<PAGE> 1
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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, 1996
------------------
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the transition period from _________________
to _____________________
Commission File Number 0-5544
OHIO CASUALTY CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
OHIO 31-0783294
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
136 NORTH THIRD STREET, HAMILTON, OHIO 45025
(Address of principal executive offices) (Zip Code)
</TABLE>
(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, 1997 of the voting stock held by
non-affiliates of the registrant was $1,251,573,458.
On March 1, 1997 there were 35,110,231 shares outstanding.
Page 1 of 127
INDEX TO EXHIBITS ON PAGE 28
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<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the registrant's fiscal year ended December
31, 1996 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, 1996 for the Annual Shareholders meeting to be held April 16, 1997 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
<PAGE> 3
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 targeted 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 substantial 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. The existing
blocks of business were reinsured through a 100% coinsurance arrangement with
Employer's Reassurance Corporation. As of December 31, 1996, $12.9 million of
the net ceding commission from the transaction remains unamortized. This will be
amortized into income over the remaining expected life of the underlying
reinsured policies, in this case, 14 years. It is anticipated that Great
Southern will replace Ohio Life as the primary carrier of these policies in the
second quarter of 1997 through an assumption. Upon assumption, the remaining
unamortized gain will be recognized. Net income from discontinued operations
amounted to $5.3 million or $.15 per share in 1996 compared with $4.4 million or
$.12 per share in 1995 and $5.9 million or $.16 per share in 1994.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The revenues, operating profit and identifiable assets of each industry segment
for the three years ended December 31, 1996 are set forth in Note 11, 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, 1996.
3
<PAGE> 4
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.
<TABLE>
<CAPTION>
Ohio Casualty Group
Net Premiums Written
By Line of Business
(in thousands)
1996 1995 1994 1993 1992
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Auto liability $ 386,121 $ 403,781 $ 420,031 $ 430,852 $ 493,214
Auto physical damage 208,541 207,534 212,005 210,987 240,913
Homeowners
multiple peril 166,457 160,444 160,089 156,797 185,518
Workers' compensation 115,398 140,558 145,641 165,577 199,402
Commercial
multiple peril 132,808 131,553 135,595 136,559 147,894
Other liability 101,688 108,483 112,906 107,983 122,277
All other lines 97,059 96,842 98,714 95,562 116,450
---------- ---------- ---------- ---------- ----------
Property and casualty
premiums $1,208,072 $1,249,195 $1,284,981 $1,304,317 $1,505,668
========== ========== ========== ========== ==========
Premium finance
revenues $ 1,981 $ 2,314 $ 2,528 $ 2,887 $ 4,313
========== ========== ========== ========== ==========
Discontinued operations-
Statutory premiums:
Individual life $ 0 $ (126,979) $ 22,238 $ 38,409 $ 36,698
Annuity 0 (195,870) 18,104 19,530 16,983
Other 215 (22,012) 8,606 6,716 7,113
---------- ---------- ---------- ---------- ----------
Total 215 (344,861) 48,948 64,655 60,794
FAS 97 adjustments 0 (1,533) (26,173) (44,748) (41,582)
---------- ---------- ---------- ---------- ----------
Discontinued operations
revenues $ 215 $ (346,394) $ 22,775 $ 19,907 $ 19,212
========== ========== ========== ========== ==========
</TABLE>
Property and casualty net premiums written decreased 3.3% in 1996. New Jersey
net premiums written decreased 2.2%, however, private passenger automobile line
of business increased .4% due to continuing legislation requiring insurers to
accept all automobile risks meeting broad underwriting guidelines regardless of
risk concentration. Pennsylvania net premiums written decreased 9.5% principally
due to a 23% reduction in workers' compensation, as a result of management's
decision to limit writing due to poor underwriting experience.
4
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ITEM 1. CONTINUED
(c) NARRATIVE DESCRIPTION OF BUSINESS
The Ohio Casualty Group is represented on a commission basis by approximately
4,306 independent insurance agents. In most cases, these agencies also represent
other unaffiliated companies which may compete with the Ohio Casualty Group. The
37 claim and 29 underwriting and service offices operated by the Ohio Casualty
Group assist these independent agencies in the producing and servicing of the
Group's business.
The following table shows consolidated direct premiums written for the Ohio
Casualty Group's ten largest states:
<TABLE>
<CAPTION>
Ohio Casualty Group
Ten Largest States
Direct Premiums Written
From Continuing Operations
(in thousands)
Percent Percent Percent
1996 of Total 1995 of Total 1994 of Total
---- -------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New Jersey $218,553 18.0 New Jersey $220,373 17.6 New Jersey $211,233 16.4
Ohio 125,675 10.3 Pennsylvania 128,603 10.3 Pennsylvania 145,687 11.3
Pennsylvania 114,998 9.5 Ohio 126,622 10.1 Ohio 129,303 10.0
Kentucky 87,002 7.2 Kentucky 80,498 6.4 Kentucky 79,710 6.2
Illinois 60,311 5.0 Illinois 64,352 5.1 Illinois 63,682 4.9
Maryland 52,204 4.3 Maryland 56,741 4.5 Florida 56,846 4.4
Indiana 50,560 4.2 Indiana 49,353 3.9 Maryland 56,637 4.4
Texas 37,678 3.1 Texas 43,036 3.4 Indiana 47,817 3.7
Florida 36,995 3.0 Florida 42,061 3.4 Texas 45,171 3.5
North Carolina 34,108 2.8 North Carolina 33,955 2.7 Michigan 32,846 2.6
-------- ---- -------- ---- -------- ----
$818,084 67.4 $845,594 67.4 $868,932 67.5
======== ==== ======== ==== ======== ====
</TABLE>
INVESTMENT OPERATIONS
Each of the companies in the Ohio Casualty Group 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, tax position, and general market conditions. In addition, our
business mix and liability payout patterns are considered. Adjustments are made
to the asset allocation from time to time. The Corporation has no real estate
investments. 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:
5
<PAGE> 6
ITEM 1. CONTINUED
<TABLE>
<CAPTION>
Ohio Casualty Group
Distribution of Invested Assets
(in millions)
1996
Average % of % of % of
Rating 1996 Total 1995 Total 1994 Total
------ ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. government AAA $ 82.5 2.7 $ 116.5 3.8 $ 88.0 2.9
Tax exempt bonds
and notes AA+ 794.5 25.8 898.5 29.1 694.3 22.8
Debt securities
issued by foreign
governments A+ 3.3 0.1 3.4 0.1 38.1 1.3
Corporate securities BBB+ 983.7 32.0 986.4 32.0 1,091.9 35.9
Mortgage backed
securities
U.S. government AAA 176.9 5.8 170.2 5.5 371.9 12.2
Other AA 270.0 8.8 232.9 7.6 225.7 7.4
-------- ----- -------- ----- -------- -----
Total bonds A+ 2,310.9 75.2 2,407.9 78.1 2,509.9 82.5
Common stocks 713.4 23.2 627.4 20.3 459.5 15.1
Preferred stocks 7.8 0.2 33.7 1.1 60.5 2.0
-------- ----- -------- ----- -------- -----
Total stocks 721.2 23.4 661.1 21.4 520.0 17.1
Short-term 41.5 1.4 14.4 0.5 13.6 0.4
-------- ----- -------- ----- -------- -----
Total investments $3,073.6 100.0 $3,083.4 100.0 $3,043.5 100.0
======== ===== ======== ===== ======== =====
Total market value
of investments $3,073.6 $3,083.4 $3,043.5
======== ======== ========
Total amortized cost
of investments $2,573.9 $2,617.5 $2,938.1
======== ======== ========
</TABLE>
The consolidated fixed income portfolio (identified as "Total Bonds" in the
foregoing table) of the Ohio Casualty Group had a weighted average rating of
"A+" and an average stated maturity of twelve years as of December 31, 1996.
Investments in below investment grade securities (Standard and Poor's rating
below BBB-) had an aggregate carrying value of $184.6 million and an aggregate
amortized cost of $180.0 million at year-end 1996. Unrated securities had an
aggregate carrying value of $315.4 million and an aggregate amortized cost of
$308.3 million. At year-end 1995 and 1994, respectively, aggregate carrying
values for below investment grade securities were $203.9 million and $266.0
million and aggregate amortized costs were $203.7 million and $282.3 million. At
year-end 1995 and 1994, respectively, aggregate carrying values for unrated
securities were $286.3 million and $257.9 million and aggregate amortized costs
were $271.2 million and $262.8 million. Utilizing ratings provided by other
agencies such as the NAIC, categorizes $27.3 million of $315.4 million in
unrated securities as non-investment grade. This brings the aggregate market
value of non-investment grade securities to $211.9 million at December 31, 1996,
compared with $232.8 million and $302.2 million at year-end 1995 and 1994,
respectively.
6
<PAGE> 7
ITEM 1. CONTINUED
All of the Corporation's below investment grade 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
below investment grade portfolio have been issued by 78 corporate borrowers in
approximately 35 industries. At December 31, 1996, the Corporation's five
largest investments in securities totaled $54.8 million, and had an approximate
amortized cost of $51.6 million. None of these holdings individually exceeded
$21.6 million.
At December 31, 1996, the fixed income portfolio relating to property and
casualty operations totaled $2.2 billion which consisted of 90.6% investment
grade securities and 9.4% below investment grade and/or unrated securities. At
December 31, 1996, the fixed income portfolio relating to discontinued
operations totaled $41.0 million which consisted of 96.4% investment grade
securities and 3.6% high yield securities.
Investments in below investment grade securities have greater risks than
investments in investment grade securities. The risk of default by borrowers
which issue securities rated below investment grade 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. 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.
Yield (based on cost of investments) for the taxable fixed income portfolio was
8.4% and 8.7% at December 31, 1996 and 1995, respectively. Below investment
grade securities were yielding 9.5% and 10.1% at December 31, 1996 and 1995,
respectively, while investment grade securities were yielding 8.7% in 1996 and
7.5% in 1995. Yield for tax exempt securities was 6.4% at December 31, 1996 and
6.3% at December 31, 1995; however, this yield is not directly comparable to
taxable yield due to the complexity of federal taxation of insurance companies.
The Corporation remains committed to a diversified common stock portfolio. As of
December 31, 1996, the portfolio consisted of 65 separate issues, diversified
across 36 different industries; and the largest single position was 8.1% of the
portfolio. The portfolio strategy with respect to common stocks has been to
invest in companies whose stocks have below average valuations, yet above
average growth prospects.
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
27 and 28 of the 1996 Annual Report to Shareholders.
Purchases of taxable fixed income securities in 1996 were as follows: $312.9
million of investment grade securities, $113.4 million of high yield securities
and $36.3 million of unrated securities. Purchases of tax-exempt and equity
securities in 1996 totaled $76.6 million and $74.4 million, respectively.
7
<PAGE> 8
ITEM 1. CONTINUED
Disposals (including maturities, calls, exchanges and scheduled prepayments) of
taxable fixed income securities in 1996 were as follows: $266.1 million of
investment grade securities, $160.3 million of high yield securities and $13.4
million of unrated securities. Dispositions of tax-exempt and equity securities
in 1996 totaled $163.8 million and $129.7 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; 2) trading; 3) available for sale.
The Corporation continues to have no exposure to futures, forwards, caps,
floors, or similar derivative instruments as defined by Statement of Financial
Accounting Standards No. 119. However, as noted in footnote number 13 on page 34
of the Annual Report to Shareholders, we have an interest rate swap with Chase
Manhattan Bank covering our term loan. This swap is not classified as an
investment but rather as a hedge against a portion of the variable rate loan.
All holdings were placed in the "available for sale" category. This accounting
change increased shareholders' equity by $116.1 million in 1994. Consolidated
net realized investment gains (before taxes) in 1996 totaled $49.7 million,
$1.41 per share. Included in this amount are approximately $6.5 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. 264,600 shares were repurchased during 1996 for $9.2 million.
613,900 shares were repurchased during 1995 for $20.9 million and 50,000 shares
were repurchased during 1994 for $1.4 million. The remaining repurchase
authorization is 2,071,500 shares as of December 31, 1996.
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 1995,
1994 and 1993 were reduced in the subsequent year as shown below:
<TABLE>
<CAPTION>
Accident Year Loss and Loss Adjustment Expense Liabilities
Subsequent Year Adjustment
(in millions)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Property $27 $11 $ 31
Auto 14 30 26
Workers' compensation
and other liability 37 35 51
--- --- ----
Total reduction $78 $76 $108
=== === ====
</TABLE>
8
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ITEM 1. CONTINUED
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 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 9, Losses and Loss Reserves, in the Notes to Consolidated Financial
Statements on page 32 of the 1996 Annual Report to Shareholders.
<TABLE>
<CAPTION>
Reconciliation of Liabilities for Losses and Loss Adjustment Expense
(in thousands)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net liabilities, beginning of year $1,557,065 $1,606,487 $1,693,551
Provision for current accident year
claims 1,009,086 1,008,321 1,084,072
Increase (decrease)in provisions for
prior accident year claims (76,920) (104,998) (153,717)
---------- ---------- ----------
932,166 903,323 930,355
Payments for claims occurring during:
Current accident year 515,025 444,558 483,129
Prior accident years 487,584 508,187 534,290
---------- ---------- ----------
1,002,609 952,745 1,017,419
Net liabilities, end of year 1,486,622 1,557,065 1,606,487
Reinsurance recoverable 70,048 74,119 65,336
---------- ---------- ----------
Gross liabilities, end of year $1,556,670 $1,631,184 $1,671,823
========== ========== ==========
</TABLE>
9
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ITEM 1. CONTINUED
Property and Casualty Insurance Operations
Analysis of Development of Loss and Loss Adjustment Expense Liabilities
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31 1986 1987 1988 1989 1990 1991
- ---------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Liability as originally
estimated: $ 981,335 $1,171,392 $1,252,404 $1,370,054 $1,483,985 $1,566,139
Cumulative payments as of:
One year later 380,290 438,195 440,173 489,562 506,246 526,973
Two years later 598,478 667,894 695,364 745,766 783,948 822,634
Three years later 730,106 828,325 845,472 902,081 955,666 1,007,189
Four years later 828,365 922,744 937,034 1,000,299 1,063,507 1,123,591
Five years later 884,606 977,575 996,353 1,061,173 1,131,012 1,201,317
Six years later 919,026 1,015,889 1,033,508 1,100,683 1,182,110
Seven years later 942,572 1,041,563 1,055,972 1,134,145
Eight years later 959,174 1,057,509 1,078,561
Nine years later 968,586 1,076,321
Ten years later 980,782
Liability reestimated as of:
One year later 989,512 1,131,539 1,179,052 1,285,233 1,403,172 1,515,129
Two years later 1,029,086 1,139,684 1,175,861 1,299,428 1,407,197 1,500,890
Three years later 1,032,435 1,139,584 1,193,127 1,296,215 1,388,381 1,467,256
Four years later 1,028,893 1,156,930 1,195,712 1,281,246 1,368,530 1,449,789
Five years later 1,048,419 1,160,997 1,186,680 1,268,193 1,366,676 1,498,881
Six years later 1,054,589 1,159,372 1,178,126 1,270,734 1,423,277
Seven years later 1,049,447 1,154,169 1,184,233 1,327,228
Eight years later 1,046,494 1,162,837 1,233,809
Nine years later 1,049,464 1,208,920
Ten years later 1,091,480
Decrease (increase) in
original estimates: $(110,145) $ (37,528) $ 18,595 $ 42,826 $ 60,708 $ 67,258
<CAPTION>
Year Ended December 31 1992 1993 1994 1995 1996
- ---------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Liability as originally
estimated: $1,673,205 $1,692,895 $1,605,526 $1,553,131 $1,482,900
Cumulative payments as of:
One year later 561,133 533,634 510,219 486,168
Two years later 869,620 833,399 803,273
Three years later 1,060,433 1,017,893
Four years later 1,176,831
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 1,601,406 1,539,178 1,500,528 1,474,795
Two years later 1,555,452 1,510,943 1,501,530
Three years later 1,524,054 1,515,114
Four years later 1,559,492
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
Decrease (increase) in
original estimates: $ 113,713 $ 177,781 $ 103,996 $ 78,336
</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 1996
---- ---- ----
<S> <C> <C> <C>
Gross liability - end of year $1,670,862 $1,624,197 $1,547,595
Reinsurance recoverable 65,336 71,066 64,695
Net liability - end of year 1,605,526 1,553,131 1,482,900
Gross re-estimated liability - latest 1,556,914 1,532,567
Re-estimated recoverable - latest 55,383 57,772
Net re-estimated liability - latest 1,501,530 1,474,795
Gross cumulative deficiency 113,949 91,630
</TABLE>
10
<PAGE> 11
ITEM 1. CONTINUED
COMPETITION
More than 3,200 property and casualty insurance companies compete in the United
States and no one company or company group has a market share greater than
approximately 12%. The Ohio Casualty Group ranked as the forty-second largest
property and casualty insurance groups in the United States based on net
insurance premiums written in 1995, 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.
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
$74.4 million at December 31, 1996.
The Corporation is currently involved in hearings with the State of California.
The final arguments are expected to conclude in the first quarter of 1997. A
ruling from the Administrative Law Judge is expected in the second quarter of
1997. At that time, the Insurance Commissioner will have 60 days to take the
ruling under advisement and return with a final ruling.
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. To date, the Corporation has paid $2.9 million in legal
costs related to the withdrawal, Proposition 103 and Fair Plan assessments.
11
<PAGE> 12
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 and the Market Transition Facility, the
Corporation has incurred expenses of $3.6 million in 1996, $3.7 million in 1995
and $6.4 million in 1994. These assessments have negatively affected our
combined ratios by .3, .3 and .5 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 two NAIC financial ratios
that were 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 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 four times the necessary capital to
conform with the risk-based capital model.
The States of Ohio and Indiana have adopted the NAIC model law limiting dividend
payments by insurance companies. This 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. For 1996, $123.4
million of policyholder surplus are not subject to restrictions or prior
dividend approval.
EMPLOYEES
At December 31, 1996, the Ohio Casualty Group had approximately 3,390 employees
of which approximately 1,288 were located in Hamilton, Ohio.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Recently the FASB issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share, which supersedes APB Opinion No. 15, Earnings Per Share.
This standard replaces the primary EPS requirements with a basic EPS computation
and requires a dual presentation of basic and diluted EPS for those companies
with complex capital structures. The Corporation intends to adopt the standards
of Statement No. 128 for financial statements issued after December 15, 1997.
The impact of this statement is expected to be immaterial on the Corporation's
EPS calculation.
12
<PAGE> 13
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.
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 who are not
separately reported in the Corporation's Proxy Statement:
<TABLE>
<CAPTION>
Position with Company and/or
Principal Occupation or Employment
Name Age (1) During Last Five Years
---- ------- ----------------------
<S> <C> <C>
Barry S. Porter 60 Chief Financial Officer and Treasurer of The Ohio Casualty
Corporation, The Ohio Casualty Insurance Company, American Fire and
Casualty Company, Ocasco Budget, Inc., The Ohio Life Insurance
Company, The Ohio Security Insurance Company and West American
Insurance Company since August 1993.
Andrew T. Fogarty 65 Senior Vice President of The Ohio Casualty Insurance Company, American
Fire and Casualty Company, Ocasco Budget, Inc., The Ohio Security
Insurance Company and West American Insurance Company since May 1990.
Michael L.. Evans 53 Vice President of The Ohio Casualty Corporation and Executive Vice
President of The Ohio Casualty Insurance Company, American Fire and
Casualty Company, Ocasco Budget, Inc., The Ohio Life Insurance
Company, The Ohio Security Insurance Company and West American
Insurance Company since April 1995; prior thereto, Vice President of
The Ohio Casualty Insurance Company, American Fire and Casualty
Company, Ocasco Budget, Inc., The Ohio Life Insurance Company and West
American Insurance Company.
John S. Busby 51 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ohio Security Insurance Company and West
American Insurance Company since May 1991.
</TABLE>
13
<PAGE> 14
ITEM 4. CONTINUED
<TABLE>
<CAPTION>
Position with Company and/or
Principal Occupation or Employment
Name Age (1) During Last Five Years
---- ------- ----------------------
<S> <C> <C>
Donald J. Dehne 46 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance
Company and West American Insurance Company since May 1996; prior
thereto, Assistant Secretary of The Ohio Casualty Insurance Company,
American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security
Insurance Company and West American Insurance Company.
Steven J. Adams 42 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance
Company and West American Insurance Company since May 1996; prior
thereto, Assistant Secretary of The Ohio Casualty Insurance Company,
American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security
Insurance Company and West American Insurance Company; prior thereto,
Commercial Lines Customer Strategist; prior thereto, Imaging
Technology Expert.
Thomas P. Prentice 44 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance
Company and West American Insurance Company since May 1996; prior
thereto, Assistant Secretary of The Ohio Casualty Insurance Company,
American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security
Insurance Company and West American Insurance Company; prior thereto,
Personal Lines Customer Specialist; prior thereto, Claims Manager.
Coy Leonard, Jr. 52 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance
Company and West American Insurance Company since May 1996; prior
thereto, Assistant Vice President of The Ohio Casualty Insurance
Company, American Fire and Casualty Company, Ocasco Budget, Inc., Ohio
Security Insurance Company and West American Insurance Company; prior
thereto, Manager of Strategic Planning and Technology.
Frederick W. Wendt 56 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ohio Security Insurance Company and West
American Insurance Company since January 1991.
</TABLE>
14
<PAGE> 15
ITEM 4. CONTINUED
<TABLE>
<CAPTION>
Position with Company and/or
Principal Occupation or Employment
Name Age (1) During Last Five Years
---- ------- ----------------------
<S> <C> <C>
Elizabeth M. Riczko 30 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance
Company and West American Insurance Company since May 1996; prior
thereto, Assistant Secretary of The Ohio Casualty Insurance Company,
American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security
Insurance Company and West American Insurance Company; prior thereto,
Corporate Actuarial Manager.
William E. Minor 42 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ohio Security Insurance Company and West
American Insurance Company since September 1996; prior thereto,
Account Director for Sire/Young and Rubicam.
Susan D. Dillon 41 Assistant Vice President of The Ohio Casualty Insurance Company,
American Fire and Casualty Company, Ohio Security Insurance Company
and West American Insurance Company since May 1995; prior thereto,
Branch Manager; prior thereto, Field Representative.
<FN>
- ---------------------------------------
(1) Ages listed are as of the annual meeting.
</TABLE>
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, 1996.
ITEM 6. SELECTED FINANCIAL DATA
See pages 14 and 15 of the Annual Report to Shareholders for the fiscal year
ended December 31, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See pages 16 through 21 of the Annual Report to Shareholders for the fiscal year
ended December 31, 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and Schedules.
(See Index to Financial Statements attached hereto.)
15
<PAGE> 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See pages 4 and 5 of the Proxy Statement of the Board of Directors for the
fiscal year ended December 31, 1996 and Executive Officers of the Registrant
separately captioned under Part I of this annual report.
ITEM 11. EXECUTIVE COMPENSATION
See pages 7 through 13 of the Proxy Statement of the Board of Directors for the
fiscal year ended December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See pages 1 through 4 of the Proxy Statement of the Board of Directors for the
fiscal year ended December 31, 1996.
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, 1996.
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) Exhibits. (See index to exhibits attached hereto.)
16
<PAGE> 17
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 27, 1997 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.
<TABLE>
<S> <C>
March 27, 1997 /s/ Joseph L. Marcum
-------------------------------------------------------
Joseph L. Marcum, Chairman of the Board
March 27, 1997 /s/ William L. Woodall
-------------------------------------------------------
William L. Woodall, Vice Chairman of the Board
March 27, 1997 /s/ Lauren N. Patch
-------------------------------------------------------
Lauren N. Patch, President and Chief Executive Officer
March 27, 1997 /s/ Arthur J. Bennert
-------------------------------------------------------
Arthur J. Bennert, Director
March 27, 1997 /s/ Jack E. Brown
-------------------------------------------------------
Jack E. Brown, Director
March 27, 1997 /s/ Catherine E. Dolan
-------------------------------------------------------
Catherine E. Dolan, Director
March 27, 1997 /s/ Wayne R. Embry
-------------------------------------------------------
Wayne R. Embry, Director
March 27, 1997 /s/ Vaden Fitton
-------------------------------------------------------
Vaden Fitton, Director
March 27, 1997 /s/ Jeffery D. Lowe
-------------------------------------------------------
Jeffery D. Lowe, Director
March 27, 1997 /s/ Stephen S. Marcum
-------------------------------------------------------
Stephen S. Marcum, Director
March 27, 1997 /s/ Stanley N. Pontius
-------------------------------------------------------
Stanley N. Pontius, Director
March 27, 1997 /s/ Howard L. Sloneker III
-------------------------------------------------------
Howard L. Sloneker III, Director
March 27, 1997 /s/ Barry S. Porter
-------------------------------------------------------
Barry S. Porter, Chief Financial Officer and Treasurer
March 27, 1997 /s/ Michael L. Evans
-------------------------------------------------------
Michael L. Evans, Vice President
</TABLE>
17
<PAGE> 18
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, 1996:
<TABLE>
<CAPTION>
Page Number
in Annual Report
----------------
<S> <C>
Consolidated Balance Sheet at December 31, 1996, 1995, 1994 22
Statement of Consolidated Income for the years ended
December 31, 1996, 1995 and 1994 23
Statement of Consolidated Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994 24
Statement of Consolidated Cash Flow for the years ended
December 31, 1996, 1995 and 1994 25
Notes to Consolidated Financial Statements 26-35
<CAPTION>
Page Number
in this Report
--------------
<S> <C>
Report of Independent Accountants 19
The following financial statement schedules are included herein:
Schedule I - Consolidated Summary of Investments Other Than
Investments in Related Parties at December 31, 1996 20
Schedule II - Condensed Financial Information of Registrant for
the years ended December 31, 1996, 1995 and 1994 21
Schedule III - Consolidated Supplementary Insurance Information
for the years ended December 31, 1996, 1995 and 1994 22-24
Schedule IV - Consolidated Reinsurance for the years ended
December 31, 1996, 1995 and 1994 25
Schedule V - Valuation and Qualifying Accounts for the years
ended December 31, 1996, 1995 and 1994 26
Schedule VI - Consolidated Supplemental Information Concerning
Property and Casualty Insurance Operations for the
years ended December 31, 1996, 1995 and 1994 27
</TABLE>
18
<PAGE> 19
[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, 1996, 1995 and 1994 and for the
years then ended, which financial statements are included on pages 22 through 35
of the 1996 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 18 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, 1996, 1995 and 1994, 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.
Cincinnati, Ohio
January 30, 1997
19
<PAGE> 20
Schedule I
Ohio Casualty Corporation and Subsidiaries
Consolidated Summary of Investments
Other than Investments in Related Parties
(In thousands)
December 31, 1996
<TABLE>
<CAPTION>
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. $ 80,822 $ 82,541 $ 82,541
States, municipalities and
political subdivisions 760,602 794,539 794,539
Debt securities issued by
foreign governments 3,000 3,296 3,296
Corporate securities 940,540 983,658 983,658
Mortgage-backed securities:
U.S. government guaranteed 171,291 176,906 176,906
Other 269,262 269,998 269,998
---------- ---------- ----------
Total fixed maturities 2,225,517 2,310,938 2,310,938
Equity securities:
Common stocks:
Banks, trust and insurance
companies 65,391 196,886 196,886
Industrial, miscellaneous and
all other 234,618 516,443 516,443
Preferred stocks:
Non-redeemable 1,010 1,005 1,005
Convertible 5,846 6,818 6,818
---------- ---------- ----------
Total equity securities 306,865 721,152 721,152
Short-term investments 41,546 41,546 41,546
---------- ---------- ----------
Total investments $2,573,928 $3,073,636 $3,073,636
========== ========== ==========
</TABLE>
20
<PAGE> 21
Schedule II
Ohio Casualty Corporation
Condensed Financial Information of Registrant
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Condensed Balance Sheet:
Investment in wholly-owned
subsidiaries, at equity $ 1,167,237 $ 1,156,718 $ 905,250
Investment in bonds/stocks 57,233 20,165 22,618
Cash and other assets 5,706 2,468 4,725
----------- ----------- ---------
Total assets 1,230,176 1,179,351 932,593
Bank note payable 50,000 60,000 70,000
Other liabilities 5,076 8,337 11,803
----------- ----------- ---------
Total liabilities 55,076 68,337 81,803
Shareholders' equity $ 1,175,100 $ 1,111,014 $ 850,790
=========== =========== =========
Condensed Statement of Income:
Dividends from subsidiaries $ 100,000 $ 80,018 $ 91,098
Equity in undistributed net
income of subsidiaries 3,957 21,431 8,727
Operating (expenses) (1,500) (1,714) (2,934)
----------- ----------- ---------
Net income $ 102,457 $ 99,735 $ 96,891
=========== =========== =========
Condensed Statement of Cash Flows:
Cash flows from operations
Net distributed income $ 98,500 $ 78,304 $ 88,174
Other 4,879 4,358 6,751
----------- ----------- ---------
Net cash from operations 103,379 82,662 94,925
Investing
Purchase of bonds/stocks (34,458) (4,555) (14,452)
Sales of bonds/stocks 7,190 7,723 6,441
----------- ----------- ---------
Net cash from investing (27,268) 3,168 (8,011)
Financing
Note payable (10,000) (10,000) (33,000)
Exercise of stock options 135 578 244
Purchase of treasury stock (9,168) (21,193) (1,412)
Dividends paid to shareholders (56,380) (54,335) (52,597)
----------- ----------- ---------
Net cash from financing (75,413) (84,950) (86,765)
Net change in cash 698 880 149
Cash, beginning of year 2,677 1,797 1,648
----------- ----------- ---------
Cash, end of year $ 3,375 $ 2,677 $ 1,797
=========== =========== =========
</TABLE>
21
<PAGE> 22
Schedule III
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplementary Insurance Information
(In thousands)
December 31, 1996
<TABLE>
<CAPTION>
Deferred Future policy Benefits,
policy benefits Net losses and
acquisition losses and Unearned Premium investment loss
costs loss expenses premiums revenue income expenses
------------ ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Segment
Property and
casualty insurance:
Underwriting
Automobile $ 36,325 $ 596,131 $ 181,834 $ 598,339 $ $ 495,278
Workers' compensation 7,990 387,951 47,012 124,157 80,975
Gen. liability, A&H 13,833 265,399 45,337 104,428 43,799
Homeowners 26,553 70,969 92,950 165,630 167,302
CMP, fire and allied lines,
inland marine 32,634 213,270 97,943 195,437 141,331
Fidelity, surety, burglary 10,835 13,867 26,312 34,135 1,904
Miscellaneous Income 2,410
Investment 179,407
------------ ------------- ------------- ------------- ------------- ------------
Total property and
casualty insurance 128,170 1,547,587 491,388 1,224,536 179,407 930,589
Life ins. (discontinued operations) (11,486) 289,086 4,582 4,812 693
Premium finance 225 2,115 293
Corporation 3,608
------------ ------------- ------------- ------------- ------------- ------------
Total $ 116,684 $ 1,836,673 $ 491,613 $ 1,231,233 $ 188,120 $ 931,282
============ ============= ============= ============= ============= ============
<CAPTION>
Amortization
of deferred General
acquisition operating Premiums
costs expenses written
------------ ------------- -------------
<S> <C> <C> <C>
Segment
Property and
casualty insurance:
Underwriting
Automobile $ 120,874 $ 34,268 $ 594,661
Workers' compensation 26,221 10,124 115,398
Gen. liability, A&H 34,829 14,081 101,793
Homeowners 46,149 12,641 166,457
CMP, fire and allied lines,
inland marine 62,688 20,364 195,290
Fidelity, surety, burglary 18,095 5,794 34,473
Miscellaneous Income
Investment
------------ ------------- --------------
Total property and
casualty insurance 308,856 97,272 1,208,072
Life ins. (discontinued operations) 2,004 (193) 215
Premium finance 1,969 1,981
Corporation 5,907
------------ ------------- --------------
Total $ 310,860 $ 104,955 $ 1,210,268
============ ============= ==============
<FN>
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 policy counts.
</TABLE>
22
<PAGE> 23
Schedule III
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplementary Insurance Information
(In thousands)
December 31, 1995
<TABLE>
<CAPTION>
Deferred Future policy Benefits,
policy benefits Net losses and
acquisition losses and Unearned Premium investment loss
costs loss expenses premiums revenue income expenses
------------- ------------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Segment
Property and
casualty insurance:
Underwriting
Automobile $ 36,990 $ 608,689 $ 185,735 $ 620,866 $ $ 490,036
Workers' compensation 10,767 403,440 55,861 142,004 93,272
Gen. liability, A&H 14,736 335,428 48,042 110,487 67,201
Homeowners 27,209 74,599 92,099 161,116 123,140
CMP, fire and allied lines,
inland marine 32,270 225,004 98,098 195,014 123,179
Fidelity, surety, burglary 11,358 17,037 25,936 33,719 5,554
Miscellaneous Income 2,497
Investment 184,585
------------- ------------- ------------ ------------- ----------- ------------
Total property and
casualty insurance 133,330 1,664,197 505,771 1,265,703 184,585 902,382
Life ins. (discontinued operations) (13,535) 367,061 7 (345,080) 4,143 (350,121)
Premium finance 257 2,370 522
Corporation 196 3,000
------------- ------------- ------------ ------------- ----------- ------------
Total $ 119,795 $ 2,031,258 $ 506,035 $ 923,189 $ 192,250 $ 552,261
============= ============= ============ ============= =========== ============
<CAPTION>
Amortization
of deferred General
acquisition operating Premiums
costs expenses written
------------ ----------- --------------
<S> <C> <C> <C>
Segment
Property and
casualty insurance:
Underwriting
Automobile $ 129,058 $ 23,246 $ 611,315
Workers' compensation 30,196 10,806 140,558
Gen. liability, A&H 37,785 12,236 108,283
Homeowners 46,523 12,747 160,444
CMP, fire and allied lines,
inland marine 65,875 18,237 193,477
Fidelity, surety, burglary 17,618 4,904 35,118
Miscellaneous Income
Investment
------------ ----------- --------------
Total property and
casualty insurance 327,055 82,176 1,249,195
Life ins. (discontinued operations) 4,097 1,471 (346,394)
Premium finance 1,819 2,314
Corporation 5,975
------------ ----------- --------------
Total $ 331,152 $ 91,441 $ 905,115
============ =========== ==============
<FN>
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.
</TABLE>
23
<PAGE> 24
Schedule III
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplementary Insurance Information
(In thousands)
December 31, 1994
<TABLE>
<CAPTION>
Deferred Future policy Benefits,
policy benefits Net losses and
acquisition losses and Unearned Premium investment loss
costs loss expenses premiums revenue income expenses
------------- ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Segment
Property and
casualty insurance:
Underwriting
Automobile $ 40,416 $ 617,871 $ 195,096 $ 639,604 $ $ 495,209
Workers' compensation 12,385 421,422 57,175 151,257 89,992
Gen. liability, A&H 16,577 304,028 49,923 113,684 53,577
Homeowners 26,686 77,043 90,696 158,077 157,347
CMP, fire and allied lines,
inland marine 34,003 227,735 100,119 200,937 131,267
Fidelity, surety, burglary 10,817 22,763 24,425 32,579 2,003
Miscellaneous Income 0
Investment 183,811
------------- ------------- ------------ ------------- ------------ -------------
Total property and
casualty insurance 140,884 1,670,862 517,434 1,296,138 183,811 929,395
Life ins. (discontinued operations) 24,749 353,360 22,775 28,082 29,509
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
============= ============= ============ ============= ============ =============
<CAPTION>
Amortization
of deferred General
acquisition operating Premiums
costs expenses written
------------ ------------ --------------
<S> <C> <C> <C>
Segment
Property and
casualty insurance:
Underwriting
Automobile $ 131,815 $ 20,493 $ 632,036
Workers' compensation 35,089 9,173 145,641
Gen. liability, A&H 38,992 9,906 114,656
Homeowners 46,173 11,829 160,089
CMP, fire and allied lines,
inland marine 69,765 18,164 199,350
Fidelity, surety, burglary 16,212 4,802 33,209
Miscellaneous Income
Investment
------------ ------------ --------------
Total property and
casualty insurance 338,046 74,367 1,284,981
Life ins. (discontinued operations) 3,630 11,516 22,775
Premium finance 1,912 2,528
Corporation 6,139
------------ ------------ --------------
Total $ 341,676 $ 93,934 $ 1,310,284
============ ============ ==============
<FN>
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.
</TABLE>
24
<PAGE> 25
Schedule IV
Ohio Casualty Corporation and Subsidiaries
Consolidated Reinsurance
(In thousands)
December, 1996, 1995 and 1994
<TABLE>
<CAPTION>
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, 1996
Life insurance in force $4,623,435 $4,623,435 $ 0 $ 0 0.0%
Premiums
Property and casualty insurance $1,211,695 $ 29,039 $ 25,416 $1,208,072 2.1%
Life insurance (Discontinued operations) 29,822 29,822 0 0 0.0%
Accident and health insurance 2,204 3,502 1,513 215 703.7%
---------- ---------- ---------- ---------
Total premiums 1,243,721 62,363 26,929 1,208,287 2.2%
Premium finance charges 1,981
Life insurance - FAS 97 adjustment 0
----------
Total premiums and finance charges written 1,210,268
Change in unearned premiums and finance charges 14,182
----------
Total premiums and finance charges earned 1,224,450
Miscellaneous income 2,416
Discontinued operations - life insurance (215)
----------
Total premiums & finance charges earned - continuing operations $1,226,651
==========
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 (Discontinued operations) 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 (Discontinued operations) 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
==========
</TABLE>
25
<PAGE> 26
Schedule V
Ohio Casualty Corporation and Subsidiaries
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
Balance at Balance at
beginning Charged to end of
of period expenses Deductions period
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Reserve for bad debt 3,500 200 0 3,700
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
</TABLE>
26
<PAGE> 27
Schedule VI
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplemental Information Concerning Property
and Casualty Insurance Operations
(In thousands)
<TABLE>
<CAPTION>
Reserves for
Deferred unpaid claims
policy and claim Discount Net
Affiliation with acquisition adjustment of Unearned Earned investment
registrant costs expenses reserves premiums premiums income
---------------- ------------------- ----------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Property and casualty
subsidiaries
Year ended December 31,
1996 $ 128,170 $ 1,547,587 $ 0 $491,388 $1,224,536 $179,407
================ =================== ================= =============== ================== ===============
Year ended December 31,
1995 $ 133,330 $ 1,664,197 $ 0 $505,771 $1,265,703 $184,585
================ =================== ================= =============== ================== ===============
Year ended December 31,
1994 $ 140,884 $ 1,670,862 $ 0 $517,434 $1,296,138 $183,811
================ =================== ================= =============== ================== ===============
<CAPTION>
Claims and claim
adjustment expenses Amortization Paid
incurred related to of deferred claims
----------------------------------- policy and claim
Affiliation with Current Prior acquisition adjustment Premiums
registrant year years costs expenses written
------------------ ---------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Property and casualty
subsidiaries
Year ended December 31,
1996 $1,008,395 $ (76,920) $ 308,856 $1,001,706 $1,208,072
================== ================ ================== ================== ==================
Year ended December 31,
1995 $1,007,380 $(104,998) $ 327,055 $ 954,777 $1,249,195
================== ================ ================== ================== ==================
Year ended December 31,
1994 $1,083,112 $(153,717) $ 338,046 $1,016,763 $1,284,981
================== ================ ================== ================== ==================
</TABLE>
27
<PAGE> 28
FORM 10-K
OHIO CASUALTY CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
Exhibit 3a Amendment to Amended Articles of Incorporation increasing
authorized number of shares to 150,000,000 common shares
and authorized 2,000,000 preferred shares, dated April 17, 1996 29-30
Exhibit 11 Computation of Earnings Per Share on Primary and Fully Diluted
Basis for the years ended December 31, 1996, 1995 and 1994 31
Exhibit 13 Annual Report to Shareholders for the Registrant's fiscal year
ended December 31, 1996 32-71
Exhibit 21 Subsidiaries of Registrant 72
Exhibit 22 Proxy Statement of the Board of Directors for the fiscal year
ended December 31, 1996 73-110
Exhibit 23 Consent of Independent Accountants to incorporation of their
opinion by reference in Registration Statement on Form S-8 111
Exhibit 27 Financial Data Schedule 112
Exhibit 28 Information from Reports Furnished to State Insurance
Regulation Authorities 113-127
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
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
</TABLE>
28
<PAGE> 1
Exhibit 3a
CERTIFICATE
OF
AMENDMENT TO AMENDED ARTICLES OF INCORPORATION
OF
OHIO CASUALTY CORPORATION
--------------------------------------------------------
The undersigned hereby certify that: (a) they are the duly elected,
qualified and acting President and Secretary, respectively, of Ohio Casualty
Corporation, an Ohio corporation (the "Company"); (b) the amendment to Article
FOURTH of the Amended Articles of Incorporation of the Company included in the
resolution attached hereto and incorporated herein by reference was approved and
recommended by the affirmative vote of, and in writings signed by, all of the
directors of the Company; (c) a meeting of the shareholders of the Company was
duly called and held on April 17, 1996, at which meeting a quorum of
stockholders was at all times present in person or by proxy; and (d) the
resolution attached hereto and incorporated herein by reference was duly adopted
at said meeting of shareholders by the affirmative vote of the holders of shares
entitled to exercise more than a majority of the voting power of the Company on
such resolution.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
this 17th day of April, 1996.
/s/ Lauren N. Patch
-----------------------------------
Lauren N. Patch, President
/s/ Howard L. Sloneker III
-----------------------------------
Howard L. Sloneker III, Secretary
29
<PAGE> 2
RESOLVED, that the first sentence of Article FOURTH of the
Company's Amended Articles of Incorporation be, and it
hereby is, amended to be as follows, with all other
provisions of said Article FOURTH to remain unchanged:
FOURTH: The authorized number of shares of the corporation
is 150,000,000 common shares, each with a par value of twelve and
one-half cents ($.125) (designated as "common shares") and 2,000,000
preferred shares, without par value (designated as "Preferred Shares").
30
<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, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income applicable to common stock
(in thousands) $102,457 $99,735 $96,891
======== ======= =======
Average common shares outstanding
(shares in thousands) 35,247 35,750 36,033
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. 3 17 0
-------- ------- -------
35,250 35,767 36,033
======== ======= =======
Net income per average share on a primary basis $ 2.91 $ 2.79 $ 2.69
======== ======= =======
Average common shares outstanding
(shares in thousands) 35,247 35,750 36,033
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. 8 17 5
-------- ------- -------
35,255 35,767 36,038
======== ======= =======
Net income per average share on a fully
diluted basis $ 2.91 $ 2.79 $ 2.69
======== ======= =======
</TABLE>
31
<PAGE> 1
<TABLE>
EXHIBIT 13
OHIO CASUALTY CORPORATION & SUBSIDIARIES
FINANCIAL HIGHLIGHTS
<CAPTION>
(in thousands) 1996 1995 1994
========================================================================================
<S> <C> <C> <C>
Gross premiums and finance charges $1,240,354 $1,294,541 $1,332,279
Investment income, less expenses 183,308 188,107 185,708
Income before investment gains 64,941 91,400 77,083
Realized investment gains, after taxes 32,287 3,963 14,231
Income from discontinued operations 5,229 4,372 5,896
Cumulative effect of accounting changes 0 0 (319)
Net income 102,457 99,735 96,891
Property and casualty combined ratio 109.5% 104.0% 103.8%
PER COMMON SHARE
Income before investment gains $ 1.85 $ 2.56 $ 2.14
Realized investment gains, after taxes 0.91 0.11 0.40
Income from discontinued operations 0.15 0.12 0.16
Cumulative effect of accounting changes 0.00 0.00 (0.01)
Net income 2.91 2.79 2.69
Book value 33.44 31.39 23.64
Dividends 1.60 1.52 1.46
FINANCIAL CONDITION
Assets $3,889,981 $3,980,142 $3,738,956
Shareholders' equity 1,175,100 1,111,014 850,790
Average shares outstanding 35,247 35,750 36,033
Shares outstanding on December 31 35,141 35,396 35,993
Number of shareholders 6,500 6,100 6,100
</TABLE>
<PAGE> 2
<TABLE>
OHIO CASUALTY CORPORATION & SUBSIDIARIES
TEN-YEAR SUMMARY OF OPERATIONS
<CAPTION>
(in millions) 1996 1995 1994 1993
===================================================================================================
<S> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS
Income after taxes
Property and casualty $66.1 $92.5 $79.3 $53.5
Premium finance 0.3 0.7 0.7 0.8
Corporate expenses (1.5) (1.8) (2.9) (2.8)
- ---------------------------------------------------------------------------------------------------
Operating income 64.9 91.4 77.1 51.5
Realized investment gains (losses) 32.3 4.0 14.2 28.7
- ---------------------------------------------------------------------------------------------------
Income from continuing operations 97.2 95.4 91.3 80.2
Discontinued operations 5.3 4.3 5.9 6.8
Cumulative effect of accounting changes 0.0 0.0 (0.3) 0.0
- ---------------------------------------------------------------------------------------------------
Net income 102.5 99.7 96.9 87.0
===================================================================================================
Income after taxes per average share outstanding
Property and casualty 1.88 2.59 2.20 1.49
Premium finance 0.01 0.02 0.02 0.02
Corporate expenses (0.04) (0.05) (0.08) (0.08)
- ---------------------------------------------------------------------------------------------------
Operating income 1.85 2.56 2.14 1.43
Realized investment gains (losses) 0.91 0.11 0.40 0.80
Discontinued operations 0.15 0.12 0.16 0.19
Cumulative effect of accounting changes 0.00 0.00 (0.01) 0.00
- ---------------------------------------------------------------------------------------------------
Net income 2.91 2.79 2.69 2.42
===================================================================================================
Average shares outstanding 35.2 35.8 36.0 36.0
Total assets 3,890.0 3,980.1 3,739.0 3,816.8
Shareholders' equity 1,175.1 1,111.0 850.8 862.3
Book value per share 33.44 31.39 23.64 23.93
Dividends paid per share 1.60 1.52 1.46 1.42
Percent increase over previous year 5.3% 4.1% 2.8% 6.0%
PROPERTY AND CASUALTY OPERATIONS
Gross premiums written 1,239.5 1,293.6 1,331.2 1,349.7
Net premiums written 1,209.0 1,250.6 1,286.4 1,306.0
Premiums earned 1,223.4 1,264.6 1,297.7 1,379.4
GAAP underwriting gain (loss) before taxes (112.2) (68.8) (92.9) (147.3)
Loss ratio 66.5% 61.2% 61.6% 64.9%
Loss expense ratio 9.7% 10.2% 10.0% 11.8%
Underwriting expense ratio 33.3% 32.6% 32.2% 33.6%
Combined ratio 109.5% 104.0% 103.8% 110.3%
Investment income before taxes 179.4 184.6 183.8 190.4
Per average share outstanding 5.09 5.16 5.10 5.29
Percent increase over previous year (1.4)% 1.2% (3.6)% (2.2)%
Property and casualty reserves
Unearned premiums 491.4 505.8 517.8 529.6
Losses 1,215.8 1,268.1 1,303.6 1,378.0
Loss adjustment expense 331.8 356.1 367.3 390.6
Statutory policyholders' surplus 984.9 876.9 660.0 713.6
Percent increase (decrease) over previous year 12.3% 32.9% (7.5)% 5.8%
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
10-Year Compound
1992 1991 1990 1989 1988 1987 Annual Growth
==============================================================================================
<S> <C> <C> <C> <C> <C> <C>
$61.2 $103.2 $93.4 $108.1 $133.4 $90.2 0.7%
1.5 2.1 2.2 2.3 2.5 2.1 -16.4%
(4.9) (6.2) (1.0) (1.1) (0.7) (0.3) 22.3%
- ----------------------------------------------------------------------------------------------
57.8 99.1 94.6 109.3 135.2 92.0 0.2%
35.1 9.8 (8.7) (10.5) (14.2) (17.9) 0.4%
- ----------------------------------------------------------------------------------------------
92.9 108.9 85.9 98.8 121.0 74.1 0.3%
4.1 (1.0) (1.8) 2.7 7.0 4.5 -4.5%
1.5 0.0 0.0 0.0 0.0 0.0 0.0%
- ----------------------------------------------------------------------------------------------
98.5 107.9 84.1 101.5 128.0 78.6 0.0%
==============================================================================================
1.70 2.88 2.43 2.53 3.06 2.00 3.2%
0.04 0.06 0.06 0.05 0.06 0.05 -12.9%
(0.14) (0.17) (0.02) (0.02) (0.02) 0 0.0%
- ----------------------------------------------------------------------------------------------
1.60 2.77 2.47 2.56 3.10 2.05 2.8%
0.98 0.27 (0.23) (0.25) (0.32) (0.41) 2.8%
0.12 (0.03) (0.05) 0.06 0.16 0.10 4.1%
0.04 0.00 0.00 0.00 0.00 0.00 0.0%
- ----------------------------------------------------------------------------------------------
2.74 3.01 2.19 2.37 2.94 1.74 2.5%
==============================================================================================
36.0 35.8 38.4 42.8 43.6 45.0 -2.3%
3,760.7 3,531.3 3,252.9 3,145.7 2,922.0 2,682.4 4.6%
825.2 774.5 651.2 775.0 718.5 615.7 6.8%
23.43 21.58 18.19 18.46 16.65 13.93 9.6%
1.34 1.24 1.16 1.04 0.94 0.84 7.9%
8.1% 6.9% 11.5% 10.6% 11.9% 12.0% 0.0%
1,541.5 1,519.3 1,492.1 1,404.5 1,383.6 1,398.2 -0.8%
1,508.5 1,492.3 1,468.4 1,377.6 1,353.2 1,359.6 -0.7%
1,517.6 1,469.1 1,438.0 1,364.2 1,339.6 1,356.6 0.0%
(130.8) (74.5) (79.4) (62.6) (16.3) (39.6)
63.7% 60.4% 61.4% 58.4% 55.2% 56.8% 0.0%
10.8% 10.6% 10.9% 12.1% 11.8% 12.7% 0.0%
33.5% 33.9% 33.0% 33.2% 33.8% 33.4% 0.0%
108.0% 104.9% 105.3% 103.7% 100.8% 102.9% 0.0%
194.6 191.6 176.7 187.7 169.8 156.9 2.5%
5.41 5.34 4.59 4.38 3.89 3.48 5.1%
1.3% 16.3% 4.8% 12.6% 11.8% 12.3% 0.0%
596.1 605.2 582.0 551.6 538.2 524.5 -0.6%
1,309.2 1,216.1 1,148.9 1,061.5 979.3 929.4 4.4%
364.0 350.0 335.1 308.5 273.1 242.0 5.7%
674.2 643.4 465.8 531.6 452.1 442.4 8.1%
4.8% 38.1% (12.4)% 17.6% 2.2% (2.2)% 0.0%
</TABLE>
<PAGE> 4
MANAGEMENT'S DISCUSSION & ANALYSIS
RESULTS OF OPERATIONS
Net income increased 2.8% for 1996 to $102.5 million or $2.91 per share
while the combined ratio increased by 5.5 points to 109.5%. Losses were
negatively impacted by catastrophes with $62.2 million of catastrophe losses in
1996 versus only $27.3 million in 1995. The underwriting expense ratio was up
slightly due to a decline in premiums written; however, underwriting expenses
actually declined over $3.8 million versus 1995. Net premiums written declined
for the fourth 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 1996, 254
agents were canceled accounting for more than $27.1 million in written premium.
The largest decline in premium occurred in the workers' comp line of business
with a 17.9% decline. The largest premium decline in individual states came in
Pennsylvania with a $11.9 million decline. With our repositioning completed, it
is believed that our efforts will be rewarded with overall premium growth in
1997. As a leading indicator, our key agents showed positive growth for 1996.
Net cash used by operations was $20.3 million compared with cash used of
$74.7 million in 1995 and cash generated of $45.7 million in 1994. Investing
activities produced net cash of $119.1 million in 1996, compared with $169.2
million in 1995 and $39.3 million in 1994. Dividend payments were $56.4 million
in 1996 compared with $54.3 million in 1995 and $52.6 million in 1994. Total
cash used for financing activities was $75.4 million in 1996 compared with $85.0
million in 1995 and $86.8 million in 1994. Overall, total cash generated in 1996
was $23.3 million, compared with $9.6 million in 1995 versus net cash used of
$1.8 million in 1994.
The fourth quarter of 1996 yielded a combined ratio of 98.6%, the same
result as the fourth quarter of 1995. The fourth quarter results were especially
encouraging after the heavy catastrophe losses suffered in the first three
quarters of the year.
Branch consolidation continued in 1996 with the number of branches
decreasing from 36 in 1995 to 29 in 1996. The efficiencies that are produced
through these consolidations can be seen in our declining underwriting expenses.
The Corporation expects to close an additional 15 branches in 1997.
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, 1996, our five-year average return on
equity was 13.9% down from the 16% calculated at December 31, 1995.
PROPERTY AND CASUALTY
In a continuing effort to maximize the use of technology in our industry,
we expanded our internet applications in 1996. We now quote auto insurance
through the internet in 27 states and have begun to log sales from this
endeavor. In addition to the direct benefits of our internet presence, we
receive collateral sales through increased name recognition. This is just
another part of our continuing efforts at becoming more customer focused. A
significant part of this focus is maximizing the ease and convenience of buying
our product.
In addition to identifying new marketing opportunities, we continue
working to improve customer retention through improved service and better
products thus leading to increased premium income and profitability. This focus
on our policyholders has yielded a policyholder retention of 84.1% in 1996 and
83.1% in 1995. Our goal is to achieve a minimum 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.
<PAGE> 5
Property and casualty operating income was $66.1 million, $1.88 per
share, in 1996 compared with $92.5 million, $2.59 per share, in 1995 and $79.3
million, $2.20 per share in 1994. Catastrophe losses in 1996 totaled $62.2
million compared with $27.3 million in 1995 and $36.6 million in 1994. The
losses in 1996 came from 39 separate catastrophes, primarily winter and spring
storms in the Midwest. Catastrophe losses added 5.1 points to the combined ratio
in 1996 compared with 2.2 points in 1995 and 2.8 points in 1994.
Statutory surplus, a traditional insurance industry measure of strength
and underwriting capacity, was $984.9 million at December 31, 1996 compared with
$876.9 million at December 31, 1995 and $660.0 million at December 31, 1994. The
increases in 1996 and 1995 were due primarily to the unrealized gains in our
investment portfolio.
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.
Currently, the Corporation's ratio is 1.2 to 1. 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 at least twice the necessary
capital.
<TABLE>
<CAPTION>
PREMIUM DISTRIBUTIONS BY TOP STATES
1996 1995 1994
<S> <C> <C> <C>
New Jersey 18.3% 18.1% 16.3%
Ohio 10.2% 9.6% 9.7%
Pennsylvania 9.4% 10.0% 11.0%
Kentucky 7.2% 6.5% 6.4%
Illinois 5.0% 5.1% 4.9%
</TABLE>
The premium growth in New Jersey is being driven primarily by the private
passenger auto line of business which grew 11.1% in 1995 and an additional .4%
in 1996. New Jersey requires insurers to write all auto business that meets
underwriting guidelines regardless of risk concentration. Net written premiums
for this state were $221.2 million for 1996.
PREMIUM FINANCE
Premium finance operating income decreased to $.3 million in 1996
compared with $.7 million in 1995 and 1994. Revenues were again down due to
repositioning and the movement away from premium financing to our commercial
lines direct billing system.
<TABLE>
<CAPTION>
COMBINED RATIOS
1996 1995 1994 1993 1992
=================================================================================================
<S> <C> <C> <C> <C> <C>
Automobile 109.1% 103.9% 101.9% 103.5% 101.0%
Commercial Multiple Peril, Fire
and Inland Marine 115.0% 105.7% 108.6% 124.2% 118.2%
General Liability 89.1% 105.3% 90.3% 120.6% 83.3%
Workers' Compensation 94.3% 93.7% 87.8% 111.3% 130.0%
Homeowners 135.9% 113.7% 135.7% 118.0% 118.9%
Fidelity and Surety 73.4% 84.5% 72.8% 79.1% 99.0%
- -------------------------------------------------------------------------------------------------
Total 109.5% 104.0% 103.8% 110.3% 108.0%
=================================================================================================
</TABLE>
<PAGE> 6
DISCONTINUED OPERATIONS
During 1995, the Corporation's life operations were discontinued. We
found it increasingly difficult to achieve our targeted 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 substantial 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, 1996, $12.9 million of the net
ceding commission from the transaction remains unamortized, compared with $16.7
million unamortized at December 31, 1995. This will be amortized into income
over the expected remaining life of the underlying reinsured policies, in this
case, 14 years. An assumption is scheduled for the second quarter of 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.
Until the assumption takes place, investments are retained in the Ohio Life
Insurance Company to support its primary liability on the reinsured business.
These investments generate ongoing investment income. Once the assumption
occurs, these investments will be freed to support continuing operations. Net
income from discontinued operations amounted to $5.2 million or $.15 per share
in 1996 compared with $4.4 million or $.12 per share in 1995 and $5.9 million or
$.16 per share in 1994.
REINSURANCE
In order to preserve capital and shareholder value, Ohio Casualty
Corporation purchases reinsurance to protect the Corporation against large or
catastrophic losses. 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
$15.0 million in excess of the retention. Casualty reinsurance covers $11.0
million in excess of the retention; and workers' compensation reinsurance covers
$74.0 million in excess of the retention. In 1997, the Corporation added two
layers of Workers' Compensation Catastrophe Excess of Loss protection. These
layers provide $51.0 million in additional coverage over the 1996 program.
The Catastrophe Reinsurance contract protects the Corporation against an
accumulation of losses arising from one defined catastrophic occurrence or
series of events. The 1996 program provided $125.0 million coverage in excess of
the Corporation's $25.0 million retention. An additional layer provided $50.0
million in excess of $150.0 million coverage for New Jersey only. The 1997
Catastrophe Program provides $150.0 million coverage in excess of the
Corporation's $25.0 million retention. Total reinsurance protection increased
20% in 1997 due to a larger participation by reinsurers. The New Jersey-only
layer was non-renewed for the 1997 program. 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 $31.4 million and $28.9 million, respectively. Both of these
losses exceeded our prior retention amount of $13.0 million. The Corporation
recovered $29.5 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. Annually, financial statements are reviewed and various ratios
calculated to identify reinsurers who have ceased to meet our
<PAGE> 7
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, 1996 and 1995 compared with $1.7 billion at December 31,
1994. 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 1996, the Corporation continued the use of an 800 number for direct
reporting of claims. The percentage of all claims handled by direct reporting
was approximately 50% in 1996. This was almost two-thirds more than was handled
by direct reporting in 1995. The Corporation routinely receives positive
feedback on this option from our policyholders.
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 67% contractors, 14% building/premises, 14% mercantile and only 5%
manufacturers. Within the manufacturing category, we have concentrated on the
light manufacturers which further limits our exposure to environmental claims.
In 1996 the Corporation analyzed incurred but not reported reserves for general
liability and commercial multiple peril to segregate between asbestos and
environmental losses and all other losses. As a result of this analysis, an
additional $27.4 million in reserves was identified as asbestos and
environmental related. Based on this examination, an estimated liability of
$41.0 million was carried at year end 1996. Of this, reserves on known claims
totaled $13.6 million at year end 1996 compared with $14.4 million and $10.4
million at year end 1995 and 1994, respectively. Approximately $5.2 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 changed 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 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.
<PAGE> 8
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 $74.4 million is based on this testimony. We
made no additions to reserves for principal amounts in 1996; however, we
continue to accrue interest on the assessed liability. Reserving for this
alleged liability negatively impacted net income by $2.7 million or $.08 per
share in 1996, $14.9 million or $.42 per share in 1995 and $30.7 million or $.85
per share in 1994.
The Corporation is currently involved in Proposition 103 hearings with
the State of California. The final arguments are expected to conclude in the
first quarter of 1997. A ruling from the Administrative Law Judge is expected in
the second quarter of 1997. At that time the Insurance Commissioner will have 60
days to take the ruling under advisement and return with his ruling. 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
ultimately be resolved.
INVESTMENTS
Consolidated pre-tax investment income from continuing operations
decreased 2.5% to $183.3 million in 1996 compared with $188.1 million in 1995
and $185.7 million in 1994. Of greater importance, after-tax investment income
totaled $138.6 million in 1996 compared with $138.4 million in 1995 and $142.5
million in 1994. Pre-tax and after-tax investment income comparisons versus 1995
are impacted by an increased exposure to municipal bonds in 1996. Investment
income growth over the past few years has been impacted by negative cash flow
from underwriting activities, a decline in average portfolio yields and the sale
of our life insurance subsidiary. The negative cash flow from underwriting
activities has been precipitated by our strategic repositioning. Cash flow also
continues to be impacted by our share repurchase program.
At year end 1996, consolidated investments had a carrying value of $3.1
billion. The excess of market value over cost was $499.7 million, compared with
a $465.9 million excess at year end 1995 and $105.4 million at year end 1994.
The increase in the excess of market value over cost in 1996 was attributable to
the strong performance of our equity portfolio, offset somewhat by a decline in
the value of our fixed income portfolios. After-tax realized investment gains
from continuing operations amounted to $32.3 million in 1996 compared with $4.0
million in 1995 and $14.2 million in 1994.
We continue to have no exposure to futures, forwards, caps, floors, or
similar derivative instruments as defined by Statement of Financial Accounting
Standards No. 119. However, as noted in footnote number 13, we have an interest
rate swap with Chase Manhattan Bank covering our term loan. This swap is not
classified as an investment but rather as a hedge against a portion of the
variable rate loan. As of December 31, 1996, Ohio Casualty maintained a $446.9
million mortgage-backed securities portfolio compared with $403.1 million at
December 31, 1995. The majority of our mortgage-backed securities holdings are
less volatile planned amortization class, sequential structures and agency
pass-through securities. $27.0 million of this portfolio is invested in more
volatile bond classes (e.g. interest-only, super-floaters, inverses).
Ohio Casualty's fixed income strategy has been to maintain a portfolio
with a laddered maturity structure and an intermediate duration. We believe that
our portfolio composition and 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 34.4% of the fixed income portfolio at year end
1996 versus 37.3% at December 31, 1995. Although the year over year comparison
reflects a decreased exposure to municipals, our average exposure throughout the
year was substantially higher than it was in 1995. This higher average exposure
reflects our internal tax planning strategy as well as our belief that, coming
into 1996, municipals were attractive relative to taxable bond alternatives. As
<PAGE> 9
1996 unfolded and underwriting results were factored into our tax planning
strategy, the municipal portfolio was reduced accordingly.
Our commitment to a diversified, growth-oriented equity portfolio remains
unchanged. Equity investments have increased as a percentage of our consolidated
portfolio from 21.4% in 1995 to 23.5% at year end 1996. This increase is
entirely attributable to market appreciation of existing investments as opposed
to commitment of new funds. In fact, no new funds have been allocated to
equities in the last two years.
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. In order to maintain the ability to actively
manage our fixed income portfolios, the Corporation has elected to place all of
our fixed income holdings in the available-for-sale category. Therefore, all of
our bond investments are now valued at market for balance sheet purposes.
During 1996, Ohio Casualty Corporation purchased 264,600 shares of its
common stock at a cost of $9.2 million compared with 613,900 shares for $20.9
million in 1995. The Corporation is currently authorized to repurchase 2.1
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 10.7 million shares at an average cost of $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.
YEAR 2000
Recently, the "Year 2000 Problem" has received extensive press in the
insurance industry. Apparently, many of our competitors are making large
expenditures in order to convert their computer systems to recognize the year
2000. Most computer systems were originally written with two digit date fields.
Therefore, the computer believes that the difference between `99 and `00 is a
negative 99 years instead of one year. Since the late 1980's, Ohio Casualty has
been converting our computer systems to be year 2000 compliant as we modified
and adjusted the programs for other purposes. As such, the Corporation has not
had to make such a dedicated and expensive effort to fix the problem. Currently,
over 60% of our systems are already compliant, with the remainder expected over
the next two years. To date, we have spent approximately $.3 million and expect
to spend an additional $.2 million to complete our efforts.
<PAGE> 10
<TABLE>
OHIO CASUALTY CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
December 31 (in thousands) 1996 1995 1994
========================================================================================================
<S> <C> <C> <C>
ASSETS
Investments:
Fixed maturities - available for sale, at fair value $2,310,938 $2,407,853 $2,509,961
(Cost: $2,225,517; $2,276,150; $2,586,687)
Equity securities, at fair value 721,152 661,154 520,025
(Cost: $306,865; $326,999; $337,814)
Short-term investments at cost 41,546 14,399 13,550
- --------------------------------------------------------------------------------------------------------
Total investments 3,073,636 3,083,406 3,043,536
Cash 20,078 23,883 15,106
Premiums and other receivables 186,676 196,175 199,167
Deferred policy acquisition costs 116,684 119,795 165,633
Property and equipment 42,239 43,846 35,404
Reinsurance recoverable 362,683 446,167 87,748
Deferred income taxes 0 0 118,370
Other assets 87,985 66,870 73,992
- --------------------------------------------------------------------------------------------------------
Total assets $3,889,981 $3,980,142 $3,738,956
========================================================================================================
LIABILITIES
Insurance reserves:
Unearned premiums $491,613 $506,035 $518,075
Losses 1,224,873 1,275,077 1,304,514
Loss adjustment expenses 331,797 356,107 367,309
Future policy benefits 280,002 360,074 352,400
Note payable 50,000 60,000 70,000
California Proposition 103 reserve 74,376 70,167 47,278
Deferred income taxes 27,993 2,112 0
Other liabilities 234,227 239,556 228,590
- --------------------------------------------------------------------------------------------------------
Total liabilities 2,714,881 2,869,128 2,888,166
- --------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities
(see Notes 1 and 8)
SHAREHOLDERS' EQUITY
Common stock, $.125 par value 5,850 5,850 5,850
Authorized: 150,000,000 shares
Issued shares: 46,803,872 (See Note 16)
Additional paid-in capital 3,603 3,422 3,271
Unrealized gain on investments, net of applicable
income taxes 332,042 305,049 69,610
Retained earnings 1,076,545 1,030,468 985,068
Treasury stock, at cost
(Shares: 11,662,559; 11,407,745; 10,810,616) (242,940) (233,775) (213,009)
- --------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,175,100 1,111,014 850,790
- --------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $3,889,981 $3,980,142 $3,738,956
========================================================================================================
See notes to consolidated financial statements
</TABLE>
<PAGE> 11
<TABLE>
OHIO CASUALTY CORPORATION & SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
=================================================================================================================
<S> <C> <C> <C>
Premiums and finance charges earned $1,226,651 $1,268,269 $1,298,861
Investment income less expenses 183,308 188,107 185,708
Investment gains realized, net 49,672 6,096 21,894
- -----------------------------------------------------------------------------------------------------------------
Total income 1,459,631 1,462,472 1,506,463
- -----------------------------------------------------------------------------------------------------------------
Losses and benefits for policyholders 812,234 774,282 799,295
Loss adjustment expenses 118,354 128,099 130,100
General operating expenses 100,939 89,970 82,418
Amortization of deferred policy
acquisition costs 308,856 327,055 338,046
California Proposition 103 reserve,
including interest 4,210 22,889 47,278
- -----------------------------------------------------------------------------------------------------------------
Total expenses 1,344,593 1,342,295 1,397,137
- -----------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 115,038 120,177 109,326
Income taxes
Current 10,173 23,514 26,948
Deferred 7,637 1,300 (8,936)
- -----------------------------------------------------------------------------------------------------------------
Total income taxes 17,810 24,814 18,012
- -----------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
accounting changes & discontinued
operations 97,228 95,363 91,314
Income from discontinued operations
net of taxes of $2,663, $4,345 and
$1,636 (see Note 17) 5,229 4,372 5,896
Cumulative effect of accounting changes
(see Notes 1B and 6) 0 0 (319)
- -----------------------------------------------------------------------------------------------------------------
Net income $102,457 $99,735 $96,891
=================================================================================================================
Average shares outstanding 35,247 35,750 36,033
Earnings per share:
Income before effect of accounting changes
& discontinued operations $2.76 $2.67 $2.54
Income from discontinued operations 0.15 0.12 0.16
Cumulative effect of accounting changes 0.00 0.00 (0.01)
- -----------------------------------------------------------------------------------------------------------------
Net income per share $2.91 $2.79 $2.69
=================================================================================================================
See notes to consolidated financial statements
</TABLE>
<PAGE> 12
<TABLE>
OHIO CASUALTY CORPORATION & SUBSIDIARIES
STATEMENT OF CONSOLIDATED
SHAREHOLDERS' EQUITY
<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, 1994 $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
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
Unrealized gain 40,297 40,297
Deferred income tax on
net unrealized gain (13,304) (13,304)
Net issuance of treasury
stock under stock option
plan and by charitable
donation (9,786 shares) 181 3 184
Repurchase of treasury
stock (264,600 shares) (9,168) (9,168)
Net income 102,457 102,457
Cash dividends paid
($1.60 per share) (56,380) (56,380)
- -------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1996 $5,850 $3,603 $332,042 $1,076,545 ($242,940) $1,175,100
=========================================================================================================================
See notes to consolidated financial statements
</TABLE>
<PAGE> 13
<TABLE>
OHIO CASUALTY CORPORATION & SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
<CAPTION>
Year ended December 31 (in thousands) 1996 1995 1994
================================================================================================================================
<S> <C> <C> <C>
Cash flows from:
Operations
Net income $102,457 $99,735 $96,891
Adjustments to reconcile net income to
cash from operations:
Changes in:
Insurance reserves (169,006) 116,397 (75,586)
Income taxes 8,238 (7,157) 557
Premiums and other receivables 9,500 2,993 1,519
Deferred policy acquisition costs 3,111 45,838 3,201
Reinsurance recoverable 83,484 (358,418) 6,326
Other assets (5,613) (11,387) (12,408)
Other liabilities (18,442) 14,577 (10,257)
California Proposition 103 reserves 4,209 21,353 47,278
Depreciation and amortization 12,388 12,600 11,123
Investment (gains) losses (50,674) (11,199) (23,225)
Cumulative effect of accounting changes 0 0 319
- --------------------------------------------------------------------------------------------------------------------------------
Net cash from operations (20,348) (74,668) 45,738
- --------------------------------------------------------------------------------------------------------------------------------
Investing
Purchase of securities:
Fixed income securities - available for sale (539,690) (944,077) (821,413)
Equity securities (74,243) (86,517) (116,852)
Proceeds from sales:
Fixed income securities - available for sale 501,394 929,890 699,383
Equity securities 122,970 89,771 83,226
Proceeds from maturities and calls:
Fixed income securities - available for sale 101,970 132,572 165,835
Equity securities 6,702 47,605 29,078
- --------------------------------------------------------------------------------------------------------------------------------
Net cash from investments 119,103 169,244 39,257
- --------------------------------------------------------------------------------------------------------------------------------
Financing
Note payable repayment (10,000) (10,000) (33,000)
Proceeds from exercise of stock options 135 578 244
Purchase of treasury stock (9,168) (21,193) (1,412)
Dividends paid to shareholders (56,380) (54,335) (52,597)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activity (75,413) (84,950) (86,765)
- --------------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 23,342 9,626 (1,770)
Cash and cash equivalents, beginning of year 38,282 28,656 30,426
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $61,624 $38,282 $28,656
================================================================================================================================
See notes to consolidated financial statements
</TABLE>
<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 shareholders' 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. Liabilities for future policy benefits are computed based on contract terms
and issue date using interest rates ranging from 4% to 8 3/4%, select and
ultimate mortality experience and industry withdrawal experience. Interest rates
on $230,843 of such liabilities in 1996, $293,732 in 1995 and $287,190 in 1994
are periodically adjusted based on market conditions. Fair value is determined
by discounting cash flows at current market interest rates.
F. Deferred income taxes result from temporary differences between financial and
taxable income.
G. 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.
H. 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. Of net premiums written, approximately 18.3% was generated in the State
of New Jersey, 10.2% in Ohio and 9.4% in Pennsylvania. 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.
I. 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.
J. 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, 1996, approximately $123,360 of retained earnings are
not subject to restriction or prior dividend approval requirements.
K. 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:
<PAGE> 15
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
Investment income from:
<S> <C> <C> <C>
Fixed maturities $176,160 $177,621 $176,975
Equity securities 14,135 14,721 13,868
Short-term securities 2,129 3,096 1,852
-------- -------- --------
Total investment income 192,424 195,438 192,695
Investment expenses 9,116 7,331 6,987
-------- -------- --------
Net investment income $183,308 $188,107 $185,708
======== ======== ========
</TABLE>
Realized and unrealized gains (losses) on investments in securities are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- ---------
Realized gains (losses):
<S> <C> <C> <C>
Fixed maturities $ 4,567 $ (8,104) $ 8,406
Equity securities 41,278 16,913 9,268
Other investments 3,827 (2,713) 4,220
------- --------- --------
$49,672 $ 6,096 $ 21,894
======= ========= ========
Unrealized gains (losses):
Securities $ 40,297 $ 360,372 $(262,117)
Deferred tax (13,304) (124,933) 91,299
Cumulative effect of
accounting changes 0 0 116,144
-------- --------- ---------
$ 26,993 $ 235,439 $ (54,674)
======== ========= =========
</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
1996
- ---------------------------------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Securities available
for sale:
U.S. Government $ 80,822 $ 2,101 $ (382) $ 82,541
States, municipalities
and political
subdivisions 760,602 34,966 (1,029) 794,539
Debt securities
issued by foreign
governments 3,000 296 0 3,296
Corporate securities 940,540 50,126 (7,008) 983,658
Mortgage-backed
securities:
U.S. Government Agency 171,291 12,992 (7,377) 176,906
Other 269,262 14,274 (13,538) 269,998
---------- ---------- ---------- ----------
Total fixed
maturities 2,225,517 114,755 (29,334) 2,310,938
Equity securities 306,865 425,022 (10,735) 721,152
Short-term investments 41,546 0 0 41,546
---------- ---------- ---------- ----------
Total securities,
available for sale $2,573,928 $ 539,777 $ (40,069) $3,073,636
========== ========== ========== ==========
</TABLE>
<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>
<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,
available for sale $2,938,051 $ 234,871 $(129,386) $3,043,536
========== ========== ========= ==========
</TABLE>
The amortized cost and estimated fair value of debt securities at December
31, 1996, by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
----------- ------------
<S> <C> <C>
Due in one year or less $ 19,370 $ 19,740
Due after one year through five years 345,289 357,874
Due after five years through ten years 797,209 834,372
Due after ten years 623,096 652,048
Mortgage-backed securities:
U.S. Government Agency 171,291 176,906
Other 269,262 269,998
========== ==========
Total fixed maturities $2,225,517 $2,310,938
========== ==========
</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 $19,456, $26,290 and $19,030 as of 1996, 1995 and 1994,
respectively, representing a reduction in value of $7,055, $9,696 and $6,910 on
fixed maturities and $12,401, $16,595 and $12,120 on equity securities.
Proceeds from maturities and sales of investments in debt securities during
1996, 1995 and 1994 were $603,364, $1,062,462 and $865,218, respectively. Gross
gains of $14,257, $20,834 and $21,694 and gross losses of $10,388, $24,500 and
$13,276 were realized on those maturities and sales in 1996, 1995 and 1994,
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, 1996 or 1994. The outstanding stock options for 1995
were $1,125. There were no options on bonds outstanding at December 31, 1996,
1995 or 1994.
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.
<PAGE> 16
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
1996 Amount Value
-------- ----------
<S> <C> <C>
Assets
Cash And Cash Equivalents $ 61,624 $ 61,624
Securities - Available For Sale 3,032,090 3,032,090
Liabilities
Future Policy Benefits $ 280,002 $ 280,002
Long-term Debt 50,000 50,000
Carrying Fair
1995 Amount Value
----------- ----------
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
</TABLE>
<TABLE>
<CAPTION>
Carrying Fair
1994 Amount Value
----------- ----------
<S> <C> <C>
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 $ 352,400
Long-term debt 70,000 70,000
</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:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Deferred, January 1 $ 119,795 $ 165,633 $ 168,835
--------- --------- ---------
Additions:
Commissions and brokerage 190,461 204,594 212,878
Salaries and employee benefits 47,092 43,867 49,937
Other 66,143 73,090 75,659
--------- --------- ---------
Deferral of expense 303,696 321,551 338,474
--------- --------- ---------
Amortization to expense
Discontinued operations (2,050) 40,333 3,630
Continuing operations 308,856 327,055 338,046
--------- --------- ---------
Deferred, December 31 $ 116,685 $ 119,795 $ 165,633
========= ========= =========
</TABLE>
The above schedule includes deferred policy acquisition costs (net of
unamortized ceding commission) for discontinued life insurance operations of
$(11,486), $(13,535) and $24,749 as of 1996, 1995 and 1994, 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 1996, 1995 and 1994 for the following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Tax at statutory rate $ 40,263 $42,062 $38,264
Tax exempt interest (18,367) (16,150) (17,282)
Dividends received deduction
(DRD) (4,056) (3,446) (3,472)
Proration of DRD and tax
exempt interest 3,017 3,319 9,544
Reduction in provision for
audit issues (3,000) 0 (9,000)
Miscellaneous (47) (971) (42)
-------- ------- -------
Actual Tax $ 17,810 $24,814 $18,012
======== ======= =======
</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 components of the net deferred tax asset (liability) were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Unearned premium proration $ 33,833 $ 34,823 $ 35,805
Accrued expenses 59,217 64,658 54,667
Postretirement benefits 27,355 26,331 25,118
Discounted loss and loss
expense reserves 81,350 88,589 95,295
--------- --------- -------
Total deferred tax assets 201,755 214,401 210,885
Deferred policy acquisition
costs (51,129) (53,616) (55,363)
Unrealized gains on
investments (178,619) (162,897) (37,152)
--------- --------- -------
Total deferred tax
liabilities (229,748) (216,513) (92,515)
--------- --------- -------
Net deferred tax asset
(liability) $ (27,993) $ (2,112) $118,370
========= ========= ========
</TABLE>
Taxes paid amounted to $16,336 in 1996, $37,346 in 1995 and $17,886 in
1994. 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>
1996 1995 1994
---------- ---------- ----------
Employee benefit costs:
<S> <C> <C> <C>
Retirement $ (136) $ (1,689) $ (731)
Health care 14,415 13,339 15,517
Life and disability
insurance 555 594 740
Savings plan 2,489 2,586 2,685
-------- ------- -------
$ 17,323 $14,830 $18,211
======== ======= =======
</TABLE>
The pension benefit is determined as follows:
<PAGE> 17
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
Service cost/(benefit)
earned during the year $ 6,256 $ 5,701 $ 6,077
Interest cost on projected
benefit obligation 13,927 13,262 12,404
Actual return on plan assets (19,070) (34,448) (3,785)
Amortization of
unrecognized net asset
existing at January 1 (1,249) 13,796 (15,427)
-------- -------- --------
Net pension benefit $ (136) $ (1,689) $ (731)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Pension plan funding at December 31:
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Plan assets at fair value
(primarily fixed income
and equity securities) $ 225,681 $ 217,274 $ 193,010
--------- --------- ---------
Plan benefit obligations:
Vested benefits 160,667 157,371 141,353
Non-vested benefits 2,780 3,046 2,710
Future benefits due to
salary increases 34,091 30,591 26,685
--------- --------- ---------
Total 197,538 191,008 170,748
--------- --------- ---------
Excess plan assets over
obligations $ 28,143 $ 26,266 $ 22,262
========= ========= =========
Unrecognized net gain (loss) $ 1,617 $ (3,082) $ (8,356)
Unrecognized net assets 18,102 21,119 24,136
Unrecognized prior service cost (566) (624) (683)
Expected long-term return
on plan assets 8.75% 8.50% 9.00%
Discount rate on plan
benefit obligations 7.75% 7.50% 8.00%
Expected future rate of
salary increases 5.25% 5.25% 5.75%
</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 1996 and 1995 and December 31
for 1994. The measurement date was changed in 1995 to allow for more timely
actuarial calculations. The maximum pension expense deductible for income tax
purposes has been funded. Plan assets at December 31, 1996 include $29,899 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 adjustments as determined by the Corporation.
The health care plan is unfunded.
<TABLE>
<CAPTION>
Accrued postretirement benefit liability at December 31:
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Accumulated postretirement
benefit obligation $(71,797) $(71,519) $(72,695)
Unrecognized net loss(gain) (6,203) (2,481) 695
-------- -------- --------
Accrued postretirement
benefit liability $(78,000) $(74,000) $(72,000)
======== ======== ========
<CAPTION>
Postretirement benefit cost at December 31:
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Service cost $1,967 $1,883 $2,423
Interest cost 5,412 5,144 5,368
Amortization of loss 0 0 45
------ ------ ------
Net periodic postretirement
benefit cost $7,379 $7,027 $7,836
====== ====== ======
Postretirement benefit rate assumptions at December 31:
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Medical trend rate 9% 10% 11%
Dental trend rate 7% 8% 9%
Ultimate health care trend rate 5% 5% 5%
Discount rate 7.75% 8.0% 7.25%
</TABLE>
The postretirement plan measurement date is October 1 for 1996 and 1995
and December 31 for 1994. 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, 1996 by approximately $9,491 and increase the postretirement
benefit cost for 1996 by $1,685.
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 3,156 active employees and 1,335 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
Programs to grant options to purchase 1,293,500 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 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 non-transferable and exercisable
at any time after the vesting requirements are met. Option expiration dates are
five and ten years from the grant date. Options vest at 100% six months from the
grant date or at 33% per year for three consecutive years from the date of the
grant. At December 31, 1996, 1,115,500 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 the stock options held.
The Corporation continues to elect APB 25 for recognition of stock-based
compensation expense. However, under the provision of FAS 123 the Corporation is
required to estimate on the date of grant the fair value of each option using an
option-pricing model. Accordingly, the Black-Scholes option pricing model is
used with the following weighted-average assumptions for 1996 and 1995,
respectively: dividend yield of 4.5% for both years, expected volatility of
25.3% for both years, risk free interest rate of 6.34% and 6.20%, and
<PAGE> 18
expected life of 8 years for both years. The following table summarizes
information about the stock-based compensation plan as of December 31, 1996 and
1995, and changes that occurred during the year:
<TABLE>
<CAPTION>
1996 1995
-------------------- ----------------------
Shares Weighted-Avg Shares Weighted-Avg
(000) Exercise Price (000) Exercise Price
<S> <C> <C> <C> <C>
Outstanding beginning
of year 74 $30.02 91 $28.71
Granted 127 34.93 12 30.50
Exercised (28) 28.75 (29) 26.11
---- ---
Outstanding end of year 173 $33.84 74 $30.02
==== ===
Options exercisable at
year-end 52 74
Weighted-Avg fair
value of options granted
during the year $8.14 $7.02
</TABLE>
At year end 1996, 172,500 options were outstanding with an average
remaining contractual life of 8.49 years and at a weighted exercise price of
$33.8409. Of the amount outstanding, 51,500 were exercisable with a weighted
average exercise price of $31.2342. At year end 1995, 73,800 options were
outstanding with an average remaining contractual life of 5.81 years and at a
weighted exercise price of $30.0167. Of the amount outstanding, 73,800 were
exercisable with a weighted average exercise price of $30.0167.
Had the Corporation adopted FAS 123, the amount of compensation expense
that would have been recognized in 1996 and 1995, respectively, would be $350
and $84. The Corporation's net income and earnings per share would have been
reduced to the pro forma amounts disclosed below:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C> <C>
Net Income As Reported: $102,457 $99,735
Pro Forma: $102,229 $99,680
Primary Earnings per share As Reported: $2.91 $2.79
Pro Forma: $2.90 $2.79
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Premiums earned $30,534 $41,012 $45,133
Losses incurred 11,846 22,030 8,727
Reserve for unearned premiums 8,062 8,294 6,274
Reserve for losses 61,205 62,847 54,727
Reserve for future policy
benefits 280,002 360,074 6,825
Reserve for loss adjustment
expenses 8,833 11,272 10,609
</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 the
remaining amount of annuities. The total amount of unpaid annuities was $25,139,
$24,300 and $24,300 at December 31, 1996, 1995 and 1994, 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,
1996, the market value of the account exceeded the $163,615 required balance by
$699 compared with $2,497 in 1995 . The annual interest obligation of 7.25% was
also being adequately serviced by the portfolio assets.
NOTE 9 -- LOSSES AND LOSS RESERVES
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>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Balance as of January 1,
net of reinsurance
recoverables of $74,119,
$65,336 and $75,738 $ 1,557,065 $ 1,606,487 $ 1,693,551
Incurred related to:
Current year 1,009,086 1,008,321 1,084,072
Prior years (76,920) (104,998) (153,717)
----------- ----------- -----------
932,166 903,323 930,355
Paid related to:
Current year 515,025 444,558 483,129
Prior years 487,584 508,187 534,290
----------- ----------- -----------
Total paid 1,002,609 952,745 1,017,419
Balance as of December 31,
net of reinsurance
recoverables of $70,048,
$74,119 and $65,336 $ 1,486,622 $ 1,557,065 $ 1,606,487
=========== =========== ===========
</TABLE>
As a result of favorable development in estimates for insured events of
prior years, the incurred related to prior years shows a favorable development.
The following table presents catastrophe losses incurred and the respective
impact on the loss ratio:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Incurred losses $62,189 $27,277 $36,618
Loss ratio effect 5.1% 2.2% 2.8%
</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.
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
<PAGE> 19
adjusted for anticipated changes in underwriting standards, policy provisions
and general economic trends. It is not adjusted to reflect the effect of
discounting.
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 interpretations in the future, there is uncertainty regarding the
extent of remediation. Accordingly, additional liability could develop.
Estimated environmental case reserves of $13,579, $14,467 and $10,400 were
included in loss and loss adjustment expense reserves for 1996, 1995 and 1994,
respectively. In 1996, the Corporation analyzed incurred but not reported
reserves for general liability and commercial multiple peril to segregate
between asbestos and environmental losses and all other losses. As a result of
this analysis, $27,377 in incurred but not reported reserves were segregated as
asbestos and environmental related. This brings total asbestos and environmental
reserves as of December 31, 1996 to $40,956.
NOTE 10 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1996 First Second Third Fourth
- -------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Premiums and finance
charges earned $310,217 $304,641 $301,054 $310,739
Net investment income 44,988 43,302 46,105 48,913
Investment gains
(losses) realized 5,954 14,948 13,507 15,263
Income from
continuing operations 2,835 12,652 27,333 54,408
Income from
discontinued
operations 713 2,181 1,056 1,279
Net income 3,548 14,833 28,389 55,687
Net income per share .10 .43 .81 1.58
</TABLE>
<TABLE>
<CAPTION>
1995 First Second Third Fourth
- -------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Premiums and finance
charges earned $ 322,063 $ 317,936 $ 317,165 $ 311,105
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 .42 .72 .37 1.28
</TABLE>
A new investment accounting system was implemented in the fourth quarter of
1996. The new system more accurately accrues interest and calculates
amortization for mortgage-backed securities. As a result, investment income was
increased by $3,977. This adjustment represents a one-time positive impact on
income.
NOTE 11 -- INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Property and Casualty Insurance
Revenue $1,453,623 $1,456,242 $1,501,883
Income before taxes 116,906 121,741 112,796
Identifiable assets 3,437,622 3,457,750 3,250,625
Premium Finance and Other
Revenue 6,008 6,230 4,580
Loss before taxes (1,868) (1,564) (3,470)
Identifiable assets 65,039 26,939 69,392
Discontinued Operations (Life
Insurance)
Revenue 10,396 (335,835) 52,187
Income before taxes 7,892 8,717 7,532
Identifiable assets 347,477 511,818 418,939
</TABLE>
NOTE 12 -- 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>
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Property and Casualty
Insurance
Statutory net income $104,137 $103,802 $126,419
Statutory policyholders'
surplus 984,859 876,918 659,997
Life Insurance
Statutory net income 4,885 38,981 2,780
Statutory policyholders'
surplus 58,511 92,297 43,090
</TABLE>
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 13 -- 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. On March 26, 1996, the
Corporation entered into an interest rate swap. The effect of the swap agreement
was to establish a fixed rate of 6.34% on one-half of the outstanding loan
balance. The remaining loan balance bears interest at a periodically adjustable
rate. The interest rate was 6.33% at December 31, 1996. 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 $3,769, $4,474 and $4,102 in 1996, 1995 and 1994, respectively.
<PAGE> 20
Under the loan agreement, statutory surplus is $484,859 in excess of the minimum
amount required to be maintained at December 31, 1996.
NOTE 14 -- 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 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 $74,376.
The Corporation is currently involved in hearings with the State of
California. The final arguments are expected to conclude in the first quarter of
1997. A ruling from the Administrative Law Judge is expected in the second
quarter of 1997. At that time the Insurance Commissioner will have 60 days to
take the ruling under advisement and return with his ruling. 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
ultimately be resolved. To date, the Corporation has paid $2,889 in legal costs
related to the withdrawal, Proposition 103, and Fair Plan assessments.
NOTE 15 -- 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 16 -- 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 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, 1996, $12,918 of that gain remains unamortized. This balance
will be amortized over 14 years, the remaining expected life of the underlying
reinsured policies. It is anticipated that Great Southern will replace Ohio Life
as the primary carrier of these policies in the second quarter of 1997 through
an assumption. At that time, the remaining unamortized gain will be recognized.
Results of the discontinued life insurance operations for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Gross premiums written $ 1,428 $ 38,580 $ 28,210
Net premiums earned 4,582 (345,080) 22,774
Net investment income 4,812 4,143 28,082
Realized investment gains 1,002 5,102 1,331
-------- ---------- ---------
Total income 10,396 (335,835) 52,187
Income before income
taxes 7,892 8,717 7,532
-------- ---------- ---------
Provision for income
-------- ---------- ---------
taxes 2,663 4,345 1,636
-------- ---------- ---------
Net income $ 5,229 $ 4,372 $ 5,896
======== ========== =========
</TABLE>
Assets and liabilities of the discontinued life insurance operations as of
the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Cash $ 1,150 $ 9,793 $ 6,197
Investments 71,313 107,603 359,138
Receivables (4) 5,165 2,773
Deferred policy
acquisition costs,
net of unamortized
ceding commission (11,486) (13,535) 24,749
Reinsurance receivable 285,354 363,127 6,925
Other assets 7,380 3,570 23,325
--------- --------- ---------
Total assets $ 353,707 $ 475,723 $ 423,107
========= ========= =========
Future policy benefits $ 280,002 $ 360,074 $ 352,400
Deferred income tax 1,728 11,172 3,710
Other liabilities 17,505 18,196 4,863
--------- --------- ---------
Total liabilities $ 299,235 $ 389,442 $ 360,973
========= ========= =========
</TABLE>
<PAGE> 21
<TABLE>
OHIO CASUALTY CORPORATION & SUBSIDIARIES
SHAREHOLDER INFORMATION
STOCK PRICE AND DIVIDEND INFORMATION
(NASDAQ: OCAS)
<CAPTION>
Quarter 1st 2nd 3rd 4th
==================================================================================
<S> <C> <C> <C> <C>
1996 High 39 1/4 36 1/2 35 1/4 36 5/8
Low 33 1/4 33 1/4 30 3/8 32
Dividend
Declared $0.40 $0.40 $0.40 $0.40
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
</TABLE>
1997 ANTICIPATED DIVIDEND SCHEDULE
<TABLE>
DECLARATION DATE RECORD DATE PAYABLE DATE
- --------------------------------------------------------------------
<S> <C> <C>
February 20, 1997 March 3, 1997 March 10, 1997
May 15, 1997 May 30, 1997 June 10, 1997
August 21, 1997 September 1, 1997 September 10, 1997
November 20, 1997 December 1, 1997 December 10, 1997
</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 $60,000 yearly 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 1996, 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, OH 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 16, 1997, in the meeting rooms of The Hamiltonian Hotel, One Riverfront
Plaza, Hamilton, OH 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, 1996
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation
<S> <C>
The Ohio Casualty Insurance Company Ohio
West American Insurance Company Indiana
Ohio Security Insurance Company Ohio
American Fire and Casualty Company Ohio
The Ohio Life Insurance Company Ohio
Ocasco Budget, Inc. Ohio
</TABLE>
72
<PAGE> 1
OHIO CASUALTY CORPORATION
136 NORTH THIRD STREET
HAMILTON, OHIO 45025
NOTICE OF ANNUAL MEETING
OF
SHAREHOLDERS
TO BE HELD APRIL 16, 1997
Hamilton, Ohio
March 14, 1997
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 16, 1997,
at 10:30 a.m., local time, for the following purposes:
(1) To elect the following four Directors for terms expiring in 2000 (Class
I), as successors to the class of Directors whose terms expire in 1996:
Jack E. Brown, Vaden Fitton, Joseph L. Marcum, and Howard L. Sloneker
III.
(2) To approve amendments to the Company's 1993 Stock Incentive Program.
(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 3, 1997 are entitled to notice of and to vote at the Annual
Meeting and at any adjournment thereof. As of March 3, 1997, there were
35,110,231 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,
/s/ Howard L. Sloneker III
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 14, 1997
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 1997
Annual Meeting of Shareholders (the "Annual Meeting") scheduled for Wednesday,
April 16, 1997 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 Annual Meeting
accompanying this Proxy Statement and for the adoption of the proposed
amendments to the Company's 1993 Stock Incentive Program. 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 3, 1997, the record date fixed for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting, there were
outstanding 35,110,231 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 non-votes are also counted for
purposes of determining the presence or absence of a quorum. Broker non-votes
occur when brokers, who hold their customers' shares in street name, sign and
submit proxies for such shares on some matters, but not others. Typically, this
would occur when brokers have not received any instructions from their
customers, in which case the brokers, as the holders of record, are permitted to
vote on "routine" matters, which typically include the election of directors,
but not on non-routine matters.
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 3,411,430(1) 9.71% 12-31-96
SOUTHWESTERN OHIO
Third and High Streets
Hamilton, Ohio 45011
THE CHASE MANHATTAN BANK, 2,549,554(2) 7.25% 12-31-96
N.A., Trustee
1211 Avenue of the Americas
New York, New York 10036
THE CAPITAL GROUP, INC 2,921,400(3) 7.23% 12-31-96
333 South Hope Street
Los Angeles, California 90071
JOSEPH L. MARCUM 2,223,716(4) 6.35%(4) 03-03-97
136 North Third Street
Hamilton, Ohio 45025
</TABLE>
- ---------------
(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 3,039,017 shares,
shared voting power for 0 shares, sole investment power for 1,387,171
shares, and shared investment power for 1,600,620 shares. 425,656 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) 1,707,322 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 12, 1997,
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 2,921,400 shares as
of December 31, 1996.
(4) See share ownership information for Mr. Marcum in the following table.
2
<PAGE> 4
SHAREHOLDINGS OF DIRECTORS, EXECUTIVE OFFICERS
AND NOMINEES FOR ELECTION AS DIRECTOR
As of March 3, 1997, 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
NUMBER OF OPTIONS VOTING POWER
COMMON SHARES EXERCISABLE OVER EMPLOYEES
NAME OF BENEFICIALLY WITHIN RETIREMENT PERCENT
INDIVIDUAL OR GROUP OWNED(1) 60 DAYS PLAN SHARES(2) TOTAL OF CLASS(3)
- --------------------------- ------------- ----------- ----------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Arthur J. Bennert 19,178 6,000 25,178
Jack E. Brown 1,100 3,000 4,100
Catherine E. Dolan 100 6,000 6,100
Wayne Embry 200 6,000 6,200
Vaden Fitton 228,064(4) 3,000 231,064
Jeffery D. Lowe 157,978(4 (7)(8) 1,000 158,978
Joseph L. Marcum 1,378,484(5)(6) 3,000 842,232(2) 2,223,716 6.33%
Stephen S. Marcum 295,050(4)(6) 6,000 301,050
Lauren N. Patch 206,278(4)(7) 10,000 842,232(2) 1,058,510 3.01%
Stanley N. Pontius 1,120 6,000 7,120
Howard L. Sloneker III 192,611(7) 3,333 195,944
William L. Woodall 23,484 6,000 29,484
Andrew T. Fogarty 57,822(4 (7)(8) 1,429 59,251
Michael L. Evans 5,373(7) 3,333 8,706
Barry S. Porter 26,783(7) 3,333 842,232(2) 872,348 2.48%
All Executive Officers,
Directors and Nominees as
a Group (30 Persons) 2,702,940 78,999 842,232(2) 3,624,171 10.31%
</TABLE>
- ---------------
(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 (2) of the preceding table. Messrs. Marcum, Patch and 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, 108,926 Mr. Fogarty, 5,468;
Mr. Joseph L. Marcum, 617,304; Mr. Lowe, 136,900; Mr. Patch, 169,692; and
Mr. Stephen S. Marcum, 84,090.
(5) Includes 237,852 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 85,306 shares held as 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. Evans, Lowe, Patch, Sloneker, Fogarty, and
Porter includes 1,127, 4,952, 4,370, 2,187, 16,010 and 9,294 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.
3
<PAGE> 5
(8) Andrew T. Fogarty retired from his position as executive officer of the
Company on January 1, 1997.
ELECTION OF DIRECTORS
The Board of Directors intends that the four persons named under Class I in
the following table (the "Nominees") will be nominated for election at the
Annual Meeting for three-year terms expiring in 2000. The terms of the remaining
directors in Classes II and III 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 Nominees.
<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:
Nominees for Terms Expiring in 2000:
Jack E. Brown, Chairman of Board, BBI Marketing Services, Inc., Cincin- 1994
53 nati, Ohio (professional marketing consulting firm).
Vaden Fitton, Director and Retired First Vice President of First 1967
68 National Bank of Southwestern Ohio, Hamilton, Ohio.
Joseph L. Marcum, Chairman of the Board and Director of the Company, The 1949
73 Ohio Casualty Insurance Company, West American Insur-
ance 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 Company, 1983
40 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.
DIRECTORS WHOSE TERMS CONTINUE BEYOND THE ANNUAL MEETING:
Class II -- Terms Expiring in 1998:
Wayne Embry, Executive Vice President and General Manager of the 1991
60 Cleveland Cavaliers (professional basketball franchise);
Chairman of Michael Alan Lewis Company, Cleveland, Ohio
(fabricators of materials for the automobile industry).
</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>
Stephen S. Marcum, Member of the law firm of Parrish, Beimford, Fryman, 1989
39 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 Financial 1994
50 Bancorp and its principal subsidiary, First National
Bank of Southwestern Ohio, Hamilton, Ohio.
William L. Woodall, Director of the Company, The Ohio Casualty Insurance 1986
73 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 executive officer of the Company and its
subsidiaries on December 31, 1990.
Class III -- Terms Expiring in 1999
Arthur J. Bennert, Director of the Company, The Ohio Casualty Insurance 1989
70 Company, West American Insurance Company, American Fire
and Casualty Company, Ohio Security Insurance Company
and The Ohio Life Insurance Company; retired as an
executive officer of the Company and its subsidiaries on
January 1, 1992.
Catherine E. Dolan, Managing Director of the Financial Institutions Group, 1994
39 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 Ohio 1983
51 Casualty Insurance Company, West American Insurance
Company, American Fire and Casualty Company, Ohio
Security Insurance Company and OCASCO Budget, Inc.;
President and Director of Ohio Life Insurance Company.
Lauren N. Patch, President, Chief Executive Officer and Director of the 1987
46 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.
</TABLE>
- ---------------
(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.
5
<PAGE> 7
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."
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.
MEETINGS OF THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
During 1996, the Board of Directors held five meetings. No director
attended fewer than 75% of the aggregate number of meetings of the Board of
Directors and the committees on which he or she served.
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 two meetings during 1996. The members of the
Executive Committee are Joseph L. Marcum, Lauren N. Patch, and Howard L.
Sloneker III. Each Executive Committee member attended both of the meetings in
1996. 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 on the Board or any other
committee of the Board.
The Audit Committee held two meetings during 1996. The 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
1996. 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 two meeting during 1996. The
current members of the Executive Compensation Committee are Jack E. Brown, Vaden
Fitton, and Stanley N. Pontius. Each member of the Executive Compensation
Committee attended both meetings of the committee. 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 1996. Each non-employee director of the Company received $1,500 per
meeting for attending the regular meetings of the Board of Directors in 1996.
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 1996 as compensation for serving as the Chairman of
the Board.
On May 21, 1996, Arthur J. Bennert and Catherine E. Dolan, each of whom is
a non-employee director of the Company, were granted a non-qualified stock
option (an "NQSO") to purchase 3,000 common shares of the Company at an exercise
price of $34.50 per share, the
6
<PAGE> 8
closing market price of the common shares on the date of grant. Any individual
who becomes or is re-elected a non-employee director is automatically granted an
NQSO to purchase 3,000 common shares effective on the third business day
following the first meeting of the Board of Directors after his/her election or
appointment to the Board. The exercise price of each NQSO granted to a
non-employee director is equal to the fair market value of the common shares on
the date of grant. NQSOs granted to non-employee directors have terms of ten
years (subject to earlier termination in certain cases) and may not be exercised
during the six months following their date of grant.
EXECUTIVE COMPENSATION
The following table presents information concerning compensation provided
by the Company to its Chief Executive Officer and to each of the Company's four
most highly compensated executive officers, other than the Chief Executive
Officer, for services rendered in all capacities for each of the Company's last
three completed fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------ ----------------------------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING DIVIDEND
NAME AND SALARY COMPENSATION STOCK OPTIONS/ PAYMENT
PRINCIPAL POSITION YEAR ($)(1) ($)(2)(3)(4) AWARDS($)(5) SARS(#) RIGHTS(#)(6)
- ------------------------ ---- ------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Lauren N. Patch 1996 529,560 47,881 57,709 30,000 30,000
President and Chief 1995 474,231 13,477 0 0 0
Executive Officer 1994 374,616 10,489 0 0 0
Andrew T. Fogarty(7) 1996 296,749 47,058 0 10,000 0
Senior Vice 1995 231,300 6,939 0 0 0
President 1994 220,838 6,625 0 0 0
Barry S. Porter 1996 248,604 22,484 23,677 10,000 10,000
Chief Financial 1995 233,208 6,996 0 0 0
Officer and Treasurer 1994 211,285 6,339 0 0 0
Jeffery D. Lowe 1996 231,012 6,180 0 3,000 0
Vice 1995 231,012 3,090 0 0 0
President 1994 227,781 4,699 0 0 0
Michael L. Evans 1996 199,500 5,985 18,686 10,000 10,000
Executive Vice 1995 174,462 4,500 0 0 0
President 1994 134,262 4,028 0 0 0
</TABLE>
- ---------------
(1) Includes annual directors' fees for Messrs. Patch and Lowe.
(2) Includes for Messrs. Patch, Fogarty, Porter, Lowe and Evans for 1996 the
amounts of $4,500, $4,500, $4,500, $4,500 and $4,500, respectively,
contributed by the Company under the Company's Employee Savings Plan. Also
includes for Messrs. Patch, Fogarty, Porter, Lowe and Evans for 1996 the
amounts of $10,637, $2,735, $2,958, $1,680 and $1,485, respectively,
contributed by the Company under the Company's Supplemental Executive
Savings Plan, a non-qualified plan.
(3) Includes the following amounts paid in 1997 to the named executives to
reimburse them for income taxes incurred as a result of the grant of the
restricted shares described in note (5) below: Mr. Patch $32,744, Mr. Porter
$15,026 and Mr. Evans $13,066.
(4) Includes for Mr. Fogarty $25,905, the fair market value on February 20, 1997
of 628 common shares which were awarded to him on that date for services
rendered in 1996. Also includes $13,918 paid by the Company to reimburse Mr.
Fogarty for income later incurred as a result of the shares awarded.
(5) Awards under the Company's Annual Incentive Plan are made in the form of
restricted common shares (a description of the Plan is set forth in the
Executive Compensation
7
<PAGE> 9
Committee Report on Executive Compensation). Shares of restricted stock were
granted on February 20, 1997 to certain of the named executive officers
pursuant to the Plan for services rendered in 1996. Such restricted common
shares vest on the third anniversary of the date of grant so long as the
executive officer is an employee on such date (with earlier vesting
occurring on retirement, death or disability or termination of employment
following a change of control). Dividends are paid on restricted common
shares at the same rate as paid on the Company's common shares. No
restricted common shares were outstanding at the end of 1996.
(6) Dividend payment rights were granted to the named executive officers in
1996. One third of these rights become effective on each anniversary of the
grant date. These rights entitle to the holder on the April 15th following
the fourth anniversary of the grant date to receive, for each dividend
payment right, an amount in cash equal to the aggregate amount of dividends
that the Company has paid on each common share from the date on which such
right becomes effective through the payout date subject to certain
restrictions.
(7) Mr. Fogarty retired as executive officer of the Company effective January 1,
1997.
The following table sets forth information concerning the grant of stock
options and SARs during the last fiscal year to each of the executive officers
of the Company named in the Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS/SARS PRICE APPRECIATION
NUMBER OF GRANTED FOR
SECURITIES TO EXERCISE OPTION TERM(2)
UNDERLYING EMPLOYEES OR BASE ---------------------
OPTIONS/SARS IN FISCAL PRICE EXPIRATION ($) ($)
NAME GRANTED #(1) YEAR# ($/SH) DATE 5% 10%
- ------------------- ------------ ------------ -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lauren N.Patch 30,000 24.79 35.00 01/23/06 660,339 1,673,430
Andrew T. Fogarty 10,000 8.26 35.00 01/23/06 220,113 557,810
Barry S. Porter 10,000 8.26 35.00 01/23/06 220,113 557,810
Jeffery D. Lowe 3,000 2.47 35.00 01/23/06 66,034 167,343
Michael L. Evans 10,000 8.26 35.00 01/23/06 220,113 557,810
</TABLE>
- ---------------
(1) All of these stock options, which were granted pursuant to the Ohio Casualty
Corporation 1993 Stock Incentive Program, were granted at market value on
the date of grant, become exercisable as to one-third of the option shares
on each of the first three anniversaries of the date of grant and have a
term of ten years. In the event of a change in control of the Company, the
stock options would become exercisable in full. Stock options reported
consist of incentive stock options and non-qualified stock options.
(2) The dollar amounts under these columns are the result of calculations at the
5% and 10% annual appreciation rates set by the Securities Exchange
Commission for illustrative purposes, and, therefore, are not intended to
forecast future financial performance or possible future appreciation in the
price of the Company's common shares. Shareholders are therefore cautioned
against drawing any conclusions from the appreciation data shown, aside from
the fact that optionees will only realize value from the option grants shown
when the price of the Company's common shares appreciates, which benefits
all shareholders commensurately.
8
<PAGE> 10
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:
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
--------------------------------------------------
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SHARES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS/SARS OPTIONS/SAR
SHARES AT 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 3,500 29,750 30,000 15,000
Barry S. Porter 3,500 21,562 10,000 5,000
Andrew T. Fogarty 3,300 19,111 10,000 5,000
Jeffery D. Lowe 0 0 3,000 1,500
Michael L. Evans 3,500 29,874 10,000 5,000
</TABLE>
- ---------------
(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 31, 1996
($35.50), 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>
15 20 25 30 35 40 45
ANNUAL EARNINGS YEARS YEARS YEARS YEARS YEARS YEARS YEARS
- --------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 125,000 $ 28,056 $ 37,408 $ 46,760 $ 56,112 $ 65,464 $ 74,816 $ 84,168
175,000 40,056 53,408 66,760 80,112 93,464 106,816 120,168
225,000 52,056 69,408 86,760 104,112 121,464 138,816 156,168
275,000 64,056 85,408 106,760 128,112 149,464 170,816 192,168
325,000 76,056 101,408 126,760 152,112 177,464 202,816 228,168
375,000 88,056 117,408 146,760 176,112 205,464 234,816 264,168
400,000 94,056 125,408 156,760 188,112 219,464 250,816 282,168
425,000 100,056 133,408 166,760 200,112 233,464 266,816 300,168
450,000 106,056 141,408 176,760 212,112 247,464 282,816 318,168
475,000 112,056 149,408 186,760 224,112 261,464 298,816 336,168
500,000 118,056 157,408 196,760 236,112 275,464 314,816 354,168
525,000 124,056 165,408 206,760 248,112 289,464 330,816 372,168
550,000 130,056 173,408 216,760 260,112 303,464 346,816 390,168
600,000 142,056 189,408 236,760 284,112 331,464 378,816 426,168
</TABLE>
9
<PAGE> 11
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
($160,000 for 1997) 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 equivalent present value of the benefit
payable under the Benefit Equalization Plan in a lump sum.
At December 31, 1996, 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, 20.5 years ($372,046); Barry S. Porter, 22.5 years ($210,852); Andrew T.
Fogarty, 24.5 years ($231,569); Jeffery D. Lowe, 21.5 years ($194,475); and
Michael L. Evans, 21.5 years ($148,778). 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
EXECUTIVE COMPENSATION POLICIES
The Company's executive compensation programs are designed to enable it to
recruit, retain and motivate outstanding executives. This is essential for the
Company to achieve its challenging performance objectives and to achieve
superior investment returns for its shareholders.
The Committee believes that the Company's executive compensation
opportunities, including those for the Company's Chief Executive Officer
("CEO"), should create incentives for superior performance and consequences for
below-target performance. In 1996, the Company's Board of Directors approved a
redesigned executive compensation program which more closely links the level of
executive compensation with Company performance. A substantial portion of each
executive's compensation potential is now tied to achievement of annual
objectives and long-term shareholder returns. An important consideration in the
design of the new executive compensation program was the use of Company shares
to encourage greater share ownership by Company executives so that the
opportunity of the Company's executives for financial gain is directly linked to
increases in shareholder wealth, as reflected by the market price of the
Company's common shares. This redesigned executive compensation program was
first implemented during the 1996 fiscal year.
The Company's basic compensation program for its executive officers and
approximately 17 additional key executives (collectively called the "Partners")
consists of the following ele-
10
<PAGE> 12
ments: (i) base salary established on an annual basis, (ii) an Annual Incentive
Plan whereby annual awards, payable in the form of restricted common shares, may
be made to the Partners based on individual and team performance with team
performance being measured generally by the Company's total return performance
as measured against predetermined return on equity (ROE) goals; and (iii) a
Long-Term Incentive Plan whereby stock options and dividend payment rights are
awarded on an annual basis. As described more fully below, each element of the
Company's executive compensation program has a somewhat different purpose. Stock
options and restricted shares are issued under the shareholder-approved 1993
Stock Incentive Program.
As part of the administration of the Company's new executive compensation
program, the Committee will annually examine short-term and long-term
compensation levels for the CEO and other senior executives against a survey of
the compensation practices of comparably sized property and casualty insurance
companies (the "survey companies"). The survey companies include some, but not
all, of the companies covered in the Dow Jones Insurance Index for Property and
Casualty Companies included in the Performance Graph on page 14.
SPECIFIC COMPENSATION PROGRAMS
Base salary ranges for the CEO and the other executive officers of the
Company are based on individual performance, the responsibilities associated
with an individual's position and the skills and experience of the individual,
which are reviewed annually and benchmarked against similar positions among the
survey companies. Salary ranges are targeted at the median level for similar
positions among the survey companies. The base salary of the CEO is established
by the Committee. The base salaries of the other executive officers are
established by the CEO. Salary adjustments are evaluated on an annual basis and
are based on individual performance, as determined in accordance with the
Company's executive performance evaluation system, and as reflective of
competitive conditions existing at the time.
The Company's Annual Incentive Plan and its Long Term Incentive Plan are
designed to provide participants with the opportunity to receive total
compensation targeted at 75th percentile of salaries for similar positions among
the survey companies.
The potential award opportunities for each of the executives who
participate in the Annual Incentive Plan are determined at the beginning of such
year by the Committee for the executive officers, including the CEO, and by the
CEO for all other Partners. Potential award opportunities for a fiscal year,
which are expressed as a percentage of a participant's base salary for the
fiscal year, are based on a participant's position in the Company's management
organization, with higher percentages being assigned to executives who hold more
senior positions. Actual award amounts are based on a combination of team
performance and individual performance. Team performance, which accounts for up
to 50% of the total award potential, is based on the Company's actual
performance against pre-determined return on equity and premium growth goals for
the year. If the Company does not meet the established threshold performance
level, no team awards are made. If the threshold performance is achieved, each
of the executive officers and other Partners receives a team award, the amount
of which depends on the extent to which the Company's performance exceeds the
threshold level and the potential award opportunity assigned to each individual
participant, as described above. Individual awards are made only if the
performance level required for team awards has been met and then only if a
determination is made by the Committee and CEO to fund such awards. The
Committee determines, based on a recommendation from the CEO, the level of
funding for the individual award pool based on the performance achieved by the
management team on a number of criteria. The pool is allocated among the
participants on the basis of their performance evaluations as determined by the
CEO (the CEO's performance evaluation is conducted by the Committee). Individual
performance accounts for the remaining 50% of the total award potential under
the Annual Incentive Plan.
11
<PAGE> 13
Awards under the Annual Incentive Plan are paid in restricted shares of the
Company. The Company also pays the taxable income resulting to the participant
from the grant. Such restricted stock shares may not be transferred by the
participant for a three-year period following the date of grant, unless the
participant dies or his employment is terminated as a result of disability or
retirement or following a change in control of the Company. If the employment of
the participant terminates for any other reason during such three-year period,
the restricted shares will be forfeited to the Company. The Committee believes
that restricted shares provide a strong incentive for executives to continue as
employees of the Company and to work to increase the value of the Company during
their employment. Awards under the Annual Incentive Plan for 1996 were paid in
the form of restricted common shares issued in February of 1997.
Awards under the Company's Long-Term Incentive Plan consist of stock
options, either incentive stock options or non-qualified stock options, and
dividend payment rights. Stock options are granted at market value on the date
of grant and increase in value only to the extent of appreciation in the
Company's common shares. The stock options become exercisable over a period of
three years and expire at the end of ten years from the date of grant. Stock
option grants are made at the beginning of each year, although grants may be
made at different times to participants who are promoted or newly hired. The
number of stock options to be granted annually to an individual participant over
a three-year period is based on the participant's salary level and position.
While it is the intention of the Committee to make stock options grants
annually, the Committee has reserved the right to eliminate stock option awards
or make other modifications in the Long-Term Incentive Plan. The Committee also
intends to hold constant the number of shares granted to each participant over
each three-year period, although it has reserved the right to make changes in
the number of shares granted to any participant.
In addition to stock options, participants in the Long-Term Incentive Plan
may be granted dividend payment rights. These rights, which become effective
over a three-year period, entitle the holder on the scheduled payout date to
receive, for each right, an amount in cash equal to the aggregate amount of
dividends that the Company has paid on each common share from the date on which
the dividend payment right becomes effective through the payout date. If the
holder ceases to be an employee prior to the payout date as a result of death,
disability, retirement or as a result of termination following change in control
of the Company, the Company will pay, for each dividend payment right which is
effective on the termination date, a cash amount equal to the aggregate amount
of dividends that the Company has paid on each Common Share from the date on
which the dividend payment right became effective through the termination date.
If the employment of the holder terminates for any other reason, the holder will
not be entitled to any payment whatsoever under this agreement. The employees to
whom stock options and dividend payment rights are to be awarded are determined
annually by the Committee for the executive officers, including the CEO, and by
the CEO for all other Partners.
Section 162(m) of the Code generally limits the corporate tax deduction for
compensation paid to executive officers named in the Summary Compensation Table
in the proxy statement to $1 million, unless certain requirements are met. None
of the executive officers of the Company exceeded the threshold for
deductibility under Section 162(m) in 1996.
BASES FOR CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee evaluates the performance of the CEO at least annually. In
1996, Mr. Patch received a base salary of $505,000, which represented a 12.2%
increase over his base salary for 1995. The Committee's decision to increase Mr.
Patch's base salary was based on its evaluation of his performance and its
current policy that the salaries for the Company's executive officers, including
Mr. Patch, should be set at the median level for CEO's of the survey companies.
Mr. Patch also received an award under the Annual Incentive Plan for service in
1996 of a total of 1,399 restricted common shares of the Company, which were
issued to him in 1997 and which
12
<PAGE> 14
will be forfeited to the Company if he leaves the Company during the three-year
period following the date of issue. As described in detail above, the
Committee's determination of the number of restricted common shares awarded to
Mr. Patch (and to all of the other executive officers) under the Annual
Incentive Plan was based on the Company's 1996 total return performance as
measured against an established return on equity target. No individual awards
were made to any of the Company's executive officers under the Annual Incentive
Plan for 1996. The Company also granted to Mr. Patch in 1996 pursuant to the
Long-Term Incentive Plan an incentive stock option for 8,571 shares and a
non-qualified stock option for 21,429 shares. The number of stock options
granted to Mr. Patch was based on his salary level and position with the
Company. As previously indicated, in establishing the compensation of Mr. Patch
and the other executive officers, the goal of the Committee has been to create a
total compensation opportunity through base salary and awards under the Annual
Incentive Plan and the Long-Term Incentive Plan which, if realized as a result
of the Company's performance, would result in total compensation being at the
75th percentile for similar positions at the survey companies.
The foregoing report on executive compensation is provided by the following
directors, who constituted the Executive Compensation Committee during 1996:
VADEN FITTON JACK E. BROWN JOSEPH L. MARCUM
EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The directors of the Company who served as members of the Company's
Executive Compensation Committee during 1996 were Vaden Fitton, Jack E. Brown
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.
Fitton and Barry S. Porter, the Company's Chief Financial Officer, also served
in 1996, 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.
13
<PAGE> 15
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):
<TABLE>
<CAPTION>
Measurement Period DJ Equity Market DJ Insurance P & Ohio Casualty
(Fiscal Year Covered) Index C (1) Corporation
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 108.61 121.77 133.38
1993 119.41 122.78 141.06
1994 120.33 129.11 131.34
1995 166.31 182.40 188.37
1996 205.57 219.31 180.58
</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.
PROPOSED AMENDMENT TO 1993 STOCK INCENTIVE PROGRAM
The Company's 1993 Stock Incentive Program, which was approved by the
shareholders of the Company at the 1993 Annual Meeting of Shareholders, provides
for the issuance of incentive stock options ("ISOs"), nonqualified stock options
("NQSOs") (ISOs and NQSOs are herein referred to together as "Stock Options"),
stock appreciation rights ("SARs"), limited stock appreciation rights ("LSARs")
and restricted stock awards (collectively, "Awards").
The purpose of the 1993 Program is to attract and retain outstanding
individuals as directors, officers and other key employees of the Company and
its subsidiaries and to furnish incentives to such persons by providing them
opportunities to acquire common shares of the Company on advantageous terms.
The 1993 Program is administered by the Executive Compensation Committee of
the Board of Directors of the Company (the "Committee"). Officers and other
full-time, salaried employees of the Company and its subsidiaries (including the
persons identified in the Summary Compensation Table on page ) who are
selected by the Committee are eligible to receive Stock Options and other Awards
under the 1993 Program. Directors of the Company who are not full-time employees
of the Company or its subsidiaries ("Non-Employee Directors") are participants
in
14
<PAGE> 16
the 1993 Program solely for purposes of receiving certain NQSO Awards. See
"Stock Option Grant to Non-Employee Directors."
The 1993 Program currently authorizes the granting of Stock Options and
other Awards for a total of 1,000,000 common shares and an additional 293,500
common shares of the Company from the prior plan, subject to adjustment to
reflect certain corporate events, including stock splits. As of the date of this
Proxy Statement, a total of 1,006,320 common shares were available for future
grants of Stock Options and other Awards. As of March 3, 1997, ISOs to purchase
an aggregate of 118,284 common shares were outstanding and held by 18 employees,
including executive officers; NQSOs to purchase an aggregate of 133,716 common
shares were outstanding and held by 4 employees, including executive officers
and 9 Non-Employee Directors; and restricted stock awards for a total of 5,579
common shares were outstanding and held by 18 executive officers. It is
estimated that a total of 60 employees of the Company and its subsidiaries and 9
Non-Employee Directors are currently eligible to participate in the 1993
Program.
DESCRIPTION OF AMENDMENTS
On February 20, 1997, the Board of Directors of the Company adopted,
effective upon shareholder approval at the Annual Meeting, the following
amendments to the 1993 Program (the "Amendments"):
1. For purposes of satisfying the requirements of Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), the 1993
Program has been amended, subject to shareholder approval, to (i) provide
that no participant may be granted Stock Options and other Awards for more
than 75,000 common shares during any 12-month period, and (ii) to clarify
that members of the Committee must satisfy the requirements of "outside
directors" as such term is described in the Code and accompanying
regulations of the Internal Revenue Service. In addition, the 1993 Program
has been amended, subject to shareholder approval, to provide that the
Committee shall be comprised of directors who are "Non-Employee Directors"
as that term is defined in Rule 16b-3(b) promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended
(the "1934 Act").
2. The 1993 Program has been amended, subject to shareholder approval,
to permit the Company to grant Stand Alone Stock Appreciation Rights which
may be granted without reference to any stock option granted under the 1993
Program ("Stand Alone Stock Appreciation Rights"). Previous to such
amendment, upon exercise of SARs granted pursuant to the 1993 Program, the
holder must surrender a related stock option for the number of SARs being
exercised. Stand Alone Stock Appreciation Rights may be exercised by a
holder without having to surrender a stock option or any portion thereof.
3. The 1993 Program has also been amended, subject to shareholder
approval, to clarify the circumstances under which Non-Employee Directors
are entitled to receive NQSOs. The Committee has interpreted the language
of the 1993 Program as providing for the grant of a NQSO to each
Non-Employee Director on the third business day following the first meeting
of the Board of Directors after his or her election or appointment to the
Board and on the third business day following re-election to the Board by
the shareholders. The proposed Amendment to the 1993 Program is intended to
clarify and confirm such interpretation of the Committee.
The Amendments will become effective as of February 20, 1997, the date of
approval of the Amendments by the Board of Directors, if a majority of the
common shares of the Company, present in person, or by proxy at the Annual
Meeting is voted in favor of the Amendments. The closing price of the Company's
common shares as reported in the NASDAQ National Market
15
<PAGE> 17
System on March 3, 1997 (record date for the Annual Meeting) was $39.50 per
share. The Amendments are discussed in greater detail below.
OPERATION OF THE 1993 PROGRAM
There follows a summary of the 1993 Program. This summary is qualified in
its entirety by reference to the copy of the 1993 Program, as amended, attached
to this Proxy Statement as Exhibit A.
SHARES AVAILABLE UNDER THE 1993 PROGRAM
Common shares issued pursuant to the 1993 Program may be either authorized
and unissued common shares or treasury shares. If there is a lapse, expiration,
termination or cancellation of any Stock Option or Award without the issuance of
common shares or payment of cash thereunder, or if common shares are issued
under any Award and thereafter are reacquired by the Company pursuant to rights
reserved upon the issuance thereof, in each case so long as the holder thereof
has not received any benefits of ownership of such common shares, the common
shares subject to or reserved for such Stock Option, or other Award may again be
used for new Stock Options or other authorized Awards under the 1993 Program.
In the event of the exercise of an SAR or an LSAR, the number of common
shares reserved for issuance under the 1993 Program will be reduced by the
number of common shares covered by the Stock Option or portion thereof which is
surrendered in connection with such exercise. If the Amendments are adopted and
Stand Alone Stock Appreciation Rights are authorized the exercise of Stand Alone
Stock Appreciation Rights will also reduce the number of common shares reserved
for issuance under the 1993 Program by the number of Stand Alone Stock
Appreciation Rights being exercised.
ADMINISTRATION
The 1993 Program is administered by the Committee. The Committee has
complete discretion to select the individuals to whom Stock Options and other
Awards are granted (other than Non-Employee Directors) and to establish the
terms and conditions of each such grant, subject in each case to the provisions
of the Program. In addition, the Committee is empowered to interpret the 1993
Program and make all determinations necessary or advisable for its
administration. Presently, the members of the Committee are Messrs. Vaden
Fitton, Jack E. Brown, and Stanley N. Pontius.
Section 162(m) of the Code prohibits a publicly held corporation, such as
the Company, from claiming a deduction on its federal income tax return for
compensation in excess of $1 million paid for a given fiscal year to the chief
executive officer (or person acting in that capacity) at the close of the
corporation's fiscal year or any of the four most highly compensated officers of
the corporation, other than the chief executive officer, at the end of the
corporation's fiscal year. The $1 million compensation deduction limitation does
not apply to "performance-based compensation." The regulations issued by the
Internal Revenue Service under Section 162(m) (the "IRS Regulations") set forth
a number of provisions which compensatory plans, such as the 1993 Program, must
contain if Stock Options issued under such plans are to qualify as
performance-based for the purposes of Section 162(m).
One of the Amendments that is necessary in order that the 1993 Program will
satisfy the requirements for performance based compensation set forth in the IRS
Regulation relates to the composition of the Committee. If the Amendments are
adopted by the shareholders, each member of the Committee will be required to be
an "outside director" as that term is used in the Code and the accompanying
regulations of the Code. The Amendments will also require that the Committee be
comprised of persons who satisfy the requirements of a "Non-Employee Director"
as that term is defined in newly-amended Rule 16b-3(b) under the 1934 Act. Rule
16b-3
16
<PAGE> 18
provides for an exemption from the short-swing profits recapture provisions of
Section 16(b) of the 1934 Act for certain transactions between an issuer and its
officers or directors involving shares of the issuer.
ELIGIBILITY
Officers and other full-time, salaried employees of the Company and its
subsidiaries (including the persons named in the Summary Compensation Table on
page 7) who are selected by the Committee are eligible to receive Stock Options
and other Awards. Non-Employee Directors are participants in the 1993 Program
solely for purposes of receiving certain NQSO awards. There are currently 9
Non-Employee Directors of the Company.
A second amendment of the 1993 Program that is necessary in order that the
1993 Program will satisfy the requirements of the IRS Regulations, for Stock
Options under Section 162(m) of the Code relates to the maximum number of common
shares which can be allocated to any one person under the 1993 Program. The 1993
Program originally included no limit on the number of common shares that could
be allocated to any one person, other than the limits imposed on common shares
covered by NQSO awards granted to Non-Employee Directors. The Amendments provide
that no participant may be granted Stock Options and other Awards for more than
75,000 common shares during any calendar year.
As described in the Executive Compensation Committee Report on Executive
Compensation, grants of stock options and restricted common shares under the
1993 Program are significant elements of the Company's executive compensation
program. The following table sets forth the number and exercise price of Stock
Options and restricted common shares granted and issued during 1996 and 1997
(through the date of this Proxy Statement) under the 1993 Program to (1) each of
the executive officers of the Company named in the Summary Compensation Table,
(ii) all current executive officers of the Company as a group, (iii) all current
directors who are not executive officers as a group and (iv) all employees,
including all current officers who are not executive officers, as a group. None
of the nominees for election as director who is not an executive officer
received stock options or other awards in 1996 or 1997 (through the date of this
proxy statement). No Stock Options or other Awards have been granted to
associates of any of the directors or executive officers, and other than the
persons identified in the following table,
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<PAGE> 19
no person received five percent or more of the Stock Options or restricted
shares granted under the 1993 Program during 1996 or 1997.
<TABLE>
<CAPTION>
1996 1997 1996 1997
OPTION OPTION 1997 DIVIDEND DIVIDEND
1996 EXERCISE 1997 EXERCISE RESTRICTED PAYMENT PAYMENT
NAME OR GROUP OPTIONS# PRICE OPTIONS# PRICE SHARES RIGHTS# RIGHTS#
- -------------------------- -------- -------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Lauren N. Patch 30,000 $35.00 30,000 $41.375 1,399 30,000 30,000
Chief Executive Officer
Barry S. Porter 10,000 $35.00 10,000 $41.375 574 10,000 10,000
Chief Financial Officer
Andrew T. Fogarty 10,000 $35.00 0 0 0 10,000 0
Senior Vice President
Jeffery D. Lowe, 3,000 $35.00 0 0 0 3,000 0
Vice President
Michael L. Evans 10,000 $35.00 10,000 $41.375 453 10,000 10,000
Executive Vice President
All current executive 99,000 $35.00 111,000 $41.375 5,579 102,000 111,000
officers as a group(1) 3,000 $33.00
All current directors who 6,000 $34.50 0 0 0 0 0
are not executive
officers as a group
All employees (including 0 0 0 0 1,601 0 0
all current officers 0 0
who are not executive
officers), as a group
</TABLE>
- ---------------
(1) No restricted shares were granted in 1996. Information concerning the
restricted shares awarded in 1997 appears in the Summary Compensation Table
for 1996 because these restricted shares were granted in connection with
services rendered in 1996.
(2) As discussed in the Report of the Executive Compensation Committee, it is
anticipated that a similar number of Stock Options will be granted under the
1993 Program to executive officers in 1998.
(3) See Report of the Executive Compensation Committee for discussion of
restricted share awards.
DURATION
Any grant of a Stock Option or other Award must be made within ten years
after the date the 1993 Program was adopted by the Company's Board of Directors
(February 18, 1993).
ADJUSTMENTS
The 1993 Program provides for adjustment in the number of common shares
reserved for issuance under the 1993 Program, the maximum number of common
shares which may be sold or awarded to any participant and the number and
exercise or purchase price of common shares covered by each outstanding Stock
Option or other Award in the event of a stock dividend, stock split or other
change in the Company's capitalization affecting its common shares and for
adjustment of Stock Options or other Awards in the event of changes in the
common shares resulting from reorganization, sale, merger, consolidation or
similar occurrence.
TERMS OF AWARDS
Stock Options. The option exercise price of any Stock Option granted under
the 1993 Program may not be less than 100% of the Fair Market Value of the
Common shares on the date of grant. In the case of any Stock Option, Fair Market
Value is defined as the closing price of the Company's common shares on the
relevant date, as reported in the NASDAQ National Market System. The period
during which any Stock Option may be exercised is determined by the
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<PAGE> 20
Committee, but no Stock Option may be exercised after the expiration of ten
years from the date it is granted.
Under the 1993 Program, no employee may receive an ISO if, at the time of
grant, such employee owns of record or beneficially more than 10% of the total
combined voting power of all classes of stock of the Company or of any
subsidiary of the Company unless the option exercise price is at least 110% of
the Fair Market Value of the common shares covered by the ISO on the date of
grant and the option term does not exceed five years. The 1993 Program provides
that the aggregate fair market value (determined as of the time as ISO is
granted) of the common shares with respect to which ISOs may become exercisable
for the first time by any individual during any calendar year (under all option
plans of the Company and its subsidiary corporations) may not exceed $100,000.
The Committee may provide for the payment of the option exercise price of
common shares under a Stock Option in cash, by delivery of other common shares
of the Company having a Fair Market Value equal to the option exercise price of
such shares, or by delivery of an exercise notice accompanied by a copy of
irrevocable instructions to a broker to deliver promptly to the Company sale or
loan proceeds to pay the option exercise price. A Stock Option may be exercised
only after six months from its grant date. The 1993 Program contains special
rules governing the time of exercise of Stock Options and SARs in cases of
retirement, death, disability, or other termination of employment. The 1993
Program also provides that, upon the occurrence of a "Change in Control" (as
defined in the 1993 Program) of the Company, all Stock Options, SARs, Stand
Alone Stock Appreciation Rights and LSARs which have been outstanding for at
least six months (whether or not then exercisable) will become fully exercisable
as of the date of the Change in Control.
SARs. An SAR permits the holder to elect to surrender any related Stock
Option or portion thereof which is then exercisable and to receive in exchange
therefor cash in an amount equal to the excess of the Fair Market Value on the
date of such election of one common share over the option exercise price
multiplied by the number of common shares covered by the Stock Option or portion
thereof which is surrendered. The Committee has the discretion to satisfy the
right of a holder of an SAR to receive cash upon the exercise of an SAR, in
whole or in part, by the delivery of common shares. For purposes of an SAR, Fair
Market Value is defined as the closing price of the Company's common shares on
the date of grant.
SARs may be granted with respect to a Stock Option at the time of its grant
or at any time thereafter up to six months prior to its expiration. An SAR may
be granted to an employee regardless of whether such employee has been granted
an LSAR (as described below) with respect to the same Stock Option, although an
SAR may not be exercised during any period that an LSAR with respect to the same
Stock Option may be exercised. An SAR may be exercised only after six months
from its grant date. An SAR will be exercisable upon such additional terms and
conditions as may be prescribed by the Committee in its sole discretion, but in
no event will it be exercisable after the expiration of the related Stock
Option.
LSARs. The 1993 Program also permits the grant of LSARs to the holder of
any Stock Option at the time of the grant of the Stock Option or at any time
thereafter up to six months prior to its expiration. An LSAR may be granted to
an employee regardless of whether such employee has been granted an SAR with
respect to the same Stock Option. An LSAR will permit the holder to surrender
the related Stock Option or portion thereof which is then exercisable and
receive in exchange therefor cash in an amount equal to the excess of the Fair
Market Value on the date of such election of one common share over the option
exercise price multiplied by the number of common shares covered by the Stock
Option or portion thereof which is surrendered. An LSAR may be exercised only
after six months from its date of grant and only during the sixty-day period
commencing with the day following the date of a Change in Control of the
Company. In the case of an LSAR (other than an LSAR related to an ISO), Fair
Market Value is
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<PAGE> 21
the higher of (i) the highest daily closing price of the Common Shares during
the sixty-day period following the Change in Control or (ii) the highest price
paid for Common Shares by the acquirer in the Change in Control. In addition, an
LSAR will be exercisable upon such additional terms and conditions as may be
prescribed by the Committee, in its sole discretion, but in no event will an
LSAR be exercisable after the expiration of the related Stock Option.
Restricted Stock. Restricted stock awards consist of common shares
transferred to participants, without other payment therefor (other than the
payment of the par value of such common shares if required by applicable law),
as additional compensation for their services to the Company or one of its
subsidiaries. Restricted stock awards will be subject to such terms and
conditions as the Committee determines appropriate including, without
limitation, restrictions on the sale or other disposition of such common shares
and rights of the Company to acquire such common shares upon termination of the
participant's employment within specified periods. Subject to such other
restrictions as are imposed by the Committee, the common shares covered by a
restricted stock award may be sold or otherwise disposed of only after six
months from the grant date of the award.
Stand Alone Stock Appreciation Rights. If the Amendments are adopted by
the shareholders, the 1993 Program will authorize the grant of Stand Alone Stock
Appreciation Rights. Unlike SARs and LSARs, Stand Alone Stock Appreciation
Rights may be granted without reference to any Stock Option granted under the
1993 Program. Thus, when a Stand Alone Stock Appreciation Right is exercised,
the holder is not required to surrender any related Stock Option or portion
thereof. Upon exercise of a Stand Alone Stock Appreciation Right, the holder
will receive cash (or, at the election of the Committee, common shares) in an
amount (or, in the case of common shares, having a Fair Market Value) equal to
the excess of the Fair Market Value on the date of election of one common share
over the exercise price of the right multiplied by the number of Stand Alone
Stock Appreciation Rights being exercised. For purposes of the Stand Alone Stock
Appreciation Rights, Fair Market Value is defined as the closing price of the
common shares as reported in the NASDAQ National Market System on the date of
grant. Stand Alone Stock Appreciation Rights may not be exercised during the six
months following the date of grant. The Amendments contain special rules
governing the time of exercise of Stand Alone Stock Appreciation Rights in case
of death or other termination of employment.
Stock Option Grants to Non-Employee Directors. The 1993 Program also
provides that each person who becomes a Non-Employee Director of the Company is
automatically granted an NQSO to purchase 3,000 common shares (reflects
adjustment for a two-for-one stock split in 1994) effective on the third
business day following the first meeting of the Board of Directors after
election or appointment to the Board. The option 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.
The Committee has interpreted the language of the 1993 Program as providing
for the grant of a NQSO to a Non-Employee Director following his or her initial
election or appointment to the Board of Directors and following each subsequent
annual meeting of shareholders at which he or she is re-elected to the Board of
Directors. The Amendments clarify the language of the 1993 Program to provide
for the grant of a NQSO to a Non-Employee Director on the third business day
following the date of his or her first election or appointment to the Board of
Directors and on the third business day following each Annual Meeting of
Shareholders at which he or she is elected or re-elected to the Board of
Directors for an additional term of office by the shareholders of the Company.
NQSOs granted to Non-Employee Directors have terms of ten years. The 1993
Program contains special rules governing the time of exercise of NQSOs granted
to Non-Employee Directors in case of death, disability or other termination of
service as a director. Stock Options
20
<PAGE> 22
granted to Non-Employee Directors may not be exercised during the six months
following their date of grant.
Each Stock Option, SAR, LSAR, Stand Alone Stock Appreciation Right and
restricted stock award granted under the 1993 Program will not be transferable
other than by will or the laws of descent and distribution, and will be
exercisable, during a participant's lifetime, only by the participant or the
participant's guardian or legal representative.
AMENDMENTS AND DISCONTINUANCE
The Board of Directors may amend the 1993 Program from time to time or
terminate the 1993 Program at any time without the approval of the shareholders
of the Company except as such shareholder approval may be required (a) to
satisfy the requirements of Rule 16b-3 under the Securities Exchange Act of
1934, (b) to satisfy applicable tax law requirements or (c) to satisfy
applicable requirements of the NASDAQ National Market System. No such action
may, without the consent of the participant, reduce the amount of any existing
Award of such participant or adversely change the terms and conditions thereof.
The provisions of the 1993 Program governing grants of NQSOs to Non-Employee
Directors may not be amended more frequently than once every six months other
than to comport with changes in the Code, or the rules thereunder or changes in
the Employee Retirement Income Security Act of 1974.
The terms and conditions applicable to any Awards granted and outstanding
may at any time be amended, modified, or canceled, without shareholder approval,
by mutual agreement between the Committee and the participant so long as
shareholder approval of such amendment, modification or cancellation is not
required to permit the 1993 Program to satisfy the requirements of Rule 16b-3,
to satisfy applicable provisions of the tax laws or to satisfy any applicable
requirements of the NASDAQ National Market System. The Committee may, at any
time and in its sole discretion, declare any or all Stock Options (other than
any NQSO granted to a Non-Employee Director), SARs, Stand Alone Stock
Appreciation Rights and LSARs then outstanding under the 1993 Program to be
exercisable, and any or all outstanding restricted stock awards to be vested,
whether or not such Stock Options, SARs, Stand Alone Stock Appreciation Rights,
LSARs or other Awards are otherwise exercisable or vested.
FEDERAL INCOME TAX CONSEQUENCES
Based on current provisions of the Code and the existing regulations
thereunder, the anticipated federal income tax consequences in respect of Stock
Options and other Awards granted under the 1993 Program are as described below.
The following discussion is not intended to be a complete statement of
applicable law and is based upon the federal income tax laws as in effect on the
date hereof. Since tax law is subject to change and since the application of tax
law may vary depending upon the facts applicable to the taxpayer, each
participant in the 1993 Program will be advised to consult with such
Participant's own tax advisor before taking action with respect to benefits
awarded to him or her under the 1993 Program.
ISOS
In general, a participant who is granted an ISO does not recognize taxable
income either on the date of grant or on the date of exercise. However, upon the
exercise of the ISO, the difference between the Fair Market Value of the common
shares received and the option price is a tax preference item potentially
subject to the alternative minimum tax.
Upon disposition of common shares acquired from exercise of an ISO,
long-term capital gain or loss is generally recognized in an amount equal to the
difference between the amount realized on the sale or disposition and the
exercise price. However, if the participant disposes of the common shares within
two years of the date of grant or within one year from the date of the issuing
of the common shares to the participant (a "Disqualifying Disposition"), then
the
21
<PAGE> 23
participant will recognize ordinary income, as opposed to capital gain, at the
time of disposition in an amount generally equal to the lesser of (i) the amount
of gain realized on the disposition or (ii) the difference between the Fair
Market Value of the common shares received on the date of exercise and the
exercise price. Any remaining gain or loss is treated as a short-term or long-
term capital gain or loss, depending upon the period of time the common shares
have been held.
The Company is not entitled to a tax deduction upon either exercise of an
ISO or disposition of common shares acquired pursuant to such exercise, except
to the extent that the participant recognizes ordinary income in a Disqualifying
Disposition.
If the holder of an ISO pays the exercise price, in whole or in part, with
previously acquired shares, the exchange will not affect the tax treatment of
the exercise. Upon such exchange, and except for Disqualifying Dispositions, no
gain or loss is recognized upon the delivery of the previously acquired shares
to the Company, and the shares received by the participant equal in number to
the previously acquired shares exchanged therefor will have the same basis and
holding period for capital gain or capital loss purposes as the previously
acquired shares. Shares received by the participant in excess of the number of
previously acquired shares will have a basis of zero and a holding period which
commences as of the date the shares are issued to the participant upon exercise
of the ISO. If such an exercise is effected using shares previously acquired
through the exercise of an ISO, the exchange of the previously acquired shares
will be considered a disposition of such shares for the purpose of determining
whether a Disqualifying Disposition has occurred.
NQSOS
In general, a participant receiving an NQSO generally does not recognize
taxable income on the date of grant of the NQSO. The participant must recognize
ordinary income generally at the time of exercise of the NQSO in the amount of
the difference between the Fair Market Value of the common shares on the date of
exercise and the option price. The ordinary income received will constitute
compensation for which tax withholding generally will be required. The amount of
ordinary income recognized by a participant will be deductible by the Company in
the year that the participant recognizes the income if the Company complies with
the applicable withholding requirement.
Common shares acquired upon exercise of an NQSO will have a tax basis equal
to their fair market value on the exercise date or other relevant date on which
ordinary income is recognized, and the holding period for the common shares
generally will begin on the date of exercise or such other relevant date. Upon
subsequent disposition of the common shares, the participant will recognize
long-term capital gain or loss if the participant has held the common shares for
more than one year prior to disposition, or short-term capital gain or loss if
the participant has held the common shares for one year or less.
If the holder of an NQSO pays the exercise price, in whole or in part, with
previously acquired shares, the exchange will not affect the tax treatment of
the exercise, i.e., the holder will recognize ordinary income in the amount by
which the fair market value of the shares received exceeds the exercise price.
Upon such exchange, no gain or loss is recognized upon delivery of the
previously acquired shares to the Company, and the shares received by the holder
equal in number to the previously acquired shares exchanged therefor will have
the same basis and holding period for capital gain purposes as the previously
acquired shares. Shares received by the holder of the NQSO in excess of the
number of previously acquired shares will have a basis equal to the fair market
value of such additional shares as of the date ordinary income equal to such
fair market value is realized and a holding period which commences as of such
date.
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<PAGE> 24
SARS AND STAND ALONE STOCK APPRECIATION RIGHTS
A participant is not taxed upon the grant of SARS or Stand Alone Stock
Appreciation Rights. Rather, participants will generally be taxed upon the
exercise date, at ordinary income tax rates, on the amount of cash received and
the fair market value of any common shares received. The amount of ordinary
income recognized by a participant will be deductible by the Company in the year
in which the participant recognizes income.
RESTRICTED STOCK AWARDS
An employee who is granted a restricted stock award will not be taxed upon
the acquisition of such common shares so long as the interest in such common
shares is subject to a substantial risk of forfeiture. Upon lapse or release of
the restrictions, the participant will be taxed at ordinary income tax rates on
an amount equal to either the current fair market value of the common shares (in
the case of lapse or termination) or the sale price (in the case of a sale),
less any consideration paid for the shares. The Company will be entitled to a
corresponding deduction. The basis of restricted shares held after lapse or
termination of restrictions will be equal to their fair market value on the date
of lapse or termination of restrictions, and upon subsequent disposition, any
further gain or loss will be long-term or short-term capital gain or loss,
depending upon the length of time the common shares are held.
A participant may elect to be taxed at ordinary income tax rates on the
full fair market value of the restricted shares at the time of issuance (less
any consideration paid). The basis of the common shares so acquired will be
equal to the fair market value at such time. If the election is made, no tax
will be payable upon the subsequent lapse or release of the restrictions, and
any gain or loss upon disposition will be a capital gain or loss.
VOTE REQUIRED
Shareholder approval of the Amendments to the 1993 Program will require the
affirmative vote of the holders of a majority of the Company's common shares
represented in person or by proxy at the Annual Meeting or any adjournment
thereof. Under Ohio Law, abstentions and broker non-votes are counted as
present; the effect of an abstention or broker non-vote on the proposal is the
same as a "no" vote.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE AMENDMENTS TO THE 1993
PROGRAM. 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 AMENDMENTS TO THE 1993
PROGRAM.
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended December 31, 1996
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 1997.
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 Com-
23
<PAGE> 25
pany'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 25, 1997 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 1996.
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, 1996, 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.
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<PAGE> 26
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,
Howard L. Sloneker III, Secretary
March 14, 1997
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<PAGE> 27
EXHIBIT A
OHIO CASUALTY CORPORATION 1993 STOCK INCENTIVE PROGRAM
(AS AMENDED THROUGH FEBRUARY 20, 1997)
1. PURPOSE. The purpose of the Ohio Casualty Corporation 1993 Stock
Incentive Program (the "Program") is to attract and retain outstanding
individuals as directors, officers and other key employees of Ohio Casualty
Corporation (the "Company") and its Subsidiaries, and to furnish incentives to
such persons by providing such persons opportunities to acquire Common Shares of
the Company, or monetary payments based on the value of such shares, on
advantageous terms as herein provided.
2. ADMINISTRATION. The Program will be administered by a committee (the
"Committee") of at least three persons which shall be either the Executive
Compensation Committee of the Board of Directors of the Company or such other
committee comprised entirely of persons that are both (i) Non-Employee Directors
as defined in Rule 16b-3 promulgated by the Securities and Exchange Commission,
and (ii) "outside directors" as defined in Section 162(m) of the Internal
Revenue Code of 1986, as amended, and the regulations thereunder, as the Board
of Directors of the Company may from time to time designate. The Committee shall
interpret the Program, prescribe, amend and rescind rules and regulations
relating thereto, and make all other determinations necessary or advisable for
the administration of the Program. Any determination, decision or action of the
Committee in connection with the construction, interpretation, administration or
application of the Program shall be final, conclusive and binding upon all
persons participating in the Program and any person validly claiming under or
through persons participating in the Program. A majority of the members of the
Committee shall constitute a quorum at any meeting of the Committee, and all
determinations of the Committee at a meeting shall be made by a majority of its
members. Any determination of the Committee under the Program may be made
without a meeting of the Committee by a writing signed by all of its members.
The Company shall effect the granting of Awards under the Program in accordance
with the determination of the Committee, by execution of instruments in writing
in such form as approved by the Committee.
With respect to persons subject to Section 16 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), transactions under this Program
are intended to comply with all applicable conditions of Rule 16b-3 of the
Securities and Exchange Commission or its successors. To the extent any
provision of the Program or action by the Committee fails to so comply, it shall
be deemed null and void, to the extent permitted by law and deemed advisable by
the Committee.
3. PARTICIPANTS. Participants in the Program will consist of such officers
and other full-time, salaried employees of the Company and its Subsidiaries as
the Committee in its sole discretion may designate from time to time to receive
Awards hereunder. The Committee's designation of a Participant in any year shall
not require the Committee to designate such person to receive an Award in any
other year. The Committee shall consider such factors as it deems pertinent in
selecting Participants and in determining the type and amount of their
respective Awards, including without limitation (i) the financial condition of
the Company and its Subsidiaries; (ii) anticipated profits for the current or
future years; (iii) contributions of Participants to the profitability and
development of the Company and its Subsidiaries; and (iv) other compensation
provided to Participants. Non-Employee Directors shall also be Participants in
the Program solely for purposes of receiving Stock Options under Section 11
hereof. For purposes of Section 11 of the Program, the term "Non-Employee
Director" shall mean a member of the Board of Directors of the Company who is
not a full-time employee of the Company or any of its Subsidiaries.
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<PAGE> 28
4. TYPES OF AWARDS. Awards under the Program may be granted in any one or
a combination of (a) Incentive Stock Options; (b) Non-Qualified Stock Options;
(c) Stock Appreciation Rights; (d) Limited Stock Appreciation Rights; (e) Stand
Alone Stock Appreciation Rights; and (f) Restricted Stock Awards, all as
described below in Sections 6-11 hereof. The maximum aggregate number of Common
Shares with respect to which Awards may be made to any Participant in any
calendar year is 75,000 Common Shares. For purposes of this limitation, a Stock
Option shall be treated as being made with respect to the number of Common
Shares that may be purchased with the Stock Option; a Stand Alone Stock
Appreciation Right shall be treated as being made with respect to the number of
Common Shares as to which the cash payment at exercise is computed; a Restricted
Stock Award shall be counted as being equal to the number of underlying Common
Shares; and Stock Appreciation Rights and Limited Stock Appreciation Rights
shall not enter into the computation hereunder if such Awards, when exercised,
will result in a related Stock Option being surrendered.
5. SHARES RESERVED UNDER THE PROGRAM. There is hereby reserved for
issuance under the Program an aggregate of One Million (1,000,000) Common
Shares, which may be newly issued or treasury shares. The Common Shares hereby
reserved are in addition to the Common Shares previously reserved under the
Company's 1982 Incentive Stock Program (the "Prior Stock Option Program"). Any
Common Shares reserved for issuance under the Prior Stock Option Program in
excess of the number of Common Shares as to which stock options or other awards
have been awarded thereunder on the Effective Date, plus any such shares as to
which stock options or other awards granted under the Prior Stock Option Program
may lapse, expire, terminate or be canceled after the Effective Date (so long as
the holder thereof has not received any benefits of ownership of such shares),
shall also be reserved and available for issuance in connection with Awards
under this Program. All of such shares may, but need not, be issued pursuant to
the exercise of Incentive Stock Options.
If there is a lapse, expiration, termination or cancellation of any Award
granted hereunder without the issuance of Common Shares or payment of cash
thereunder, or if Common Shares are issued under any Award and thereafter are
reacquired by the Company pursuant to rights reserved upon the issuance thereof,
the Common Shares subject to or reserved for such Award may again be used for
new Stock Options or other Awards under this Program so long as the holder
thereof has not received any benefits of ownership of such shares; provided,
however, that in no event may the number of Commons Shares issued under this
Program exceed the total number of Common Shares reserved for issuance
hereunder.
6. INCENTIVE STOCK OPTION PLAN. Incentive Stock Options will consist of
Stock Options, qualifying as "incentive stock options" under the requirements of
Section 422 of the Code, to purchase Common Shares at purchase prices not less
than One Hundred Percent (100%) of the Fair Market Value of such Common Shares
on the date of grant. Incentive Stock Options will be exercisable over not more
than ten (10) years after the date of grant. In the event of termination of
employment for any reason other than Retirement, Disability or death, the right
of the optionee to exercise an Incentive Stock Option shall terminate
immediately upon the termination of employment. In the event of termination of
employment due to Retirement, the right of the optionee to exercise an Incentive
Stock Option shall terminate upon the earlier of the end of the original term of
the Incentive Stock Option or three (3) months after the date of such
Retirement. In the event of termination of employment due to Disability, the
right of the optionee to exercise an Incentive Stock Option shall terminate upon
the earlier of the end of the original term of the Incentive Stock Option or one
(1) year after the date of termination of employment. If the optionee should die
while employed, the right of the optionee's successor in interest to exercise an
Incentive Stock Option granted to the optionee shall terminate upon the earlier
of the end of the original term of the Incentive Stock Option or one (1) year
after optionee's last date of employment. If the optionee should die within
three (3) months after termination of employment due to Retirement, the right of
his or her successor in interest to
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exercise an Incentive Stock Option shall terminate three (3) months after the
date of termination of employment as a result of such Retirement, but not later
than the end of the original term of the Incentive Stock Option. If the optionee
should die within one (1) year after termination of employment due to
Disability, the right of his or her successor in interest to exercise an
Incentive Stock Option shall terminate upon the earlier of one (1) year after
the date of termination of employment or the end of the original term of the
Incentive Stock Option. The aggregate fair market value (determined as of the
time the Stock Option is granted) of the Common Shares with respect to which
incentive stock options are exercisable for the first time by any Participant
during any calendar year (under all option plans of the Company and all
Subsidiaries and Parents of the Company) shall not exceed $100,000. An Incentive
Stock Option granted to a Participant under the Program may be exercised only
after six (6) months from its grant date. Anything contained herein to the
contrary notwithstanding, no Incentive Stock Option shall be granted to an
employee who, at the time the Incentive Stock Option is granted, owns (actually
or constructively under the provisions of Section 424(d) of the Code) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of any Parent or Subsidiary of the Company, unless the
option exercise price is not less than 110% of the Fair Market Value of the
Common Shares subject to the Incentive Stock Option on the date of grant and the
Incentive Stock Option by its terms is not exercisable more than five years from
the date it is granted. For purposes of this Section 6, if an optionee
terminates his employment voluntarily, the date of termination of employment
shall be deemed the date on which he notifies the Company of his intention to
terminate his employment; in all other cases the date of termination of
employment shall be the last day of employment.
7. NON-QUALIFIED STOCK OPTION PLAN. Non-Qualified Stock Options will
consist of options (other than Incentive Stock Options) to purchase Common
Shares at purchase prices not less than One Hundred Percent (100%) of the Fair
Market Value of such Common Shares on the date of grant. Non-Qualified Stock
Options will be exercisable over not more than ten (10) years after the date of
grant. In the event of termination of employment for any reason other than
Retirement, Disability or Death, the right of the optionee to exercise a
Non-Qualified Stock Option shall terminate immediately upon the termination of
employment. In the event of termination of employment due to Retirement or
Disability, or if the optionee should die while employed, the right of the
optionee or his or her successor in interest to exercise a Non-Qualified Stock
Option shall terminate upon the earlier of the end of the original term of the
Non-Qualified Stock Option or one (1) year after the date of termination of
employment as a result of such Retirement, Disability or Death. If the optionee
should die within one (1) year after termination of employment due to Retirement
or Disability, the right of his or her successor in interest to exercise a
Non-Qualified Stock Option shall terminate upon the earlier of one (1) year
after termination of employment as a result of such Retirement or Disability or
the end of the original term of the Non-Qualified Stock Option. A Non-Qualified
Stock Option granted to a Participant under the Program may be exercised only
after six (6) months from its grant date. For purposes of this Section 7, if an
optionee terminates his employment voluntarily, the date of termination of
employment shall be deemed the date on which he notifies the Company of his
intention to terminate his employment; in all other cases the date of
termination shall be the last day of employment.
8. STOCK APPRECIATION RIGHTS PLAN. The Committee may, in its discretion,
grant a Stock Appreciation Right to the holder of any Stock Option granted
hereunder. Such Stock Appreciation Rights shall be subject to such terms and
conditions consistent with the Program as the Committee shall impose from time
to time, including the following:
(a) A Stock Appreciation Right may be granted with respect to a Stock
Option at the time of its grant or at any time thereafter up to six (6)
months prior to its expiration.
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(b) Stock Appreciation Rights will permit the holder to surrender any
related Stock Option or portion thereof which is then exercisable and to
elect to receive in exchange therefor cash in an amount equal to:
(i) The excess of the Fair Market Value on the date of such
election of one Common Share over the option exercise price, multiplied
by
(ii) The number of Common Shares covered by such Stock Option or
portion thereof which is so surrendered.
(c) A Stock Appreciation Right granted to a Participant under the
Program may be exercised only after six (6) months from its grant date.
(d) The Committee shall have the discretion to satisfy a Participant's
right to receive the amount of cash determined under subsection (b) hereof,
in whole or in part, by the delivery of Common Shares valued as of the date
of the Participant's election.
(e) A Stock Appreciation Right may be granted to a Participant
regardless of whether such Participant has been granted a Limited Stock
Appreciation Right with respect to the same Stock Option. However, a Stock
Appreciation Right may not be exercised during any period that a Limited
Stock Appreciation Right with respect to the same Stock Option may be
exercised.
(f) In the event of the exercise of a Stock Appreciation Right, the
number of Common Shares reserved for issuance hereunder shall be reduced by
the number of shares covered by the Stock Option or portion thereof
surrendered.
8A. STAND ALONE STOCK APPRECIATION RIGHTS PLAN. The Committee may, in its
discretion, grant Stand Alone Stock Appreciation Rights to any Participant. Such
Stand Alone Stock Appreciation Rights shall be subject to such terms and
conditions consistent with the Program as the Committee shall impose from time
to time, including the following:
(a) Stand Alone Stock Appreciation Rights shall be granted without
reference to any Stock Option which is then exercisable.
(b) Each Stand Alone Stock Appreciation Right will permit the holder
to elect to receive in exchange therefor cash in an amount equal to the
excess of:
(i) the Fair Market Value on the date of such election of one
Common Share, over
(ii) the Fair Market Value of one Common Share on the date which
the Stand Alone Stock Appreciation Right was granted.
(c) A Stand Alone Stock Appreciation Right granted to a Participant
under the Program may be exercised only after six (6) months from its
grant date.
(d) The Committee shall have the discretion to satisfy a Participant's
right to receive the amount of cash determined under subsection (b) hereof,
in whole or in part, by the delivery of Common Shares valued as of the date
of the Participant's election.
(e) Stand Alone Stock Appreciation Rights will be exercisable over not
more than ten (10) after the date of grant.
(f) In the event of termination of employment of a Participant to whom
a Stand Alone Stock Appreciation Right is granted for any reason other than
Retirement, Disability or death, the right of the holder to exercise such
Stand Alone Stock Appreciation Right shall terminate immediately upon the
termination of employment. In the event of termination of employment due to
Retirement or Disability, or if the optionee should die while employed, the
right of the holder or his or her successor in interest to exercise a Stand
Alone Stock Appreciation Right shall terminate upon the earlier of the end
of the original term of the
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Stand Alone Stock Appreciation Right or one (1) year after the date of
termination of employment as a result of such Retirement, Disability or
Death. If the holder should die within one (1) year after termination of
employment due to Retirement or Disability, the right of his or her
successor in interest to exercise a Stand Alone Stock Appreciation Right
shall terminate upon the earlier of one (1) year after termination of
employment as a result of such Retirement or Disability or the end of the
original term of the Stand Alone Stock Appreciation Right. For purposes of
this Section 8A, if a holder terminates his employment voluntarily, the
date of termination of employment shall be deemed the date on which he
notifies the Company of his intention to terminate his employment; in all
other cases the date of termination of employment shall be the last day of
employment.
(g) In the event of the grant of any Stand Alone Stock Appreciation
Rights, the number of Common Shares reserved for issuance hereunder shall
be reduced by the number of Stand Alone Stock Appreciation Rights granted.
9. LIMITED STOCK APPRECIATION RIGHTS PLAN. The Committee may, in its
discretion, grant a Limited Stock Appreciation Right to the holder of any Stock
Option granted hereunder. Such Limited Stock Appreciation Rights shall be
subject to such terms and conditions consistent with the Program as the
Committee shall impose from time to time, including the following:
(a) A Limited Stock Appreciation Right may be granted with respect to
a Stock Option at the time of its grant or at any time thereafter up to six
(6) months prior to its expiration.
(b) A Limited Stock Appreciation Right will permit the holder to
surrender any related Stock Option or portion thereof which is then
exercisable and to receive in exchange therefor cash in an amount equal to:
(i) The excess of the Fair Market Value on the date of such
election of one Common Share over the option exercise price, multiplied
by
(ii) The number of Common Shares covered by such Stock Option or
portion thereof which is so surrendered.
(c) A Limited Stock Appreciation Right granted to a Participant under
the Program may be exercised only after six (6) months from its grant date
and only during the sixty (60) day period commencing with the day following
the date of a Change in Control.
(d) A Limited Stock Appreciation Right may be granted to a Participant
regardless of whether such Participant has been granted a Stock
Appreciation Right with respect to the same Stock Option.
(e) In the event of the exercise of a Limited Stock Appreciation
Right, the number of Common Shares reserved for issuance hereunder shall be
reduced by the number of Common Shares covered by the Stock Option or
portion thereof surrendered.
10. RESTRICTED STOCK AWARDS PLAN. Restricted Stock Awards will consist of
Common Shares transferred to Participants without other payment therefor (other
than the payment of the par value of such shares if required by applicable law)
as additional compensation for their services to the Company or one of its
Subsidiaries. Restricted Stock Awards shall be subject to such terms and
conditions as the Committee determines appropriate including, without
limitation, restrictions on the sale or other disposition of such shares and
rights of the Company to reacquire such shares upon termination of the
Participant's employment within specified periods. Subject to such other
restrictions as are imposed by the Committee, the Common Shares covered by a
Restricted Stock Award granted to a Participant under the Program may be sold or
otherwise disposed of only after six (6) months from the grant date of the
award.
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11. NON-QUALIFIED STOCK OPTION AWARDS FOR NON-EMPLOYEE DIRECTORS.
(a) Grant of Options. Each person who is a Non-Employee Director
shall be granted a Non-Qualified Stock Option to purchase 3,000 Common
Shares effective on the third business day following the date of his or her
first election or appointment to the Board of Directors and on the third
business day following each annual meeting of shareholders at which he or
she is re-elected to the Board of Directors.
(b) Price. The option exercise price per share of each Non-Qualified
Stock Option granted under this Section 11 shall be equal to the Fair
Market Value of a Common Share on the date of grant, provided that the
option exercise price shall be subject to adjustment as provided in Section
18 hereof:
(c) Term of Options. Non-Qualified Stock Options granted under this
Section 11 shall be effective on and shall be of a term of ten (10) years
from the date of grant. Each such option shall be subject to earlier
termination as provided in subsection (e) hereof.
(d) Restriction on Exercise. Non-Qualified Stock Options granted
under this Section 11 may not be exercised within six (6) months following
their date of grant.
(e) Termination of Service as a Director.
(i) Except as otherwise provided in this subsection (e), any
Non-Qualified Stock Option granted under this Section 11 is exercisable
only by the optionee, is exercisable only while the optionee is a
director of the Company and then only if the option has become
exercisable by its terms, and if not exercisable by its terms at the
time the optionee ceases to be a director of the Company, shall
immediately expire on the date the optionee ceased to be a director of
the Company.
(ii) Any Non-Qualified Stock Option granted under this Section 11
which is exercisable by its terms at the time the optionee ceases to be
a director of the Company must be exercised on or before the earlier of
three months after the date the optionee ceases to be a director of the
Company or the expiration date of such option, after which period such
option shall expire. Notwithstanding the foregoing, if an optionee's
status as a director of the Company is Terminated For Cause (as herein
defined), however, all options granted to such optionee shall, to the
extent not previously exercised, expire immediately upon such
termination.
(iii) In the event of the death of the holder of a Non-Qualified
Stock Option granted under this Section 11 while a director of the
Company or within three months after he ceases to be a director of the
Company, such optionee's unexercised Non-Qualified Stock Option (whether
or not then exercisable by its terms) shall become immediately
exercisable by the optionee's successor in interest for a period ending
on the earlier of the end of the original term of the option or twelve
months after the date of death, after which period such option shall
expire.
(iv) In the case of any Non-Qualified Stock Option granted under
this Section 11, in the event the optionee ceases to be a director of
the Company by reason of a Disability, such optionee's unexercised
Non-Qualified Stock Option (whether or not then exercisable by its
terms) shall become immediately exercisable for a period ending on the
earlier of the end of the original term of such option or twelve months
from the date the optionee ceases to be a director, after which period
such option shall expire.
(f) Except in the event of conflict, all provisions of the Program
shall apply to this Section 11. In the event of any conflict between the
other provisions of the Program and this Section 11, this Section 11 shall
control. Those provisions of Sections 8 and 9 hereof which authorize the
Committee to grant a Stock Appreciation Right or a Limited Stock
Appreciation Right with respect to a Stock Option shall not apply to any
Non-Qualified Stock Option
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granted under this Section 11. Those provisions of Section 14 hereof which
authorize the Committee to declare outstanding options to be vested and to
amend or modify the terms of any Awards shall not apply to any
Non-Qualified Stock Option granted under this Section 11.
12. NONTRANSFERABILITY. Each Stock Option, Stock Appreciation Right, Stand
Alone Stock Appreciation Right, Limited Stock Appreciation Right and Restricted
Stock Award granted under this Program shall not be transferable other than by
will or the laws of descent and distribution, and shall be exercisable, during
the Participant's lifetime, only by the Participant or the Participant's
guardian or legal representative.
13. OTHER PROVISIONS. The grant of any Award under the Program may also be
subject to other provisions (whether or not applicable to any Award granted to
any other Participant) as the Committee determines appropriate including,
without limitation, provisions for the purchase of Common Shares under Stock
Options in installments, provisions for the payment of the option exercise price
of shares under a Stock Option by delivery of other Common Shares of the Company
having a then Fair Market Value equal to the option exercise price of such
shares, restrictions on resale or other disposition, such provisions as may be
appropriate to comply with federal or state securities laws and stock exchange
requirements and understandings or conditions as to the Participant's employment
in addition to those specifically provided for under the Program.
The Committee may, in its discretion, permit payment of the option exercise
price of shares under Stock Options by delivery of a properly executed exercise
notice together with a copy of irrevocable instructions to a broker to deliver
promptly to the Company the amount of sale or loan proceeds to pay the option
exercise price. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.
The Committee may, in its discretion and subject to such rules as it may
adopt, permit a Participant (other than a Non-Employee Director who receives a
Non-Qualified Stock Option under Section 11 hereof) to pay all or a portion of
the federal, state and local taxes, including FICA withholding tax, arising in
connection with the following transactions: (a) the exercise of a Non-Qualified
Stock Option; (b) the lapse of restrictions on Common Shares received as a
Restricted Stock Award; or (c) the receipt or exercise of any other Award; by
electing (i) to have the Company withhold Common Shares, (ii) to tender back
Common Shares received in connection with such Award or (iii) to deliver other
previously acquired Common Shares of the Company having a Fair Market Value
approximately equal to the amount to be withheld.
14. TERM OF PROGRAM AND AMENDMENT, MODIFICATION, CANCELLATION OR
ACCELERATION OF AWARDS. No Award shall be granted under the Program more than
ten (10) years after the date of the original adoption of this Program by the
Company's Board of Directors. The terms and conditions applicable to any Award
granted prior to such date may at any time be amended, modified or canceled,
without shareholder approval, by mutual agreement between the Committee and the
Participant or such other persons as may then have an interest therein, so long
as shareholder approval of such amendment, modification or cancellation is not
required under Rule 16b-3 of the Securities and Exchange Commission or any
applicable requirements of any securities exchange on which are listed any of
the Company's equity securities or any applicable requirements for issuers whose
securities are traded in the NASDAQ National Market System or any applicable
requirements of the Code. The Committee may, at any time and in its sole
discretion, declare any or all Stock Options, Stock Appreciation Rights and
Stand Alone Stock Appreciation Rights then outstanding under this Program or the
Prior Stock Option Program to be exercisable and any or all then outstanding
Restricted Stock Awards to be vested, whether or not such options, rights or
awards are then otherwise exercisable or vested.
15. AMENDMENT TO PRIOR STOCK OPTION PROGRAM. No Stock Options or other
awards shall be granted under the Prior Stock Option Program on or after the
Effective Date.
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16. TAXES. The Company shall be entitled to withhold the amount of any tax
attributable to any amount payable or shares deliverable under the Program after
giving the person entitled to receive such amount or shares notice as far in
advance as practicable, and the Company may defer making payment or delivery if
any such tax may be pending unless and until indemnified to its satisfaction.
17. DEFINITIONS.
(a) Award. The term "Award" means an award or grant of a Stock
Option, Stock Appreciation Right, Limited Stock Appreciation Right, Stand
Alone Stock Appreciation Right or Restricted Stock Award made to a
Participant under Sections 5, 6, 7, 8, 9, 10 or 11 of the Program.
(b) Change in Control. A "Change in Control" shall be deemed to have
occurred on the earliest of the following dates:
(i) The date any entity or person (including a "group" as defined
in Section 13(d)(3) of the Exchange Act) shall have become the
beneficial owner of, or shall have obtained voting control over, twenty
percent (20%) or more of the outstanding Common Shares;
(ii) The date the shareholders of the Company approve a definitive
agreement (A) to merge or consolidate the Company with or into another
corporation, in which the Company is not the continuing or surviving
corporation or pursuant to which any Common Shares would be converted
into cash, securities or other property of another corporation, other
than a merger of the Company in which holders of Common Shares
immediately prior to the merger have the same proportionate ownership of
Common Shares of the surviving corporation immediately after the merger
as immediately before, or (B) to sell or otherwise dispose of
substantially all the assets of the Company; or
(iii) The date there shall have been a change in a majority of the
Board of Directors of the Company within a twelve (12) month period;
provided, however, that any new director whose nomination for election
by the Company's shareholders was approved, or who was appointed or
elected to the Board, by the vote of two-thirds of the directors then
still in office who were in office at the beginning of the twelve (12)
month period shall not be counted in determining whether there has been
such a change in a majority of the Board.
(c) Code. The term "Code" means the Internal Revenue Code of 1986, as
amended, and regulations and rulings thereunder. References to a particular
section of the Code shall include references to successor provisions.
(d) Committee. The "Committee" means the Committee of the Board of
Directors of the Company constituted as provided in Section 2 hereof.
(e) Common Shares. "Common Shares" means the Common Shares of the
Company or any security of the Company issued in substitution, exchange or
lieu thereof.
(f) Company. The "Company" means Ohio Casualty Corporation, an Ohio
corporation, or any successor corporation.
(g) Disability. The term "Disability" means, as it relates to the
exercise of an Incentive Stock Option after termination of employment, a
disability within the meaning of Section 22(e)(3) of the Code, and for all
other purposes, a mental or physical condition which, in the opinion of the
Committee, renders an optionee unable or incompetent to carry out the job
responsibilities which such optionee held or the tasks to which such
optionee
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was assigned at the time the disability was incurred, and which is expected
to be permanent or for an indefinite duration exceeding one year.
(h) Effective Date. The term "Effective Date" means the date on which
the Program is approved originally by the shareholders of the Company.
(i) Exchange Act. The term "Exchange Act" means the Securities Act of
1934, as amended, or a successor statute.
(j) Fair Market Value. The "Fair Market Value" of the Company's
Common Shares at any time shall mean, on any given date, the closing price
of the Common Shares, as reported on the NASDAQ National Market System for
such date or, if Common Shares were not traded on such date, on the next
preceding day on which Common Shares were traded; provided, however, that
in the case of any Limited Stock Appreciation Right (other than a right
related to an Incentive Stock Option), the Fair Market Value shall be the
higher of:
(i) The highest daily closing price of the Common Shares during the
sixty (60) day period following the Change in Control; or
(ii) The highest gross price paid or to be paid for the Common
Shares in any of the transactions described in Sections 17(b)(i) and
17(b)(ii).
(k) Incentive Stock Option. "Incentive Stock Option" means any Stock
Option granted pursuant to the provisions of Section 6 of the Program that
is intended to be and is specifically designated as an "incentive stock
option" within the meaning of Section 422 of the Code.
(l) Limited Stock Appreciation Rights. "Limited Stock Appreciation
Rights" mean limited stock appreciation rights granted to a Participant
under Section 9 of the Program.
(m) Non-Employee Director. For purposes of Section 11 of the Program,
"Non-Employee Director" means a member of the Board of Directors of the
Company who is not a full-time employee of the Company or any Subsidiary.
(n) Non-Qualified Stock Option. A "Non-Qualified Stock Option" means
any Stock Option granted pursuant to the provisions of Section 7 or Section
11 of the Program that is not an Incentive Stock Option.
(o) Parent. The term "Parent of the Company" shall have the meaning
set forth in 424(e) of the Code.
(p) Participant. The term "Participant" means a full-time employee of
the Company or a Subsidiary or a Non-Employee Director who is granted a
Non-Qualified Stock Option under Section 11 of the Program.
(q) Prior Stock Option Program. The "Prior Stock Option Program"
means the Ohio Casualty Corporation 1982 Incentive Stock Program, as
amended.
(r) Program. The "Program" means this Ohio Casualty Corporation 1993
Stock Incentive Program, as set forth herein and as it may be hereafter
amended and from time to time in effect.
(s) Restricted Stock Awards. "Restricted Stock Awards" mean awards of
restricted stock granted to a Participant under Section 10 of the Program.
(t) Retirement. The term "Retirement" for all purposes of the Program
shall have the meaning given to such term in the Ohio Casualty Corporation
Employees Retirement Plan.
(u) Stock Appreciation Rights. "Stock Appreciation Rights" mean stock
appreciation rights granted to a Participant under Section 8 of the
Program.
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(v) Stock Option. The term "Stock Option" means any Incentive Stock
Option or Non-Qualified Stock Option granted under the Program.
(w) Stock Option Awards. The term "Stock Option Awards" means any
grant of a Stock Option to a Participant under the Program.
(x) Subsidiary. The term "Subsidiary" for all purposes other than the
Incentive Stock Option plan described in Section 6, shall mean any
corporation, partnership, joint venture or business trust, fifty percent
(50%) or more of the control of which is owned, directly or indirectly, by
the Company. For Incentive Stock Option plan purposes the term "Subsidiary"
shall be defined as provided in Section 424(f) of the Code.
(y) Terminated for Cause. The term "Terminated for Cause" for
purposes of the Program shall mean termination on account of any act of
fraud or intentional misrepresentation or embezzlement, misappropriation or
conversion of assets or opportunities of the Company or a Subsidiary, the
conviction of a felony or intentional and repeated violations of the
written policies or procedures of the Company or any Subsidiary.
(z) Stand Alone Stock Appreciation Rights. The term "Stand Alone
Stock Appreciation Rights" means the stock appreciation rights granted to a
Participant under Section 8A of the Program.
18. ADJUSTMENT PROVISIONS.
(a) The existence of this Program and the Awards granted hereunder
shall not affect or restrict in any way the right or power of the Board of
Directors or the shareholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the
Company's capital structure or its business, any merger or consolidation of
the Company, any issue of bonds, debentures, preferred or prior preference
stocks ahead of or affecting the Company's capital stock or the rights
thereof, the dissolution or liquidation of the Company or any sale or
transfer of all or any part of its assets or business, or any other
corporate act or proceeding.
(b) In the event of any change in capitalization affecting the Common
Shares, such as a stock dividend, stock split, recapitalization, merger,
consolidation, split-up, combination or exchange of shares or other form of
reorganization, or any other change affecting the Common Shares, the
Committee shall make proportionate adjustments to reflect such change with
respect to the aggregate number of Common Shares for which Awards in
respect thereof may be granted under the Program, the maximum number of
Common Shares which may be sold or awarded to any Participant, the number
of Common Shares covered by each outstanding Award and the price per share
in respect of outstanding Awards.
(c) The Committee also shall make such adjustments in the number of
shares covered by, and the price or other value of any outstanding Awards
in the event of a spin-off or other distribution (other than normal cash
dividends) of Company assets to shareholders.
(d) Subject to the six month holding requirements of Sections 6, 7,
8(c), 8A(c), 9(c), 10 and 11(d) but notwithstanding any other provision of
this Program or the Prior Stock Option Program, upon the occurrence of a
Change in Control:
(i) All Stock Options then outstanding under this Program or the
Prior Stock Option Program shall become fully exercisable as of the date
of the Change in Control, whether or not then otherwise exercisable;
(ii) All Stock Appreciation Rights, Stand Alone Stock Appreciation
Rights and Limited Stock Appreciation Rights then outstanding shall
become fully exercisable as of the date of the Change in Control,
whether or not then otherwise exercisable; and
35
<PAGE> 37
(iii) All terms and conditions of all Restricted Stock Awards then
outstanding shall be deemed satisfied as of the date of the Change in
Control, whether or not then otherwise satisfied.
19. AMENDMENT AND TERMINATION OF PROGRAM. The Board of Directors of the
Company may amend the Program from time to time or terminate the Program at any
time without the approval of the shareholders of the Company except as such
shareholder approval may be required (a) to satisfy the requirements of Rule
16b-3 of the Securities and Exchange Commission, (b) to satisfy applicable
requirements of the Code or (c) to satisfy applicable requirements of any
securities exchange on which are listed any of the Company's equity securities
or any requirements applicable to issuers whose securities are traded in the
NASDAQ National Market System. No such action to amend or terminate the Program
shall reduce the then existing amount of any Participant's Award or adversely
change the terms and conditions thereof without the Participant's consent.
Section 11 of the Program may not be amended more frequently than once every six
months other than to comport with changes in the Code, or changes in the
Employees Retirement Income Securities Act, or the rules thereunder, and no
amendment of the Program shall result in any Committee member losing his or her
status as a "disinterested person" as defined in Rule 16b-3 of the Securities
and Exchange Commission with respect to any employee benefit plan of the Company
or result in the Program losing its status as a plan satisfying the requirements
of said Rule 16b-3.
20. NO RIGHT TO EMPLOYMENT. Neither the adoption of the Program nor the
granting of any Awards hereunder shall confer upon any employee of the Company
or any Subsidiary any right to continued employment with the Company or any
Subsidiary, as the case may be, nor shall it interfere in any way with the right
of the Company or a Subsidiary to terminate the employment of any of its
employees at any time, with or without cause.
21. UNFUNDED PLAN. The Program shall be unfunded and the Company shall not
be required to segregate any assets that may at any time be represented by
Awards under the Program. Any liability of the Company to any person with
respect to any Awards under the Program shall be based solely upon any
contractual obligations that may be effected pursuant to the Program. No such
obligation of the Company shall be deemed to be secured by any pledge of, or
other encumbrance on, any property of the Company or any Subsidiary.
22. PAYMENTS TO TRUST. The Committee is authorized to cause to be
established a trust agreement or several trust agreements whereunder the
Committee may make payments of amounts due or to become due to Participants in
the Program.
23. ENGAGING IN COMPETITION WITH COMPANY. In the event a Participant
terminates his or her employment with the Company or a Subsidiary for any reason
whatsoever, and within eighteen (18) months after the date thereof accepts
employment with any competitor of, or otherwise engaged in competition with, the
Company or any subsidiary, the Committee, in its sole discretion, may require
such Participant to return to the Company the economic value of any Award which
is realized or obtained (measured at the date of exercise, vesting or payment)
by such Participant at any time during the period beginning on that date which
is six months prior to the date of such Participant's termination of employment
with the Company or any Subsidiary.
24. OTHER COMPANY AWARD AND COMPENSATION PROGRAMS. Payments and other
Awards received by a Participant under the Program shall not be deemed a part of
a Participant's regular, recurring compensation for purposes of any termination
indemnity or severance pay law and shall not be included in, nor have any effect
on, the determination of Awards under any other employee benefit plan or similar
arrangement provided by the Company or a Subsidiary unless expressly so provided
by such other plan or arrangements, or except where the Committee or the Board
of Directors determines that an Award or portion of an Award should be included
to accurately reflect competitive compensation practices or to recognize that an
36
<PAGE> 38
Award has been made in lieu of a portion of competitive annual cash
compensation. Awards under the Program may be made in combination with or in
tandem with, or as alternatives to, grants, awards or payments under any other
Company or Subsidiary plans. The Program notwithstanding, the Company or any
Subsidiary may adopt such other compensation programs and additional
compensation arrangements as it deems necessary to attract, retain and reward
employees for their service with the Company and its Subsidiaries.
25. SECURITIES LAW RESTRICTIONS. No Common Shares shall be issued under
the Program unless counsel for the Company shall be satisfied that such issuance
will be in compliance with applicable federal and state securities law.
Certificates for Common Shares delivered under the Program may be subject to
such stock-transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Common Shares are
then listed or traded on the NASDAQ National Market System or any applicable
federal or state securities law. The Committee may cause a legend or legends to
be put on any such certificates to make appropriate reference to such
restrictions.
26. AWARD AGREEMENT. Each Participant receiving an Award under the Program
shall enter into an agreement with the Company in a form specified by the
Committee agreeing to the terms and conditions of the Award and such related
matters as the Committee shall, in its sole discretion determine.
27. COST OF PROGRAM. The costs and expenses of administering the Program
shall be borne by the Company.
28. GOVERNING LAW. The Program and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Ohio.
29. SHAREHOLDER APPROVAL. The Program was adopted by the Board of
Directors of the Company on February 18, 1993. The Program and any Award granted
thereunder shall be null and void if shareholder approval is not obtained within
twelve (12) months of the adoption of the Program by the Board of Directors.
37
<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
January 30, 1997, on our audits of the consolidated financial statements and
financial statement schedules of Ohio Casualty Corporation and Subsidiaries as
of December 31, 1996, 1995 and 1994 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.
Cincinnati, Ohio
March 25, 1997
111
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 2,352,484,429
<DEBT-CARRYING-VALUE> 2,352,484,429
<DEBT-MARKET-VALUE> 2,352,484,429
<EQUITIES> 721,151,725
<MORTGAGE> 0
<REAL-ESTATE> 21,628,763
<TOTAL-INVEST> 3,095,264,917
<CASH> 20,077,675
<RECOVER-REINSURE> 362,682,690
<DEFERRED-ACQUISITION> 116,684,358
<TOTAL-ASSETS> 3,889,981,148
<POLICY-LOSSES> 1,556,670,799
<UNEARNED-PREMIUMS> 491,613,421
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 280,002,157
<NOTES-PAYABLE> 50,000,000
<COMMON> 5,850,484
0
0
<OTHER-SE> 1,169,249,461
<TOTAL-LIABILITY-AND-EQUITY> 3,889,981,148
1,226,651,115
<INVESTMENT-INCOME> 183,308,374
<INVESTMENT-GAINS> 49,672,355
<OTHER-INCOME> 0
<BENEFITS> 930,588,497
<UNDERWRITING-AMORTIZATION> 308,856,667
<UNDERWRITING-OTHER> 105,148,523
<INCOME-PRETAX> 115,036,156
<INCOME-TAX> 17,810,839
<INCOME-CONTINUING> 97,227,317
<DISCONTINUED> 5,229,270
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,456,587
<EPS-PRIMARY> 2.91
<EPS-DILUTED> 2.91
<RESERVE-OPEN> 1,553,130,969
<PROVISION-CURRENT> 494,272,811
<PROVISION-PRIOR> 988,627,428
<PAYMENTS-CURRENT> 514,122,497
<PAYMENTS-PRIOR> 486,167,503
<RESERVE-CLOSE> 1,482,900,239
<CUMULATIVE-DEFICIENCY> (78,336,038)
</TABLE>
<PAGE> 1
OHIO CASUALTY GROUP EXHIBIT 28
SCHEDULE P - PART 1 - SUMMARY
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9)
ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 10,224 1,480 3,355 398 606
1987 1,394,210 37,581 1,356,629 723,834 9,927 71,837 572 33,138
1988 1,375,824 36,272 1,339,553 702,278 8,414 63,069 726 31,522
1989 1,393,527 29,351 1,364,177 786,000 15,188 65,081 614 34,280
1990 1,462,962 24,961 1,438,001 844,956 10,013 72,832 790 33,999
1991 1,495,615 26,561 1,469,055 882,331 36,636 69,984 2,020 33,156
1992 1,550,273 32,684 1,517,590 885,202 22,583 66,684 1,169 32,850
1993 1,423,123 43,696 1,379,427 772,707 7,790 52,618 699 25,735
1994 1,342,791 45,133 1,297,657 706,540 7,406 38,671 (155) 24,429
1995 1,305,589 41,012 1,264,577 565,749 6,145 23,140 22 21,265
1996 1,253,887 30,534 1,223,353 453,698 3,615 12,638 0 11,452
TOTAL XXX XXX XXX 7,333,518 129,198 539,910 6,855 282,432
(1) (10) (11) (12)
ACC/YR UNALLOCATED LOSSES + LAE REPORTED
LAE PAID CLAIMS
<S> <C> <C> <C>
PRIOR 506 12,207 XXX
1987 62,456 847,628 XXX
1988 62,101 818,309 XXX
1989 64,754 900,033 XXX
1990 66,919 973,904 XXX
1991 66,651 980,309 XXX
1992 71,221 999,355 XXX
1993 63,331 880,168 XXX
1994 64,483 802,443 XXX
1995 55,554 638,276 XXX
1996 51,401 514,122 XXX
TOTAL 629,378 8,366,754 XXX
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 89,812 33,875 25,124 418 11,243 3,135 17,186 236
1987 13,953 329 3,773 24 2,274 29 1,324 9
1988 16,203 1,715 3,985 17 2,036 164 1,345 7
1989 26,814 3,594 6,506 55 4,271 330 2,565 19
1990 30,498 3,031 8,418 84 6,478 574 4,057 31
1991 30,792 484 10,977 119 7,278 101 5,309 43
1992 50,076 916 13,587 154 12,127 139 6,018 54
1993 76,224 1,423 12,262 119 16,459 260 4,892 43
1994 101,238 1,056 51,835 464 20,855 221 16,707 143
1995 136,761 1,339 93,695 651 20,353 111 23,212 168
1996 210,998 2,872 202,258 3,114 22,727 220 32,248 365
TOTAL 783,369 50,634 432,420 5,220 126,100 5,283 114,863 1,118
ACC/YR (21) (22) (23) (24)
SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C>
PRIOR 4,997 110,697 XXX
1987 970 21,902 XXX
1988 984 22,649 XXX
1989 1,678 37,835 XXX
1990 2,354 48,084 XXX
1991 2,788 56,397 XXX
1992 4,552 85,097 XXX
1993 6,567 114,560 XXX
1994 12,285 201,037 XXX
1995 18,617 290,370 XXX
1996 32,612 494,273 XXX
TOTAL 88,403 1,482,900 XXX
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>
PRIOR XXX XXX XXX XXX XXX XXX
1987 880,420 10,890 869,530 63.1 29.0 64.1
1988 852,001 11,043 840,958 61.9 30.4 62.8
1989 957,669 19,801 937,868 68.7 67.5 68.7
1990 1,036,511 14,523 1,021,988 70.9 58.2 71.1
1991 1,076,109 39,403 1,036,706 72.0 148.4 70.6
1992 1,109,468 25,016 1,084,452 71.6 76.5 71.5
1993 1,005,061 10,334 994,728 70.6 23.6 72.1
1994 1,012,615 9,135 1,003,480 75.4 20.2 77.3
1995 937,081 8,436 928,645 71.8 20.6 73.4
1996 1,018,581 10,185 1,008,395 81.2 33.4 82.4
TOTAL XXX XXX XXX XXX XXX XXX
ACC/YR INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
(33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 80,642 30,055
1987 17,373 4,529
1988 18,455 4,194
1989 29,670 8,164
1990 35,800 12,284
1991 41,167 15,230
1992 62,593 22,504
1993 86,944 27,616
1994 151,554 49,483
1995 228,467 61,903
1996 407,270 87,003
TOTAL XXX 1,159,935 322,965
</TABLE>
<PAGE> 2
OHIO CASUALTY GROUP
SCHEDULE P - PART 1A - HOMEOWNERS
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9)
ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 14 0 9 0 18
1987 166,422 1,902 164,520 87,196 26 5,943 (0) 1,620
1988 168,376 1,787 166,589 87,522 50 4,654 0 1,542
1989 167,251 2,262 164,988 103,277 0 5,764 0 1,544
1990 172,691 2,321 170,370 114,362 378 5,740 0 1,863
1991 180,475 3,102 177,373 145,643 19,995 5,967 271 1,257
1992 187,626 3,100 184,526 136,376 5,961 6,694 583 1,633
1993 176,137 8,408 167,729 125,060 494 6,629 4 1,213
1994 167,094 9,016 158,077 133,831 92 6,525 1 1,334
1995 169,546 8,428 161,118 102,213 0 4,145 0 646
1996 170,608 4,978 165,630 121,129 0 4,344 0 272
TOTAL XXX XXX XXX 1,156,624 26,997 56,413 860 12,941
(1) (10) (11) (12)
ACC/YR UNALLOCATED LOSSES + LAE REPORTED
LAE PAID CLAIMS
<S> <C> <C> <C>
PRIOR 1 23 XXX
1987 3,572 96,684 71,440
1988 3,568 95,694 64,993
1989 4,058 113,099 65,755
1990 4,575 124,298 65,029
1991 5,495 136,838 66,245
1992 9,423 145,949 67,889
1993 9,003 140,194 67,861
1994 10,755 151,019 72,465
1995 8,086 114,445 54,746
1996 10,333 135,806 69,521
TOTAL 68,868 1,254,049 XXX
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
ACC/YR (13) (14) (15) (16) (17) (18) (19)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 173 0 (0) (0) 20 0 (0)
1987 122 4 0 0 14 1 0
1988 114 0 0 0 13 0 0
1989 197 0 0 0 35 0 0
1990 269 1 16 0 47 0 4
1991 695 20 53 1 183 3 18
1992 2,353 471 72 2 618 83 25
1993 3,112 5 135 4 962 1 54
1994 3,602 0 639 17 1,272 0 294
1995 7,222 0 625 16 1,654 0 187
1996 27,649 0 11,711 308 3,169 0 1,749
TOTAL 45,507 501 13,251 348 7,987 88 2,331
(21) (22) (23) (24)
(20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ACC/YR CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR (0) 8 201 10
1987 0 3 133 5
1988 0 2 130 4
1989 0 7 239 11
1990 0 6 340 18
1991 0 17 941 34
1992 1 40 2,550 61
1993 1 111 4,364 123
1994 8 147 5,928 237
1995 5 217 9,885 477
1996 46 1,310 45,235 6,172
TOTAL 61 1,869 69,945 7,152
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>
PRIOR XXX XXX XXX XXX XXX XXX
1987 96,849 31 96,818 58.2 1.6 58.8
1988 95,874 50 95,824 56.9 2.8 57.5
1989 113,338 0 113,338 67.8 0.0 68.7
1990 125,019 380 124,638 72.4 16.4 73.2
1991 158,070 20,292 137,779 87.6 654.1 77.7
1992 155,600 7,101 148,499 82.9 229.1 80.5
1993 145,067 509 144,558 82.4 6.1 86.2
1994 157,064 117 156,947 94.0 1.3 99.3
1995 124,351 21 124,329 73.3 0.3 77.2
1996 181,394 354 181,041 106.3 7.1 109.3
TOTAL XXX XXX XXX XXX XXX XXX
INTERCOMPANY LOSSES LAE
ACC/YR POOLING PERC. UNPAID UNPAID
(33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 173 28
1987 118 16
1988 114 15
1989 197 42
1990 283 57
1991 727 215
1992 1,951 599
1993 3,239 1,125
1994 4,224 1,704
1995 7,831 2,053
1996 39,052 6,183
TOTAL XXX 57,908 12,037
</TABLE>
<PAGE> 3
OHIO CASUALTY GROUP
SCHEDULE P - PART 1B - PP AUTO LIABILITY
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9)
ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 1,820 1,296 157 126 46
1987 320,026 7,756 312,270 239,276 2,428 16,722 2 6,096
1988 318,131 7,787 310,344 227,709 3,468 14,116 19 4,909
1989 318,462 7,649 310,813 239,450 2,912 12,821 3 5,768
1990 333,396 6,676 326,721 255,133 2,323 13,785 0 5,672
1991 339,451 6,391 333,060 244,022 2,332 14,100 (0) 4,707
1992 362,947 7,108 355,839 256,822 2,658 15,472 2 4,632
1993 334,286 12,196 322,089 233,163 4,788 13,432 22 4,956
1994 320,149 12,617 307,532 205,129 4,737 10,008 3 3,458
1995 305,098 7,698 297,400 156,530 3,077 6,216 0 2,558
1996 290,091 7,674 282,416 80,748 1,519 2,357 0 919
TOTAL XXX XXX XXX 2,139,803 31,537 119,185 176 43,721
(1) (10) (11) (12)
ACC/YR UNALLOCATED LOSSES + LAE REPORTED
LAE PAID CLAIMS
<S> <C> <C> <C>
PRIOR 24 579 XXX
1987 23,399 276,967 77,054
1988 23,268 261,607 69,365
1989 24,170 273,526 64,143
1990 24,745 291,339 61,389
1991 22,798 278,588 57,893
1992 22,278 291,913 60,078
1993 20,025 261,810 54,964
1994 19,728 230,126 53,222
1995 16,445 176,115 48,998
1996 13,229 94,815 45,989
TOTAL 210,110 2,437,385 XXX
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
ACC/YR (13) (14) (15) (16) (17) (18) (19)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 16,435 13,658 435 3 2,556 1,613 74
1987 678 6 298 2 92 1 57
1988 534 26 584 4 76 3 111
1989 658 87 950 6 97 9 194
1990 1,188 65 1,030 6 186 7 223
1991 3,285 96 1,545 9 545 12 354
1992 8,363 267 1,900 11 1,546 38 484
1993 21,181 343 1,396 8 3,131 37 284
1994 31,371 273 10,460 63 4,926 30 2,264
1995 54,681 574 27,020 162 5,571 40 3,785
1996 83,493 1,104 68,827 413 5,425 54 6,135
TOTAL 221,867 16,499 114,444 687 24,151 1,845 13,966
(21) (22) (23) (24)
(20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ACC/YR CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 0 933 5,160 144
1987 0 90 1,205 17
1988 1 88 1,361 29
1989 1 140 1,936 42
1990 1 195 2,742 65
1991 2 423 6,032 146
1992 3 867 12,841 350
1993 2 1,884 27,487 837
1994 13 3,621 52,262 1,720
1995 22 7,052 97,310 3,700
1996 36 13,247 175,519 13,397
TOTAL 82 28,541 383,855 20,447
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>
PRIOR XXX XXX XXX XXX XXX XXX
1987 280,611 2,439 278,173 87.7 31.4 89.1
1988 266,487 3,519 262,967 83.8 45.2 84.7
1989 278,480 3,018 275,462 87.4 39.5 88.6
1990 296,484 2,403 294,081 88.9 36.0 90.0
1991 287,071 2,451 284,620 84.6 38.4 85.5
1992 307,733 2,979 304,754 84.8 41.9 85.6
1993 294,497 5,200 289,297 88.1 42.6 89.8
1994 287,507 5,120 282,388 89.8 40.6 91.8
1995 277,301 3,876 273,425 90.9 50.4 91.9
1996 273,461 3,127 270,334 94.3 40.7 95.7
TOTAL XXX XXX XXX XXX XXX XXX
INTERCOMPANY LOSSES LAE
ACC/YR POOLING PERC. UNPAID UNPAID
(33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 3,209 1,951
1987 968 238
1988 1,088 272
1989 1,515 421
1990 2,147 595
1991 4,725 1,308
1992 9,985 2,857
1993 22,227 5,260
1994 41,495 10,767
1995 80,965 16,346
1996 150,802 24,717
TOTAL XXX 319,125 64,730
</TABLE>
<PAGE> 4
OHIO CASUALTY GROUP
SCHEDULE P - PART 1C - COMM AUTO LIABILITY
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9)
ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 161 111 82 5 1
1987 115,059 2,899 112,160 66,285 1,048 6,823 11 529
1988 111,555 2,980 108,575 62,189 1,313 6,019 28 400
1989 115,499 3,154 112,344 64,938 1,194 5,560 16 752
1990 123,518 3,021 120,498 76,562 840 6,336 15 759
1991 130,823 3,060 127,764 79,454 699 6,416 8 698
1992 135,772 3,261 132,511 75,195 1,934 6,569 17 1,009
1993 129,921 4,228 125,693 67,368 972 5,915 251 654
1994 124,061 4,327 119,735 65,625 1,190 4,495 8 548
1995 118,168 3,897 114,271 41,002 1,324 2,356 19 455
1996 111,494 3,042 108,452 20,906 906 708 0 228
TOTAL XXX XXX XXX 619,685 11,532 51,278 380 6,032
(1) (10) (11) (12)
ACC/YR UNALLOCATED LOSSES + LAE REPORTED
LAE PAID CLAIMS
<S> <C> <C> <C>
PRIOR 2 128 XXX
1987 6,466 78,515 14,149
1988 6,027 72,894 12,872
1989 6,003 75,291 13,361
1990 6,190 88,232 13,344
1991 6,142 91,304 13,260
1992 5,341 85,153 13,831
1993 4,925 76,984 13,760
1994 5,025 73,946 13,896
1995 4,188 46,203 12,233
1996 3,146 23,854 11,604
TOTAL 53,453 712,504 XXX
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
ACC/YR (13) (14) (15) (16) (17) (18) (19)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 1,904 1,260 116 1 413 226 39
1987 662 0 35 0 144 0 12
1988 188 0 30 0 41 0 10
1989 936 81 25 0 210 15 8
1990 2,306 606 106 1 484 100 31
1991 1,481 0 268 1 304 0 79
1992 4,398 0 732 4 813 0 196
1993 11,678 150 187 1 1,898 19 45
1994 19,802 174 5,679 31 2,550 17 1,067
1995 23,269 531 13,736 74 2,382 42 2,028
1996 22,202 1,056 29,568 160 1,862 70 3,571
TOTAL 88,826 3,858 50,483 273 11,101 490 7,087
(21) (22) (23) (24)
ACC/YR (20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 0 108 1,093 31
1987 0 60 912 15
1988 0 18 288 6
1989 0 68 1,151 13
1990 0 103 2,324 22
1991 0 112 2,242 41
1992 1 341 6,476 93
1993 0 855 14,494 232
1994 6 1,752 30,623 468
1995 11 2,487 43,245 797
1996 20 3,588 59,485 2,804
TOTAL 39 9,494 162,332 4,522
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>
PRIOR XXX XXX XXX XXX XXX XXX
1987 80,486 1,059 79,427 70.0 36.5 70.8
1988 74,523 1,342 73,181 66.8 45.0 67.4
1989 77,749 1,308 76,442 67.3 41.5 68.0
1990 92,119 1,562 90,556 74.6 51.7 75.2
1991 94,255 709 93,546 72.0 23.2 73.2
1992 93,585 1,957 91,628 68.9 60.0 69.1
1993 92,871 1,393 91,478 71.5 33.0 72.8
1994 105,995 1,426 104,569 85.4 33.0 87.3
1995 91,448 2,000 89,448 77.4 51.3 78.3
1996 85,551 2,212 83,339 76.7 72.7 76.8
TOTAL XXX XXX XXX XXX XXX XXX
INTERCOMPANY LOSSES LAE
ACC/YR POOLING PERC. UNPAID UNPAID
(33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 760 334
1987 697 215
1988 218 69
1989 880 271
1990 1,806 518
1991 1,747 495
1992 5,126 1,350
1993 11,715 2,779
1994 25,277 5,346
1995 36,400 6,845
1996 50,554 8,931
TOTAL XXX 135,178 27,153
</TABLE>
<PAGE> 5
OHIO CASUALTY GROUP
SCHEDULE P - PART 1D - WORKERS COMPENSATION
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9)
ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 6,531 987 461 8 268
1987 170,721 3,839 166,883 102,952 526 8,897 1 2,432
1988 179,208 3,811 175,397 107,623 532 9,108 (0) 3,113
1989 201,802 4,148 197,654 129,149 1,469 11,358 86 3,022
1990 220,037 3,333 216,703 146,772 404 13,157 0 4,451
1991 219,110 3,144 215,966 134,322 (0) 12,290 (0) 3,226
1992 213,577 2,909 210,668 113,240 13 8,595 0 2,671
1993 185,738 2,443 183,294 80,895 0 5,317 (0) 910
1994 153,212 1,955 151,257 51,563 2 3,154 2 487
1995 143,658 1,654 142,004 36,855 0 1,823 0 339
1996 124,750 592 124,157 14,805 0 561 0 43
TOTAL XXX XXX XXX 924,705 3,932 74,721 96 20,963
(1) (10) (11) (12)
ACC/YR UNALLOCATED LOSSES + LAE REPORTED
LAE PAID CLAIMS
<S> <C> <C> <C>
PRIOR 111 6,108 XXX
1987 3,711 115,033 33,604
1988 4,049 120,247 31,188
1989 5,012 143,964 33,403
1990 5,516 165,041 32,848
1991 5,631 152,243 28,092
1992 6,419 128,241 24,638
1993 4,766 90,977 17,618
1994 3,685 58,399 13,904
1995 3,807 42,484 11,735
1996 2,451 17,816 9,944
TOTAL 45,159 1,040,556 XXX
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
ACC/YR (13) (14) (15) (16) (17) (18) (19)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 45,588 13,751 6,553 10 3,780 1,258 461
1987 9,285 311 2,184 3 714 26 144
1988 12,900 1,614 2,184 3 989 137 144
1989 19,238 3,306 3,277 5 1,503 282 216
1990 18,245 1,650 3,823 6 1,660 164 298
1991 16,036 136 4,915 8 1,441 13 383
1992 20,245 148 5,461 8 1,807 14 426
1993 22,275 383 5,461 8 1,978 39 426
1994 22,279 0 17,476 27 2,418 0 1,677
1995 28,281 56 20,752 32 2,509 6 1,618
1996 20,632 0 37,136 58 2,538 0 4,008
TOTAL 235,004 21,356 109,222 169 21,338 1,939 9,800
(21) (22) (23) (24)
(20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ACC/YR CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 1 1,380 42,742 718
1987 0 394 12,381 126
1988 0 489 14,951 153
1989 0 673 21,314 244
1990 0 722 22,927 299
1991 1 756 23,373 329
1992 1 935 28,703 388
1993 1 1,007 30,716 442
1994 3 1,508 45,327 485
1995 3 1,857 54,920 810
1996 6 2,214 66,464 3,198
TOTAL 15 11,935 363,820 7,192
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED)
ACC/YR (25) (26) (27) (28) (29) (30)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1987 128,281 868 127,414 75.1 22.6 76.3
1988 137,486 2,287 135,199 76.7 60.0 77.1
1989 170,427 5,148 165,279 84.5 124.1 83.6
1990 190,193 2,225 187,969 86.4 66.7 86.7
1991 175,774 157 175,617 80.2 5.0 81.3
1992 157,128 184 156,944 73.6 6.3 74.5
1993 122,125 431 121,694 65.8 17.6 66.4
1994 103,759 33 103,726 67.7 1.7 68.6
1995 97,501 96 97,404 67.9 5.8 68.6
1996 84,344 64 84,280 67.6 10.8 67.9
TOTAL XXX XXX XXX XXX XXX XXX
DISCOUNT FOR INTERCOMPANY LOSSES LAE
ACC/YR TIME VALUE OF MONEY POOLING PERC. UNPAID UNPAID
(31) (32) (33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 38,380 4,363
1987 11,155 1,226
1988 13,466 1,485
1989 19,204 2,110
1990 20,412 2,516
1991 20,807 2,566
1992 25,550 3,153
1993 27,345 3,372
1994 39,727 5,600
1995 48,945 5,975
1996 57,710 8,754
TOTAL XXX 322,701 41,119
</TABLE>
<PAGE> 6
OHIO CASUALTY GROUP
SCHEDULE P - PART 1E - CMP
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9)
ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 1,163 (6) 772 (53) 54
1987 114,668 2,837 111,831 35,903 558 8,425 102 1,496
1988 100,340 2,435 97,905 30,009 25 5,771 0 1,298
1989 98,708 2,401 96,308 39,939 648 6,671 1 1,789
1990 109,609 2,062 107,547 48,415 1,783 8,899 18 1,616
1991 125,346 2,460 122,886 63,048 4,657 9,494 106 4,923
1992 147,343 4,565 142,778 91,717 8,324 10,194 56 2,054
1993 146,366 5,673 140,694 74,312 135 8,506 90 1,206
1994 143,240 6,538 136,702 69,983 239 6,028 1 1,228
1995 139,602 6,743 132,859 57,062 155 3,458 (0) 981
1996 136,835 4,550 132,285 49,840 133 1,792 0 499
TOTAL XXX XXX XXX 561,391 16,653 70,010 321 17,143
(1) (10) (11) (12)
ACC/YR UNALLOCATED LOSSES + LAE REPORTED
LAE PAID CLAIMS
<S> <C> <C> <C>
PRIOR 40 2,034 XXX
1987 4,777 48,444 12,535
1988 3,473 39,228 10,864
1989 2,526 48,487 12,520
1990 3,280 58,792 13,458
1991 4,188 71,967 15,807
1992 5,207 98,738 19,187
1993 4,841 87,434 19,531
1994 4,892 80,662 19,552
1995 4,627 64,992 16,790
1996 3,845 55,344 16,111
TOTAL 41,696 656,123 XXX
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
ACC/YR (13) (14) (15) (16) (17) (18) (19)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 20,560 5,000 13,970 357 2,288 0 11,934
1987 733 0 181 5 437 0 117
1988 102 0 157 4 66 0 101
1989 1,570 75 226 6 868 17 127
1990 2,654 0 388 10 1,399 0 203
1991 2,715 0 603 15 1,530 0 340
1992 5,458 6 1,653 42 2,891 1 865
1993 7,274 50 1,643 42 4,239 13 926
1994 11,748 0 3,296 84 5,842 0 1,618
1995 10,482 35 8,104 207 5,142 7 3,913
1996 22,431 19 18,831 481 6,422 2 5,304
TOTAL 85,726 5,185 49,053 1,252 31,124 41 25,447
(21) (22) (23) (24)
ACC/YR (20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 210 1,419 44,605 183
1987 2 46 1,508 20
1988 2 22 442 14
1989 2 150 2,840 32
1990 4 292 4,922 41
1991 6 286 5,453 69
1992 15 676 11,478 141
1993 16 850 14,810 262
1994 28 1,452 23,844 466
1995 69 1,684 29,008 736
1996 93 3,713 56,107 2,861
TOTAL 447 10,591 195,017 4,825
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED)
ACC/YR (25) (26) (27) (28) (29) (30)
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1987 50,620 668 49,952 44.1 23.5 44.7
1988 39,701 31 39,670 39.6 1.3 40.5
1989 52,076 749 51,327 52.8 31.2 53.3
1990 65,529 1,815 63,714 59.8 88.0 59.2
1991 82,204 4,784 77,420 65.6 194.5 63.0
1992 118,661 8,444 110,217 80.5 185.0 77.2
1993 102,590 346 102,244 70.1 6.1 72.7
1994 104,860 353 104,507 73.2 5.4 76.4
1995 94,472 472 93,999 67.7 7.0 70.8
1996 112,179 728 111,451 82.0 16.0 84.3
TOTAL XXX XXX XXX XXX XXX XXX
DISCOUNT FOR INTERCOMPANY LOSSES LAE
ACC/YR TIME VALUE OF MONEY POOLING PERC. UNPAID UNPAID
(31) (32) (33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 29,173 15,432
1987 910 598
1988 254 187
1989 1,714 1,125
1990 3,032 1,890
1991 3,303 2,150
1992 7,063 4,415
1993 8,825 5,985
1994 14,960 8,884
1994 18,344 10,664
1996 40,763 15,344
TOTAL XXX 128,342 66,675
</TABLE>
<PAGE> 7
OHIO CASUALTY GROUP
SCHEDULE P - PART 1F - MEDICAL MALPRACTICE
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9)
ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 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 0 0 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
1996 0 0 0 0 0 0 0 0
TOTAL XXX XXX XXX 0 0 0 0 0
(1) (10) (11) (12)
ACC/YR UNALLOCATED LOSSES + LAE REPORTED
LAE PAID CLAIMS
<S> <C> <C> <C>
PRIOR 0 0 XXX
1987 0 0 0
1988 0 0 0
1989 0 0 0
1990 0 0 0
1991 0 0 0
1992 0 0 0
1993 0 0 0
1994 0 0 0
1995 0 0 0
1996 0 0 0
TOTAL 0 0 XXX
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
ACC/YR (13) (14) (15) (16) (17) (18) (19)
DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 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 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0
TOTAL 0 0 0 0 0 0 0
(21) (22) (23) (24)
(20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ACC/YR CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C> <C>
PRIOR 0 0 0 0
1987 0 0 0 0
1988 0 0 0 0
1989 0 0 0 0
1990 0 0 0 0
1991 0 0 0 0
1992 0 0 0 0
1993 0 0 0 0
1994 0 0 0 0
1995 0 0 0 0
1996 0 0 0 0
TOTAL 0 0 0 0
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>
PRIOR XXX XXX XXX XXX XXX XXX
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 0 0 0 0.0 0.0 0.0
1991 0 0 0 0.0 0.0 0.0
1992 0 0 0 0.0 0.0 0.0
1993 0 0 0 0.0 0.0 0.0
1994 0 0 0 0.0 0.0 0.0
1995 0 0 0 0.0 0.0 0.0
1996 0 0 0 0.0 0.0 0.0
TOTAL XXX XXX XXX XXX XXX XXX
INTERCOMPANY LOSSES LAE
ACC/YR POOLING PERC. UNPAID UNPAID
(33) (34) (35)
<S> <C> <C>
PRIOR XXX 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
1996 0 0
TOTAL XXX 0 0
</TABLE>
<PAGE> 8
OHIO CASUALTY GROUP
SCHEDULE P - PART 1G - SPECIAL LIABILITY
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9)
ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 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 143 58 85 95 62 1 0 0
1991 271 214 57 83 71 13 0 0
1992 226 184 42 327 261 0 0 0
1993 37 43 (7) 0 0 0 0 0
1994 18 17 1 9 2 0 0 0
1995 33 30 3 0 0 0 0 0
1996 49 49 0 5 5 0 0 0
TOTAL XXX XXX XXX 519 401 13 0 0
<CAPTION>
(10) (11) (12)
UNALLOCATED LOSSES + LAE REPORTED
LAE PAID CLAIMS
<S> <C> <C> <C>
PRIOR 0 0 XXX
1987 0 0 0
1988 0 0 0
1989 0 0 0
1990 0 33 0
1991 0 24 1
1992 0 66 1
1993 0 0 1
1994 0 7 1
1995 0 0 1
1996 0 0 2
TOTAL 0 131 XXX
<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 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 2 1 0 0 0 0 0 0
1992 0 0 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
1996 0 0 0 0 0 0 0 0
TOTAL 2 1 0 0 0 0 0 0
<CAPTION>
(21) (22) (23) (24)
SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C>
PRIOR 0 0 0
1987 0 0 0
1988 0 0 0
1989 0 0 0
1990 0 0 0
1991 0 1 1
1992 0 0 0
1993 0 0 0
1994 0 0 0
1995 0 0 1
1996 0 0 1
TOTAL 0 1 3
<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>
PRIOR XXX XXX XXX XXX XXX XXX
1987 0 0 0 0 0 0
1988 0 0 0 0 0 0
1989 0 0 0 0 0 0
1990 95 62 33 66.8 107.6 39.2
1991 97 72 25 35.9 33.7 43.9
1992 327 261 66 144.8 141.9 157.8
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
1996 5 5 0 10.3 10.4 0.0
TOTAL XXX XXX XXX XXX XXX XXX
<CAPTION>
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
(33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 0 0
1987 0 0
1988 0 0
1989 0 0
1990 0 0
1991 1 0
1992 0 0
1993 0 0
1994 0 0
1995 0 0
1996 0 0
TOTAL XXX 1 0
</TABLE>
<PAGE> 9
OHIO CASUALTY GROUP
SCHEDULE P - PART 1H - OTHER LIABILITY (section 1)
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9)
ACC/YR UB (2) (3) (4) (5) (6) (7) (8) SALVAGE & S
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 422 (655) 808 224 (32)
1987 143,930 2,706 141,224 41,332 2,765 16,367 205 1,218
1988 140,322 2,728 137,594 39,038 1,008 14,011 20 936
1989 138,825 2,811 136,014 44,325 3,245 13,998 87 1,093
1990 140,819 2,496 138,324 46,689 2,867 16,056 692 681
1991 128,769 2,252 126,517 42,662 1,637 12,423 74 646
1992 120,599 2,155 118,444 35,947 2,252 11,147 3 971
1993 111,024 1,962 109,061 29,207 616 7,315 30 510
1994 112,506 1,993 110,513 20,633 1,384 3,936 (0) 375
1995 111,545 1,893 109,653 10,641 0 1,579 0 273
1996 104,753 1,051 103,702 5,519 0 453 0 154
TOTAL XXX XXX XXX 316,414 15,117 98,094 1,336 6,824
<CAPTION>
(10) (11) (12)
UNALLOCATED LOSSES + LAE REPORTED
LAE PAID CLAIMS
<S> <C> <C> <C>
PRIOR 295 1,957 XXX
1987 6,245 60,976 7,358
1988 7,036 59,057 6,885
1989 7,670 62,661 7,409
1990 8,306 67,493 7,900
1991 7,835 61,208 7,350
1992 5,325 50,163 6,968
1993 4,113 39,990 6,583
1994 4,194 27,378 6,365
1995 2,128 14,348 5,233
1996 3,112 9,084 4,258
TOTAL 56,260 454,315 XXX
<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 2,451 0 3,821 18 1,231 0 4,568 16
1987 766 0 997 5 307 0 958 3
1988 876 0 997 5 352 0 958 3
1989 2,362 5 1,828 9 1,035 2 1,933 7
1990 4,477 600 2,741 13 2,215 292 3,163 11
1991 5,610 113 3,157 15 2,933 63 3,945 14
1992 7,981 0 3,323 16 3,984 0 3,833 14
1993 8,608 230 3,157 15 3,618 101 3,035 11
1994 11,325 500 13,125 61 3,531 163 9,338 33
1995 9,490 0 22,835 107 2,077 0 11,420 41
1996 9,340 500 27,019 127 1,560 85 10,414 37
TOTAL 63,286 1,948 82,999 389 22,843 707 53,566 190
<CAPTION>
(21) (22) (23) (24)
SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C>
PRIOR 939 12,976 103
1987 243 3,263 46
1988 261 3,436 24
1989 527 7,661 61
1990 930 12,610 92
1991 1,104 16,545 129
1992 1,576 20,669 180
1993 1,710 19,771 278
1994 3,640 40,202 491
1995 4,970 50,645 526
1996 5,366 52,949 1,146
TOTAL 21,267 240,727 3,076
<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>
PRIOR XXX XXX XXX XXX XXX XXX
1987 67,216 2,977 64,238 47 110 45
1988 63,529 1,036 62,492 45 38 45
1989 73,677 3,355 70,323 53 119 52
1990 84,579 4,475 80,103 60 179 58
1991 79,669 1,916 77,753 62 85 61
1992 73,116 2,284 70,832 60.6 106.0 59.8
1993 60,763 1,002 59,761 54.7 51.1 54.8
1994 69,722 2,142 67,580 62.0 107.5 61.2
1995 65,141 148 64,994 58.4 7.8 59.3
1996 62,782 749 62,033 59.9 71.3 59.8
TOTAL XXX XXX XXX XXX XXX XXX
<CAPTION>
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
(33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 6,254 6,722
1987 1,758 1,504
1988 1,868 1,568
1989 4,176 3,486
1990 6,605 6,005
1991 8,639 7,906
1992 11,289 9,380
1993 11,520 8,251
1994 23,889 16,313
1995 32,219 18,427
1996 35,731 17,218
TOTAL XXX 143,948 96,779
</TABLE>
<PAGE> 10
OHIO CASUALTY GROUP
SCHEDULE P - PART1H - OTHER LIABILITY (SECTION 2)
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9)
REP/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 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 15 0 15 0 0 0 0 0
1991 50 1 49 0 0 0 0 0
1992 109 1 107 0 0 0 0 0
1993 138 2 136 60 0 28 0 0
1994 158 2 156 20 0 263 0 0
1995 395 108 287 259 0 163 0 0
1996 805 290 515 38 0 36 0 0
TOTAL XXX XXX XXX 377 0 491 0 0
<CAPTION>
(10) (11) (12)
UNALLOCATED LOSSES + LAE REPORTED
LAE PAID CLAIMS
<S> <C> <C> <C>
PRIOR 0 0 XXX
1987 0 0 0
1988 0 0 0
1989 0 0 0
1990 0 0 0
1991 0 0 0
1992 0 0 0
1993 26 114 0
1994 29 313 0
1995 50 472 0
1996 0 74 0
TOTAL 105 973 XXX
<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 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 0 0 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 43 0 35 0 18 0 15 0
1996 206 0 226 0 86 0 95 0
TOTAL 249 0 262 0 105 0 110 0
<CAPTION>
(21) (22) (23) (24)
SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C>
PRIOR 0 0 0
1987 0 0 0
1988 0 0 0
1989 0 0 0
1990 0 0 0
1991 0 0 0
1992 0 0 0
1993 0 0 0
1994 0 0 0
1995 8 119 0
1996 41 654 0
TOTAL 49 773 0
<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>
PRIOR XXX XXX XXX XXX XXX XXX
1987 0 0 0 0 0 0
1988 0 0 0 0 0 0
1989 0 0 0 0 0 0
1990 0 0 0 0 0 0
1991 0 0 0 0 0 0
1992 0 0 0 0 0 0
1993 114 0 114 83 0 84
1994 313 0 313 198 0 200
1995 591 0 591 150 0 206
1996 729 1 729 91 0 141
TOTAL XXX XXX XXX XXX XXX XXX
<CAPTION>
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
(33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 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 79 40
1996 432 223
TOTAL XXX 510 263
</TABLE>
<PAGE> 11
OHIO CASUALTY GROUP
SCHEDULE P - PART 1I- SPECIAL PROPERTY
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9)
ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 274 0 258 0 265
1995 67,714 5,196 62,517 33,495 10 1,143 0 566
1996 66,985 3,520 63,465 34,502 0 963 0 222
XXX XXX XXX 68,271 10 2,363 0 1,052
(10) (11) (12)
UNALLOCATED LOSSES + LAE REPORTED
LAE PAID CLAIMS
<C> <C> <C>
9 540 XXX
2,147 36,775 XXX
2,312 37,777 XXX
4,468 75,092 XXX
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
(13) (14) (15) (16) (17) (18) (19)
ACC/YR DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 758 12 306 16 52 0 29
1995 795 0 33 2 101 0 4
1996 7,248 0 997 51 217 0 26
8,801 12 1,335 68 370 0 59
(21) (22) (23) (24)
(20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS
<C> <C> <C> <C>
1 23 1,138 59
0 69 999 74
1 629 9,065 1,305
3 721 11,202 1,438
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
(25) (26) (27) (28) (29) (30) (31) (32)
ACC/YR DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1995 37,786 12 37,775 55.8 0.2 60.4
1996 46,894 52 46,841 70.0 1.5 73.8
XXX XXX XXX XXX XXX XXX
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
(33) (34) (35)
<C> <C> <C>
XXX 1,036 102
826 173
8,194 871
XXX 10,056 1,146
</TABLE>
<PAGE> 12
OHIO CASUALTY GROUP
SCHEDULE P - PART 1J - AUTO PHYSICAL DAMAGE
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9)
ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX (1,872) (3) 189 0 2,076
1995 212,541 975 211,565 123,367 1,108 1,896 0 15,299
1996 209,637 939 208,698 125,062 959 1,305 0 9,009
XXX XXX XXX 246,557 2,064 3,389 0 26,384
(10) (11) (12)
UNALLOCATED LOSSES + LAE REPORTED
LAE PAID CLAIMS
<C> <C> <C>
(94) (1,774) XXX
12,158 136,313 107,802
11,944 137,352 104,504
24,008 271,890 XXX
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
(13) (14) (15) (16) (17) (18) (19) (20)
ACC/YR DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 248 0 943 4 69 0 249 1
1995 668 6 101 0 226 2 32 0
1996 15,530 68 3,076 14 1,236 5 227 1
16,446 74 4,120 19 1,531 6 508 2
(21) (22) (23) (24)
SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<C> <C> <C>
101 1,604 146
105 1,124 430
1,988 21,970 9,446
2,194 24,698 10,022
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
(25) (26) (27) (28) (29) (30) (31) (32)
ACC/YR DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1995 138,553 1,116 137,437 65 114 65
1996 160,368 1,046 159,322 76.5 111.4 76.3
TOTAL XXX XXX XXX XXX XXX XXX
INTERCOMPANY LOSSES LAE
(33) (34) (35)
<C> <C> <C>
1,187 418
763 361
18,524 3,446
XXX 20,473 4,225
</TABLE>
<PAGE> 13
OHIO CASUALTY GROUP
SCHEDULE P - PART 1K - BONDS
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9)
ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX (516) (829) 612 939 1,342
1995 35,287 2,866 32,420 3,664 0 311 0 141
1996 36,197 2,549 33,648 987 0 114 0 104
XXX XXX XXX 4,135 (829) 1,037 939 1,586
(10) (11) (12)
UNALLOCATED LOSSES + LAE REPORTED
LAE PAID CLAIMS
<C> <C> <C>
65 50 XXX
901 4,877 XXX
536 1,636 XXX
1,502 6,564 XXX
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
(13) (14) (15) (16) (17) (18) (19)
ACC/YR DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 2,465 397 984 64 741 100 584
1995 1,485 0 105 7 600 0 75
1996 2,011 0 3,208 210 191 0 533
5,961 397 4,297 281 1,532 100 1,192
(21) (22) (23) (24)
(20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS
<C> <C> <C> <C>
38 248 4,422 256
5 115 2,368 169
35 460 6,159 350
77 822 12,948 775
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
(25) (26) (27) (28) (29) (30) (31) (32)
ACC/YR DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1995 7,256 12 7,245 21 0 22
1996 8,040 244 7,795 22 10 23
TOTAL XXX XXX XXX XXX XXX XXX
(33) (34) (35)
POOLING PERC. UNPAID UNPAID
(33) (34) (35)
<C> <C> <C>
XXX 2,986 1,435
1,583 784
5,010 1,149
XXX 9,580 3,368
</TABLE>
<PAGE> 14
OHIO CASUALTY GROUP
SCHEDULE P - PART 1L - OTHER (A&H)
<TABLE>
<CAPTION>
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9)
ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB
DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX 464 464 9 9 0
1995 1,517 1,517 0 472 472 3 3 0
1996 1,298 1,298 0 93 93 0 0 0
XXX XXX XXX 1,030 1,030 12 12 0
(10) (11) (12)
UNALLOCATED LOSSES + LAE REPORTED
LAE PAID CLAIMS
<C> <C> <C>
0 0 XXX
0 0 XXX
0 0 XXX
0 0 XXX
LOSSES UNPAID ALLOCATED LAE UNPAID
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
(13) (14) (15) (16) (17) (18) (19) (20)
ACC/YR DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 542 542 396 396 49 49 98 98
1995 137 137 42 42 15 15 13 13
1996 124 124 1,293 1,293 3 3 89 89
803 803 1,731 1,731 67 67 199 199
(21) (22) (23) (24)
SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<C> <C> <C>
0 0 46
0 0 22
0 0 42
0 0 110
TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR
EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY
(25) (26) (27) (28) (29) (30) (31) (32)
ACC/YR DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXX XXX XXX XXX XXX XXX
1995 683 683 0 45 45 0
1996 1,603 1,603 0 124 124 0
TOTAL XXX XXX XXX XXX XXX XXX
INTERCOMPANY LOSSES LAE
POOLING PERC. UNPAID UNPAID
(33) (34) (35)
<C> <C> <C>
XXX 0 0
0 0
0 0
XXX 0 0
</TABLE>
<PAGE> 15
OHIO CASUALTY GROUP
SCHEDULE P - PART 1R - PRODUCT LIABILITY
<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 500 (11) 898 14
1987 15,224 276 14,948 6,258 6 4,103 10
1988 16,134 290 15,843 2,994 0 3,651 0
1989 14,373 259 14,114 2,871 0 1,697 0
1990 13,298 218 13,080 2,899 0 2,657 0
1991 10,831 133 10,698 2,617 45 1,340 11
1992 9,395 115 9,281 1,448 0 1,038 0
1993 6,069 75 5,994 561 0 731 0
1994 1,231 16 1,216 496 0 359 0
1995 486 6 480 188 0 47 0
1996 385 1 384 65 0 6 0
TOTAL XXX XXX XXX 20,897 40 16,526 35
(1) (9) (10) (11) (12)
ACC/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED
RECEIVED LAE PAID CLAIMS
<S> <C> <C> <C> <C>
PRIOR 41 46 1,440 XXX
1987 23 696 11,042 696
1988 195 614 7,259 511
1989 27 616 5,184 439
1990 44 367 5,923 344
1991 103 293 4,194 301
1992 20 223 2,709 257
1993 19 226 1,518 91
1994 4 228 1,084 197
1995 7 1,016 1,251 111
1996 2 494 564 81
TOTAL 484 4,819 42,167 XXX
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 2,121 0 61 0 834 0 49 0
1987 1,667 0 24 0 554 0 16 0
1988 1,372 0 24 0 460 0 16 0
1989 1,334 0 37 0 488 0 27 0
1990 1,160 0 49 0 460 0 39 0
1991 537 0 61 0 230 0 52 0
1992 989 0 61 0 390 0 48 0
1993 1,151 0 61 0 384 0 41 0
1994 222 0 171 0 76 0 89 0
1995 206 0 306 0 59 0 124 0
1996 133 0 367 0 16 0 95 0
TOTAL 10,890 0 1,223 0 3,952 0 598 0
(21) (22) (23) (24)
ACC/YR SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING
ANTICIPATED LAE UNPAID RESERVES CLAIMS
<S> <C> <C> <C>
PRIOR 167 3,233 790
1987 118 2,380 49
1988 98 1,971 38
1989 97 1,982 48
1990 87 1,794 35
1991 45 925 27
1992 76 1,564 26
1993 88 1,725 23
1994 37 594 18
1995 53 747 18
1996 55 666 33
TOTAL 920 17,582 1,105
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>
PRIOR XXX XXX XXX XXX XXX XXX
1987 13,437 16 13,422 88 6 90
1988 9,230 0 9,230 57 0 58
1989 7,167 0 7,167 50 0 51
1990 7,717 0 7,717 58 0 59
1991 5,175 56 5,119 47.8 42.1 47.9
1992 4,273 0 4,273 45.5 0.0 46.0
1993 3,243 0 3,243 53.4 0.0 54.1
1994 1,678 0 1,678 136.3 0.6 138.1
1995 1,998 0 1,998 411.2 2.5 416.6
1996 1,230 0 1,230 319.7 11.8 320.7
TOTAL XXX XXX XXX XXX XXX XXX
INTERCOMPANY LOSSES LAE
ACC/YR POOLING PERC. UNPAID UNPAID
(33) (34) (35)
<S> <C> <C> <C>
PRIOR XXX 2,182 1,051
1987 1,691 689
1988 1,396 575
1989 1,371 612
1990 1,209 586
1991 598 327
1992 1,050 515
1993 1,212 513
1994 393 201
1995 511 235
1996 499 167
TOTAL XXX 12,112 5,470
</TABLE>
