for
each outstanding share of common stock. Each right entitles the registered
holder, under certain conditions, to purchase one share of common stock at a
price of $75, subject to adjustment at the time rights become exercisable if a
person or group acquires or announces its intention to acquire 20% or more of
the common stock of the Corporation without the prior approval of the Board of
Directors. The rights may be redeemed for one cent per right at any time prior
to becoming exercisable.
NOTE 15 -- STOCK SPLIT
On February 17, 1994, the Board of Directors declared a stock split in which
one share was distributed for each share outstanding. This 2 for 1 split
pertained to shareholders of record on April 1, 1994. The result of the stock
split increased issued shares from 23,401,936 to 46,803,872. All per share
information presented reflects the stock split.
NOTE 16 -- PERMITTED STATUTORY ACCOUNTING PRACTICES
The Ohio Casualty Insurance Company, domiciled in Ohio, prepares its statutory
financial statements in accordance with the accounting practices prescribed or
permitted by the Ohio Insurance Department. 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 encompass all
accounting practices not so prescribed.
The Company received written approval from the Ohio Insurance Department to
have the California Proposition 103 liability reported as a direct charge to
surplus and not included as a charge in the 1995 or 1994 statutory statement of
operations.
NOTE 17 -- DISCONTINUED OPERATIONS (LIFE INSURANCE)
Discontinued operations include the operations of Ohio Life, a subsidiary of
the Ohio Casualty Insurance Company.
On October 2, 1995, the Company transferred its life insurance and related
businesses through a 100% coinsurance arrangement to Employers' Reassurance
Corporation and entered into an administrative and marketing agreement with
Great Southern Life Insurance Company. In connection with the reinsurance
agreement, $144,469 in cash and $161,401 of securities were transferred to
Employers' Reassurance to cover the liabilities of $348,479. Ohio Life received
an adjusted ceding commission of $37,641 as payment. After deduction of
deferred acquisition costs, the net ceding commission from the transaction was
$17,284. As of December 31, 1995, $16,693 of that gain remains unamortized.
This balance will be amortized over 15 years, the expected life of the
underlying reinsured policies. It is anticipated that Great Southern will
replace Ohio Life as the primary carrier of these policies as of January 1,
1997 through an assumption. At that time, the remaining unamortized gain will
be recognized.
<TABLE>
Results of the discontinued life insurance operations for the years ended
December 31 were as follows:
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Gross premiums
written $ 38,580 $ 28,210 $ 24,514
Net premiums earned (345,080) 22,774 19,907
Net investment income 4,143 28,082 26,897
Realized investment
gains 5,102 1,331 2,818
------- ------ ------
Total income (335,835) 52,187 49,622
Income before income
taxes 8,717 7,532 9,265
----- ----- -----
Provision for income
taxes 4,345 1,636 2,423
----- ----- -----
Net income $ 4,372 $ 5,896 $ 6,842
</TABLE>
<TABLE>
Assets and liabilities of the discontinued life insurance operations as of
the years ended December 31 were as follows:
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash $ 9,793 $ 6,197 $ 232
Investments 107,603 359,138 353,615
Receivables 5,165 2,773 2,558
Deferred policy
acquisition costs (13,535) 24,749 25,441
Reinsurance
receivable 363,127 6,925 122
Other assets 3,570 23,325 22,533
------- ------- -------
Total assets $475,723 $423,107 $404,501
Future policy
benefits $360,074 $352,400 318,719
Deferred income tax 11,172 3,710 6,554
Other liabilities 18,196 4,863 7,193
------- ------- ------
Total liabilities $389,442 $360,973 $332,466
</TABLE>
<PAGE> 21
NOTE 18 -- NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 123, "Accounting for Stock-Based Compensation".
This statement provides companies with a choice of accounting methods for
stock-based compensation transactions with employees within the scope of APB
Opinion 25. The Company will continue to apply APB Opinion 25 in accounting
for its stock-based employee compensation in 1996. As a result of FAS 123,
additional pro forma information for net income and earnings per share will be
disclosed in the notes to the financial statements. Although the Company has
not yet fully determined the effects of this statement on the pro-forma
disclosures, the effect will not be significant to the financial statements.
APB Opinion 25 requires compensation expense for stock-based employee
compensation plans to be recognized based on the difference, if any, between
the quoted market price of the stock and the amount an employee must pay to
acquire the stock, at the date the option is exercised. FAS 123 requires
recognizing compensation expense at the date the option is granted, equal to
the fair value of any options using Black-Scholes or a similar option valuation
formula.
<PAGE> 22
OHIO CASUALTY CORPORATION & SUBSIDIARIES
SHAREHOLDER INFORMATION
Stock Price and Dividend Information
(Nasdaq: OCAS)
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995 High 33 7/8 34 35 3/4 39
Low 28 1/4 29 1/4 31 1/2 32 7/8
Dividend
Declared $0.38 $0.38 $0.38 $0.38
1994 High 33 3/4 31 1/4 32 1/2 32
Low 31 26 1/2 27 1/2 27
Dividend
Declared $0.365 $0.365 $0.365 $0.365
</TABLE>
1996 Anticipated Dividend Schedule
<TABLE>
<CAPTION>
Declaration Date Record Date Payable Date
==================================================================
<S> <C> <C>
February 15, 1996 March 1, 1996 March 11, 1996
May 16, 1996 June 1, 1996 June 10, 1996
August 15, 1996 September 1, 1996 September 10, 1996
November 21, 1996 December 1, 1996 December 10, 1996
</TABLE>
DIVIDEND REINVESTMENT,
STOCK PURCHASE PLAN
The Corporation maintains a dividend reinvestment/stock purchase plan for
all holders of common stock. Under the Plan, shareholders may reinvest their
dividends in additional shares of common stock, and may also make extra cash
payments of up to $5,000 monthly toward the purchase of Ohio Casualty shares.
Participation is entirely voluntary. More information on the Dividend
Reinvestment and Stock Purchase Plan can be obtained by writing to the Transfer
Agent listed below.
FORM 10-K ANNUAL REPORT
The Form 10-K annual report for 1995, as filed with the Securities and
Exchange Commission, is available without charge upon written request from:
Ohio Casualty Corporation
Office of the Chief Financial Officer
136 N. Third St.
Hamilton, Ohio 45025
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Co.
of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
1-800-317-4445
ANNUAL MEETING
The annual meeting of shareholders will be held at 10:30 a.m. on Wednesday,
April 17, 1996, in the meeting rooms of The Hamiltonian Hotel, One Riverfront
Plaza, Hamilton, Ohio 45011.
VISIT OUR INTERNET WEB SITE
HTTP://WWW.OCAS.COM
The site includes current financial data about Ohio Casualty as well as
other corporate and product information.
<PAGE> 1
Exhibit 21
Ohio Casualty Corporation
Subsidiaries of Registrant
December 31, 1995
Name of Subsidiary State of Incorporation
The Ohio Casualty Insurance Company Ohio
West American Insurance Company Indiana
Ohio Security Insurance Company Ohio
American Fire and Casualty Company Ohio
Ocasco Budget, Inc. Ohio
<PAGE> 1
EXHIBIT 22
OHIO CASUALTY CORPORATION
136 NORTH THIRD STREET
HAMILTON, OHIO 45025
NOTICE OF ANNUAL MEETING
OF
SHAREHOLDERS
TO BE HELD APRIL 17, 1996
Hamilton, Ohio
March 15, 1996
To the Shareholders:
The Annual Meeting of Shareholders (the "Annual Meeting") of Ohio Casualty
Corporation (the "Company") will be held in the meeting rooms of The Hamiltonian
Hotel, One Riverfront Plaza, Hamilton, Ohio 45011, on Wednesday, April 17, 1996,
at 10:30 a.m., local time, for the following purposes:
(1) To elect the following four Directors for terms expiring in 1999
(Class III), as successors to the class of Directors whose terms
expire in 1996: Arthur J. Bennert, Catherine E. Dolan, Jeffery D.
Lowe and Lauren N. Patch.
(2) To approve the proposal to amend Article Fourth of the Company's
Amended Articles of Incorporation to increase the authorized
number of common shares, $.125 par value, of the Company from
70,000,000 to 150,000,000 common shares.
(3) To consider and act upon, in their discretion, such other matters
as may properly come before the Annual Meeting or any adjournment
thereof.
Holders of record of common shares of the Company as of the close of
business on March 1, 1996 are entitled to notice of and to vote at the Annual
Meeting and at any adjournment thereof. As of March 1, 1996, there were
35,402,446 common shares outstanding. Each common share is entitled to one vote
on all matters properly brought before the Annual Meeting.
By Order of the Board of Directors,
Howard L. Sloneker III, Secretary
EVERY SHAREHOLDER'S VOTE IS IMPORTANT. IF YOU ARE UNABLE TO BE PRESENT AT THE
ANNUAL MEETING, YOU ARE REQUESTED TO COMPLETE AND RETURN PROMPTLY THE ENCLOSED
PROXY SO THAT YOUR COMMON SHARES WILL BE REPRESENTED. A POSTAGE PAID, ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
<PAGE> 2
OHIO CASUALTY CORPORATION
136 NORTH THIRD STREET
HAMILTON, OHIO 45025
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APPROXIMATE DATE TO MAIL -- MARCH 15, 1996
On behalf of the Board of Directors of Ohio Casualty Corporation (the
"Company"), a proxy is solicited from you to be used at the Company's 1996
Annual Meeting of Shareholders (the "Annual Meeting") scheduled for Wednesday,
April 17, 1996 at 10:30 a.m., local time, in the meeting rooms of The
Hamiltonian Hotel, One Riverfront Plaza, Hamilton, Ohio 45011, or at any
adjournment thereof.
Proxies in the form enclosed herewith are being solicited on behalf of the
Company's Board of Directors. The common shares represented by proxies which are
properly executed and returned will be voted at the Annual Meeting, or any
adjournment thereof, as directed. Common shares represented by proxies properly
executed and returned which indicate no direction will be voted in favor of the
nominees of the Board of Directors identified in the notice of meeting
accompanying this Proxy Statement and for the adoption of the proposed amendment
to Article Fourth of the Company's Amended Articles of Incorporation. Any
shareholder giving the enclosed proxy has the power to revoke the same prior to
its exercise by filing with the Secretary of the Company a written revocation or
duly executed proxy bearing a later date, or by giving notice of revocation in
open meeting. ATTENDANCE AT THE ANNUAL MEETING WILL NOT, IN AND OF ITSELF,
CONSTITUTE REVOCATION OF A PROXY.
VOTING AT ANNUAL MEETING
As of March 1, 1996, the record date fixed for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting, there were
outstanding 35,402,446 common shares, which is the only outstanding class of
capital stock of the Company. Each such common share is entitled to one vote on
all matters properly coming before the Annual Meeting.
A quorum for the Annual Meeting is a majority of the outstanding common
shares. Common shares represented by signed proxies that are returned to the
Company will be counted toward the quorum in all matters even though they are
marked "Abstain", "Against" or "Withhold Authority" on one or more or all
matters or they are not marked at all. Broker/dealers who hold their customers'
common shares in street name may, under the applicable rules of the self-
regulatory organizations of which the broker/dealers are members, sign and
submit proxies for such common shares and may vote such common shares on routine
matters, which, under such rules, typically include the election of directors,
but broker/dealers may not vote such common shares on other matters, which
typically include amendments to the articles of incorporation of a corporation
and the approval of certain stock compensation plans, without specific
instructions from the customer who owns such common shares. Proxies signed and
submitted by broker/dealers which have not been voted on certain matters as
described in the previous sentence are referred to as broker non-votes. Such
proxies count toward the establishment of a quorum. THE EFFECT OF AN ABSTENTION
OR BROKER NON-VOTE ON THE PROPOSAL TO AMEND ARTICLE FOURTH OF THE COMPANY'S
AMENDED ARTICLES OF INCORPORATION IS THE SAME AS A "NO" VOTE.
1
<PAGE> 3
PRINCIPAL SHAREHOLDERS
The table below identifies the only persons known to the Company to own
beneficially (within the meaning of Rule 13d-3 under the Securities Exchange Act
of 1934) more than 5% of the Company's outstanding common shares.
<TABLE>
<CAPTION>
COMMON SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OF COMMON
OF BENEFICIAL OWNER OWNED SHARES DATE
----------------------------------- ------------- --------- ---------
<S> <C> <C> <C>
FIRST NATIONAL BANK OF 3,519,696(1) 9.94% 02-05-96
SOUTHWESTERN OHIO
Third and High Streets
Hamilton, Ohio 45011
THE CHASE MANHATTAN BANK, 2,667,200(2) 7.53% 12-31-95
N.A., Trustee
1211 Avenue of the Americas
New York, New York 10036
THE CAPITAL GROUP, INC. 2,556,500(3) 7.23% 02-08-96
333 South Hope Street
Los Angeles, California 90071
JOSEPH L. MARCUM 2,246,716(4) 6.35%(4) 03-01-96
136 North Third Street
Hamilton, Ohio 45025
- ---------------
<FN>
(1) Based upon information provided to the Company by First National Bank of
Southwestern Ohio (the "Bank"). The Bank holds the reported shares as
trustee under various trust agreements and arrangements. The Bank has
advised the Company that it has sole voting power for 3,253,287 shares,
shared voting power for 0 shares, sole investment power for 1,417,646
shares, and shared investment power for 1,649,488 shares. 449,272 shares are
held under trust arrangements for certain directors of the Company, and
their respective spouses, which shares are also reported in the following
table showing share ownership of directors and executive officers of the
Company.
(2) 1,824,968 shares are held as trustee for the Company's Employee Savings Plan
and 842,232 shares are held as trustee for the Company's Employees
Retirement Plan. Voting power with respect to shares held in the Employee
Savings Plan is exercised by the plan participants; investment power with
respect to these shares is held by plan participants subject to limitations
in the Plan. Voting and investment power with respect to shares held in the
Employees Retirement Plan is exercised by the committee which administers
the Employees Retirement Plan (the "Retirement Committee"). The Retirement
Committee consists of Joseph L. Marcum, Lauren N. Patch and Barry S. Porter.
(3) Based upon information contained in a Schedule 13G dated February 8, 1996,
as filed with the Securities and Exchange Commission by The Capital Group,
Inc. The Capital Group, Inc. reported sole voting power for 0 shares, shared
voting power for 0 shares and sole investment power for 2,556,500 shares as
of December 29, 1995.
(4) See share ownership information for Mr. Marcum in the following table.
</TABLE>
2
<PAGE> 4
SHAREHOLDINGS OF DIRECTORS, EXECUTIVE OFFICERS
AND NOMINEES FOR ELECTION AS DIRECTOR
As of March 1, 1996, the directors of the Company, including the four
persons intended by the Board of Directors to be nominated for election as
directors, the executive officers of the Company named in the Summary
Compensation Table and all executive officers and directors of the Company as a
group beneficially owned common shares of the Company as set forth below.
<TABLE>
<CAPTION>
SHARED
INVESTMENT/
VOTING
NUMBER OF OPTIONS POWER OVER
NAME OF COMMON SHARES EXERCISABLE EMPLOYEES
INDIVIDUAL BENEFICIALLY WITHIN 60 RETIREMENT PERCENT OF
OR GROUP OWNED(1) DAYS PLAN SHARES(1) TOTAL CLASS (3)
- --------------------------- ------------- ------------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Arthur J. Bennert 19,178 3,000 22,178
Jack E. Brown 1,100 3,000 4,100
Catherine E. Dolan 100 3,000 3,100
Wayne Embry 200 6,000 6,200
Vaden Fitton 235,680(4) 3,000 238,680
Jeffery D. Lowe 152,631(4)(7) 0 152,631
Joseph L. Marcum 1,401,484(4)(5)(6) 3,000 842,232(1) 2,246,716 6.35
Stephen S. Marcum 278,050(4)(6) 6,000 284,050
Lauren N. Patch 204,052(4)(7) 3,500 842,232(1) 1,049,784 2.97
Stanley N. Pontius 1,070 6,000 7,070
Howard L. Sloneker, III 191,180(7) 3,500 194,680
William L. Woodall 23,484 6,000 29,484
Andrew T. Fogarty 54,643(4)(7) 3,300 57,943
Jack H. Nelson (8) 9,142(7)(8) 0 9,142
Barry S. Porter 25,394(7) 3,500 842,232(1) 871,126 2.46
All Executive Officers,
Directors and Nominees
as a Group
(31 Persons) 2,679,725 61,300 842,232 3,771,051 10.65
- ---------------
<FN>
(1) Unless otherwise indicated, each named person has voting and investment
power over the listed shares and such voting and investment power is
exercised solely by the named person or shared with a spouse.
(2) Includes 842,232 shares held in the Company's Employees Retirement Plan as
to which the named individual shares voting and investment power solely by
reason of being a member of the Retirement Committee which administers such
Plan. See Note (1) of the preceding table. Messrs. Joseph L. Marcum, Lauren
N. Patch and Barry S. Porter disclaim beneficial ownership of these shares.
(3) Percentages are listed only for those individuals who own in excess of 1% of
the outstanding shares.
(4) Includes the following number of shares owned by family members as to which
beneficial ownership is disclaimed: Mr. Fitton, 116,542; Mr. Fogarty, 5,468;
Mr. Joseph L. Marcum, 620,804; Mr. Lowe, 132,400; Mr. Patch, 169,416; and
Mr. Stephen S. Marcum, 84,090.
(5) Excludes 253,852 shares held by Mr. Marcum's wife in her capacity as a
co-trustee of the estate of Howard Sloneker as to which shares Mr. Marcum
has no voting or investment power.
(6) Includes 72,306 shares held as a co-trustee of the Joseph L. and Sarah S.
Marcum Foundation as to which voting and investment power is shared by
Joseph L. and Stephen S. Marcum.
(7) The share ownership for Messrs. Lowe, Patch, Sloneker III, Fogarty, Nelson
and Porter includes 4,605, 4,632, 1967, 15,319, 3,102 and 8,892 and shares,
respectively, held for the accounts of these individuals by the trustee of
the Company's Employee Savings Plan. Such persons have sole voting power
with respect to these shares and also hold investment power subject to
limitations in the Plan.
(8) Jack H. Nelson retired from his position as Senior Vice President on January
1, 1996.
</TABLE>
3
<PAGE> 5
ELECTION OF DIRECTORS
The Board of Directors intends that four persons named under Class III in
the following table (the "Nominees") will be nominated for election at the
Annual Meeting for three-year terms expiring in 1999. The terms of the remaining
directors in Classes I and II will continue as indicated below. It is intended
that the common shares represented by the accompanying proxy will be voted for
the election as directors of the Nominees, unless otherwise instructed on the
proxy. In the event that any one or more of the Nominees unexpectedly becomes
unavailable for election, the common shares represented by the accompanying
proxy will be voted in accordance with the best judgment of the proxy holders
for the election of the remaining Nominees and for the election of any
substitute nominee or nominees designated by the Board of Directors.
Under Ohio law and the Company's Regulations, the nominees receiving the
greatest number of votes will be elected as directors. Shares as to which the
authority to vote is withheld will be counted for quorum purposes but will not
be counted toward the election of the individual nominees specified on the
accompanying proxy.
<TABLE>
<CAPTION>
POSITION WITH COMPANY AND/OR
PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
NAME AND AGE(1) DURING LAST FIVE YEARS(2) SINCE
- --------------- ---------------------------------- --------
<S> <C> <C>
NOMINEES:
Class III Nominees For Term
Expiring in 1999:
Arthur J. Bennert, Director of the Company, The Ohio Casualty 1989
69 Insurance Company, West American Insurance
Corporation, American Fire and Casualty Company,
Ohio Security Insurance Company and The Ohio
Life Insurance Company; retired as an officer of
the Company and its subsidiaries on January 1,
1992.
Catherine E. Dolan, Managing Director of the Financial Institutions 1994
38 Group, First Union National Bank, Charlotte,
North Carolina, since February 26, 1993; prior
thereto, Managing Director of the Insurance
Division, Chase Manhattan Bank, New York.
Jeffery D. Lowe, Vice President and Director of the Company, The 1983
50 Ohio Casualty Insurance Company, West American
Insurance Company, American Fire and Casualty
Company, Ohio Security Insurance Company and
OCASCO Budget, Inc.; President and Director of
The Ohio Life Insurance Company; employed by the
Company and its subsidiaries since 1972 in
various capacities.
</TABLE>
4
<PAGE> 6
<TABLE>
<CAPTION>
POSITION WITH COMPANY AND/OR
PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
NAME AND AGE(1) DURING LAST FIVE YEARS(2) SINCE
- --------------- ---------------------------------- --------
<S> <C> <C>
Lauren N. Patch, President, Chief Executive Officer and Director 1987
45 of the Company, The Ohio Casualty Insurance
Company, West American Insurance Company,
American Fire and Casualty Company, Ohio
Security Insurance Company and OCASCO Budget,
Inc.; Vice Chairman and Director of The Ohio
Life Insurance Company. Mr. Patch became Chief
Executive Officer of the Company on January 1,
1994, and President of the Company on January 1,
1991. Mr. Patch has been employed by the Company
and its subsidiaries since 1972 in various
capacities.
DIRECTORS WHOSE TERMS
CONTINUE BEYOND THE ANNUAL
MEETING:
Class I -- Term Expiring
in 1997 (3):
Jack E. Brown, Chairman of Board, BBI Marketing Services, Inc., 1994
52 Cincinnati, Ohio (professional marketing
consulting firm).
Vaden Fitton, Director and Retired First Vice President of 1967
67 First National Bank of Southwestern Ohio,
Hamilton, Ohio.
Joseph L. Marcum, Chairman of the Board and Director of the 1949
72 Company, The Ohio Casualty Insurance Company,
West American Insurance Company, American Fire
and Casualty Company, Ohio Security Insurance
Company, OCASCO Budget, Inc. and The Ohio Life
Insurance Company. Mr. Marcum served as Chief
Executive Officer of the Company and its
subsidiaries until December 31, 1993, and
President of the Company and its subsidiaries
until December 31, 1990.
Howard L. Sloneker III, Vice President, Secretary and Director of the 1983
39 Company, The Ohio Casualty Insurance Company,
West American Insurance Company, American Fire
and Casualty Company, Ohio Security Insurance
Company and OCASCO Budget, Inc.; Secretary and
Director of The Ohio Life Insurance Company. Mr.
Sloneker has been employed by the Company and
its subsidiaries since 1979 in various
capacities.
Class II -- Term Expiring in
1998:
Wayne Embry, Executive Vice President and General Manager of 1991
59 the Cleveland Cavaliers (professional basketball
franchise); Chairman of Michael Alan Lewis
Company, Cleveland, Ohio (fabricators of
materials for the automobile industry).
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
POSITION WITH COMPANY AND/OR
PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
NAME AND AGE(1) DURING LAST FIVE YEARS(2) SINCE
- --------------- ---------------------------------- --------
<S> <C> <C>
Stephen S. Marcum, Member of the law firm of Parrish, Beimford, 1989
38 Fryman, Smith & Marcum Co., L.P.A., Hamilton,
Ohio; such firm has provided legal services to
the Company and its subsidiaries during the last
fiscal year and continues to do so.
Stanley N. Pontius, President and Chief Executive Officer of First 1994
49 Financial Bancorp and its principal subsidiary,
First National Bank of Southwestern Ohio,
Hamilton, Ohio; formerly President and Chief
Executive Officer of Bank One, Mansfield, Ohio.
William L. Woodall, Director of the Company, The Ohio Casualty 1986
72 Insurance Company, West American Insurance
Company, American Fire and Casualty Company,
Ohio Security Insurance Company, OCASCO Budget,
Inc. and The Ohio Life Insurance Company;
retired as an officer of the Company and its
subsidiaries on December 31, 1990.
- ---------------
<FN>
(1) Ages are listed as of the date of the Annual Meeting.
(2) The Ohio Casualty Insurance Company, Ohio Security Insurance Company,
American Fire and Casualty Company, West American Insurance Company, OCASCO
Budget, Inc. and The Ohio Life Insurance Company are subsidiaries of the
Company.
(3) John P. March, a director whose term of office would have expired in 1997,
retired from the Board of Directors as of December 31, 1995.
</TABLE>
OTHER DIRECTORSHIPS AND RELATED TRANSACTIONS AND RELATIONSHIPS
Wayne Embry is also a director of M. A. Hanna Company and Society
Corporation; Vaden Fitton, Joseph L. Marcum, Lauren N. Patch and Stanley N.
Pontius are also directors of First Financial Bancorp.
Joseph L. Marcum, the Chairman of the Board of the Company, retired as the
Chief Executive Officer of the Company on December 31, 1993. Mr. Marcum receives
annual benefits from the Company of $142,393 pursuant to the Company's Employees
Retirement Plan. See "Pension Plans."
Stanley N. Pontius, a director of the Company, is the President and Chief
Executive Officer of First Financial Bancorp and its subsidiary, First National
Bank of Southwestern Ohio ("First National"). Catherine E. Dolan, a director of
the Company, is a Managing Director of the Financial Institutions Group of First
Union Bank ("First Union"). First National and First Union are members of a
group of nine lending banks that are parties to a loan agreement with the
Company, dated October 25, 1994, pursuant to which the Company obtained a term
loan in the principal amount of $70,000,000 and secured a line of credit in a
maximum principal amount of $50,000,000. The principal amount of the Company's
indebtedness to First National and First Union as of December 31, 1995 was
$4,999,714 and $7,000,080, respectively.
Jeffery D. Lowe is the son-in-law of Joseph L. Marcum; Lauren N. Patch and
Howard L. Sloneker III are brothers-in-law; and Stephen S. Marcum is the son of
Joseph L. Marcum.
6
<PAGE> 8
MEETINGS OF THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
During 1995, the Board of Directors held five meetings. All of the
incumbent directors attended at least 75% of the total number of meetings of the
Board of Directors.
The Board of Directors has standing Executive, Audit and Executive
Compensation Committees, but does not have a Nominating Committee or committee
performing similar functions.
The Executive Committee held eight meetings during 1995. The current
members of the Executive Committee are Joseph L. Marcum, Lauren N. Patch, and
Howard L. Sloneker III. Messrs. Patch and Sloneker attended all the meetings
while Mr. Marcum attended four of the meetings. The Executive Committee is
empowered to exercise all the powers of the Board of Directors in the management
of the Company between meetings of the Board of Directors, other than filling
vacancies in the Board or any other committee of the Board.
The Audit Committee held two meetings during 1995. The current members of
the Audit Committee are Arthur J. Bennert, Jack E. Brown, Catherine E. Dolan,
Wayne Embry, Vaden Fitton, Joseph L. Marcum, Stephen S. Marcum, Stanley N.
Pontius and William L. Woodall. Each Audit Committee member attended both of the
meetings in 1995. The Audit Committee's primary function is to meet with the
independent auditors for the Company and to review the Company's internal and
independent auditing and financial controls.
The Executive Compensation Committee held one meeting during 1995. The
current members of the Executive Compensation Committee are Jack E. Brown, Vaden
Fitton, and Joseph L. Marcum. Each member of the Executive Compensation
Committee who was a member during 1995 attended such meeting. The Executive
Compensation Committee administers the Company stock option plans and carries
out the responsibilities described in the Executive Compensation Committee
Report in this Proxy Statement.
DIRECTORS FEES AND COMPENSATION
Each director received $25,000 for services as a director of the Company
during 1995. Each non-employee director of the Company or its subsidiaries
received $1,500 per meeting for attending the regular meetings of the Board of
Directors in 1995. Members of the Audit Committee also received $5,000 each for
serving on that committee. In addition, members of the Executive Compensation
Committee received $300 per meeting for each meeting attended. Joseph L. Marcum
was paid an additional $65,000 during 1995 as compensation for serving as the
Chairman of the Board.
On May 23, 1995, Wayne Embry, Stephen S. Marcum, Stanley N. Pontius and
William L. Woodall, each of whom is a non-employee director of the Company
("Non-Employee Director"), were granted a non-qualified stock option (an "NQSO")
to purchase 3,000 common shares of the Company at an exercise price of $30.50
per share, the closing market price of the common shares on the date of grant.
Any individual who becomes or is re-elected a Non-Employee Director is
automatically granted an NQSO to purchase 3,000 common shares effective on the
third business day following the first meeting of the Board of Directors after
his/her election or appointment to the Board. The exercise price of each NQSO
granted to a Non-Employee Director is equal to the fair market value of the
common shares on the date of grant. NQSOs granted to Non-Employee Directors have
terms of ten years and may not be exercised during the six months following
their date of grant.
EXECUTIVE COMPENSATION
The following table provides information concerning compensation paid to
each of the Company's five most highly compensated executive officers for each
of the Company's last three completed fiscal years:
7
<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------
ALL OTHER
NAME AND SALARY COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($)(2)
------------------ ---- ------- ------------
<S> <C> <C> <C>
Lauren N. Patch, 1995 474,231 13,477
President and Chief 1994 374,616 10,489
Executive Officer 1993 324,808 9,043
Barry S. Porter, 1995 233,208 6,996
Chief Financial 1994 211,285 6,339
Officer and Treasurer 1993 186,688 5,580
Andrew T. Fogarty, 1995 231,300 6,939
Senior Vice 1994 220,838 6,625
President 1993 206,700 6,201
Jeffery D. Lowe, 1995 231,012 3,090
Vice President 1994 227,781 4,699
1993 215,006 4,454
Jack H. Nelson, 1995 215,040 6,667
Senior Vice 1994 169,218 5,062
President 1993 156,600 4,698
- ---------------
<FN>
(1) Includes annual directors' fees for Messrs. Patch and Lowe. See "DIRECTORS
FEES AND COMPENSATION."
(2) Includes for Messrs. Patch, Porter, Fogarty, Lowe and Nelson for 1995 the
amounts of $4,500, $4,500, $4,500, $3,090 and $4,500, respectively
contributed by the Company under the Company's Employee Savings Plan. Also
includes for Messrs. Patch, Porter, Fogarty and Nelson for 1995 the amounts
of $8,977, $2,439, $2,496 and $2,167, respectively, contributed by the
Company under the Company's Supplemental Executive Savings Plan, a
non-qualified Plan.
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No stock options or stock appreciation rights ("SARs") were granted by the
Company during the last fiscal year to any of the executive officers of the
Company named in the Summary Compensation Table.
OPTION/SAR EXERCISES IN LAST FISCAL YEAR
The following table sets forth information concerning the exercise of stock
options and SARs during the last fiscal year by each of the executive officers
of the Company named in the Summary Compensation Table and the fiscal year-end
value of unexercised stock options and SARs held by such executive officers:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
------------------------------------------------------
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
SHARES FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lauren N. Patch 0 0 3,500 0 37,188 0
Barry S. Porter 500 9,563 3,500 0 37,188 0
Andrew T. Fogarty 0 0 3,300 0 35,063 0
Jeffery D. Lowe 0 0 0 0 0 0
Jack H. Nelson 0 0 0 0 0 0
</TABLE>
8
<PAGE> 10
- ---------------
(1) "Value of Unexercised In-the-Money Options/SARs at Fiscal Year-End" is based
upon the fair market of the Company's common shares on December 29, 1995
($38.75), less the exercise price of in-the-money options and SARs at the
end of the last fiscal year.
PENSION PLANS
The following table sets forth the estimated annual benefits payable under
the Employees Retirement Plan and the Ohio Casualty Insurance Company Benefit
Equalization Plan (the "Benefit Equalization Plan") to participants in such
plans, including the executive officers named in the Summary Compensation Table,
upon retirement in specified compensation and years of service classifications:
PENSION PLANS TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS
FOR YEARS OF SERVICE INDICATED
-----------------------------------------------------------------------------------------------
15 20 25 30 35
ANNUAL EARNINGS YEARS YEARS YEARS YEARS YEARS
- --------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 28,177 $ 37,569 $ 46,961 $ 56,353 $ 65,745
175,000 40,177 53,569 66,961 80,353 93,745
225,000 52,177 69,569 86,961 104,353 121,745
275,000 64,177 85,569 106,961 128,353 149,745
325,000 76,177 101,569 126,961 152,353 177,745
375,000 88,177 117,569 146,961 176,353 205,745
400,000 94,177 125,569 156,961 188,353 219,745
425,000 100,177 133,569 166,961 200,353 233,745
450,000 106,177 141,569 176,961 212,353 247,745
475,000 112,177 149,569 186,961 224,353 261,745
500,000 118,177 157,569 196,961 236,353 275,745
525,000 124,177 165,569 206,961 248,353 289,745
550,000 130,177 173,569 216,961 260,353 303,745
600,000 142,177 189,569 236,961 284,353 331,745
<CAPTION>
40 45
ANNUAL EARNINGS YEARS YEARS
- --------------- --------------- ---------------
<S> <C> <C>
$ 125,000 $ 75,138 $ 84,530
175,000 107,138 120,530
225,000 139,138 156,530
275,000 171,138 192,530
325,000 203,138 228,530
375,000 235,138 264,530
400,000 251,138 282,530
425,000 267,138 300,530
450,000 283,138 318,530
475,000 299,138 336,530
500,000 315,138 354,530
525,000 331,138 372,530
550,000 347,138 390,530
600,000 379,138 426,530
</TABLE>
Retirement benefits under the Company's Employees Retirement Plan, a
defined benefit plan qualified under Section 401(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), are generally payable to full-time and regular
part-time salaried employees whose participation in the plan has vested
(currently requiring the completion of five years of service) upon retirement at
age 65 or in reduced amounts upon retirement prior to age 65 if the participant
has ten years of vested service. A retiree's benefit amount is based upon his or
her credited years of service and average annual compensation (salary) for the
five consecutive years of highest salary during the last ten years of service
immediately prior to age 65 or, if greater, the average annual compensation paid
during the 60 consecutive month period immediately preceding retirement or other
termination of employment. Such retirement benefits are reduced by a portion of
the retiree's Social Security-covered compensation. Benefits figures shown in
the table above are computed on the assumption that participants retire at age
65 and are entitled to a single life annuity.
Section 401(a)(17) of the Code prohibits compensation in excess of $150,000
from being taken into account in determining benefits payable under a qualified
pension plan. As a result, the Benefit Equalization Plan was adopted for those
employees who are adversely affected by these provisions of the Code. The
Benefit Equalization Plan provides for payment of benefits that would have been
payable under the Employees Retirement Plan but for the limitation on
compensation imposed by the Code. Upon retirement, participants receive the
actuarial
9
<PAGE> 11
equivalent present value of the benefit payable under the Benefit Equalization
Plan in a lump sum.
At December 31, 1995, credited years of service and average annual earnings
under the Employees Retirement Plan and the Benefit Equalization Plan for the
executive officers named in the Summary Compensation Table were: Lauren N.
Patch, 19.5 years ($305,888); Barry S. Porter, 21.5 years ($192,183); Andrew T.
Fogarty, 23.5 years ($208,731); Jeffery D. Lowe, 20.5 years ($184,035); and Jack
H. Nelson, 36 years ($164,037). The compensation covered by the Employees
Retirement Plan and the Benefit Equalization Plan is the amount shown in the
Summary Compensation Table as salary, less any directors' fees.
EXECUTIVE COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Executive Compensation Committee of the Board of Directors (the
"Committee") is comprised entirely of non-employee directors. The current
members of the Committee are Messrs. Brown, Fitton, and Marcum. John P. March
served as a member of the Committee until his retirement from the Company's
Board of Directors on December 31, 1995.
The Committee is responsible for establishing the compensation for Mr.
Patch, the Company's President and Chief Executive Officer. The cash
compensation of the Company's other executive officers is determined by the
Company's Chief Executive Officer. The decisions by the Committee and the Chief
Executive Officer relating to the compensation of the Company's executive
officers are given final approval by the full Board. During 1995, no
compensation decisions of the Committee or the Chief Executive Officer were
modified or rejected in any material way by the full Board.
COMPENSATION POLICIES TOWARD EXECUTIVE OFFICERS
In establishing the cash compensation of the Company's executive officers,
both the Committee and the Chief Executive Officer have sought to create a
compensation program that rewards individual contributions and achievements and
that is adequate to attract and retain executives. In setting the compensation
of its executive officers, including the Chief Executive Officer, the Company
does not apply a formula approach that links cash compensation to corporate
performance nor does it utilize any formal survey or other compilation of
empirical data of the executive compensation paid by other companies. Instead,
executive compensation is determined based upon a highly subjective evaluation
of a number of factors, including individual performance, contributions and
experience; the Company's financial performance as compared with prior years;
and general economic conditions. None of these factors is assigned any specific
weighting. The evaluation of Company financial performance is also subjective
and does not focus on any specific measure, nor is it based on the achievement
of any predetermined performance targets.
Although neither the Committee nor the Chief Executive Officer has relied
upon empirical data in making executive compensation decisions, they are
generally familiar with the compensation levels of other companies in the
insurance industry with which the Company competes for executive talent. The
Committee and the Chief Executive Officer believe that the Company's
compensation program has, historically, been adequate to enable the Company to
attract and retain outstanding executives.
1995 CASH COMPENSATION
The cash compensation paid in 1995 to Mr. Patch was approved by the
Committee in late 1994. The compensation of Mr. Patch was increased effective
January 1, 1995, from $350,000 to $450,000. The decision by the Committee to
increase Mr. Patch's compensation was based on a subjective evaluation of Mr.
Patch's performance and contributions in 1994 in the manner
10
<PAGE> 12
described above and a general perception by the Committee that Mr. Patch's
compensation is low in comparison to the compensation paid to chief executive
officers of insurance companies of similar size to the Company. The Committee's
conclusion that Mr. Patch's compensation was low on a relative basis was not
based on any empirical data or a comparison to any specific company or
companies. No attempt was made by the Committee to link Mr. Patch's salary
directly to the accomplishment of any specific measure of the Company
performance, but general performance of the Company was part of the total mix of
information taken into account by the Committee.
The 1995 cash compensation levels of the Company's executive officers
(other than its President) were initially determined by the Company's Chief
Executive Officer. The Board delegated this responsibility to the Chief
Executive Officer because of his substantially greater knowledge of the
contributions and performance of each of these officers. The increases in
salaries received by these executive officers in 1995, totaling approximately
8.53%, were determined by the Chief Executive Officer based upon a subjective
evaluation of the individual responsibilities and contributions of each of these
individuals.
STOCK-BASED COMPENSATION PLANS
The Committee believes that stock-based performance compensation
arrangements are important in providing incentive to members of the Company's
management. Awards of stock options and stock appreciation rights are designed
to accomplish this goal and to assist in the retention of executives. Because
substantial option grants were made to the executive officers in 1992, the
Committee decided not to make additional awards in 1993, 1994 and 1995.
SUBMITTED BY THE EXECUTIVE COMPENSATION COMMITTEE
OF THE COMPANY'S BOARD OF DIRECTORS
VADEN FITTON JOHN P. MARCH* JOSEPH L. MARCUM
AND BY THE COMPANY'S PRESIDENT AND CHIEF
EXECUTIVE OFFICER, LAUREN N. PATCH
* Mr. March served as a member of the Committee through December 31, 1995.
EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The directors of the Company who served as members of the Company's
Executive Compensation Committee during 1995 were Jack E. Brown, Vaden Fitton,
John P. March and Joseph L. Marcum. Joseph L. Marcum, is the Chairman of the
Board of Directors and former President and Chief Executive Officer of the
Company. Mr. Marcum and Mr. Fitton also served as members of the Executive
Compensation Committee of First Financial Bancorp, whose Chief Executive
Officer, Stanley N. Pontius, is a member of the Board of Directors of the
Company.
As indicated in the Executive Compensation Committee Report on Executive
Compensation, Lauren N. Patch, the Company's President and Chief Executive
Officer, participates in decision-making regarding the compensation of certain
executive officers named in the Summary Compensation Table. Mr. Patch is not a
member of the Executive Compensation Committee.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following graph compares the five-year cumulative total shareholder
return, including reinvested dividends, of the Company with the Dow Jones Equity
Market Index and the Dow Jones Insurance Index for Property and Casualty
Companies(1):
11
<PAGE> 13
<TABLE>
<CAPTION>
OHIO CAS-
Measurement Period DJ EQUITY DJ INSURANCE UALTY
(Fiscal Year Covered) MARKET INDEX P & C (1) CORPORATION
<S> <C> <C> <C>
1990 100.00 100.00 100.00
1991 132.44 124.42 127.42
1992 143.83 151.50 169.95
1993 158.14 152.75 179.74
1994 159.36 160.63 167.35
1995 220.51 226.93 240.02
</TABLE>
(1) The Dow Jones Insurance Index for Property and Casualty Companies (13
companies, including the Company) that are traditionally considered as a
peer group of property and casualty insurance companies within the United
States. The companies making up the Index are American International; Chubb
Corp.; Cincinnati Financial; Continental Corp.; GEICO Corp.; General RE
Corp.; Hartford Steam Boiler Co.; Loews Corp.; Ohio Casualty Corporation;
Progressive Corp.; Safeco Corp.; St. Paul Co.'s; and USF&G Corp.
12
<PAGE> 14
PROPOSED AMENDMENT OF AMENDED ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED NUMBER
OF COMMON SHARES
(ITEM 2 ON PROXY)
The Amended Articles of Incorporation of the Company presently authorize
72,000,000 shares, of which 70,000,000 are common shares, $.125 par value, and
2,000,000 are Preferred Shares, without par value. The Company's Board of
Directors unanimously adopted a resolution proposing and declaring it advisable
that Article FOURTH of the Company's Amended Articles of Incorporation (the
"Articles") be amended in order to increase the authorized number of shares of
the Company to 152,000,000 shares, of which 150,000,000 will be common shares,
$.125 par value ("Common Shares"), and 2,000,000 will be Preferred Shares,
without par value, and recommending to the shareholders of the Company the
approval of the proposed amendment. Thus, the only class of shares which will be
increased in authorized number will be the Common Shares. Of the Company's
presently authorized 70,000,000 Common Shares, as of December 31, 1995,
35,396,127 shares were outstanding, an aggregate of 1,242,500 shares were
reserved for issuance under the Company's existing stock option plan and
18,319,313 shares were reserved for issuance under the Rights Agreement dated as
of December 15, 1989, as amended (the "Rights Agreement"), between the Company
and First Chicago Company of New York, as Rights Agent.
The Board of Directors believes that it is desirable and in the best
interests of the Company and its shareholders to increase the number of Common
Shares that the Company is authorized to issue in order to ensure that the
Company will have a sufficient number of authorized Common Shares available in
the future to provide it with the desired flexibility to meet its business
needs. If this proposal is approved by the shareholders, the additional Common
Shares will be available for a variety of corporate purposes, including, for
example, the declaration and payment of share dividends to the Company's
shareholders; share splits; use in the financing of expansion or future
acquisitions; issuance pursuant to the terms of employee benefit plans; and use
in other possible further transactions of a currently undetermined nature.
If the proposed amendment is adopted, the Company would be permitted to
issue the additional authorized Common Shares without further shareholder
approval, except to the extent otherwise required by the Articles, by law or by
any securities exchange on which the Common Shares may be listed at the time.
The authorization of additional Common Shares will enable the Company, as the
need may arise, to take timely advantage of market conditions and the
availability of favorable opportunities without the delay and expense associated
with the holding of a special meeting of its shareholders. It is the belief of
the Board of Directors that the delay necessary for shareholder approval of a
specific issuance could be detrimental to the Company and its shareholders. The
Board of Directors does not intend to issue any Common Shares except on terms
which the Board deems to be in the best interests of the Company and its
shareholders. Existing shareholders of the Company will have no pre-emptive
rights to purchase any Common Shares issued in the future. Depending on the
terms thereof, the issuance of the Common Shares may or may not have a dilutive
effect on the Company's then-existing shareholders. Other than the Common Shares
which may be acquired pursuant to the Company's existing stock option plan or
the Rights Agreement, the Company presently has no plans, agreements or
understandings to issue any of the newly authorized Common Shares.
Although the Company has no such present intentions, the proposed increase
in the authorized and unissued Common Shares might be considered as having the
effect of discouraging an attempt by another person or entity, through the
acquisition of a substantial number of Common Shares, to acquire control of the
Company with a view to imposing a merger, sale of all or any part of its assets
or a similar transaction without prior approval of the Company's Board of
Directors, since the issuance of new Common Shares, in a public or private sale,
merger or similar transaction could be used to dilute the share ownership of a
person or entity seeking to
13
<PAGE> 15
obtain control of the Company. Furthermore, since the Company's Regulations
require that the removal of a director be approved by the affirmative vote of
the holders of at least 80% of the votes entitled to be cast by the holders of
all of the outstanding voting shares of the Company, the Board could (within the
limits imposed by Ohio law) issue new Common Shares to purchasers who, together
with other shareholders of the Company, might block such an 80% vote.
As of March 1, 1996, the Company's executive officers and directors held
Common Shares entitling them to exercise approximately 10.65% of the Company's
voting power.
The Company's Articles and Regulations contain other provisions that may
have anti-takeover effects. The Articles provide, among other things, for (i)
the approval of the holders of at least 80% of the outstanding Common Shares to
authorize certain business combinations involving the Company and a holder of
20% or more of the voting power of the Company or any affiliate or associate of
such a holder, unless a "minimum price per share" (as defined in the Articles)
is paid to all shareholders and certain other conditions are satisfied; (ii) the
approval of the holders of two-thirds of the voting power of the Company
(including any outstanding Preferred Shares) to authorize any change in the
Articles or Regulations or to approve certain significant corporate
transactions, unless the matter has been approved by a vote of two-thirds of the
Directors; and (iii) the elimination of cumulative voting in the election of
directors. In addition, the Regulations of the Company provide, among other
things, for (i) a classified Board of Directors divided into three classes; (ii)
an 80% shareholder vote to remove directors; (iii) special requirements to
nominate directors; and (iv) the approval of the holders of at least 50% of the
voting power of the Company to call a special meeting of shareholders. The
availability of the Preferred Shares might also be considered as having the
effect of discouraging an attempt by another person or entity, through the
acquisition of a substantial number of the Company's Common Shares, to acquire
control of the Company with a view to effecting a merger, sale of the Company's
assets or similar transaction, since the issuance of Preferred Shares could be
used to dilute the share ownership or voting rights of a person or entity
seeking to obtain control of the Company. Additionally, certain companies have
issued, as a dividend to holders of their Common Shares, preferred shares having
terms designed to discourage third parties from acquiring control of such
companies, and the Preferred Shares would be available for such purpose.
The Company also has adopted the Rights Agreement, pursuant to which the
Company's common shareholders hold rights to purchase in certain cases
additional Common Shares at a price of $75.00 per share. Each outstanding Common
Share is accompanied by one-half of a purchase right. Under certain
circumstances, including the acquisition by a person of 20% or more of the
Company's outstanding Common Shares (without the prior approval of the directors
of the Company), all rights holders, except the acquiror, may purchase Common
Shares of the Company having a value of twice the exercise price of the rights,
subject to adjustment as provided in the Rights Agreement. If the Company is
acquired in a merger or other business combination after the acquisition of 20%
of the Company's outstanding Common Shares (without prior Board approval), in
certain cases rights holders may purchase the acquiror's shares at a similar
discount.
The Company is not aware of any efforts to obtain control of the Company or
to effect substantial accumulations of its shares. The Company does not
presently intend to submit to its shareholders for their approval other
proposals that may be considered to have an anti-takeover effect.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF COMMON SHARES ENTITLING THEM TO
EXERCISE AT LEAST A MAJORITY OF THE VOTES ENTITLED TO BE CAST IS REQUIRED TO
ADOPT THE PROPOSED AMENDMENT TO ARTICLE FOURTH OF THE COMPANY'S ARTICLES. If the
amendment is approved, it will become effective upon the filing of a Certificate
of
14
<PAGE> 16
Amendment to the Company's Articles with the Ohio Secretary of State, which is
expected to be accomplished as promptly as practicable after such approval is
obtained.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR THE PROPOSED AMENDMENT TO ARTICLE FOURTH OF THE COMPANY'S
ARTICLES. UNLESS OTHERWISE DIRECTED, THE PERSONS NAMED IN THE ENCLOSED PROXY
WILL VOTE THE COMMON SHARES REPRESENTED BY ALL PROXIES RECEIVED PRIOR TO THE
ANNUAL MEETING, AND NOT PROPERLY REVOKED, IN FAVOR OF THE PROPOSED AMENDMENT TO
ARTICLE FOURTH.
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended December 31, 1995
accompanies this Proxy Statement.
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Coopers & Lybrand has served for many years as
independent public accountants for the Company and its subsidiaries, and Coopers
& Lybrand will continue to serve as independent public accountants for 1996.
Management expects that representatives of that firm will be present at the
Annual Meeting, will have the opportunity to make a statement if they desire to
do so and will be available to respond to appropriate questions.
The Company's financial statements for the last fiscal year were examined
by Coopers & Lybrand. In connection with the audit function, Coopers & Lybrand
also reviewed the Company's annual and quarterly reports and reviewed its
filings with the Securities and Exchange Commission.
SHAREHOLDER PROPOSALS
If an eligible shareholder wishes to present a proposal for action at the
next annual meeting of shareholders of the Company, it must be received by the
Company not later than November 15, 1996 for inclusion in the Company's Proxy
Statement and form of Proxy relating to that meeting. An eligible shareholder
may present no more than one proposal of not more than five hundred (500)
words, including supporting statements, for inclusion in the Company's proxy
materials for the next annual meeting. Proposals shall be sent to Ohio Casualty
Corporation, Attention: Howard L. Sloneker III, Secretary, 136 North Third
Street, Hamilton, Ohio 45025.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission (SEC). Officers, directors and greater than ten percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Forms 3, 4 and 5 they file.
Based on the Company's review of the copies of such forms it has received,
the Company believes that all its officers, directors, and greater than ten
percent beneficial owners complied with all filing requirements applicable to
them with respect to transactions during fiscal 1995, except that Mr. Jack E.
Brown, one of the directors did not file a Form 4 for a stock purchase he
executed during 1995. However, Mr. Brown reported the transaction on SEC Form 5
filed on February 13, 1996.
15
<PAGE> 17
OTHER MATTERS
The Company files annually with the Securities and Exchange Commission an
Annual Report on Form 10-K. This report includes financial statements and
financial statement schedules.
A SHAREHOLDER OF THE COMPANY MAY OBTAIN A COPY OF THE ANNUAL REPORT ON FORM
10-K, INCLUDING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES, FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1995, WITHOUT CHARGE BY SUBMITTING A WRITTEN
REQUEST THEREFOR TO THE FOLLOWING ADDRESS:
OHIO CASUALTY CORPORATION
Attention: Barry S. Porter
Chief Financial Officer/Treasurer
136 North Third Street
Hamilton, Ohio 45025
Management and the Board of Directors of the Company know of no business to
be brought before the Annual Meeting other than as set forth in this Proxy
Statement. However, if any matters other than those referred to in this Proxy
Statement should properly come before the Annual Meeting, it is the intention of
the persons named in the enclosed proxy to vote the common shares represented by
such proxy on such matters in accordance with their best judgment.
EXPENSES OF SOLICITATION
The expense of proxy solicitation will be borne by the Company. Proxies
will be solicited by mail and may be solicited, for no additional compensation,
by officers, directors or employees of the Company or its subsidiaries, by
telephone, telegraph or in person. Brokerage houses and other custodians,
nominees and fiduciaries may be requested to forward soliciting material to the
beneficial owners of common shares of the Company, and will be reimbursed for
their related expenses. In addition, the Company has retained Morrow & Co.,
Inc., a professional soliciting organization, to assist in soliciting proxies
from brokerage houses, custodians and nominees. The fees and expenses of that
firm in connection with such solicitation are not expected to exceed $15,000.
By Order of the Board of Directors,
/s/ Howard L. Sloneker III
--------------------------------
HOWARD L. SLONEKER III, Secretary
March 15, 1996
16
<PAGE> 1
Exhibit 23
[COOPERS & LYBRAND letterhead]
Consent of Independent Accountants
to Incorporation of Opinion by Reference
in Registration Statement on Form S-8
We consent to the incorporation by reference in the Registration Statement of
Ohio Casualty Corporation on Form S-8 (File No. 05544) of our report dated
February 3, 1996, on our audits of the consolidated financial statements and
financial statement schedules of Ohio Casualty Corporation and Subsidiaries as
of December 31, 1995, 1994 and 1993 and for the years then ended, which report
is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Columbus, Ohio
March 22, 1996
97
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 2422251859
<DEBT-CARRYING-VALUE> 2422251859
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<REAL-ESTATE> 23548711
<TOTAL-INVEST> 3106954774
<CASH> 23882890
<RECOVER-REINSURE> 446166623
<DEFERRED-ACQUISITION> 119795342
<TOTAL-ASSETS> 3980142050
<POLICY-LOSSES> 1631184127
<UNEARNED-PREMIUMS> 506034637
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 360073946
<NOTES-PAYABLE> 60000000
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<OTHER-SE> 1105163778
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1268268885
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<INCOME-TAX> 24814289
<INCOME-CONTINUING> 95362345
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<PROVISION-CURRENT> 562821393
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<RESERVE-CLOSE> 1553130969
<CUMULATIVE-DEFICIENCY> (104997987)
</TABLE>
<PAGE> 1
EXHIBIT 28
GROUP SCHEDULE P - PART 1 - SUMMARY
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS
AC/YR (2) (3) (4) (5) (6) (7) (8)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 8,246 2,590 2,253 1,427
1986 1,254,734 32,818 1,221,916 699,517 15,702 72,556 1,774
1987 1,394,210 37,581 1,356,629 720,241 10,070 69,155 593
1988 1,375,824 36,272 1,339,553 699,179 8,108 62,346 751
1989 1,393,527 29,351 1,364,177 778,131 15,684 63,155 597
1990 1,462,962 24,961 1,438,001 829,792 8,256 68,981 101
1991 1,495,615 26,561 1,469,055 859,734 34,974 65,646 1,799
1992 1,550,273 32,684 1,517,590 854,166 21,984 59,158 606
1993 1,423,123 43,696 1,379,427 716,925 7,154 41,131 64
1994 1,342,791 45,133 1,297,657 609,958 4,330 27,222 (168)
1995 1,305,589 41,012 1,264,577 388,829 3,552 11,550 1
TOTAL XXX XXX XXX 7,164,719 132,403 543,153 7,546
</TABLE>
<TABLE>
<CAPTION>
(1) (9) (10) (11) (12)
AC/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED
RECEIVED LAE PAID CLAIMS
<S> <C> <C> <C> <C>
PRIOR 863 28 6,510 XXX
1986 33,626 58,992 813,590 XXX
1987 32,621 62,271 841,003 XXX
1988 30,765 61,840 814,508 XXX
1989 34,119 64,116 889,122 XXX
1990 32,670 65,798 956,214 XXX
1991 31,897 65,004 953,612 XXX
1992 30,201 69,837 960,571 XXX
1993 23,739 61,039 811,876 XXX
1994 20,905 60,566 693,584 XXX
1995 10,459 47,732 444,558 XXX
TOTAL 281,865 617,224 8,185,147 XXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
AC/YR (13) (14) (15) (16) (17) (18) (19) (20)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 84,023 31,523 0 0 12,137 3,447 0 0
1986 15,019 2,497 1,515 52 2,022 262 1,015 30
1987 17,462 529 1,860 69 3,784 233 1,275 39
1988 18,362 1,386 1,886 69 2,291 161 1,284 39
1989 34,215 3,212 2,301 90 5,857 329 1,610 50
1990 49,183 2,382 3,012 100 11,659 428 1,953 55
1991 61,832 1,448 5,987 164 16,695 550 3,901 93
1992 94,587 1,414 8,231 233 25,037 235 4,955 125
1993 138,852 1,229 22,499 551 31,795 226 11,735 271
1994 211,015 3,824 38,406 1,201 35,490 321 16,482 451
1995 325,409 3,924 132,434 3,897 48,231 143 30,687 790
TOTAL 1,049,957 53,368 218,132 6,426 194,998 6,333 74,897 1,942
</TABLE>
<TABLE>
<CAPTION>
(21) (22) (23) (24)
AC/YR SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 2,351 63,541 XXX
1986 606 17,337 XXX
1987 939 24,450 XXX
1988 764 22,932 XXX
1989 1,488 41,791 XXX
1990 2,770 65,612 XXX
1991 4,373 90,534 XXX
1992 6,621 137,424 XXX
1993 11,320 213,924 XXX
1994 17,169 312,766 XXX
1995 34,815 562,821 XXX
TOTAL 83,216 1,553,131 XXX
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
AC/YR (25) (26) (27) (28) (29) (30) (31) (32)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1986 851,243 20,317 830,926 67.8 61.9 68.0
1987 876,986 11,532 865,453 62.9 30.7 63.8
1988 847,954 10,514 837,440 61.6 29.0 62.5
1989 950,874 19,962 930,912 68.2 68.0 68.2
1990 1,033,148 11,321 1,021,827 70.6 45.4 71.1
1991 1,083,174 39,028 1,044,146 72.4 146.9 71.1
1992 1,122,609 24,597 1,098,012 72.4 75.3 72.4
1993 1,035,298 9,495 1,025,803 72.7 21.7 74.4
1994 1,016,684 9,959 1,006,725 75.7 22.1 77.6
1995 1,019,289 12,307 1,006,982 78.1 30.0 79.6
TOTAL XXX XXX XXX XXX XXX XXX
</TABLE>
<TABLE>
<CAPTION>
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
AC/YR (33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 52,499 11,042
1986 13,986 3,351
1987 18,724 5,726
1988 18,793 4,140
1989 33,215 8,576
1990 49,713 15,900
1991 66,207 24,327
1992 101,171 36,253
1993 159,571 54,353
1994 244,396 68,369
1995 450,022 112,799
TOTAL XXX 1,208,296 344,835
</TABLE>
<PAGE> 2
GROUP SCHEDULE P - PART 1A - HOMEOWNERS
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS
AC/YR (2) (3) (4) (5) (6) (7) (8)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 96 0 24 0
1986 159,099 2,348 156,752 87,537 1,251 5,885 0
1987 166,422 1,902 164,520 87,175 26 5,907 0
1988 168,376 1,787 166,589 87,481 50 4,645 0
1989 167,251 2,262 164,988 102,974 0 5,679 0
1990 172,691 2,321 170,370 114,477 378 5,631 0
1991 180,475 3,102 177,373 145,257 19,660 5,802 271
1992 187,626 3,100 184,526 135,057 5,961 6,268 539
1993 176,137 8,408 167,729 123,039 496 5,936 4
1994 167,094 9,016 158,077 130,113 92 5,717 1
1995 169,546 8,428 161,118 80,422 0 2,770 0
TOTAL XXX XXX XXX 1,093,629 27,915 54,263 815
</TABLE>
<TABLE>
<CAPTION>
(1) (9) (10) (11) (12)
AC/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED
RECEIVED LAE PAID CLAIMS
<S> <C> <C> <C> <C>
PRIOR 11 8 127 XXX
1986 1,395 3,491 95,662 68,162
1987 1,606 3,571 96,627 71,439
1988 1,527 3,566 95,642 64,992
1989 1,476 4,047 112,700 65,753
1990 1,509 4,579 124,309 65,027
1991 1,120 5,492 136,620 66,236
1992 1,467 9,370 144,196 67,868
1993 941 8,923 137,397 67,794
1994 730 10,605 146,343 72,305
1995 201 6,601 89,793 51,789
TOTAL 11,982 60,253 1,179,415 XXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
AC/YR (13) (14) (15) (16) (17) (18) (19) (20)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 95 0 0 0 67 0 0 0
1986 61 0 58 3 48 0 55 3
1987 70 4 58 3 45 1 55 3
1988 251 0 58 3 175 0 55 3
1989 567 0 60 3 393 0 58 3
1990 546 0 107 5 284 0 76 4
1991 1,241 20 111 6 561 4 69 3
1992 3,072 542 315 16 1,271 102 177 9
1993 4,889 5 366 18 1,679 1 174 9
1994 8,972 0 1,254 63 1,952 0 377 19
1995 27,910 0 11,119 555 2,536 0 1,443 72
TOTAL 47,673 571 13,505 674 9,010 108 2,542 127
</TABLE>
<TABLE>
<CAPTION>
AC/YR (21) (22) (23) (24)
SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 2 164 10
1986 7 224 2
1987 4 221 5
1988 8 541 7
1989 18 1,089 25
1990 16 1,020 14
1991 35 1,984 61
1992 77 4,244 122
1993 143 7,218 244
1994 292 12,766 597
1995 1,217 43,597 5,885
TOTAL 1,817 73,067 6,972
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
AC/YR (25) (26) (27) (28) (29) (30) (31) (32)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1986 97,142 1,257 95,886 61.1 53.5 61.2
1987 96,885 37 96,848 58.2 2.0 58.9
1988 96,238 56 96,183 57.2 3.1 57.7
1989 113,795 6 113,789 68.0 0.3 69.0
1990 125,717 387 125,329 72.8 16.7 73.6
1991 158,568 19,964 138,604 87.9 643.6 78.1
1992 155,608 7,168 148,440 82.9 231.2 80.4
1993 145,149 533 144,615 82.4 6.3 86.2
1994 159,282 174 159,108 95.3 1.9 100.7
1995 134,017 628 133,390 79.0 7.4 82.8
TOTAL XXX XXX XXX XXX XXX XXX
</TABLE>
<TABLE>
<CAPTION>
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
AC/YR (33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 95 69
1986 116 107
1987 121 100
1988 306 235
1989 623 466
1990 648 373
1991 1,326 657
1992 2,829 1,415
1993 5,232 1,987
1994 10,163 2,603
1995 38,474 5,123
TOTAL XXX 59,933 13,134
</TABLE>
<PAGE> 3
GROUP SCHEDULE P - PART 1B - PP AUTO LIABILITY
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS
AC/YR (2) (3) (4) (5) (6) (7) (8)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 1,691 1,362 249 0
1986 284,603 6,853 277,750 223,949 2,625 17,316 4
1987 320,026 7,756 312,270 239,037 2,394 16,701 2
1988 318,131 7,787 310,344 227,387 3,378 14,073 19
1989 318,462 7,649 310,813 238,552 2,612 12,722 3
1990 333,396 6,676 326,721 253,075 2,327 13,599 0
1991 339,451 6,391 333,060 240,917 2,242 13,526 0
1992 362,947 7,108 355,839 246,289 2,507 13,965 2
1993 334,286 12,196 322,089 211,799 4,340 10,151 22
1994 320,149 12,617 307,532 162,165 3,382 6,760 0
1995 305,098 7,698 297,400 82,699 1,611 2,765 0
TOTAL XXX XXX XXX 2,127,558 28,780 121,826 51
</TABLE>
<TABLE>
<CAPTION>
(1) (9) (10) (11) (12)
AC/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED
RECEIVED LAE PAID CLAIMS
<S> <C> <C> <C> <C>
PRIOR 192 20 598 XXX
1986 5,551 22,262 260,898 80,173
1987 6,082 23,389 276,731 77,054
1988 4,880 23,258 261,322 69,365
1989 5,703 24,141 272,800 64,142
1990 5,444 24,652 288,999 61,387
1991 4,571 22,661 274,862 57,887
1992 4,268 21,802 279,547 60,062
1993 4,359 19,064 236,652 54,910
1994 2,309 17,820 183,363 53,015
1995 981 12,080 95,932 46,847
TOTAL 44,341 211,150 2,431,703 XXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
AC/YR (13) (14) (15) (16) (17) (18) (19) (20)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 15,342 13,299 0 0 3,720 1,941 0 0
1986 488 25 43 1 120 3 17 0
1987 626 12 57 2 157 2 21 1
1988 841 40 83 2 224 7 31 1
1989 1,890 157 83 2 495 24 31 1
1990 3,538 74 83 2 895 10 31 1
1991 7,223 59 175 4 1,846 9 66 2
1992 21,561 443 331 8 4,587 63 103 2
1993 43,145 265 471 11 7,228 26 116 3
1994 75,980 3,297 2,580 62 7,675 223 383 9
1995 134,111 1,138 20,342 551 10,555 53 2,358 65
TOTAL 304,746 18,809 24,247 645 37,503 2,360 3,157 84
</TABLE>
<TABLE>
<CAPTION>
(21) (22) (23) (24)
AC/YR SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 576 4,398 150
1986 50 688 26
1987 62 907 25
1988 67 1,198 45
1989 146 2,462 67
1990 320 4,781 125
1991 639 9,873 284
1992 1,816 27,881 738
1993 3,689 54,346 1,667
1994 6,363 89,390 3,777
1995 13,077 178,637 14,023
TOTAL 26,805 374,559 20,927
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
AC/YR (25) (26) (27) (28) (29) (30) (31) (32)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1986 264,244 2,658 261,585 92.8 38.8 94.2
1987 280,051 2,412 277,638 87.5 31.1 88.9
1988 265,966 3,446 262,520 83.6 44.3 84.6
1989 278,061 2,799 275,262 87.3 36.6 88.6
1990 296,194 2,414 293,779 88.8 36.2 89.9
1991 287,051 2,317 284,734 84.6 36.2 85.5
1992 310,452 3,025 307,427 85.5 42.6 86.4
1993 295,663 4,666 290,997 88.4 38.3 90.3
1994 279,726 6,973 272,753 87.4 55.3 88.7
1995 277,986 3,417 274,569 91.1 44.4 92.3
TOTAL XXX XXX XXX XXX XXX XXX
</TABLE>
<TABLE>
<CAPTION>
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
AC/YR (33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 2,043 2,355
1986 505 183
1987 669 238
1988 883 315
1989 1,814 648
1990 3,545 1,236
1991 7,333 2,540
1992 21,441 6,440
1993 43,340 11,005
1994 75,201 14,189
1995 152,764 25,872
TOTAL XXX 309,539 65,020
</TABLE>
<PAGE> 4
GROUP SCHEDULE P - PART 1C - COMM AUTO LIABILITY
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS
AC/YR (2) (3) (4) (5) (6) (7) (8)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 204 140 47 1
1986 103,599 2,556 101,043 60,869 840 6,853 106
1987 115,059 2,899 112,160 66,272 1,048 6,749 11
1988 111,555 2,980 108,575 62,142 1,313 6,000 27
1989 115,499 3,154 112,344 64,722 1,196 5,528 16
1990 123,518 3,021 120,498 74,822 671 6,157 15
1991 130,823 3,060 127,764 74,731 699 6,065 0
1992 135,772 3,261 132,511 69,560 1,797 5,871 10
1993 129,921 4,228 125,693 57,229 951 4,532 0
1994 124,061 4,327 119,735 44,452 1,029 2,919 0
1995 118,168 3,897 114,271 20,558 601 969 0
TOTAL XXX XXX XXX 595,562 10,286 51,691 186
</TABLE>
<TABLE>
<CAPTION>
(1) (9) (10) (11) (12)
AC/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED
RECEIVED LAE PAID CLAIMS
<S> <C> <C> <C> <C>
PRIOR 79 4 114 XXX
1986 692 5,825 72,601 15,830
1987 529 6,465 78,427 14,143
1988 398 6,025 72,827 12,870
1989 751 5,995 75,033 13,359
1990 751 6,136 86,430 13,342
1991 692 5,985 86,081 13,256
1992 976 5,170 78,794 13,829
1993 584 4,588 65,399 13,734
1994 500 4,318 50,660 13,803
1995 221 3,280 24,205 11,408
TOTAL 6,173 53,792 690,572 XXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
AC/YR (13) (14) (15) (16) (17) (18) (19) (20)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 1,875 1,280 0 0 526 255 0 0
1986 72 8 21 1 21 1 9 0
1987 280 0 21 1 81 0 9 0
1988 249 0 21 1 71 0 9 0
1989 1,225 0 21 1 354 0 9 0
1990 4,899 562 21 1 1,248 84 7 0
1991 7,364 0 144 7 1,606 0 45 2
1992 12,695 117 155 7 2,366 15 39 2
1993 22,707 145 481 16 3,611 15 107 4
1994 43,809 227 1,155 34 5,705 20 185 6
1995 47,237 712 9,237 323 4,753 47 1,191 46
TOTAL 142,412 3,049 11,274 392 20,344 438 1,609 61
</TABLE>
<TABLE>
<CAPTION>
(21) (22) (23) (24)
AC/YR SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C>
PRIOR 69 936 27
1986 6 118 4
1987 21 410 13
1988 20 368 8
1989 89 1,696 17
1990 270 5,798 41
1991 502 9,653 89
1992 862 15,976 206
1993 1,528 28,254 451
1994 2,899 53,467 918
1995 3,661 64,951 2,837
TOTAL 9,927 181,627 4,611
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
AC/YR (25) (26) (27) (28) (29) (30) (31) (32)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1986 73,675 956 72,719 71.1 37.4 72.0
1987 79,898 1,060 78,838 69.4 36.6 70.3
1988 74,537 1,342 73,195 66.8 45.0 67.4
1989 77,943 1,213 76,730 67.5 38.5 68.3
1990 93,561 1,333 92,228 75.7 44.1 76.5
1991 96,443 708 95,734 73.7 23.1 74.9
1992 96,717 1,947 94,770 71.2 59.7 71.5
1993 94,784 1,131 93,653 73.0 26.7 74.5
1994 105,443 1,316 104,127 85.0 30.4 87.0
1995 90,886 1,729 89,157 76.9 44.4 78.0
TOTAL XXX XXX XXX XXX XXX XXX
</TABLE>
<TABLE>
<CAPTION>
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
AC/YR (33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 596 340
1986 84 34
1987 299 111
1988 268 99
1989 1,244 452
1990 4,357 1,441
1991 7,502 2,151
1992 12,726 3,250
1993 23,027 5,227
1994 44,703 8,764
1995 55,439 9,512
TOTAL XXX 150,246 31,381
</TABLE>
<PAGE> 5
GROUP SCHEDULE P - PART 1D - WORKERS COMPENSATION
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS
AC/YR (2) (3) (4) (5) (6) (7) (8)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 4,123 771 375 12
1986 149,101 3,360 145,740 99,003 2,203 8,524 1
1987 170,721 3,839 166,883 101,328 525 8,767 1
1988 179,208 3,811 175,397 105,874 436 8,964 0
1989 201,802 4,148 197,654 125,476 1,545 10,986 71
1990 220,037 3,333 216,703 142,575 375 12,620 0
1991 219,110 3,144 215,966 128,860 5 11,512 0
1992 213,577 2,909 210,668 105,964 5 7,797 0
1993 185,738 2,443 183,294 71,512 0 4,381 0
1994 153,212 1,955 151,257 38,978 2 2,064 2
1995 143,658 1,654 142,004 16,581 0 576 0
TOTAL XXX XXX XXX 940,275 5,865 76,567 86
</TABLE>
<TABLE>
<CAPTION>
(1) (9) (10) (11) (12)
AC/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED
RECEIVED LAE PAID CLAIMS
<S> <C> <C> <C> <C>
PRIOR 172 10 3,726 XXX
1986 2,971 3,527 108,852 37,000
1987 2,227 3,681 113,251 33,600
1988 2,925 4,020 118,422 31,180
1989 3,036 4,939 139,784 33,399
1990 3,934 5,438 160,258 32,838
1991 2,645 5,533 145,901 28,082
1992 1,813 6,293 120,049 24,625
1993 704 4,608 80,501 17,596
1994 300 3,486 44,525 13,850
1995 141 3,270 20,428 10,665
TOTAL 20,867 44,805 1,055,697 XXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
AC/YR (13) (14) (15) (16) (17) (18) (19) (20)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 45,560 11,575 0 0 3,905 1,129 0 0
1986 13,165 2,399 190 2 1,094 234 21 0
1987 11,272 5 190 2 778 0 21 0
1988 15,724 1,222 190 2 1,183 119 21 0
1989 25,463 3,014 190 2 1,975 294 21 0
1990 26,633 1,200 190 2 1,925 117 21 0
1991 25,673 60 190 2 1,717 6 21 0
1992 30,317 157 379 4 1,892 15 41 0
1993 35,476 383 3,414 38 2,246 37 369 4
1994 41,888 0 4,551 51 2,246 0 457 5
1995 47,006 55 28,447 316 12,061 5 2,637 30
TOTAL 318,176 20,069 37,929 422 31,022 1,957 3,627 41
</TABLE>
<TABLE>
<CAPTION>
(21) (22) (23) (24)
AC/YR SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C>
PRIOR 1,039 37,800 685
1986 327 12,160 120
1987 308 12,561 158
1988 416 16,190 182
1989 638 24,976 296
1990 709 28,158 398
1991 703 28,235 512
1992 756 33,209 616
1993 971 42,013 654
1994 1,113 50,200 872
1995 5,035 94,779 3,348
TOTAL 12,016 380,281 7,841
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
AC/YR (25) (26) (27) (28) (29) (30) (31) (32)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1986 125,850 4,839 121,011 84.4 144.0 83.0
1987 126,345 533 125,812 74.0 13.9 75.4
1988 136,391 1,779 134,612 76.1 46.7 76.7
1989 169,687 4,927 164,760 84.1 118.8 83.4
1990 190,110 1,694 188,416 86.4 50.8 86.9
1991 174,209 73 174,136 79.5 2.3 80.6
1992 153,439 181 153,258 71.8 6.2 72.7
1993 122,977 463 122,514 66.2 18.9 66.8
1994 94,784 59 94,725 61.9 3.0 62.6
1995 115,613 406 115,207 80.5 24.5 81.1
TOTAL XXX XXX XXX XXX XXX XXX
</TABLE>
<TABLE>
<CAPTION>
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
AC/YR (33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 33,985 3,815
1986 10,953 1,207
1987 11,455 1,106
1988 14,690 1,499
1989 22,636 2,340
1990 25,621 2,538
1991 25,800 2,435
1992 30,535 2,673
1993 38,468 3,545
1994 46,389 3,811
1995 75,081 19,699
TOTAL XXX 335,614 44,667
</TABLE>
<PAGE> 6
GROUP SCHEDULE P - PART 1E - CMP
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS
AC/YR (2) (3) (4) (5) (6) (7) (8)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 436 (304) 431 1,335
1986 111,299 3,287 108,012 40,153 2,026 11,471 688
1987 114,668 2,837 111,831 35,527 558 8,062 102
1988 100,340 2,435 97,905 29,898 25 5,628 0
1989 98,708 2,401 96,308 39,558 648 6,555 1
1990 109,609 2,062 107,547 47,833 1,783 8,199 18
1991 125,346 2,460 122,886 61,636 5,318 8,786 106
1992 147,343 4,565 142,778 88,550 8,149 8,881 44
1993 146,366 5,673 140,694 67,768 141 6,233 3
1994 143,240 6,538 136,702 63,173 174 3,908 1
1995 139,602 6,743 132,859 39,832 115 1,624 0
TOTAL XXX XXX XXX 514,365 18,634 69,779 2,300
</TABLE>
<TABLE>
<CAPTION>
(1) (9) (10) (11) (12)
AC/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED
RECEIVED LAE PAID CLAIMS
<S> <C> <C> <C> <C>
PRIOR 17 4 (161) XXX
1986 1,583 3,524 52,434 14,136
1987 1,494 4,764 47,692 12,520
1988 1,261 3,469 38,970 10,859
1989 1,766 2,514 47,979 12,506
1990 1,607 3,261 57,492 13,450
1991 4,808 4,123 69,121 15,785
1992 1,943 5,118 94,356 19,139
1993 1,058 4,644 78,502 19,423
1994 961 4,691 71,598 19,300
1995 383 3,863 45,204 15,334
TOTAL 16,879 39,975 603,185 XXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
AC/YR (13) (14) (15) (16) (17) (18) (19) (20)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 16,122 5,000 0 0 1,555 0 0 0
1986 736 0 658 31 530 0 530 17
1987 1,388 0 990 48 867 0 785 26
1988 178 0 990 48 129 0 785 26
1989 1,266 0 1,403 69 918 0 1,108 38
1990 2,703 0 1,403 69 1,797 0 1,039 35
1991 5,077 0 1,453 69 3,120 0 984 33
1992 9,740 26 2,461 113 6,097 5 1,573 53
1993 12,891 50 5,071 239 7,173 12 2,923 100
1994 16,026 0 14,850 712 7,619 0 7,518 253
1995 24,360 61 21,207 1,011 8,455 7 7,883 263
TOTAL 90,486 5,137 50,484 2,409 38,260 24 25,130 845
</TABLE>
<TABLE>
<CAPTION>
(21) (22) (23) (24)
AC/YR SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 157 12,834 110
1986 88 2,494 43
1987 154 4,108 27
1988 83 2,091 15
1989 180 4,769 35
1990 257 7,095 65
1991 423 10,955 106
1992 763 20,437 239
1993 1,190 28,847 452
1994 2,032 47,081 811
1995 2,973 63,536 2,966
TOTAL 8,300 204,245 4,869
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
AC/YR (25) (26) (27) (28) (29) (30) (31) (32)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1986 57,691 2,763 54,928 51.8 84.1 50.9
1987 52,535 735 51,800 45.8 25.9 46.3
1988 41,161 100 41,061 41.0 4.1 41.9
1989 53,502 755 52,747 54.2 31.5 54.8
1990 66,491 1,905 64,586 60.7 92.4 60.1
1991 85,601 5,526 80,075 68.3 224.6 65.2
1992 123,183 8,390 114,793 83.6 183.8 80.4
1993 107,893 545 107,348 73.7 9.6 76.3
1994 119,817 1,139 118,678 83.6 17.4 86.8
1995 110,197 1,457 108,740 78.9 21.6 81.8
TOTAL XXX XXX XXX XXX XXX XXX
</TABLE>
<TABLE>
<CAPTION>
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
AC/YR (33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 11,122 1,712
1986 1,363 1,131
1987 2,329 1,779
1988 1,120 971
1989 2,600 2,169
1990 4,037 3,058
1991 6,461 4,494
1992 12,062 8,375
1993 17,672 11,175
1994 30,165 16,916
1995 44,494 19,042
TOTAL XXX 133,425 70,821
</TABLE>
<PAGE> 7
GROUP SCHEDULE P - PART 1G - SPECIAL LIABILITY
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS
AC/YR (2) (3) (4) (5) (6) (7) (8)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 0 0 0 0
1986 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0
1990 143 58 85 95 62 1 0
1991 271 214 57 83 71 13 0
1992 226 184 42 327 261 0 0
1993 37 43 (7) 0 0 0 0
1994 18 17 1 9 2 0 0
1995 33 30 3 0 0 0 0
TOTAL XXX XXX XXX 513 396 13 0
</TABLE>
<TABLE>
<CAPTION>
(1) (9) (10) (11) (12)
AC/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED
RECEIVED LAE PAID CLAIMS
<S> <C> <C> <C> <C>
PRIOR 0 0 0 XXX
1986 0 0 0 0
1987 0 0 0 0
1988 0 0 0 0
1989 0 0 0 0
1990 0 0 33 0
1991 0 0 24 1
1992 0 0 66 1
1993 0 0 0 1
1994 0 0 7 1
1995 0 0 0 1
TOTAL 0 0 131 XXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
AC/YR (13) (14) (15) (16) (17) (18) (19) (20)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0
1986 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0
1992 2 1 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0
TOTAL 2 1 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
(21) (22) (23) (24)
AC/YR SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 0 0 0
1986 0 0 0
1987 0 0 0
1988 0 0 0
1989 0 0 0
1990 0 0 0
1991 0 0 1
1992 0 0 0
1993 0 0 0
1994 0 0 1
1995 0 0 1
TOTAL 0 1 3
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
AC/YR (25) (26) (27) (28) (29) (30) (31) (32)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1986 0 0 0 0.0 0.0 0.0
1987 0 0 0 0.0 0.0 0.0
1988 0 0 0 0.0 0.0 0.0
1989 0 0 0 0.0 0.0 0.0
1990 96 62 33 66.8 107.9 39.2
1991 95 71 25 35.2 33.1 43.1
1992 328 262 66 145.5 142.5 158.9
1993 0 0 0 0.0 0.0 0.0
1994 10 2 7 52.5 13.3 538.7
1995 0 0 0 0.0 0.0 0.0
TOTAL XXX XXX XXX XXX XXX XXX
</TABLE>
<TABLE>
<CAPTION>
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
AC/YR (33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 0 0
1986 0 0
1987 0 0
1988 0 0
1989 0 0
1990 0 0
1991 0 0
1992 0 0
1993 0 0
1994 0 0
1995 0 0
TOTAL XXX 1 0
</TABLE>
<PAGE> 8
GROUP SCHEDULE P - PART 1H - OTHER LIABILITY - section 1
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS
ACC/YR (2) (3) (4) (5) (6) (7) (8)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 1,001 241 465 7
1986 108,331 2,072 106,259 41,265 3,892 13,572 15
1987 143,930 2,706 141,224 41,412 2,956 15,295 205
1988 140,322 2,728 137,594 38,288 1,008 13,666 20
1989 138,825 2,811 136,014 42,191 3,245 13,113 87
1990 140,819 2,496 138,324 40,987 1,327 14,902 3
1991 128,769 2,252 126,517 35,458 208 10,933 2
1992 120,599 2,155 118,444 33,003 2,112 9,025 0
1993 111,024 1,962 109,061 23,328 305 5,100 25
1994 112,506 1,993 110,513 11,195 0 2,124 0
1995 111,545 1,893 109,653 4,482 0 546 0
TOTAL XXX XXX XXX 312,610 15,293 98,740 363
</TABLE>
<TABLE>
<CAPTION>
(1) (9) (10) (11) (12)
ACC/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED
RECEIVED LAE PAID CLAIMS
<S> <C> <C> <C> <C>
PRIOR 192 (1) 1,217 XXX
1986 2,238 5,808 56,738 6,845
1987 978 6,226 59,772 7,323
1988 936 6,822 57,747 6,861
1989 1,067 7,295 59,267 7,363
1990 650 7,493 62,053 7,851
1991 598 6,641 52,822 7,307
1992 823 4,852 44,767 6,891
1993 391 3,632 31,730 6,428
1994 296 3,515 16,835 6,034
1995 159 4,103 9,131 4,289
TOTAL 8,327 56,385 452,080 XXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
ACC/YR (13) (14) (15) (16) (17) (18) (19) (20)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 1,920 150 0 0 1,004 61 0 0
1986 86 0 490 9 45 0 355 6
1987 2,058 250 490 9 1,067 122 355 6
1988 359 0 490 9 186 0 355 6
1989 2,545 0 490 9 1,337 0 355 6
1990 8,692 500 1,150 17 4,575 204 749 12
1991 14,166 1,165 3,738 63 7,412 489 2,626 46
1992 15,286 20 4,357 67 8,054 8 2,902 49
1993 17,441 231 12,051 181 9,055 93 7,728 129
1994 21,388 144 12,882 195 9,361 35 7,016 117
1995 20,248 0 28,225 418 7,817 0 13,389 222
TOTAL 104,190 2,460 64,361 976 49,912 1,012 35,831 601
</TABLE>
<TABLE>
<CAPTION>
(21) (22) (23) (24)
ACC/YR SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 185 2,899 101
1986 84 1,045 19
1987 246 3,829 43
1988 109 1,483 30
1989 337 5,049 77
1990 1,011 15,444 138
1991 1,969 28,148 193
1992 2,159 32,615 302
1993 3,559 49,200 430
1994 4,105 54,259 667
1995 6,066 75,104 1,120
TOTAL 19,830 269,076 3,120
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
ACC/YR (25) (26) (27) (28) (29) (30) (31) (32)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1986 61,705 3,922 57,783 57.0 189.3 54.4
1987 67,149 3,548 63,601 46.7 131.1 45.0
1988 60,274 1,043 59,231 43.0 38.2 43.0
1989 67,663 3,347 64,316 48.7 119.1 47.3
1990 79,559 2,062 77,497 56.5 82.6 56.0
1991 82,942 1,972 80,970 64.4 87.5 64.0
1992 79,639 2,256 77,382 49.8 104.7 48.9
1993 81,893 963 80,930 (8.4) 49.0 (9.0)
1994 71,586 492 71,094 (289.0) 18.6 (292.9)
1995 84,875 640 84,235 (66.7) 31.0 (119.4)
TOTAL XXX XXX XXX XXX XXX XXX
</TABLE>
<TABLE>
<CAPTION>
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
ACC/YR (33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 1,770 1,128
1986 567 478
1987 2,289 1,540
1988 840 644
1989 3,026 2,023
1990 9,326 6,118
1991 16,676 11,472
1992 19,556 13,059
1993 29,080 20,120
1994 33,931 20,329
1995 48,055 27,049
TOTAL XXX 165,116 103,960
</TABLE>
<PAGE> 9
GROUP SCHEDULE P - PART 1H - OTHER LIABILITY section 2
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS
REP/YR (2) (3) (4) (5) (6) (7) (8)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX
1986
1987
1988
1989
1990 15 0 15
1991 50 1 49
1992 109 1 107
1993 138 2 136 60 24
1994 158 2 156 8 42
1995 395 108 287 6 4
TOTAL XXX XXX XXX 74 69
</TABLE>
<TABLE>
<CAPTION>
(1) (9) (10) (11) (12)
REP/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED
RECEIVED LAE PAID CLAIMS
<S> <C> <C> <C> <C>
PRIOR XXX
1986
1987
1988
1989
1990
1991
1992
1993 26 110
1994 29 79
1995 50 60
TOTAL 105 248 XXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
REP/YR (13) (14) (15) (16) (17) (18) (19) (20)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR
1986
1987
1988
1989
1990
1991
1992
1993
1994 54 10 0 28 5
1995 474 87 1 241 44
TOTAL 529 96 1 268 49
</TABLE>
<TABLE>
<CAPTION>
(21) (22) (23) (24)
REP/YR SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR
1986
1987
1988
1989
1990
1991
1992
1993
1994 7 103
1995 58 902
TOTAL 64 1,005
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
REP/YR (25) (26) (27) (28) (29) (30) (31) (32)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1986
1987
1988
1989
1990
1991
1992
1993 110 110 79.6 80.6
1994 182 0 182 115.0 6.1 116.4
1995 963 1 962 243.6 1.0 335.0
TOTAL XXX XXX XXX XXX XXX XXX
</TABLE>
<TABLE>
<CAPTION>
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
REP/YR (33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX
1986
1987
1988
1989
1990
1991
1992
1993
1994 64 39
1995 560 342
TOTAL XXX 624 381
</TABLE>
<PAGE> 10
GROUP SCHEDULE P - PART 1I- SPECIAL PROPERTY
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS
AC/YR (2) (3) (4) (5) (6) (7) (8)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 304 11 210 0
1994 69,533 4,828 64,704 34,982 14 1,402 1
1995 67,714 5,196 62,517 26,986 9 780 0
TOTAL XXX XXX XXX 62,272 34 2,392 1
</TABLE>
<TABLE>
<CAPTION>
(1) (9) (10) (11) (12)
AC/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED
RECEIVED LAE PAID CLAIMS
<S> <C> <C> <C> <C>
PRIOR 148 10 513 XXX
1994 437 2,429 38,797 XXX
1995 183 1,803 29,560 XXX
TOTAL 768 4,242 68,871 XXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
AC/YR (13) (14) (15) (16) (17) (18) (19) (20)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 799 12 26 2 74 1 5 0
1994 464 0 36 3 59 0 7 1
1995 6,088 2 3,613 279 275 0 260 20
TOTAL 7,352 13 3,674 283 408 1 272 21
</TABLE>
<TABLE>
<CAPTION>
(21) (22) (23) (24)
AC/YR SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 35 924 52
1994 19 582 47
1995 524 10,458 1,141
TOTAL 577 11,965 1,240
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
AC/YR (25) (26) (27) (28) (29) (30) (31) (32)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1994 39,398 19 39,380 56.7 0.4 60.9
1995 40,328 309 40,019 59.6 6.0 64.0
TOTAL XXX XXX XXX XXX XXX XXX
</TABLE>
<TABLE>
<CAPTION>
INTERCOMPANY LOSSES LAE
AC/YR POOLING PERC. UNPAID UNPAID
(33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 811 113
1994 498 85
1995 9,421 1,038
TOTAL XXX 10,730 1,235
</TABLE>
<PAGE> 11
GROUP SCHEDULE P - PART 1J - AUTO PHYSICAL DAMAGE
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS
AC/YR (2) (3) (4) (5) (6) (7) (8)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX (1,719) 4 242 0
1994 214,863 1,007 213,856 121,474 1,077 1,918 0
1995 212,541 975 211,565 115,835 1,054 1,422 0
TOTAL XXX XXX XXX 235,590 2,135 3,581 0
</TABLE>
<TABLE>
<CAPTION>
(1) (9) (10) (11) (12)
AC/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED
RECEIVED LAE PAID CLAIMS
<S> <C> <C> <C> <C>
PRIOR 1,946 (96) (1,578) XXX
1994 15,300 12,690 135,005 117,786
1995 8,184 11,159 127,361 101,980
TOTAL 25,429 23,752 260,788 XXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
AC/YR (13) (14) (15) (16) (17) (18) (19) (20)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 201 0 33 0 46 0 11 0
1994 553 2 64 0 130 0 21 0
1995 13,811 65 6,388 30 1,195 5 768 3
TOTAL 14,565 66 6,485 30 1,370 5 800 4
</TABLE>
<TABLE>
<CAPTION>
(21) (22) (23) (24)
AC/YR SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 45 336 132
1994 91 857 332
1995 1,641 23,700 8,723
TOTAL 1,777 24,893 9,187
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
AC/YR (25) (26) (27) (28) (29) (30) (31) (32)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1994 136,941 1,079 135,863 63.7 107.1 63.5
1995 152,218 1,157 151,061 71.6 118.7 71.4
TOTAL XXX XXX XXX XXX XXX XXX
</TABLE>
<TABLE>
<CAPTION>
INTERCOMPANY LOSSES LAE
AC/YR POOLING PERC. UNPAID UNPAID
(33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 233 102
1994 615 242
1995 20,104 3,595
TOTAL XXX 20,953 3,939
</TABLE>
<PAGE> 12
GROUP SCHEDULE P - PART 1K - BONDS
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS
AC/YR (2) (3) (4) (5) (6) (7) (8)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 4,427 1,242 1,470 458
1994 34,927 2,641 32,286 2,424 0 277 0
1995 35,287 2,866 32,420 1,171 0 86 0
TOTAL XXX XXX XXX 8,021 1,242 1,833 458
</TABLE>
<TABLE>
<CAPTION>
(1) (9) (10) (11) (12)
AC/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED
RECEIVED LAE PAID CLAIMS
<S> <C> <C> <C> <C>
PRIOR 743 57 4,253 XXX
1994 68 795 3,496 XXX
1995 2 581 1,837 XXX
TOTAL 813 1,433 9,587 XXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
AC/YR (13) (14) (15) (16) (17) (18) (19) (20)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 3,280 361 1,190 98 1,163 100 582 48
1994 1,194 0 974 80 424 0 476 39
1995 2,092 0 3,548 296 271 0 657 56
TOTAL 6,566 361 5,712 473 1,859 100 1,715 143
</TABLE>
<TABLE>
<CAPTION>
(21) (22) (23) (24)
AC/YR SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 349 5,956 284
1994 191 3,141 125
1995 530 6,747 344
TOTAL 1,070 15,844 753
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
AC/YR (25) (26) (27) (28) (29) (30) (31) (32)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1994 6,756 119 6,637 19.3 4.5 20.6
1995 8,936 352 8,584 25.3 12.3 26.5
TOTAL XXX XXX XXX XXX XXX XXX
</TABLE>
<TABLE>
<CAPTION>
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
AC/YR (33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 4,011 1,945
1994 2,088 1,052
1995 5,344 1,403
TOTAL XXX 11,443 4,401
</TABLE>
<PAGE> 13
GROUP SCHEDULE P - PART 1L - OTHER (A&H)
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS
AC/YR (2) (3) (4) (5) (6) (7) (8)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 405 (48) 15 (77)
1994 1,798 176 1,622 690 (1,442) 2 (171)
1995 1,517 1,517 0 162 162 0 0
TOTAL XXX XXX XXX 1,257 (1,327) 18 (249)
</TABLE>
<TABLE>
<CAPTION>
(1) (9) (10) (11) (12)
AC/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED
RECEIVED LAE PAID CLAIMS
<S> <C> <C> <C> <C>
PRIOR 0 0 545 XXX
1994 1 (2) 2,304 XXX
1995 0 0 0 XXX
TOTAL 1 (2) 2,849 XXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
AC/YR (13) (14) (15) (16) (17) (18) (19) (20)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 516 516 1 1 144 144 0 0
1994 155 155 1 1 43 43 0 0
1995 1,892 1,892 115 115 26 26 13 13
TOTAL 2,563 2,563 118 118 213 213 14 14
</TABLE>
<TABLE>
<CAPTION>
(21) (22) (23) (24)
AC/YR SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 0 0 47
1994 0 0 31
1995 0 0 46
TOTAL 0 0 124
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
AC/YR (25) (26) (27) (28) (29) (30) (31) (32)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1994 890 (1,414) 2,304 49.47 (803.86) 141.99
1995 2,209 2,209 0 145.65 145.65 0.00
TOTAL XXX XXX XXX XXX XXX XXX
</TABLE>
<TABLE>
<CAPTION>
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
AC/YR (33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 0 0
1994 0 0
1995 0 0
TOTAL XXX 0 0
</TABLE>
<PAGE> 14
GROUP SCHEDULE P - PART 1R - PRODUCT LIABILITY
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS
AC/YR (2) (3) (4) (5) (6) (7) (8)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 807 225 541 8
1986 10,273 265 10,008 5,204 219 3,556 28
1987 15,224 276 14,948 4,852 6 3,118 10
1988 16,134 290 15,843 2,958 0 3,638 0
1989 14,373 259 14,114 2,428 0 1,393 0
1990 13,298 218 13,080 1,878 0 1,697 0
1991 10,831 133 10,698 2,209 45 1,103 0
1992 9,395 115 9,281 543 0 570 0
1993 6,069 75 5,994 174 0 327 0
1994 1,231 16 1,216 294 0 88 0
1995 486 6 480 94 0 9 0
TOTAL XXX XXX XXX 21,441 495 16,039 45
</TABLE>
<TABLE>
<CAPTION>
(1) (9) (10) (11) (12)
AC/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED
RECEIVED LAE PAID CLAIMS
<S> <C> <C> <C> <C>
PRIOR 4 10 1,124 XXX
1986 147 546 9,060 670
1987 19 584 8,538 642
1988 9 608 7,204 478
1989 23 554 4,374 380
1990 41 289 3,864 317
1991 98 237 3,504 277
1992 20 153 1,266 240
1993 11 189 690 72
1994 4 190 572 184
1995 4 943 1,046 95
TOTAL 380 4,302 41,241 XXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
AC/YR (13) (14) (15) (16) (17) (18) (19) (20)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 2,505 0 0 0 1,144 0 0 0
1986 264 19 2 0 122 10 2 0
1987 1,717 250 2 0 775 105 2 0
1988 591 0 2 0 268 0 2 0
1989 584 0 2 0 276 0 2 0
1990 1,927 0 5 0 867 0 4 0
1991 593 0 15 0 271 0 12 0
1992 1,386 0 17 0 624 0 13 0
1993 420 0 46 1 187 0 36 0
1994 531 0 49 1 247 0 36 0
1995 181 0 107 1 45 0 45 1
TOTAL 10,699 269 247 3 4,828 115 153 2
</TABLE>
<TABLE>
<CAPTION>
(21) (22) (23) (24)
AC/YR SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 288 3,937 692
1986 29 390 27
1987 127 2,268 42
1988 51 913 33
1989 55 919 37
1990 169 2,971 41
1991 56 947 23
1992 122 2,163 31
1993 43 731 24
1994 56 919 28
1995 34 410 35
TOTAL 1,030 16,569 1,013
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
AC/YR (25) (26) (27) (28) (29) (30) (31) (32)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1986 9,724 275 9,449 94.7 103.5 94.4
1987 11,177 371 10,806 73.4 134.2 72.3
1988 8,117 0 8,117 50.3 0.0 51.2
1989 5,293 0 5,293 36.8 0.0 37.5
1990 6,835 0 6,835 51.4 0.0 52.3
1991 4,496 45 4,451 41.5 34.2 41.6
1992 3,429 0 3,429 36.5 0.3 36.9
1993 1,422 1 1,421 23.4 1.4 23.7
1994 1,492 1 1,491 121.2 6.9 122.7
1995 1,458 2 1,456 300.2 31.0 303.7
TOTAL XXX XXX XXX XXX XXX XXX
</TABLE>
<TABLE>
<CAPTION>
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
AC/YR (33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 2,505 1,433
1986 247 142
1987 1,469 799
1988 593 321
1989 586 333
1990 1,932 1,040
1991 608 339
1992 1,403 759
1993 465 266
1994 580 339
1995 286 124
TOTAL XXX 10,674 5,895
</TABLE>
