OHIO CASUALTY CORP, 10-Q, 1998-11-13

OHIO CASUALTY CORP
10-Q, 1998-11-13
FIRE, MARINE & CASUALTY INSURANCE

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

[x] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarter ended September 30, 1998

[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from to

Commission File Number 0-5544

OHIO CASUALTY CORPORATION
(Exact name of registrant as specified in its charter)

OHIO 31-0783294
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)

136 North Third Street, Hamilton, Ohio 45025
(Address of principal executive offices) (Zip Code)

(513) 867-3000
(Registrant's telephone number)

Securities registered pursuant to Section 12(g) of the Act:

Common Shares, Par Value $.125 Each
(Title of Class)

Common Share Purchase Rights
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

Yes X No

The aggregate market value as of November 2, 1998 of the voting stock held
by non-affiliates of the registrant was $1,140,864,677.

On November 2, 1998 there were 32,174,783 shares outstanding.

Page 1 of 15

<PAGE> 2
<TABLE>
PART I

ITEM 1. FINANCIAL STATEMENTS

OHIO CASUALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
<CAPTION>
September 30, December 31,
1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments:
Fixed maturities:
Available for sale, at fair value
(Cost: $2,058,029 and $2,112,291) $2,187,935 $2,226,030
Equity securities, at fair value
(Cost: $256,301 and $275,637) 814,741 859,475
Short-term investments at cost 53,162 65,849
----------- -----------
Total investments 3,055,838 3,151,354
Cash 58,115 54,206
Premiums and other receivables 230,515 193,615
Deferred policy acquisition costs 136,883 126,063
Property and equipment 55,266 50,699
Reinsurance recoverable 127,108 108,962
Other assets 91,497 93,883
- ------------------------------------------------------------------------------
Total assets $3,755,222 $3,778,782
==============================================================================

Liabilities
Insurance reserves:
Unearned premiums $ 526,615 $ 495,076
Losses 1,171,258 1,176,614
Loss adjustment expenses 291,003 307,193
Future policy benefits 31,011 34,148
Note payable 35,000 40,000
California Proposition 103 reserve 69,597 66,908
Deferred income taxes 94,640 95,389
Other liabilities 265,097 248,625
----------- -----------
Total liabilities 2,484,221 2,463,953

Shareholders' equity
Common stock, $.125 par value
Authorized: 150,000,000 shares
Issued: 46,803,872 5,850 5,850
Additional paid-in capital 4,186 3,923
Accumulated other comprehensive income:
Unrealized gain on investments, net
of applicable income taxes 448,206 454,241
Retained earnings 1,179,004 1,158,308
Treasury stock, at cost:
(Shares: 14,499,189; 13,182,240) (366,245) (307,493)
----------- -----------
Total shareholders' equity 1,271,001 1,314,829
- ------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $3,755,222 $3,778,782
==============================================================================
Accompanying notes are integral part of these financial statements. For
complete disclosures see Notes to Consolidated Financial Statements on pages
23-32 of the Corporation's 1997 Annual Report to shareholders.
</TABLE>
2
<PAGE> 3
<TABLE>
OHIO CASUALTY CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
(In thousands)
(Unaudited)
<CAPTION>
Three months
Ended September 30,
1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Premiums and finance charges earned $ 314,956 $ 300,252
Investment income less expenses 42,231 45,365
Investment gains realized 3,537 20,806
---------- ----------
Total income 360,724 366,423

Losses and benefits for policyholders 193,233 200,085
Loss adjustment expenses 28,533 30,097
General operating expenses 30,349 25,184
California Proposition 103 reserve 896 1,052
Amortization of deferred policy acquisition costs 79,255 76,399
---------- ----------
Total expenses 332,266 332,817

Income before income taxes 28,458 33,606

Income taxes
Current 4,663 6,602
Deferred 892 1,680
---------- ----------
Total income taxes 5,555 8,282
- ------------------------------------------------------------------------------
Income from continuing operations 22,903 25,324

Income from discontinued operations 278 (85)
- ------------------------------------------------------------------------------
Net income $ 23,181 $ 25,239
==============================================================================

Other comprehensive income, net of tax:
Net change in unrealized gains (losses), net
of income tax expense/(benefit) of $(36,665)
and $17,872, respectively (68,093) 37,789

Comprehensive income $ (44,912) $ 63,028
==============================================================================

Average shares outstanding - basic 32,753 34,025

Average shares outstanding - diluted 32,774 34,067
==============================================================================

Earnings per share (basic and diluted):
Income from continuing operations, per share $ 0.70 $ 0.74
Income from discontinued operations, per share 0.01 0.00
---------- ----------
Net income, per share $ 0.71 $ 0.74

Cash dividends, per share $ 0.44 $ 0.42
==============================================================================

Accompanying notes are integral part of these financial statements. For
complete disclosures see Notes to Consolidated Financial Statements on pages
23-32 of the Corporation's 1997 Annual Report to Shareholders.
</TABLE>
3
<PAGE> 4
<TABLE>
OHIO CASUALTY CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
(In thousands)
(Unaudited)
<CAPTION>
Nine Months
Ended September 30,
1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Premiums and finance charges earned $ 936,246 $ 910,519
Investment income less expenses 128,164 134,236
Investment gains (losses) realized 15,770 42,644
----------- -----------
Total income 1,080,180 1,087,399

Losses and benefits for policyholders 597,901 569,520
Loss adjustment expenses 85,001 90,226
General operating expenses 88,527 78,292
California Proposition 103 reserve 2,689 3,157
Amortization of deferred policy acquisition costs 228,112 228,180
----------- -----------
Total expenses 1,002,230 969,375

Income before income taxes 77,950 118,024

Income taxes
Current 11,926 25,693
Deferred 2,218 2,788
----------- -----------
Total income taxes 14,144 28,481

Income from continuing operations 63,806 89,543

Income from discontinued operations 903 2,516
- -----------------------------------------------------------------------------
Net income $ 64,709 $ 92,059
=============================================================================

Other comprehensive income, net of tax:
Net change in unrealized gains (losses), net
of income tax expense/(benefit) of $(3,250)
and $50,242, respectively (6,035) 93,304

Comprehensive income $ 58,674 $ 185,363
=============================================================================

Average shares outstanding - basic 33,263 34,380

Average shares outstanding - diluted 33,301 34,406
=============================================================================

Earnings per share (basic):
Income from continuing operations, per share $ 1.92 $ 2.61
Income from discontinued operations, per share 0.03 0.07
----------- -----------
Net income, per share $ 1.95 $ 2.68

Earnings per share (diluted):
Income from continuing operations, per share $ 1.91 $ 2.61
Income from discontinued operations, per share 0.03 0.07
----------- -----------
Net income, per share $ 1.94 $ 2.68

Cash dividends, per share $ 1.32 $ 1.26
=============================================================================

<CAPTION>
Additional Accumulated Total
Common paid-in other compre- Retained Treasury shareholders'
stock capital hensive income earnings stock equity
<S> <C> <C> <C> <C> <C> <C>
Balance
January 1, 1997 $5,850 $3,603 $332,042 $1,076,545 $(242,940) $1,175,100

Unrealized gain 143,546 143,546
Deferred income tax on
net unrealized gain (50,242) (50,242)
Net issuance of treasury
stock under stock option
plan and by charitable
donation (20,913 shares) 282 (478) 233 37
Repurchase of treasury
stock (1,217,888 shares) (50,179) (50,179)
Net income 92,059 92,059
Cash dividends paid
($1.26 per share) (43,306) (43,306)
- -------------------------------------------------------------------------------------------------------
Balance,
September 30, 1997 $5,850 $3,885 $425,346 $1,124,820 $(292,886) $1,267,015
=======================================================================================================
Balance
January 1, 1998 $5,850 $3,923 $454,241 $1,158,308 $(307,493) $1,314,829

Unrealized gain (9,285) (9,285)
Deferred income tax on
net unrealized gain 3,250 3,250
Net issuance of treasury
stock under stock option
plan and by charitable
donation (10,051 shares) 263 126 389
Repurchase of treasury
stock (1,327,000 shares) (58,878) (58,878)
Net income 64,709 64,709
Cash dividends paid
($1.32 per share) (44,013) (44,013)
- -------------------------------------------------------------------------------------------------------
Balance,
September 30, 1998 $5,850 $4,186 $448,206 $1,179,004 $(366,245) $1,271,001
=======================================================================================================
Accompanying notes are integral part of these financial statements. For complete disclosures see
Notes to Consolidated Financial Statements on pages 23-32 of the Corporation's 1997 Annual Report to
Shareholders.
</TABLE>
5
<PAGE> 6
<TABLE>
OHIO CASUALTY CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months
Ended September 30,
1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from:
Operations
Net income $ 64,709 $ 92,059
Adjustments to reconcile net income to
cash from operations:
Changes in:
Insurance reserves 6,855 (48,480)
Income taxes (7,322) (7,471)
Premiums and other receivables (36,900) (19,366)
Deferred policy acquisition costs (10,820) (3,024)
Reinsurance recoverable (18,145) 25,668
Other assets 2,135 (11,529)
Other liabilities 26,533 4,592
Depreciation and amortization 12,092 16,216
Investment gains and losses (15,905) (43,507)
California Proposition 103 reserve 2,689 3,157
---------- ----------
Net cash generated by operations 25,921 8,315
---------- ----------

Investments
Purchase of investments:
Fixed income securities - available for sale (223,077) (265,441)
Equity securities (19,158) (21,812)
Proceeds from sales:
Fixed income securities - available for sale 189,480 261,926
Equity securities 42,003 86,225
Proceeds from maturities and calls:
Fixed income securities - available for sale 91,392 77,267
Equity securities 4,601 9,660
Property and equipment:
Purchases (12,227) (8,561)
Sales 399 580
---------- ----------
Net cash generated from investments 73,413 139,844
---------- ----------

Financing
Note payable (5,000) (5,000)
Proceeds from exercise of stock options 1 346
Purchase of treasury stock (59,100) (50,179)
Dividends paid to shareholders (44,013) (43,306)
---------- ----------
Net cash used in financing activity (108,112) (98,139)
---------- ----------

Net change in cash and cash equivalents (8,778) 50,020
---------- ----------
Cash and cash equivalents, beginning of period 120,055 61,624
- -----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 111,277 $ 111,644
=============================================================================

Accompanying notes are integral part of thse financial statements. For
complete disclosures see Notes to Consolidated Financial Statements on pages
23-32 of the Corporation's 1997 Annual Report to Shareholders.
</TABLE>
6
<PAGE> 7

OHIO CASUALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE I - RECENTLY ISSUED ACCOUNTING STANDARDS

During 1997, the Corporation adopted Statement of Financial Accounting
Standard 128 "Earnings Per Share." Basic earnings per share is computed using
weighted average number of common shares outstanding. Diluted earnings per
share is computed similar to basic earnings per share except that the weighted
average number of shares outstanding is increased to include the number of
additional common shares that would have been issued if all dilutive
outstanding stock options would have been exercised. All prior periods were
recalculated under the new definition of basic and diluted earnings per share.
Basic and diluted earnings per share are summarized as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1998 September 30, 1998
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income from continuing operations $22,903 $25,324 $63,806 $89,543

Average common shares
outstanding - basic 32,753 34,025 33,263 34,380

Basic income from continuing
operations per average share $ .70 $ .74 $ 1.92 $ 2.61
===========================================================================================
Average common shares 32,753 34,025 33,263 34,380
outstanding

Effect of dilutive securities 21 42 38 26
- --------------------------------------------------------------------------------------------
Average common shares
outstanding - diluted 32,774 34,067 33,301 34,406

Diluted income from continuing
operations per average share $ .70 $ .74 $ 1.92 $ 2.60
============================================================================================
</TABLE>
In 1997 the SEC issued Financial Reporting Release 48 "Disclosures about
Derivatives and Other Financial Instruments." This statement requires
enhanced accounting policy disclosures for derivative instruments as well as
quantitative and qualitative disclosures about market risk inherent in
derivative instruments and other financial instruments. The Corporation has
provided the accounting policy disclosures in Note III. The quantitative and
qualitative disclosure information regarding market risk will be included in
the Corporation's 1998 10-K filing.

The Corporation adopted Statement of Financial Accounting Standard 130
"Reporting Comprehensive Income" during the first quarter of 1998.
Comprehensive income is defined as changes in equity of a business enterprise
during a period from transactions and other events from non-owner sources.
The Corporation has displayed comprehensive income on its Statement of
Consolidated Income on pages 3 and 4 of this Form 10-Q.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 131 "Disclosures about Segments of an Enterprise
and Related Information." This statement requires selected information to be
reported on the Corporation's operating segments. Operating segments are
determined by the way management structures the segments in making operating
decisions and assessing performance. The Corporation is currently reviewing
what changes, if any, this will require on the presentation of the financial
statements for fiscal periods beginning after December 31, 1997.

In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-3 "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments." This statement provides
guidance on accounting for insurance related assessments and required
disclosure information.
7

<PAGE> 8

This statement is effective for fiscal years beginning after December 15,
1998. The Corporation does not believe that this statement will materially
affect the Corporation's financial statements or disclosures.

The Corporation adopted Statement of Position 98-1 "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." This statement
provides guidance on accounting for the costs of computer software developed
or obtained for internal use and allows for certain costs associated with
developing/obtaining software for internal use to be capitalized. Pursuant to
this, the Corporation capitalized $1.2 million during the third quarter of
1998 and has capitalized $3.7 million year to date. Prior to this Statement
of Position, this amount would have been expensed as incurred.

In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 132 "Employers' Disclosures about Pensions and
Other Postretirement Benefits." The purpose of this statement is to
standardize the disclosure requirements for pensions and other postretirement
benefits. The only impact to the Corporation will be the modification of its
footnote disclosure. The Corporation will make these modifications beginning
with the Annual Report to Shareholders for the year ended December 31, 1998.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 133 "Accounting for Derivative Instruments and
Hedging Activities." This statement standardizes the accounting for
derivative instruments by requiring those items to be recognized as assets or
liabilities with changes in fair value reported in earnings or other
comprehensive income in the current period. The Corporation expects the
adoption of FAS 133 to have an immaterial impact on the financial results due
to its limited use of derivative instruments. This statement is effective for
fiscal quarters of fiscal years beginning after June 15, 1999 (January 1, 2000
for the Corporation).

NOTE II - INTERIM ADJUSTMENTS

It is believed that all material adjustments necessary to present a fair
statement of the results of the interim period covered are reflected in this
report. The operating results for the interim periods are not necessarily
indicative of the results to be expected for the full year. These statements
should be read in conjunction with the financial statements and notes thereto
in the Corporation's Annual Report to Shareholders.

NOTE III - ACCOUNTING POLICY ON DERIVATIVES

The Corporation has outstanding an interest rate swap on its revolving line of
credit. The effect of the swap agreement is to establish a hedge against
future interest rate changes. Net proceeds or payments from the swap are
charged to interest expense in the current period.

Covered call options are written on stocks and bonds held in the investment
portfolio. Changes in the values of the covered call options are recognized
in shareholders equity as unrealized appreciation or depreciation.

<PAGE> 9

ITEM 2. Management's Discussion and Analysis of Financial Condition
- ------- and Results of Operations
-----------------------------------------------------------------
Property and casualty pre-tax underwriting loss for the nine months ended
September 30, 1998 was $61.9 million, $1.86 per share, compared with $55.4
million, $1.61 per share for the same period in 1997. Gross premiums for the
first nine months of 1998 increased 4.9%. Commercial lines decreased 2.8% and
personal lines increased 10.7% for the first nine months of 1998.

Property and casualty net premium written increased 9.8% for the third quarter
of 1998 and 4.8% year to date. Premium from key agents grew 7.4% for the
quarter and increased 7.9% year to date. Key agents work closely with the
Corporation to establish goals to increase profitability, growth, and
retention. Non-key active agents grew 6.7% during the third quarter with year
to date growth of 3.2% over 1997. These together with new appointments brings
total active agent premium growth to 11.2% for the third quarter and 8.1% year
to date.

During the third quarter the Corporation announced that it will acquire
substantially all of the commercial lines division of Great American Insurance
Company, an insurance subsidiary of American Financial Group. Under the
agreement, Great American will transfer certain commercial lines insurance
liabilities and related assets to the Corporation in exchange for the
assumption of net liabilities of $300 million, plus warrants to purchase 3
million shares of Ohio Casualty common stock at an exercise price of $45.00
per share. American Financial Group will also have the opportunity to receive
up to an additional $40 million based upon the retention and growth of the
acquired insurance business. This transaction is anticipated to close
sometime during the fourth quarter of 1998 and integration planning is
currently underway. For additional information please refer to the
Corporation's 8-K filing on September 24, 1998.

New Jersey is our largest state with 16.9% of total premiums written during
the year. Legislation passed in 1992 requires automobile insurers operating
in the state to accept all risks that meet underwriting guidelines regardless
of risk concentration. This leads to a greater risk concentration in the
state than the Corporation would otherwise accept. New Jersey also requires
assessments to be paid for the New Jersey Unsatisfied Claim and Judgment Fund
(UCJF). The assessment for 1998 is approximately $3.2 million compared with
$4.2 million in 1997. Recently, the New Jersey State Senate passed an auto
insurance reform bill that mandates a 15% rate reduction for personal auto
policies for drivers who agree not to sue for "pain and suffering" unless they
suffer permanent injury in an accident. The bill was passed by the Assembly
and signed by the governor. It is currently uncertain what effective date the
state will use to implement the rollback. The anticipated impact on the
Corporation is a tradeoff of lower premium rates on personal auto policies for
presumably lower losses on these policies. As of September 30, 1998 the
Corporation had personal auto net premium written of $84.6 million or 51.9% of
total premium that the Corporation writes in New Jersey. The maximum impact
of this reform bill on the Corporation would have been a decrease of $12.7
million through September 1998 in premium if all policyholders made this
election on their policies.

The combined ratio for the first nine months increased 1 point to 107.1% from
106.1% from the same period last year. The nine month combined ratio for
homeowners increased 7.2 points to 124.3% from 117.1% in the same period last
year. The results for homeowners was largely impacted by Hurricane Bonnie and
the severe storm losses that occurred throughout the country during the second
and third quarters of 1998. Personal automobile, the Corporation's largest
line, recorded a 1998 nine month combined ratio of 102.0%, down 2.0 points
from 104.0% in 1997. Workers' compensation combined ratio for the first nine
months of 1998 increased 21.1 points to 113.8% from 92.7% during the same
period last year. This deterioration is the result of reserve increases
resulting from unexpected adverse development of pre-existing claims.

The general liability combined ratio for the third quarter decreased 17.8
points to 93.7% from 111.5% in 1997. The nine month combined ratio decreased
7 points to 97.1% from 104.1% in the same period of 1997. The nine month
combined ratio for CMP, fire and inland marine increased 3 points to 111.8%
from 108.8% in 1997 due primarily to weather related losses.

Third quarter catastrophe losses were $12.7 million and accounted for 4.0
points on the combined ratio. This compares with $9.0 million and 3.0 points
for the same period in 1997. Year to date catastrophe

9
<PAGE> 10

losses increased $20.7 million from $18.8 million in 1997 to $39.5 million in
1998. This increase is a direct result of Hurricane Bonnie and severe storm
losses during the second and third quarters of 1998.

Estimated asbestos and environmental reserves are composed of case reserves,
incurred but not reported reserves and reserves for loss adjustment expense.
The total asbestos and environmental reserves as of September 30, 1998 were
$40.1 million compared with $41.0 million at September 30, 1997.

For the quarter, property and casualty before tax investment income was $39.3
million, $1.20 per share, decreasing from $44.1 million, $1.30 per share, for
the same period last year. This decline comes as the result of increased
share repurchases during the third quarter. Also, third quarter 1997 net
investment income was increased by $1.4 million as a result of an agreement
where Ohio Casualty had agreed to manage an investment portfolio for Americo
and guarantee a 7.25% return. Any return above this amount was recorded as
income to Ohio Casualty. During the fourth quarter of 1997, this portfolio
was transferred out of the property and casualty business and into the holding
company, and therefore is no longer included in property and casualty
investment income. The effective tax rate on investment income for the third
quarter of 1998 was 25.9% compared with 25.6% for the comparable period in
1997. Additional discussion of the Corporation's investment taxation is
included in the 1997 Form 10-K.

Net cash generated by operations was $25.9 million for the first nine months
of the year compared with net cash generated of $8.3 million from operations
for the same period in 1997. Net cash generated by operations differs from
net income of $64.7 million mainly due to $15.9 million of realized investment
gains for the year, an increase in premium receivables of $36.9 million over
December 31, 1997, and an increase in reinsurance recoverables of $18.1
million. Shareholder dividend payments were $44.0 million in the first nine
months of 1998 compared with $43.3 million for the same period of 1997.

During the first nine months of 1998, Ohio Casualty continued its share
repurchase program. The total number of shares acquired during the period was
1,327,000, or 4.1% of outstanding shares, at an average price of $44.37 per
share for a total cash outflow of $58.9 million. The Company has remaining
authorization to repurchase 2,099,812 additional shares.

In 1995 the Corporation reinsured substantially all of its life insurance and
related businesses to Great Southern Life Insurance Company. During the
fourth quarter of 1997, Great Southern Life Insurance Company legally replaced
Ohio Life as the primary insurer for approximately 76% of the life insurance
policies subject to the 1995 agreement. As a result, 76% of the unamortized
ceding commission was recognized during the fourth quarter of 1997. There
remains approximately $2.0 million in unamortized ceding commission. This
will continue to be amortized over the remaining life of the underlying
policies.

Investments in below investment grade securities (Standard and Poor's rating
below BBB-) and unrated securities are summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Below investment grade securities:
Carrying value $176.7 $141.4
Amortized cost 175.9 135.6

Unrated securities:
Carrying value $263.3 $242.8
Amortized cost 243.6 228.6

Ratings provided by other agencies, such as the NAIC, categorize additional
unrated securities into below investment grade ratings. The following
summarizes the additional unrated securities that are rated in the below
investment grade category by other rating agencies:

<PAGE> 11

</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Below investment grade securities at $176.7 $141.4
carrying value

Other rating agencies categorizing unrated 8.5 8.1
securities as below investment grade

Total below investment grade securities at
carrying value $185.2 $149.5
</TABLE>

All of the Corporation's below investment grade securities 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 56 corporate borrowers in approximately 35
industries.

For further discussion of the Corporation's investments, see Item 1 of the
Corporation's Form 10-K for the year ended December 31, 1997.

In 1994, the National Association of Insurance Commissioners developed a risk-
based capital model to establish standards which will compare insurance
company statutory surplus to required minimum capital based on 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
reserve and premiums written risks. Based on current calculations, all of the
Ohio Casualty Group companies have at least twice the necessary capital to
conform with the risk-based capital model.

Proposition 103 was passed by the State of California in 1988 in an attempt to
legislate premium rates for that state. That statute included a provision
requiring the rollback of premium rates for 1989. The Corporation is
currently involved in hearings with the California Department of Insurance to
determine the Corporation's rate rollback liability under Proposition 103.

In 1997, the Administrative Law Judge presiding over the hearings requested a
submission from the Department showing revised rollback calculations. The
Department filed two revised rollback calculations in December 1997. These
alternatives, based on its concession of certain issues were $35.9 million
plus interest, and $39.9 million plus interest. After consultation with
outside counsel, the Corporation determined that $35.9 million plus interest
was the more reasonable of the two Department calculations should the
Department prevail. As a result the Corporation's reserve for this alleged
liability (including interest) is $69.6 million.

In June 1998, the Administrative Law Judge issued a proposed decision that the
Corporation's rollback liability is $24.4 million plus interest. The
Commissioner of Insurance may affirm, modify or reject the proposed decision
in whole or in part, and his determination will be subject to independent
judgment review by a California superior court. The Corporation will continue
to challenge the validity of any rollback, and asserts that the proposed $24.4
million rollback, if adopted, would be confiscatory.

The proceedings concerning the Corporation's potential rollback liability
remain ongoing, and it is uncertain when this matter will ultimately be
resolved. The Corporation anticipates further negotiations with the
California Department of Insurance. For further discussion of the
Corporation's withdrawal from California, see footnote 15 in the Corporation's
financial statements included in the Corporation's 1997 Form 10-K.

The Corporation is proceeding on schedule with efforts to convert its computer
systems to be Year 2000 compliant. The Corporation has implemented a phased
approach to transition our computer systems to be year 2000 compliant. The
four phases included in this approach are awareness, planning, execution/
testing
11

<PAGE> 12

and compliance. Two of the phases, awareness and planning, are complete.
The execution/testing phase is anticipated to be complete by the end of 1998.

The Corporation began the awareness phase early in the 1990's, recognizing
that its systems and applications would need significant changes. From that
time forward all system development and major enhancements to existing
systems took Year 2000 processing requirements into consideration. This
approach resulted in some of our systems being converted and compliant long
before there was any business requirement or exposure to processing problems.

During 1995, the Information System Department ("I/S") began the planning
phase. At that time Year 2000 compliance became a priority project with
Project Managers assigned specifically for converting our systems to be
compliant. A comprehensive inventory of our systems was completed,
identifying the critical date that each system must be compliant and an action
plan was put together to outline that the conversion was complete and tested
by our target date of December 31, 1998. The Corporation is currently on
schedule with this action plan.

As a result of the planning phase, dedicated staff and resources were assigned
to work on the Year 2000 project. This began our execution/testing phase of
the project which includes addressing the remediation of Year 2000 problems
identified in the planning phase and logical partition (LPAR) compliance
testing. LPAR compliance testing requires an isolated partition within the
mainframe that runs independently. Essentially it can be considered an
entirely separate computer. The Corporation's LPAR has a dedicated processor,
disk and tape storage. In this environment, data can be migrated forward and
tested as the internal date in the computer is changed to critical dates in
1999 and 2000. This provides an excellent environment to test applications,
system software and hardware. This testing involves individual system
compliance testing and integrated system compliance testing. The first step
verifies that the systems are compliant when they run independently. The
second step verifies compliance when they are integrated with all other
systems with which they interface. Testing is scheduled throughout 1998
focusing initially on systems critical to the daily business operation and
followed by all others. The Corporation has six major system areas:
commercial lines, claims, auto, personal property, management/financial
reporting and human resources. All of these areas are required to undergo
LPAR compliance testing. At this time, the commercial lines, claims, and
personal property system have completed the LPAR compliance testing. The
remaining systems including the Corporation's auto system, human resource
system and management/financial reporting system are scheduled to complete
compliance testing by year end 1998.

Following the completion of LPAR compliance testing, all systems will undergo
integrated testing of the production environment. Contingency plans include
compliance reverification of this integrated test early third quarter 1999 and
again early fourth quarter 1999.

As of September 30, 1998, the total amount spent to date for I/S related costs
on the Year 2000 project is $1.9 million. The Corporation estimates it will
incur an additional $.4 million in I/S related costs to complete Year 2000
readiness efforts. These amounts do not include any costs associated with
efforts made to contact third parties or related to contingency planning. As
a result of the Corporation's efforts early in the 1990's to begin making
changes to systems and existing hardware and software, the Corporation to date
has not had to make an expensive effort to identify and remedy its Year 2000
issues and does not anticipate that it will be required to make substantial
expenditures to address Year 2000 compliance in the future.

During 1997, the Corporation began the compliance phase. The Year 2000 team
is currently in the process of identifying all significant vendors,
suppliers and agents of the Corporation and is completing the initial contact
to obtain written statements of their readiness and commitment to a date for
their Year 2000 compliance. The Corporation will continue to monitor the Year
2000 status of these entities and develop contingency plans to reduce the
possible disruption in business operations that may result from the failure of
third parties with which the Corporation has business relationships to address
their Year 2000 issues. Identification and initial contact for all
significant third-parties is expected to be complete by first quarter 1999
with follow-up reviews scheduled throughout 1999. Should a third-party with
whom the Corporation transacts business have a system failure due to not being
Year 2000 compliant, the Corporation believes this could result in a delay in
processing or reporting transactions of the Corporation, or a potential

<PAGE> 13

disruption in service to its customers, notwithstanding the Corporation's
intention to develop contingency plans to respond to these potential system
failures by such third parties.

The Corporation is also addressing non information technology ("non-IT") to
ensure Year 2000 compliance. At September 30, 1998, the Year 2000 team had
completed a preliminary assessment of the non-IT assets. The team will
identify the material items that have a risk involving the safety of
individuals, or that may cause damage to property or the environment, or
affect revenues. The team is scheduled to report on the identified non-IT
assets and develop plans for remediation to the Corporation's Executive
Management Team by year end 1998. The team will continue to monitor and
update the Year 2000 status as well as begin developing contingency plans.

The Corporation is currently assessing the status of Year 2000 readiness of
the business and assets that it will acquire from the American Financial Group
as described above. The Corporation intends to complete this review before
closing of the transaction. For a period of at least 24 months from the date
of the acquisition, the American Financial Group will provide computer
processing and communication services to the Corporation in connection with
the acquired business pursuant to an Information Systems Agreement. Thus, the
Corporation will be dependent on American Financial Group to address and
remediate Year 2000 issues with respect to the information technology systems
utilized for the business being acquired by the Corporation. The Corporation
is meeting regularly with personnel from the Amercian Financial Group to
assess Year 2000 readiness and the status of efforts to address any issues.
The failure of the American Financial Group to satisfactorily correct a
material Year 2000 problem in the computer processing systems being used to
provide services to the Corporation in connection with the acquired business
could result in a material adverse effect on the ability of the Corporation to
integrate the acquired business and to operate it on a profitable basis.

The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, the normal business operations of the
Corporation including the disruption or delay in premium or claim processing
and the disruption in service to its customers. Also the inability to be Year
2000 compliant of significant third-party providers of the Corporation could
result in an interruption in the normal business operations. Due to the
general uncertainty inherent in the Year 2000 problem, such failures could
materially and adversely affect the Corporation's financial position, results
of operations or liquidity.

The year 2000 issue is also a concern from an underwriting standpoint
regarding the extent of liability for coverage under various general
liability, property and directors and officers liability and product policies.
The Corporation believes that minimal coverage could exist under some current
liability and product policies. This exposure should be minimal as our
commercial lines business has historically excluded any manufacturing risks
which produce computer or computer dependent products.

The Insurance Services Office (ISO) recently developed policy language that
clarifies that there is no coverage for certain year 2000 occurrences. The
liability exclusion has been accepted in over 40 states and a companion filing
for property has been accepted in at least 20 states at this time. Several
states have not adopted or approved the property exclusion form citing
specifically that there is no coverage under the current property contracts
and therefore, there is no reason to accept a clarifying endorsement. The
Corporation is currently addressing the year 2000 issue by attaching the ISO
exclusionary language to all general liability policies with a rating
classification the Corporation believes could potentially have year 2000
losses. The ISO exclusionary language endorsement is included on all property
policies. These actions should minimize the Corporation's exposure to year
2000 losses.

Directors and officers could be held liable if a company in their control
fails to take necessary actions to address any year 2000 problems and that
failure results in a material financial loss to the Company. The Corporation
has written directors' and officers' liability policies since 1995, with
approximately $.9 million in premiums written in 1997. The Corporation is
managing its D&O Year 2000 exposure through a combination of underwriting
guidelines which address Year 2000 issues in the application process and
reinsurance policies which provide coverage for any loss in excess of $.3
million.

<PAGE> 14

During the first quarter of 1998, the Corporation was in violation of one of
its loan covenants for its revolving line of credit. The covenant states that
no more than 30% of the Corporation's investment portfolio at market value may
be invested in equity securities. At March 31, 1998 the actual percentage of
equity securities to consolidated investments was 30.2% at market value. This
violation occurred solely because of appreciation in the Corporation's equity
portfolio. The Corporation has not allocated any new funds to the equity
portfolio in the last three years. The syndicate of banks under the credit
agreement have all signed waivers of default for this occurrence.

Ohio Casualty Corporation publishes forward-looking statements relating to
such matters as anticipated financial performance, business prospects and
plans, regulatory developments and similar matters. The statements contained
in this filing that are not historical information, are forward-looking
statements. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor under The Securities Act of 1933 and The Securities Exchange Act
of 1934 for forward-looking statements. The risks and the uncertainties that
may affect the operations, performance, development and results of the
Corporation's business and the results of the acquisition described herein,
include the following: changes in property and casualty reserves; catastrophe
losses; premium and investment growth; product pricing environment;
availability of credit; changes in government regulation; performance of
financial markets; fluctuations in interest rates; availability and pricing of
reinsurance; litigation and administrative proceedings; Year 2000 issues,
including the Corporation's ability to successfully identify and remediate
Year 2000 system issues with its own IT and non-IT assets, the ability of
third parties with which the Corporation has business relationships to address
and resolve their Year 2000 issues and the ability of the Corporation to
identify these third party issues; Year 2000 issues relating to the commercial
lines business being acquired from the American Financial Group and the
ability of the Corporation to implement appropriate contingency plans to
address Year 2000 problems which are not successfully remediated; ability of
Ohio Casualty to integrate the acquired business and to retain the acquired
insurance business; and general economic and market conditions.

14
<PAGE> 15

PART II

Item 1. Legal Proceedings - None

Item 2. Changes in Securities - None

Item 3. Defaults Upon Senior Securities - None

Item 4. Submission of Matters to a Vote of Security Holders - None

Item 5. Other Information -

As discussed in the Corporation's Proxy Statement for the 1998 Annual
Meeting of Shareholders, if an eligible shareholder of the Corporation
wishes to present a proposal for action at the 1999 Annual Meeting of
Shareholders (the "1999 Meeting") it must be received by the
Corporation no later than November 13, 1998 to be considered for
inclusion in the Corporation's Proxy Statement and form of proxy
(the "Proxy Materials") relating to that meeting. If a shareholder
intends to present a proposal at the 1999 Annual Meeting of
Shareholders, but has not sought the inclusion of such proposal in the
Company's Proxy Materials, such proposal must be received by the
Corporation no later than January 27, 1999 or the Company's management
proxies for the 1999 Annual Meeting will be entitled to use their
discretionary voting authority should such proposal then be raised,
without any discussion of the matter in the Company's Proxy Material.

Item 6. Exhibits and reports on Form 8-K -

The Corporation filed a Form 8-K on September 24, 1998, announcing the
acquisition of the Great American Commercial Lines Division.

Attached hereto as Exhibit No. 2, is the Asset Purchase Agreement
between Ohio Casualty Corporation and Great American Insurance Company.

Attached hereto as Exhibit No. 27 is the Financial Data Schedule.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

OHIO CASUALTY CORPORATION
-------------------------------
(Registrant)

November 13, 1998 /s/ Barry S. Porter
-------------------------------
Barry S. Porter, CFO/Treasurer
(on behalf of Registrant and as
Principal Accounting Officer)

<PAGE> 1
EXHIBIT 2
CONFORMED COPY
- ------------------------------------------------------------------------------

ASSET PURCHASE AGREEMENT

by and among

THE OHIO CASUALTY INSURANCE COMPANY

and

GREAT AMERICAN INSURANCE COMPANY
AMERICAN NATIONAL FIRE INSURANCE COMPANY
AGRICULTURAL EXCESS AND SURPLUS INSURANCE COMPANY
AGRICULTURAL INSURANCE COMPANY
AMERICAN ALLIANCE INSURANCE COMPANY
AMERICAN DYNASTY SURPLUS LINES INSURANCE COMPANY
AMERICAN SPIRIT INSURANCE COMPANY
CONTEMPORARY AMERICAN INSURANCE COMPANY
EAGLE AMERICAN INSURANCE COMPANY
EDEN PARK INSURANCE COMPANY
GREAT TEXAS COUNTY MUTUAL INSURANCE COMPANY
GREAT AMERICAN LLOYD'S INSURANCE COMPANY
SEVEN HILLS INSURANCE COMPANY

Dated as of September 14, 1998

- ------------------------------------------------------------------------------
<PAGE> 2

TABLE OF CONTENTS
-----------------

ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE 2 TRANSFER AND ACQUISITION OF ASSETS . . . . . . . . . . . . 9
Section 2.1. Transfer and Acquisition . . . . . . . . . . . . . . . . . 9
Section 2.2. Payment of Purchase Price . . . . . . . . . . . . . . . . . 10
Section 2.3. Place and Date of Closing . . . . . . . . . . . . . . . . . 11
Section 2.4. Transactions to be Effected at the Closing . . . . . . . . 12
Section 2.5. Nonassignability of Assets . . . . . . . . . . . . . . . . 12

ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE SELLERS . . . . . . . 12
Section 3.1. Organization, Standing and Authority . . . . . . . . . . . 12
Section 3.2. Authorization . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.3. No Conflict or Violation, etc. . . . . . . . . . . . . . . 13
Section 3.4. No Undisclosed Liabilities . . . . . . . . . . . . . . . . 14
Section 3.5. Contracts . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.6. Title to Assets . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.7. Litigation; Orders . . . . . . . . . . . . . . . . . . . . 15
Section 3.8. Compliance with Laws . . . . . . . . . . . . . . . . . . . 15
Section 3.9. Employee Matters . . . . . . . . . . . . . . . . . . . . . 15
Section 3.10. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.11. Reinsurance Treaties . . . . . . . . . . . . . . . . . . . 16
Section 3.12. Disputed Claims . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.13. Computer Software . . . . . . . . . . . . . . . . . . . . 16
Section 3.14. Database . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.15. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.16. Condition of Tangible Assets . . . . . . . . . . . . . . . 18
Section 3.17. Intellectual Property, Computer Software and
Database . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.18. Agents and Brokers . . . . . . . . . . . . . . . . . . . . 19
Section 3.19. Qualifications . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.20. Financial Statements . . . . . . . . . . . . . . . . . . . 19
Section 3.21 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.22 Absence of Certain Changes . . . . . . . . . . . . . . . . 20
Section 3.23 Insurance Contracts . . . . . . . . . . . . . . . . . . . . 20

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . 21
Section 4.1. Organization, Standing and Authority . . . . . . . . . . . 21
Section 4.2. Authorization . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.3. No Conflict or Violation, etc. . . . . . . . . . . . . . . 22
Section 4.4. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.5. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 22
Section 4.6. Financing . . . . . . . . . . . . . . . . . . . . . . . . . 23

-i-
<PAGE> 3

Section 4.7. Purchaser's Disclosure . . . . . . . . . . . . . . . . . . 23

ARTICLE 5 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.1. Conduct of Business . . . . . . . . . . . . . . . . . . . . 23
Section 5.2 Standstill Agreement . . . . . . . . . . . . . . . . . . . 24
Section 5.3. Access to Information; Confidentiality; Renewal
Business . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.4. Reasonable Best Efforts . . . . . . . . . . . . . . . . . . 27
Section 5.5. Consents, Approvals and Filings . . . . . . . . . . . . . . 27
Section 5.6. Notifications . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.7. Further Assurances . . . . . . . . . . . . . . . . . . . . 28
Section 5.8. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.9. Employees and Employee Benefits . . . . . . . . . . . . . . 28
Section 5.10. Information Systems . . . . . . . . . . . . . . . . . . . . 30
Section 5.11. Disclosure Schedules . . . . . . . . . . . . . . . . . . . 31
Section 5.12. Purchaser's Database Obligation . . . . . . . . . . . . . . 32
Section 5.13 Sublease of Premises. . . . . . . . . . . . . . . . . . . . 32
Section 5.14 License of Intangible Assets . . . . . . . . . . . . . . . 32
Section 5.15 Right to Bid. . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.16 Actions With Respect to the Warrants . . . . . . . . . . . 32

ARTICLE 6 CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . 33
Section 6.1. Representations and Covenants . . . . . . . . . . . . . . . 33
Section 6.2. No Material Adverse Change . . . . . . . . . . . . . . . . 33
Section 6.3. Secretary's Certificate . . . . . . . . . . . . . . . . . . 33
Section 6.4. Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.5. Other Documents . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.6. Other Agreements . . . . . . . . . . . . . . . . . . . . . 34
Section 6.7. Governmental and Regulatory Consents and Approvals . . . . 34
Section 6.8. No Injunctions or Restraints . . . . . . . . . . . . . . . 34

ARTICLE 7 CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE SELLERS . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.1. Representations and Covenants . . . . . . . . . . . . . . 34
Section 7.2. No Material Adverse Change . . . . . . . . . . . . . . . . 35
Section 7.3. Secretary's Certificate . . . . . . . . . . . . . . . . . . 35
Section 7.4. Legal Opinion . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.5 Other Documents . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.6. Other Agreements . . . . . . . . . . . . . . . . . . . . . 35
Section 7.7. Governmental and Regulatory Consents and Approvals . . . . 35
Section 7.8. No Injunctions or Restraints . . . . . . . . . . . . . . . 36

ARTICLE 8 SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . 36
Section 8.1. Survival of Representations and Warranties . . . . . . . . 36

-ii-

<PAGE> 4

ARTICLE 9 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 36
Section 9.1. General Indemnification Obligation of Sellers . . . . . . . 36
Section 9.2. General Indemnification Obligation of Purchaser . . . . . . 37
Section 9.3. Method of Asserting Claims, Etc. . . . . . . . . . . . . . 37
Section 9.4. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 9.5. Limitations on Amount -- Sellers . . . . . . . . . . . . . 39
Section 9.6. Limitations on Amount - Purchaser . . . . . . . . . . . . . 39

ARTICLE 10 TERMINATION PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . 39
Section 10.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 10.2. Effect of Termination . . . . . . . . . . . . . . . . . . 40

ARTICLE 11 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 41
Section 11.1. Publicity . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 11.2. Dollar References . . . . . . . . . . . . . . . . . . . . . 41
Section 11.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 11.4. Entire Agreement . . . . . . . . . . . . . . . . . . . . . 42
Section 11.5. Waivers and Amendments . . . . . . . . . . . . . . . . . . 42
Section 11.6. Governing Law; Choice of Forum . . . . . . . . . . . . . . 42
Section 11.7. Binding Effect, Assignment . . . . . . . . . . . . . . . . 43
Section 11.8. Interpretation . . . . . . . . . . . . . . . . . . . . . . 43
Section 11.9. No Third Party Beneficiaries . . . . . . . . . . . . . . . 43
Section 11.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . 43
Section 11.11. Exhibits and Schedules . . . . . . . . . . . . . . . . . . 43
Section 11.12. Headings . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 11.13. Compliance with Bulk Sales Laws . . . . . . . . . . . . . . 44

-iii-

<PAGE> 5

EXHIBITS
--------

Exhibit A - Form of Reinsurance Agreement
Exhibit B - Form of Bill of Sale and General Assignment
Exhibit C - Form of Assignment and Assumption Agreement
Exhibit D - Warrant Agreement
Exhibit E - Noncompetition and Referral Agreement
Exhibit F - Database License and Software License Agreement to be
delivered at Closing
Exhibit G - Information Systems Agreement
Exhibit H - Terms of Investment Services Agreement

SCHEDULES
- ---------
Schedule 1.1(a) - Intentionally Omitted
Schedule 1.1(b) - Excluded Litigation
Schedule 1.1(c) - Officers or Agents of Sellers Having "Knowledge"
Schedule 1.1(d) - Description of the Business
Schedule 1.1(e) - Intentionally Omitted
Schedule 1.1(f) - Officers or Agents of Purchaser Having "Knowledge"
Schedule 2.2.1.1 - Transferred Investment Securities Protocol
Schedule 2.2.1.2 - Calculation of Final Installment
Schedule 2.2.2 - Closing Statement of Transferred Assets and Trans-
ferred Liabilities
Schedule 3.3 - Necessary Consents, etc.
Schedule 3.4 - Undisclosed Liabilities
Schedule 3.5 - Contracts
Schedule 3.6 - Liens - Tangible Assets
Schedule 3.7 - Litigation; Orders
Schedule 3.8 - Compliance with laws
Schedule 3.11 - Reinsurance Treaties
Schedule 3.12 - Disputed Claims
Schedule 3.13 - Computer Software
Schedule 3.16 - Condition of Tangible Assets
Schedule 3.17 - Intellectual Property
Schedule 3.18 - Sellers' Agents and Brokers
Schedule 3.20(a) - GAAP Statements
Schedule 3.20(b) - SAP Statements
Schedule 3.21 - Business Disclosure
Schedule 3.22 - Absence of Certain Changes
Schedule 4.3 - Necessary Consents, etc.
Schedule 5.9.1 - Business Employees
Schedule 5.9.2 - Accounting Personnel
Schedule 5.13 - Premises
Schedule 5.14 - Intangible Assets

-iv-
<PAGE> 6

ASSET PURCHASE AGREEMENT
------------------------

This ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of September
-----------
14, 1998, is entered into by and among GREAT AMERICAN INSURANCE COMPANY,
AMERICAN NATIONAL FIRE INSURANCE COMPANY, AGRICULTURAL EXCESS AND SURPLUS
INSURANCE COMPANY, AGRICULTURAL INSURANCE COMPANY, AMERICAN ALLIANCE INSURANCE
COMPANY, AMERICAN DYNASTY SURPLUS LINES INSURANCE COMPANY, AMERICAN SPIRIT
INSURANCE COMPANY, CONTEMPORARY AMERICAN INSURANCE COMPANY, EAGLE AMERICAN
INSURANCE COMPANY, EDEN PARK INSURANCE COMPANY, GREAT TEXAS COUNTY MUTUAL
INSURANCE COMPANY, GREAT AMERICAN LLOYD'S INSURANCE COMPANY AND SEVEN HILLS
INSURANCE COMPANY (collectively "Sellers") and THE OHIO CASUALTY INSURANCE
---------
COMPANY ("Purchaser").
-----------

W I T N E S S E T H:

WHEREAS, the Sellers are affiliated entities that are engaged in
various types of commercial lines and other lines of insurance;

WHEREAS, upon the terms and subject to the conditions of this
Agreement, the Sellers desire to sell, and the Purchaser desires to acquire,
certain of the assets associated with the business of each of the Sellers, and
in connection therewith the Purchaser is willing to assume certain
liabilities;

NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth herein, the parties hereto agree as
follows:

ARTICLE 1

DEFINITIONS
-----------

Section 1.1. Definitions. The following terms shall have the
-----------
respective meanings set forth below throughout this Agreement:

"Accounting Principles" means United States generally accepted
-----------------------
accounting principles consistently applied.

"Action" shall have the meaning set forth in Section 3.7 hereof.
--------

"Affiliate" means, with respect to any Person, at the time in question,
-----------
any other Person controlling, controlled by or under common control with such
Person. For purposes of the foregoing, "control", including the terms
"controlling", "controlled by" and "under common control with", means the
possession, direct or indirect, of the power to direct or cause the direction
of the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.

<PAGE> 7

"Ancillary Agreements" means the Reinsurance Agreement, the Assignment
----------------------
and Assumption Agreement, the Warrant Agreement, the Noncompetition and
Referral Agreement, the Investment Services Agreement, the Information Systems
Agreement, the Transfer Documents, the Software License Agreement and the
Database License.

"Antitrust Division" shall have the meaning set forth in Section 5.5.2
--------------------
hereof.

"Assignable Licensed Software" means the Licensed Software as to which
------------------------------
(i) no consent to the assignment thereof is required or (ii) consent to the
assignment thereof has been obtained on or prior to the Closing Date.

"Assigned and Assumed Contracts" means all outstanding agreements and
--------------------------------
all rights of renewal with respect to Insurance Contracts and those contracts
and other agreements set forth on Schedule 3.5 and identified in the
Assignment and Assumption Agreement.

"Assignment and Assumption Agreement" means an Assignment and
-------------------------------------
Assumption Agreement substantially in the form of Exhibit C hereto.
---------

"Assumed Employee Liabilities" means the obligations of Sellers to
------------------------------
provide post-retirement medical benefits to Transferred Employees and assumed
by Purchaser as described in Section 5.9.6.

"Benefit Plans" shall have the meaning set forth in Section 3.9.1
---------------
hereof.

"Bill of Sale and General Assignment" means a Bill of Sale and General
-------------------------------------
Assignment substantially in the form of Exhibit B hereto.
---------

"Books and Records" means the originals or copies of all records
-------------------
(including computer generated, recorded or stored records) relating primarily
to the Business, including customer lists, policy information, Insurance
Contract forms, claim records, sales records, underwriting records, financial
records, tax records, personnel records related to Transferred Employees and
compliance records in the possession or control of each of the Sellers or any
of their respective Affiliates and relating primarily to the operation of the
Business, including the Database and any other form of recorded, computer
generated or stored information or process relating primarily to the operation
of the Business.

"Business" means the businesses conducted by each of the Sellers on the
----------
Closing Date which are identified in Schedule 1.1(d) hereto; provided,
however, that the "Business" shall not include any of the foregoing to the
extent that it primarily relates to any Excluded Liability or any asset other
than a Transferred Asset.

"Business Day" means any day other than a Saturday, Sunday, a day on
--------------
which banking institutions in the State of Ohio are permitted or obligated by
law to be closed or a day on which the New York Stock Exchange is closed for
trading.

-2-

<PAGE> 8

"Business Employees" shall have the meaning set forth in Section 5.9.1
--------------------
hereof.

"Claim Notice" shall have the meaning set forth in Section 9.3 hereof.
--------------

"Closing" means the closing of the transactions contemplated by this
---------
Agreement.

"Closing Date" means 11:59 p.m. local time on the third Business Day
--------------
following the satisfaction or waiver of the conditions set forth in Articles 6
and 7 of this Agreement.

"Closing Payment" shall have the meaning set forth in Section 2.2.1
-----------------
hereof.

"Closing Statement" shall have the meaning set forth in Section 2.2.2.
-------------------

"COBRA" shall have the meaning set forth in Section 3.9.3 hereof.
-------

"Code" means the Internal Revenue Code of 1986, as amended.
------

"Database" shall have the meaning set forth in Section 3.14.1.
----------

"Database License" shall have the meaning set forth in Section 3.14.2.
------------------

"ERISA" shall have the meaning set forth in Section 3.9.1 hereof.
-------

"Exchange Act" shall mean the Securities Exchange Act of 1934, as
--------------
amended, and the rules and regulations thereunder.

"Excluded Assets" shall mean any claims related to the matters at issue
-----------------
in the Excluded Litigation, any Tax related assets (including deposits for
current Taxes) and recoveries on insurance policies that do not relate to
Transferred Assets or Transferred Liabilities and Intellectual Property not
specifically transferred to Purchaser.

"Excluded Liability" means any liability or obligation arising in
--------------------
connection with the Business which does not constitute an Other Assumed
Liability or the Insurance Liabilities.

"Excluded Litigation" means (i) any liabilities or obligations relating
---------------------
to any present or future litigation, arbitration, mediation, actions or
proceedings, and any present or future governmental and/or criminal actions or
investigations, which relate to the Business prior to Closing other than
litigation occurring in the ordinary course of the Sellers' business, or (ii)
any liability or obligation under the corporate and class action lawsuits
which are identified on Schedule 1.1(b) hereto or any lawsuits involving the
same or a related cause as those asserted in the lawsuits identified in
Schedule 1.1(b).

"Extra Contractual Obligations"shall mean those liabilities incurred
-------------------------------
prior to the Closing Date which arise from the handling of any claim on the
Insurance Contracts, such liabilities

-3-

<PAGE> 9

arising because of, but not limited to, the following: failure to settle within
the policy limit, or by reason of alleged or actual negligence, fraud or bad
faith in rejecting an offer of settlement or in the preparation or prosecution
of an appeal consequent upon such action.

The date on which an Extra Contractual Obligation is incurred shall be
deemed, in all circumstances, to be the date of the action taken or not taken
giving rise to the Extra Contractual Obligations.

Extra Contractual Obligations shall also include losses in excess of
policy limits of the original policy, such loss in excess of the policy limit
having been incurred because of failure to settle within the policy limit or
by reason of alleged or actual negligence, fraud or bad faith in rejecting an
offer of settlement or in the preparation of the defense or in the trial of
any action against an insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such action.

"Fair Market Value" means the arithmetic average of the last sale price
-------------------
per share for Ohio Casualty Corporation common stock as reported on the Nasdaq
National Market System for the last ten trading days prior to the date of
execution of this Agreement or, if no last sales price is reported, the
average of the closing bid and asked prices for a share of common stock on a
specified date. If no sale has been made on any date, then prices on the last
preceding day on which any such sale shall have been made shall be used in
determining Fair Market Value under either method prescribed in the previous
sentence.

"Final Closing Statement" shall have the meaning set forth in Section
-------------------------
2.2.2 hereof.

"Final Installment" shall have the meaning set forth in Section 2.2.1
-------------------
hereof.

"FTC" shall have the meaning set forth in Section 5.5.2 hereof.
-----

"Governmental Entity" shall have the meaning set forth in Section 3.3
---------------------
hereof.

"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
---------
1976, as amended, and the rules and regulations thereunder.

"Included Affiliate Contracts" shall mean those contracts between any
------------------------------
of the Sellers and their respective Affiliates which the Purchaser expressly
agrees in writing to assume at the Closing Date.

"Indemnified Purchaser Party" shall have the meaning set forth in
-----------------------------
Section 9.1 hereof.

"Indemnified Seller Party" shall have the meaning set forth in Section
--------------------------
9.2 hereof.

"Information Services" shall have the meaning set forth in Section 5.10
----------------------
hereof.

-4-

<PAGE> 10

"Information Systems Agreement" means an Information Systems Agreement
-------------------------------
substantially in the form of Exhibit G hereto.
---------

"Insurance Contracts" means the treaties, policies, binders, slips and
---------------------
other agreements of insurance written or assumed by the Sellers in connection
with the Business to the extent in effect on or prior to the Closing Date
(including all supplements, endorsements, riders and ancillary agreements in
connection therewith).

"Insurance Liabilities" means all liabilities and obligations arising
-----------------------
under or in connection with the Insurance Contracts, to the extent the same
are unpaid or unperformed on or after the Closing Date, including (i) the net
amount of all liability for losses and loss adjustment expenses after any
deduction for reinsurance ceded, (ii) all amounts payable for returns or
refunds of premiums under the Insurance Contracts, (iii) all liability for
commission payments and other fees or compensation payable with respect to the
Insurance Contracts to or for the benefit of intermediaries, agents, brokers
and service providers, (iv) all liabilities for retrospective payments or
adjustments under Insurance Contracts, (v) all liability for unearned
premiums, (vi) all Extra Contractual Obligations and (vii) policyholder
dividends; except that Insurance Liabilities shall not include any Excluded
Litigation, Excluded Liability or any Retained Extra Contractual Obligations.

"Intangible Assets" means those intangible assets of each of the
-------------------
Sellers used in the Business.

"Intellectual Property" means all trade names, trademarks, service
-----------------------
marks, copyrights and applications therefor which are identified on Schedule
3.17, patents and patent applications and registrations and all imprints and
logos, trade secrets, customer lists or know-how owned by or licensed to any
of the Sellers and used in the Business.

"Investment Services Agreement" means an Investment Services Agreement
-------------------------------
containing the terms set forth on Exhibit H hereto.
---------

"Knowledge" means, as to the Sellers, the actual knowledge after
-----------
reasonable inquiry of the individuals representing the Sellers listed on
Schedule 1.1(c), and, as to the Purchaser, the actual knowledge after
reasonable inquiry of the individuals representing the Purchaser listed on
Schedule 1.1(f).

"Later Delivered Schedules" shall have the meaning set forth in Section
---------------------------
5.11.1.

"Liabilities" shall have the meaning set forth in Section 3.4 hereof.
-------------

"Licensed Software" shall have the meaning set forth in Section 3.13.1
-------------------
hereof.

"Lien" means any pledge, claim, lien, charge, mortgage, encumbrance,
------
security interest of any nature, option, right of first refusal, warrant, or
restriction of any kind, including any restriction on use, voting, transfer,
alienation, receipt of income, or exercise of any other attribute of
ownership.

-5-

<PAGE> 11

"Materials of Environmental Concern" shall mean any waste, pollutant or
------------------------------------
contaminant or substance (including, without limitation, petroleum or
petroleum products, asbestos or asbestos containing materials,
ureaformaldehyde insulation, polychlorinated biphenyls, odors, radioactivity
and electro-magnetic fields), regulated under, or which may otherwise give
rise to liability under, any Environmental Law. For purposes of the
foregoing, "Environmental Law" shall mean any and all applicable Federal,
state or local laws or regulations relating to the protection of the
environment or of human health as it may be affected by the environment.

"Neutral Auditors" shall mean one of the five largest nationally
------------------
recognized independent auditing firms selected by the Purchaser, not to
include Price Waterhouse Coopers, L.L.P. or Ernst & Young, L.L.P.

"Noncompetition and Referral Agreement" means a Noncompetition and
---------------------------------------
Referral Agreement substantially in the form of Exhibit E hereto.
---------

"Notice Period" shall have the meaning set forth in Section 9.3 hereof.
---------------

"Ohio Casualty Corporation" means Ohio Casualty Corporation, an Ohio
---------------------------
corporation.

"Order" shall have the meaning set forth in Section 3.7 hereof.
-------

"Other Assumed Liabilities" means the liabilities and obligations of
---------------------------
all of the Sellers, to the extent the same are unpaid or unperformed on or
after the Closing Date which (i) have been expressly assumed by the Purchaser
under this Agreement or the Ancillary Agreements, or (ii) are accounted for in
the Final Closing Statement; provided, however, that notwithstanding anything
in this Agreement to the contrary, the Other Assumed Liabilities shall not
include (a) any Excluded Litigation, (b) any indemnification obligations to
any officers and directors, accountants, financial advisers, underwriters or
attorneys of any of the Sellers, (c) any obligation of Sellers for Taxes with
respect to the Businesses for all periods ending on or before the Closing Date
and any balance sheet liability in respect of Taxes; (d) any obligation or
liability of any Seller arising from its failure to perform any of its
agreements contained herein or incurred by any Seller in connection with the
consummation of the transactions contemplated hereby; (e) any expenses of
Sellers, including Taxes, incurred in connection with the sale contemplated by
this Agreement, except as otherwise expressly provided in this Agreement; (f)
any liability or obligation under any Benefit Plans except as provided in
Section 5.9 hereof to the Business Employees; (g) any liability or obligation
of any Seller arising from or resulting from its noncompliance prior to the
Closing Date with any Federal, State, local or foreign laws, regulations,
orders, or administrative or judicial determinations; (h) any liability or
obligation of any Seller resulting from any employment practices applicable to
Sellers' employees; (i) any fines, penalties or liabilities imposed on any of
the Sellers by any Governmental Entity; (j) any brokerage or finder's fee
payable by Sellers in connection with the transactions contemplated hereby;
(k) any liability or obligation under any contract with an Affiliate of any of
the Sellers except for Included Affiliate Contracts; or (l) the Insurance
Liabilities.

-6-
<PAGE> 12

"Other Transferred Assets" means each of the Sellers' right, title and
--------------------------
interest in: (i) the Assigned and Assumed Contracts; (ii) all receivables in
respect of the Insurance Contracts; (iii) the Tangible Assets; (iv) the
contract which grants the Purchaser a perpetual, royalty-free, non-exclusive
license to use the Intangible Assets; (v) the Assignable Licensed Software;
(vi) the Software License Agreement; and (vii) only with respect to the
Business, the Books and Records; and provided, further, that the Other
Transferred Assets shall not include any of the foregoing to the extent they
are terminated, transferred or otherwise disposed of as permitted by Section
5.1 of this Agreement between the date hereof and the Closing Date. Other
Transferred Assets do not include Excluded Assets. Other Transferred Assets
shall be determined and valued in accordance with SAP.

"Owned Software" shall have the meaning set forth in Section 3.13.1
----------------
hereof.

"Permitted Liens" as to any asset, means: (i) Liens for Taxes not yet
-----------------
due and payable or being contested in good faith by appropriate proceedings;
(ii) Liens arising by operation of law, (iii) Liens arising from letters of
credit and other similar insurance security devices entered into by or for the
benefit of the Sellers in connection with the Business in the ordinary course
of business; and (iv) other Liens that do not in the aggregate materially
detract from the value or materially interfere with the present or reasonably
contemplated use of any material asset in the Business.

"Person" means any individual, corporation, partnership, firm, joint
--------
venture, association, limited liability company, limited liability
partnership, joint-stock company, trust, unincorporated organization,
governmental, judicial or regulatory body, business unit, division or other
entity.

"Purchaser Material Adverse Effect" means a material adverse effect on
-----------------------------------
the ability of the Purchaser to perform its obligations under this Agreement
or any Ancillary Agreement or the validity or enforceability of this Agreement
or any Ancillary Agreement.

"Purchase Price" means, collectively, the Closing Payment, the Final
----------------
Installment and the Warrant.

"Reinsurance Agreement" means the Reinsurance Agreement substantially
-----------------------
in the form of Exhibit A hereto.
---------

"Retained Extra Contractual Obligations" means the obligations for
----------------------------------------
Extra Contractual Obligations which are not assumed by Purchaser under Article
5 of the Reinsurance Agreement.

"Review Period" shall have the meaning set forth in Section 2.2.2
---------------
hereof.

"SAP" shall mean Statutory Accounting Principles prescribed or
-----
permitted by the Department of Insurance of Ohio.

"SEC" shall mean the Securities and Exchange Commission.
-----

-7-

<PAGE> 13

"Securities Act" means the Securities Act of 1933, as amended, and the
----------------
rules and regulations thereunder.

"Sellers Material Adverse Effect" means any material adverse effect on
---------------------------------
the Transferred Assets or the business, financial condition or results of
operations of the Business, the ability of the Sellers to perform their
respective obligations under this Agreement or any Ancillary Agreement or the
validity or enforceability of this Agreement or any Ancillary Agreement.

"Sellers' Representative" shall have the meaning set forth in Section
-------------------------
2.1.4 hereof.

"Software License Agreement" means a Software License Agreement
----------------------------
referred to in Section 3.13.2 hereof.

"Specialized Markets Business" has the meaning set forth in Section
------------------------------
5.15 hereof.

"Subsidiary" means, with respect to any Person on a given date, any
------------
other Person of which a majority of the voting power of the equity securities
or equity interests is owned directly or indirectly by such Person.

"Tangible Assets" means the furniture, fixtures, equipment, supplies
-----------------
and other tangible personal property of each of the Sellers used primarily in
the Business as identified and at such prices as may be mutually agreed upon
by Sellers and Purchaser prior to the Closing Date.

"Tax" shall have the meaning set forth in Section 3.15.3 hereof.
-----

"Taxation" shall have the meaning set forth in Section 3.15.3 hereof.
----------

"Transfer Documents" means the Bill of Sale and General Assignment and
--------------------
such other documents and instruments consistent with the negotiated provisions
of this Agreement as the Purchaser may reasonably request in order to transfer
all of the Sellers' right, title and interest in the Transferred Assets to the
Purchaser.

"Transferred Assets" means Transferred Investment Securities and Other
--------------------
Transferred Assets.

"Transferred Employees" shall have the meaning set forth in Section
-----------------------
5.9.1 hereof.

"Transferred Investment Securities" means the portfolio of investment
-----------------------------------
securities or cash to be transferred by Sellers to Purchaser, which portfolio
shall have an agreed value equal to: (x) the Transferred Liabilities
(expressed as a positive number); less (y) the value of the Other Transferred
----
Assets; less (z) $300 Million ($300,000,000). For the avoidance of doubt, and
----
as an illustration only, if the Transferred Liabilities (expressed as a
positive number) were $712.7 Million ($712,700,000), and the value of the
Other Transferred Assets and fixed assets was $119.6 Million ($119,600,000),
Sellers would be obligated to transfer to Purchaser a portfolio of investment

-8-
<PAGE> 14

securities constituting the Transferred Investment Securities with an agreed
value of $293.1 Million ($293,100,000) on the Closing Date. The protocol
pursuant to which the portfolio of investment securities constituting the
Transferred Investment Securities will be selected and the valuation thereof
determined is set forth on Schedule 2.2.1.1.

"Transferred Liabilities" means the Insurance Liabilities and the Other
-------------------------
Assumed Liabilities determined in accordance with SAP (other than Assumed
Employee Liabilities, which shall be determined in accordance with the
Accounting Principles).

"Updated Disclosure Schedules" shall have the meaning set forth in
------------------------------
Section 5.11.3.

"Warrants" shall have the meaning set forth in Section 2.2.1 hereof.
----------

"Warrant Agreement" means a Warrant Agreement substantially in the form
-------------------
of Exhibit D hereto.
---------
ARTICLE 2

TRANSFER AND ACQUISITION OF ASSETS
----------------------------------

Section 2.1. Transfer and Acquisition.
------------------------

2.1.1 Upon the terms and subject to the conditions of this
Agreement, on the Closing Date, each of the Sellers shall sell, assign and
transfer to the Purchaser, and the Purchaser shall purchase from each of the
Sellers, all of each of the Sellers' right, title, interest in and to the
Transferred Assets. All sales, assignments and transfers of the Transferred
Assets shall be effected by the Transfer Documents.

2.1.2 Upon the terms and subject to the conditions of this
Agreement, on the Closing Date, the Purchaser shall assume the Other Assumed
Liabilities pursuant to the Assignment and Assumption Agreement.

2.1.3 Upon the terms and subject to the conditions of this
Agreement, on the Closing Date, the Purchaser and each of the Sellers shall
enter into the Reinsurance Agreement pursuant to which the Purchaser shall
reinsure the Insurance Liabilities.

2.1.4 Any transfer, premium or sales Tax imposed in
connection with the transfer, sale, assumption or recording of the Transferred
Assets to be transferred pursuant to Section 2.1.1 of this Section 2.1 or the
Transferred Liabilities to be assumed pursuant to Sections 2.1.2 or 2.1.3 of
this Section 2.1 or in connection with any transfer of cash under Section 2.2
hereof, shall be borne equally by Purchaser and Sellers; Great American
Insurance Company, acting on behalf of the Sellers (in this capacity, the
"Sellers' Representative") shall pay initially the entire obligation and
- -------------------------
Purchaser shall promptly reimburse Sellers' Representative for its portion.

-9-

<PAGE> 15

Section 2.2. Payment of Purchase Price.
-------------------------

2.2.1 On the Closing Date, in consideration of the sale,
assignment and transfer under Section 2.1 hereof, the Purchaser shall accept
from the Sellers the Transferred Liabilities and the Transferred Assets each
determined as of June 30, 1998. Schedule 2.2.2 illustrates the determination
of the Transferred Investment Securities as of June 30, 1998 (the "Closing
Payment"). The Purchaser shall also (i) issue and deliver to Sellers'
Representative a warrant (the "Warrant") for the purchase of 3,000,000 shares
---------
of common stock of Ohio Casualty Corporation, having an exercise price equal
to 118% of the Fair Market Value of the common shares of Ohio Casualty
Corporation and such other terms and conditions as set forth in the Warrant
Agreement, and (ii) on or before the 20th day of the nineteenth month after
the Closing, pay to Sellers a final cash purchase price installment not to
exceed $40 million ($40,000,000), the exact sum of which shall be determined
in accordance with Schedule 2.2.1.2, attached hereto and incorporated herein
by reference (the "Final Installment").
-------------------

2.2.2 As promptly as practicable after the Closing Date, but
not later than 60 days after the Closing Date, the Sellers' Representative
will prepare and deliver to Ernst & Young LLP a statement of the Transferred
Liabilities and Transferred Assets ("Closing Statement") as of the Closing
-------------------
Date, prepared on a basis consistent with Schedule 2.2.2, which Closing
Statement shall reflect a reserve in the amount of $1,000,000 for Extra
Contractual Obligations. As promptly as practicable after receipt of the
Closing Statement, but not later than 45 days after such receipt, at Sellers'
cost and expense, Ernst & Young LLP will prepare and deliver to Purchaser and
Sellers' Representative, the report of Ernst & Young LLP on the Closing
Statement, which report shall state that the Closing Statement presents fairly
in all material respects the transferred assets and assumed liabilities of the
Business at the Closing Date in conformity with SAP (except that the Closing
Statement shall include Assumed Employee Liabilities in accordance with
Accounting Principles and fixed assets in amounts and at prices as agreed
upon) and the requirements of this Agreement. The Purchaser and its
representatives shall have 45 days (the "Review Period") to review the Closing
---------------
Statement and all supporting papers and documentation and to suggest changes,
if any, therein. If at the end of the Review Period, the Sellers'
Representative and the Purchaser are able to agree in writing on the manner in
which all items on the Closing Statement should be treated, then the resulting
balance sheet shall be binding on the Sellers and the Purchaser and the
Closing Statement shall be referred to as the "Final Closing Statement." If
--------------------------
at the end of the Review Period, the Sellers' Representative and the Purchaser
are unable to agree on the manner in which any item or items should be treated
in the preparation of the Final Closing Statement in accordance with the
Accounting Principles, then all items remaining in dispute shall be submitted
to the Neutral Auditors. On or after the selection of the Neutral Auditors,
neither party shall engage such auditors to perform any services until the
Final Closing Statement has been delivered, unless the parties otherwise
agree. The Neutral Auditors shall act as experts and not as arbitrators to
determine the resolution, based on the Accounting Principles applied to those
issues (and only those issues) still in dispute. The Neutral Auditors'
determination shall be made within 30 days after the end of the Review Period,
shall be set forth in a written statement delivered to the Sellers'
Representative and the Purchaser and shall be final, binding and conclusive
and the Closing Statement, adjusted to give effect to such determination and
any other agreement of the parties, shall in that case be referred to

-10-
<PAGE> 16

as the Final Closing Statement. Each party agrees to execute, if requested
by the Neutral Auditors, an engagement letter containing terms and conditions
reasonably acceptable to each party and the Neutral Auditors. All fees and
expenses relating to the work, if any, to be performed by the Neutral Auditors
shall be borne equally by the Sellers and the Purchaser.

2.2.3 If the value on the Closing Date of the Transferred
Investment Securities identified on Schedule 2.2.2 is insufficient to satisfy
fully the required valuation thereof for purposes of the Final Closing
Statement, then Sellers shall transfer cash to Purchaser in an amount equal to
the deficiency. If the value on the Closing Date of the Transferred
Investment Securities identified on Schedule 2.2.2 exceeds the required
valuation thereof under the Final Closing Statement, then Purchaser shall
transfer cash to Sellers in an amount equal to the excess. Any transfer of
cash required by this Section 2.2.3 shall be made by wire transfer of
immediately available funds within five Business Days.

2.2.4 Any amount due pursuant to Section 2.2.3 shall include
interest thereon from the Closing Date through the payment date calculated at
the London Interbank Offered Rate quoted for six month periods, as reported in
The Wall Street Journal on the Closing Date, plus 50 basis points.
- -----------------------

Section 2.3. Place and Date of Closing. The Closing shall take
--------------------------
place at the offices of Keating, Muething & Klekamp, P.L.L., One East Fourth
Street, Cincinnati, Ohio 45202, at 10:00 a.m. Cincinnati time on the Closing
Date or such other time or place as the parties may mutually agree.

Section 2.4. Transactions to be Effected at the Closing.
------------------------------------------
2.4.1 At the Closing, the Sellers shall execute (where
appropriate) and deliver to the Purchaser the Ancillary Agreements and such
other agreements, instruments and documents as are required by this Agreement
to be delivered by the Sellers at the Closing.

2.4.2 At the Closing, the Purchaser, and the appropriate
Affiliate of Purchaser, shall execute and deliver to the Sellers the Ancillary
Agreements and such other agreements, instruments and documents as are
required by this Agreement to be delivered by the Purchaser at the Closing.

Section 2.5. Nonassignability of Assets. Notwithstanding anything
---------------------------
to the contrary contained in this Agreement, to the extent that the assignment
or transfer or attempted assignment or transfer to the Purchaser of any
Assigned and Assumed Contract, Licensed Software, any sublease or assignment
on Schedule 5.13 with respect to premises or any benefit arising thereunder
or resulting therefrom is prohibited by any applicable law or would require
any governmental or third party authorizations, approvals, consents or waivers
and such authorizations, approvals, consents or waivers shall not have been
obtained prior to the Closing Date, this Agreement shall not constitute a sale,
assignment, transfer, conveyance or delivery, or any attempted sale,
assignment, transfer, conveyance or delivery, thereof. Following the Closing
Date, the parties shall use reasonable best efforts, and cooperate with each
other, to obtain promptly such authorizations,

-11-

<PAGE> 17
approvals, consents or waivers; provided, however, that neither the Sellers nor
the Purchaser shall be required to pay any consideration therefor. Pending
such authorization, approval, consent or waiver, the parties shall cooperate
with each other in any mutually agreeable, reasonable and lawful arrangements
designed to provide to the Purchaser the benefits of any such Assigned and
Assumed Contracts, Licensed Software or any sublease or assignment on
Schedule 5.13. Once authorization, approval, consent or waiver for the
assignment or transfer of any such Assigned and Assumed Contract, Licensed
Software or any sublease or assignment on Schedule 5.13 not assigned, subleased
or transferred at the Closing Date is obtained, the Sellers shall assign or
transfer such Assigned and Assumed Contract, Licensed Software or any sublease
or assignment on Schedule 5.13 to the Purchaser at no additional cost.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE SELLERS
---------------------------------------------

The Sellers, jointly and severally, hereby represent and warrant to the
Purchaser that the following statements are true and correct as of the date
hereof and as of the Closing Date or such other time as may be specified in
such statements.

Section 3.1. Organization, Standing and Authority. Each Seller is
-------------------------------------
organized, validly existing and in good standing under the laws of the state of
its incorporation and has the requisite corporate power and authority to carry
on the operations of the Business as they are now being conducted.

Section 3.2. Authorization. Each Seller has the requisite corporate
--------------
power and authority to execute, deliver and perform its obligations under this
Agreement and under each of the Ancillary Agreements to be executed by it. The
execution and delivery by each Seller of this Agreement and the Ancillary
Agreements to be executed by it, and the performance by each Seller of its
obligations hereunder and thereunder, have been duly authorized by all
necessary corporate action on the part of each Seller. This Agreement has been
duly executed and delivered by each Seller and, subject to the due execution
and delivery hereof by the Purchaser, is a valid and binding obligation of
each Seller, enforceable against each Seller in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally and by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law). As of the Closing Date, the Ancillary Agreement(s) to be
executed and delivered by each Seller on such Closing Date will have been duly
executed and delivered by each such Seller and, subject to the due execution
and delivery of such agreements by the Purchaser, the Ancillary Agreement(s)
to be executed by each Seller shall be the valid and binding obligation of
such Seller, enforceable against such Seller in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally and by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).

-12-

<PAGE> 18

Section 3.3. No Conflict or Violation, etc. Except as disclosed in
------------------------------
Schedule 3.3, the execution and delivery by each Seller of this Agreement and
of the Ancillary Agreements to which it is a party do not, and the consummation
by each Seller of the transactions contemplated by this Agreement and by such
Ancillary Agreements and compliance with the provisions hereof and thereof will
not, (i) conflict with any of the provisions of the Articles of Incorporation,
Regulations or By-laws of such Seller, (ii) subject to the matters referred to
in the next sentence, conflict with, result in a breach of or default (with or
without notice or lapse of time, or both) under, give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
benefit under, require the consent of any person under, or result in the
creation of any Lien on any property or asset of such Seller other than
Permitted Liens, under, any indenture or other agreement, permit, franchise,
license or other instrument or undertaking to which such Seller is a party or
by which such Seller or any of its assets is bound or affected, or (iii)
subject to the matters referred to in the next sentence, contravene any
statute, law, ordinance, rule, regulation, order, judgment, injunction,
decree, determination or award applicable to such Seller or any of its
properties or assets, which, in the case of clauses (ii) and (iii) above,
individually or in the aggregate, could not reasonably be expected to have a
Sellers Material Adverse Effect. No consent, approval or authorization of, or
declaration or filing with, or notice to, any court or governmental or
regulatory authority or agency, domestic or foreign (a "Governmental Entity"),
---------------------
is required to be obtained or made by or with respect to any Seller, in
connection with the execution and delivery of this Agreement by such Seller or
the consummation by such Seller of the transactions contemplated hereby,
except for (i) the filing of premerger notification and report forms under the
HSR Act, (ii) the approvals, filings or notices required under the insurance
laws of the jurisdictions set forth in Schedule 3.3, (iii) such other
consents, approvals, authorizations, declarations, filings or notices as are
set forth in Schedule 3.3 and (iv) such other consents, approvals,
authorizations, declarations, filings or notices the failure to obtain or make
which, in the aggregate, could not reasonably be expected to have a Sellers
Material Adverse Effect.

Section 3.4. No Undisclosed Liabilities. There is no debt,
--------------------------
liability, commitment or obligation of any kind, character or nature
whatsoever, whether known or unknown, choate orinchoate, secured or unsecured,
accrued, fixed, absolute, contingent or otherwise, and whether due or to become
due arising from or relating to the Business (collectively, "Liabilities")
-------------
which is to be included in the Other Assumed Liabilities, except as described
in Schedule 3.4, or, to the extent that reserves therefor are required to be
established in the Final Closing Statement prepared in accordance with Section
2.2.2, and other than Liabilities that in the aggregate could not reasonably
be expected to have a Sellers Material Adverse Effect.

Section 3.5. Contracts. Schedule 3.5 contains a complete and
----------
correct list of all Insurance Contracts in force on the date hereof, and all
other material contracts, agreements and commitments to which each Seller is
a party as of the date hereof which primarily relate to the Business, other
than (i) contracts, agreements and commitments that relate primarily to any
asset that is not a Transferred Asset (ii) contracts, agreements and
commitments that relate to Owned Software and Licensed Software and (iii)
reinsurance contracts. To the Knowledge of the Sellers, each of the
contracts, agreements and commitments listed on Schedule 3.5 is in full force
and effect and is the valid and binding obligation of each party thereto,
except where the failure to be in full force and effect or

-13-
<PAGE> 19

valid and binding could not reasonably be expected to have, individually or in
the aggregate, a Sellers Material Adverse Effect, and except as the
enforceability of any thereof may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally and by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law). Except as set forth in the Schedules hereto,
none of the Sellers, or to the Knowledge of the Sellers, any other Person is
(or, with the giving of notice or the lapse of time or both, will be) in
violation or breach of or default under any of the contracts, agreements and
commitments listed on Schedule 3.5, except for such violations, breaches or
defaults which, individually or in the aggregate, could not reasonably be
expected to have a Sellers Material Adverse Effect.

Section 3.6. Title to Assets. Each Seller has good title to all of
---------------
the Transferred Assets other than the Assigned and Assumed Contracts and the
Assignable Licensed Software, free and clear of all Liens, except for (i) Liens
disclosed in Schedule 3.6 and (ii) Permitted Liens. At the Closing, the
Purchaser will acquire the Transferred Assets other than the Intangible Assets
free and clear of all Liens, except for Liens disclosed in Schedule 3.6 and
Permitted Liens and except for any Liens arising from acts of the Purchaser
or any of its Affiliates.

Section 3.7. Litigation; Orders. Except as disclosed in Schedule
-------------------
3.7, there is no action, suit, proceeding or arbitration (each, an "Action")
--------
pending or, to the Knowledge of the Sellers, threatened against or affecting
any of the Sellers and related to the Business or the Transferred Assets that,
individually or in the aggregate, could reasonably be expected to have a
Sellers Material Adverse Effect if decided adversely to any Seller, nor is
there any judgment, decree, injunction or order of any Governmental Entity or
arbitrator (each, an "Order") outstanding against any of such Persons having,
-------
or which could reasonably be expected to have, any such effect.

Section 3.8. Compliance with Laws. Except as disclosed in Schedule
---------------------
3.8 or as otherwise disclosed in writing to the Purchaser, each Seller has
complied and is in compliance with all applicable statutes, laws, ordinances,
rules, regulations and orders of any Governmental Entity, and no Seller has
received any notice or other communication whether oral or written from any
Governmental Entity, arbitrator or any other person regarding any such
violation or failure, in each case except for such noncompliance, violation or
failure which, individually or in the aggregate, could not reasonably be
expected to have a Sellers Material Adverse Effect.

Section 3.9. Employee Matters.
-----------------

3.9.1 For the purposes hereof, the term "Benefit Plan"
--------------
includes all plans, funds, programs, policies, arrangements, practices,
customs and understandings providing benefits of economic value to any
Business Employee, or present beneficiary, dependent or assignee of any such
employee other than regular salary, wages or commissions paid substantially
concurrently with the performance of the services for which paid. Without
limitation, the term "Benefit Plan" includes all employee welfare benefit
plans within the meaning of Section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and all employee pension benefit
-------
plans within the meaning of Section 3(2) of ERISA.

-14-

<PAGE> 20

3.9.2 Sellers have not directly or indirectly acted in any
manner or incurred any obligation or liability with respect to any Benefit
Plan which has or could give rise to any Liens on any of the assets included
in the Transferred Assets, or which could result in any liability or
obligation to Purchaser, whether arising out of the establishment, operation,
administration or termination of such Benefit Plan or the transactions
contemplated by this Agreement.

3.9.3 Sellers will timely provide all notices and any
continuation of health benefit coverage (including, without limitation,
medical and dental coverage) required to be provided to employees, former
employees or the beneficiaries or dependents of such employees or former
employees, under Part 6 of Subtitle B of Title I of ERISA or, as applicable,
Section 4980B of the Code ("COBRA") to the extent such notices and
-------
continuation of health benefit coverage are required to be provided by reason
of the events occurring prior to or on the Closing Date or by reason of the
transactions contemplated by this Agreement. Sellers will continue the health
benefit coverage required by COBRA.

3.9.4 The American Financial Group Retirement and Savings
Plan (the "RASP") has been maintained (both in form and in operation) by the
Sellers in substantial compliance with applicable law, including, but not
limited to, the relevant provisions of ERISA and the Code. As of the Closing
Date, the Sellers have requested a determination letter from the Internal
Revenue Service that the RASP is qualified under Section 401(a) of the Code
and that its trust is exempt from federal income tax under Section 501(a) of
the Code.

Section 3.10. Brokers. No broker, investment banker, financial
--------
advisor or other Person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the trans-
actions contemplated by this Agreement based upon arrangements made by or on
behalf of the Sellers.

Section 3.11. Reinsurance Treaties. Schedule 3.11 sets forth a
---------------------
complete and accurate list of all reinsurance treaties (whether ceded or
assumed) related to the Business. To the Knowledge of the Sellers, no party
to any treaty for reinsurance with any of the Sellers is in default in any
material respect as to any provision thereof.

Section 3.12. Disputed Claims. Schedule 3.12 sets forth a complete
---------------
and accurate list of all claims pursuant to any Insurance Contract (i) where
payment is in dispute as of the date hereof or (ii) that were unpaid as of
August 31, 1998, in either case where the amount claimed exceeds $100,000, or,
where the aggregate amount of such payment is not determinable and there is a
specific reserve established with respect to such claim and the amount of such
reserve exceeds $100,000.

Section 3.13. Computer Software.
------------------

3.13.1 Schedule 3.13 hereto contains a true and complete
listing of all computer software programs owned by any of the Sellers, used
and necessary in the conduct of the Business. Schedule 3.13 hereto also sets
forth whether each such computer software program is (i) owned by

-15-
<PAGE> 21

any of the Sellers (the "Owned Software") or (ii) licensed by any of the
----------------
Sellers from a third party (the "Licensed Software").
-------------------

3.13.2 On the Closing Date, Sellers will grant to Purchaser,
a perpetual, non-exclusive, royalty free quitclaim license to use the Owned
Software and source codes related thereto including, but not limited to,
rights to reproduce, display, use, modify and make derivative works (as such
term is defined in the U.S. Copyright Act, 17 U.S. 101 et seq.). Sellers
agree to execute any and all documents necessary to perfect Purchaser's
quitclaim license rights in and to the Owned Software and source codes related
thereto; provided, however, that Sellers shall not in such license warrant or
represent as to any matter other than good title to the Owned Software and
source codes related thereto; and provided, further, that Sellers shall not be
obligated to undertake or to provide upgrades, modifications or improvements
to or for such licensed Owned Software and source codes related thereto or to
provide any other services with respect thereto except as may be agreed to by
Sellers and Purchaser in a separate written agreement.

3.13.3 On the Closing Date, the Purchaser will have, pursuant
to an assignment of the relevant Seller's rights to the Licensed Software and
subject to the terms and conditions of the assigned licenses to the Licensed
Software, the right to use the Licensed Software in the same manner as used by
the relevant Seller prior to the Closing Date and free and clear of any
royalty or other similar payment obligations or Lien, other than Permitted
Liens and maintenance fees. If a vendor refuses to assign, license or sub-
license any Licensed Software to the Purchaser, the Sellers shall assist the
Purchaser in attempting to locate suitable substitute software.

Section 3.14. Database.
---------

3.14.1 Upon the Closing Date, Sellers shall sell, convey,
assign, transfer and deliver to Purchaser Sellers' right, title and interest
(free and clear of any Liens) to the records, data, files, input materials,
reports, forms and other data related to the Owned Software disclosed on
Schedule 3.13 and referenced in Section 3.17 (collectively, the "Database").
----------
The Database will therefore be the exclusive property of Purchaser and Sellers
will no longer possess any interest, title, Lien or right to the Database
except as provided in this Agreement. Sellers agree that upon the Closing
Date, Sellers will deliver to Purchaser copies of the Database (including all
updates thereto) as well as all records, lists, schedules and other documents
relating to the Database and the Database License (defined herein).

3.14.2 Prior to the Closing, Purchaser and Sellers shall
negotiate in good faith the terms of a license pursuant to which Purchaser
shall grant to Sellers a royalty-free, non-transferable license ("Database
---------
License") to use such of the Database as Sellers may reasonably need in order
- --------
to conduct their remaining businesses and operations after the Closing,
including, without limitation, such portions of the Database as may be
necessary for Sellers to prepare the Closing Statement, to file Tax returns,
to defend the Excluded Litigation, and similar matters and which shall contain
other customary terms and conditions.

-16-

<PAGE> 22

Section 3.15. Taxes.
------

3.15.1(i) No Liens have been or will be imposed on any of
the Transferred Assets in connection with any failure (or alleged failure) of
any Seller to pay any Tax; (ii) each of the Sellers has complied (and until
the Closing Date will comply) in all material respects with the provisions of
the Code relating to the payment and withholding of Taxes, including without
limitation the withholding and reporting requirements under Sections 1441
through 1464, 3401 through 3406, and 6041 and 6049 of the Code, as well as
similar provisions under any other laws; and (iii) none of the Transferred
Liabilities of any of the Sellers is "corporate acquisition indebtedness"
within the meaning of Section 279(b) of the Code.

3.15.2 Sellers have withheld from their employees and other
payees (and timely paid to the appropriate governmental authority) all amounts
required by the Tax withholding provisions of applicable Federal, state, local
and foreign laws (including, without limitation, income, social security and
employment Tax withholding for all types of compensation, and withholding or
payments to non-United States persons) for all periods through the date
hereof.

3.15.3 As used in this Agreement, the term "Tax" (including,
with correlative meaning, the terms "Taxes" and "Taxable") includes all
Federal, state, local and foreign income, profits, franchise, gross receipts,
environmental, customs duty, capital stock, severances, premium, stamp,
payroll, sales, employment, unemployment, disability, use, property,
withholding, excise, production, value added, occupancy and other taxes,
duties or assessments of any nature whatsoever, together with all interest,
penalties and additions imposed with respect to such amounts and any interest
in respect to such penalties and additions.

Section 3.16. Condition of Tangible Assets. All Tangible Assets
-----------------------------
which are included in the Transferred Assets are in good operating condition
and repair, subject only to normal wear and maintenance and obsolescence, are
useable in the regular and ordinary course of business and conform to all
applicable laws, ordinances, codes, rules and regulations, and authorizations
relating to their construction, use and operation. No Person other than
Sellers owns any of the Tangible Assets necessary to the operation of the
Business, except for leased items disclosed on Schedule 3.16.

Section 3.17. Intellectual Property, Computer Software and Database.
------------------------------------------------------

3.17.1 The Sellers own or possess sufficient legal rights to
all the Intellectual Property, Owned Software, Licensed Software, Database and
other related intellectual property and proprietary business information as
are necessary to conduct the Business as currently conducted, except where the
failure to own or possess such legal rights could not, individually or in the
aggregate, reasonably be expected to have a Sellers Material Adverse Effect.

3.17.2 With respect to the Business, none of the Sellers is
using any confidential information, patents, copyrights, trademarks, service
marks, trade names, trade secrets, licenses,

-17-
<PAGE> 23

computer software, computer software databases and other proprietary rights
and processes of any other Person without such Person's permission.

3.17.3 None of the Sellers has violated, or has received any
written or oral communications alleging that any such Seller has violated or,
by conducting the Business, would violate, any patents or copyrights of any
other Person. With respect to the Business, none of the Sellers has Knowledge
(i) that any such proprietary right which might be so violated has been
applied for by another, or (ii) that any of the Intellectual Property, Owned
Software, Licensed Software or Database has been legally declared invalid or
is the subject of a pending or threatened Action for opposition, cancellation
or a declaration of invalidity or is infringed by the activities of another.

3.17.4 With respect to the Business, the Sellers have the
right to use free and clear of any interference by others all of the
Intellectual Property, Owned Software, Licensed Software and Database.

Section 3.18. Agents and Brokers. Schedule 3.18 contains true,
-------------------
complete and accurate information as of the date hereof regarding the agents
and brokers (including their names, addresses, telephone numbers and gross
premiums written by line of business included within the Business for the
most recent 12-month period) which have generated Business that is currently
in-force with the Sellers.

Section 3.19. Qualifications. Sellers hold (and held at the times
---------------
the Insurance Contracts were written) licenses to write property and casualty
insurance of the nature and in the states in which the conduct of the Business
requires a license. Each of Sellers is in good standing to conduct the
Business and is in compliance with all material filing and reporting
requirements in all of such jurisdictions.

Section 3.20. Financial Statements.
---------------------

3.20.1 GAAP Statements. Schedule 3.20(a) includes the
----------------
unaudited pro forma balance sheet of the Business at June 30, 1998 and the
unaudited income statements of the Business for the years ended December 31,
1995, 1996 and 1997 and the sixth month period ended June 30, 1998 (the "GAAP
Statements"). The GAAP Statements are in accordance with the books and
records of Sellers, have been prepared in accordance with generally accepted
accounting principles ("GAAP") (except with respect to the omission of
footnotes) applied on a consistent basis throughout the periods covered by
such statements and fairly present on a pro forma basis the financial position
of the Business at June 30, 1998 and the results of the operation of the
Business for the periods covered by the GAAP Statements; and

3.20.2 SAP Statements. Schedule 3.20(b) includes the
---------------
unaudited pro forma statutory statements for the Business at June 30, 1998 and
the unaudited income statements of the Business for the years ended December
31, 1995, 1996 and 1997 and the six month period ended June 30, 1998 (the "SAP
Statements"). The SAP Statements were prepared in accordance

-18-

<PAGE> 24

with statutory accounting practices (except with respect to the omission of
footnotes) prescribed or permitted by the Ohio Insurance Department, present
fairly on a pro forma basis the admitted assets, liabilities, capital and
surplus of the Business of the operations for each of the periods then ended
in conformity with accounting practices prescribed or permitted by the Ohio
Insurance Department.

Section 3.21 Disclosure. The written information listed on
-----------
Schedule 3.21 regarding the Business and furnished to Purchaser by Sellers in
connection with this Agreement is accurate and does not omit any information
necessary to make the information not misleading except where such inaccuracies
or omissions could not individually, or in the aggregate, be expected to have a
Sellers Material Adverse Effect, and, provided, however, that to the extent
that the information contains a loss reserve analysis, or data which is
predicated on the loss reserve analysis, Sellers only represent that such
analysis is materially consistent with any loss reserve analysis relied upon
by Sellers in the preparation of the GAAP Statements and SAP Statements.

Section 3.22 Absence of Certain Changes. Except as set forth on
---------------------------
Schedule 3.22 since June 30, 1998, Sellers have not, in connection with the
Business, taken any action of the type described in Section 5.1 of this
Agreement.

Section 3.23 Insurance Contracts.
--------------------

3.23.1 All insurance policy benefits payable under the Insurance
Contracts by the Sellers pursuant to claims which have been filed with any
of them have, in all material respects, been paid in accordance with the terms
of the Insurance Contracts under which they arose, are being processed in the
ordinary course of the Sellers' business or are in dispute, except for such
benefits for which any of the Sellers believes there is a reasonable basis to
contest payment;

3.23.2 Other than with respect to policyholder dividend plans
applicable to workers compensation coverage, no outstanding insurance contract
issued, reinsured or underwritten by any of the Sellers that is part of the
Insurance Contracts entitles the holder thereof or any other person or entity
to receive dividends, distributions or other benefits based on the revenues or
earnings of any of the Sellers or any other entity;

3.23.3 To the Knowledge of Sellers the underwriting standards utilized
and ratings applied with respect to the Business by Sellers and by any other
entity that is a party to or bound by any reinsurance, coinsurance or other
similar contract with any of them conform in all material respects to industry
accepted practices and the standards and ratings required pursuant to the
terms of the respective reinsurance, coinsurance or other similar contracts;

3.23.4 To the Knowledge of Sellers, each agent, at the time such agent
wrote, sold or produced the Business for any of Sellers, was duly licensed as
an insurance agent (for the type of business written, sold or produced by such
agent) in the particular jurisdiction in which such agent wrote, sold or
produced such business, except where the failure to have such license would
not have a material adverse effect on the Business;

-19-

<PAGE> 25

3.23.5 To the Knowledge of Sellers, their insurance agents have not
violated (or with or without notice or lapse of time or both, would have
violated) any term or provision of any law, regulation or any writ, judgment,
decree, injunction or similar order applicable to the writing, sale or
production of the Business, except where such violation would not have a
material adverse effect on the Business;

3.23.6 To the Knowledge of Sellers (i) all Insurance Contracts have
been issued, to the extent required under applicable law, on forms approved by
the insurance regulatory authority of the state or jurisdiction where issued
or, to the extent required by applicable law, have been filed with and not
objected to by such authority within the period provided for objections; (ii)
any premium rates with respect to the Business required to be filed with or
approved by insurance regulatory authorities have been so filed or approved
and premiums charged conform thereto in all material respects; and (iii) all
policyholder dividends under the Business payable by Sellers have been paid in
accordance with the terms of the policies under which they arose except, with
respect to clauses (i), (ii) or (iii), for such noncompliance, violation or
failure which, individually or in the aggregate, could not reasonably be
expected to have a Sellers Material Adverse Effect.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------

The Purchaser hereby represents and warrants to the Sellers that the
following statements are true and correct as of the date hereof, and will be
true and correct as of the Closing Date or such other time as may be specified
in such statements.

Section 4.1. Organization, Standing and Authority. The Purchaser is
-------------------------------------
organized, validly existing and in good standing under the laws of the State of
Ohio and has the requisite corporate power and authority to carry on the
operations of its business as they are now being conducted.

Section 4.2. Authorization. The Purchaser has the requisite
--------------
corporate power and authority to execute, deliver and perform its obligations
under this Agreement or under each of the Ancillary Agreements to be executed
by it, as the case may be. The execution and delivery by the Purchaser of this
Agreement and of the Ancillary Agreements to be executed by it, and the per-
formance by the Purchaser of its obligations hereunder and thereunder, have
been duly authorized by all necessary corporate action on the part of the
Purchaser and its shareholders. This Agreement has been duly executed and
delivered by the Purchaser and, subject to the due execution and delivery
hereof by the Sellers, is a valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other similar laws relating to or affecting
creditors rights generally and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
As of the Closing Date, each Ancillary Agreement executed and delivered by the
Purchaser and Ohio Casualty Corporation will have been duly executed and
delivered by the Purchaser and, subject to the due execution and delivery of
such agreements by the Sellers, each Ancillary Agreement executed by the
Purchaser

-20-
<PAGE> 26

and Ohio Casualty Corporation is a valid and binding obligation of
the Purchaser or Ohio Casualty Corporation, as the case may be, enforceable
against the Purchaser or Ohio Casualty Corporation, as the case may be, in
accordance with its terms, except as enforceability may be limited by bank-
ruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally and by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).

Section 4.3. No Conflict or Violation, etc. Except as disclosed in
------------------------------
Schedule 4.3, the execution and delivery by the Purchaser of this Agreement and
Purchaser and Ohio Casualty Corporation of the Ancillary Agreements to which
either is a party do not, and the consummation by the Purchaser and Ohio
Casualty Corporation of the transactions contemplated by this Agreement and of
such Ancillary Agreements and compliance with the provisions hereof and thereof
will not, (i) conflict with any of the provisions of the Articles of Incorpor-
ation or Regulations of the Purchaser or Ohio Casualty Corporation, (ii)
subject to the matters referred to in the next sentence, conflict with, result
in a breach of or default (with or without notice or lapse of time, or both)
under, give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under, require the consent of any person
under, or result in the creation of an Lien on any property or asset of the
Purchaser under, any indenture or other agreement, permit, franchise, license
or other instrument or undertaking to which it is a party or by which it or any
of its assets is bound or affected, or (iii) subject to the matters referred to
in the next sentence, contravene any statute, law, ordinance, rule, regulation,
order, judgment, injunction, decree, determination or award applicable to the
Purchaser or any of its subsidiaries or any of their respective properties or
assets, which, in the case of clauses (ii) and (iii) above, individually or in
the aggregate, could not reasonably be expected to have a Purchaser Material
Adverse Effect. No consent, approval or authorization of, or declaration or
filing with, or notice to, any Governmental Entity, is required to be obtained
or made by or with respect to the Purchaser or any of its subsidiaries in
connection with the execution and delivery of this Agreement by the Purchaser
or the consummation by the Purchaser of the transactions contemplated hereby,
except for (i) the filing of premerger notification and report forms under the
HSR Act, (ii) the approvals, filings or notices required under the insurance
laws of the jurisdictions set forth in Schedule 4.3, (iii) such other
consents, approvals, authorizations, declarations, filings or notices as are
set forth in Schedule 4.3 and (iv) such other consents, approvals,
authorizations, declarations, filings or notices the failure to obtain or make
which, individually or in the aggregate, could not reasonably be expected to
have a Purchaser Material Adverse Effect.

Section 4.4. Brokers. No broker, investment banker, financial
--------
advisor or other person, other than Credit Suisse First Boston Corporation,
the fees and expenses of which will be paid by the Purchaser, is entitled to
any broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Purchaser or any Affiliate of
Purchaser.

Section 4.5. Legal Proceedings. Purchaser is not a party to any,
------------------
and there are no pending or, to Purchaser's Knowledge, threatened, legal,
administrative, arbitration or other proceedings, claims, actions or govern-
mental or regulatory investigations of any nature against or otherwise

-21-
<PAGE> 27

affecting, directly or indirectly, Purchaser or its properties or assets or
challenging the validity or propriety of the transactions contemplated by this
Agreement which, if adversely determined, individually or in the aggregate,
would have a Purchaser Material Adverse Effect, and there is no injunction,
order, judgment, decree, or regulatory restriction imposed upon Purchaser or
its properties or assets which would, individually or in the aggregate, have
a Purchaser Material Adverse Effect.

Section 4.6. Financing. Purchaser either has, or at the Closing
----------
will have, sufficient cash to consummate the transactions contemplated hereby
and to pay all related fees and expenses.

Section 4.7. Purchaser's Disclosure. As of the date of this Agree-
-----------------------
ment, to the Purchaser's Knowledge, there is no event, occurrence or failure
to disclose on the part of the Sellers or with respect to the Business,
Transferred Assets or Transferred Liabilities that would result in the breach
of any representation or warranty made by Sellers herein or that would have a
Sellers Material Adverse Effect.

ARTICLE 5

COVENANTS
---------

Section 5.1. Conduct of Business. Except as contemplated by this
--------------------
Agreement, during the period from the date of this Agreement to the Closing
Date, the Sellers shall carry on the Business only in the ordinary course of
business consistent with past practice and, to the extent consistent therewith,
use its reasonable best efforts to preserve intact the current business
organization of the Business, keep available the services of the employees
directly involved in the Business and preserve their relationships with agents,
brokers, intermediaries, insureds, reinsurers and otherwise having business
dealings with the Business. Without limiting the generality of the foregoing,
except as otherwise contemplated by this Agreement, during the period from the
date of this Agreement to the Closing Date, the Sellers except as contemplated
by this Agreement, shall not, without the prior consent of the Purchaser:

(i)(a) terminate, transfer or otherwise dispose of any
assets which would otherwise be Transferred Assets other than
investment assets in the ordinary course of business consistent
with past practices, or (b) enter into, modify or change in any
material respect any Assigned and Assumed Contract;

(ii)(a) permit or allow any of the Transferred Assets
to become subject to any Liens except Permitted Liens, (b)
waive any material claims or rights relating to the Business,
except in the ordinary course of business consistent with past
practices and except for waivers of intercompany obligations or
of claims or rights which are not included in the Transferred
Assets, or (c) other than in the ordinary course of business
consistent with past practices, grant any increase in the
compensation or benefits of, or amend, modify or establish any
new employee benefit plan or plan of

-22-

<PAGE> 28

compensation for, Transferred Employees (including any such
increase pursuant to any new or existing bonus, pension,
profit-sharing or other plan or commitment);

(iii) enter into or renew any Insurance Contract
except in the ordinary course of business in accordance with
the existing underwriting policies, procedures and guidelines
relating to the Business;

(iv) without first consulting with Purchaser, pay,
discharge, settle or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted, unasserted,
contingent or otherwise) other than the payment, discharge or
satisfaction, in the ordinary course of business consistent
with past practices, of claims, liabilities or obligations
under Insurance Contracts;

(v) without cause, terminate the employment of any
employee or employees that is/are material, individually or in
the aggregate, to operation of the Business;

(vi) take any action or fail to take any action
which is not in the usual and ordinary course of business with
respect to the Business, or which otherwise would cause a
Sellers Material Adverse Effect;

(vii) commit or agree to take any of the foregoing
actions; or

(viii) to the extent that any such action affects
liability under the reinsurance treaties identified in Schedule
3.11 for periods on or prior to the Closing Date, amend, modify
or terminate any of such reinsurance treaties, or enter into
any new reinsurance treaties (whether ceded or assumed) related
to the Business.

Section 5.2 Standstill Agreement.
---------------------

5.2.1 For purposes of this Section 5.2, the following terms
shall have the following meanings (all capitalized terms which are used in
this Section 5.2 and which are not defined below shall have the meanings given
to them in Article 1 of this Agreement):

(a) "Associate" shall have the meaning set forth in Rule
405 of Regulation C under the Securities Act of 1933, as amended (the
"Securities Act").

(b) "Beneficial ownership" and "beneficially own" shall
have the meanings set forth in Rule 13d-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act").

(d) "Group" shall have the meaning comprehended by Section
13(d)(3) of the Exchange Act.

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<PAGE> 29

(e) "Standstill Percentage" means 9.9% of Total Voting
Power. It is expressly understood and agreed that for purpose of calculating
the Standstill Percentage the Common Shares subject to the Warrants shall be
included as though the Warrants had been exercised in their entirety.

(f) "Total Voting Power" means, at any time, the aggregate
number of votes which may be cast by holders of outstanding Voting Stock.

(g) "Voting Stock" means the Common Shares and any other
securities which possess voting rights (including voting preferred shares)
issued by Ohio Casualty Corporation, whether currently outstanding or
hereafter issued (other than securities having such powers only upon the
occurrence of a contingency).

(h) "Voting Stock Equivalents" means the Warrants and any
other security that is not Voting Stock but is convertible into or
exchangeable for Voting Stock or is an option to purchase such securities or
Voting Stock.

Section 5.2.2 Each of Sellers agrees that until the fifth
anniversary of the Closing Date:

(a) Without the prior written consent of Ohio Casualty
Corporation, each of Sellers shall not, and shall not permit any of its
respective Affiliates or Associates, directly or indirectly, to authorize or
make a tender offer or exchange offer for, or purchase or otherwise acquire,
or agree to acquire or obtain, directly or indirectly, beneficial ownership of
any Voting Stock or Voting Stock Equivalents, if the effect of such
acquisition would be to increase the outstanding number of shares of Voting
Stock and Voting Stock Equivalents then beneficially owned by Sellers, their
respective Affiliates and their Associates, in the aggregate, to an amount
representing more than the Standstill Percentage.

(b) Notwithstanding the foregoing, Sellers, their
respective Affiliates and Associates, may indirectly acquire shares of Voting
Stock or Voting Stock Equivalents by way of acquisitions of, or equity
investments in, Persons which at the time of such acquisitions or investments
own outstanding Voting Stock and/or Voting Stock Equivalents; provided that
(i) such additional Voting Stock and/or Voting Stock Equivalents do not exceed
(with respect to all such acquisitions and investments) an aggregate of 5% of
Total Voting Power; (ii) the principal purpose of such acquisition or
investment shall not have been to acquire Voting Stock and/or Voting Stock
Equivalents and (iii) Sellers shall dispose of, or cause their Affiliates or
Associates to dispose of, all such shares of Voting Stock and/or Voting Stock
Equivalents in excess of the Standstill Percentage within twelve months of the
acquisition of such Voting Stock and/or Voting Stock Equivalents.

(c) Each of the Sellers agrees that it shall not, and shall
not permit any of its respective Affiliate and Associates, directly or
indirectly, to:

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<PAGE> 30

(i) Solicit proxies or consents or become a
"participant" in a "solicitation" (as such terms are defined in
Regulation 14A under the Exchange Act) of proxies or consents
with respect to equity securities of Ohio Casualty Corporation
with regard to any matter;

(ii) Seek to control or influence the management,
Board of Directors or policies of Ohio Casualty Corporation, or
seek to advise, encourage or influence any Person with respect
to the voting of any securities of Ohio Casualty Corporation or
any Affiliate of Ohio Casualty Corporation, or induce, attempt
to induce or in any manner assist, including, without
limitation, the financing of, any Persons in initiating any
shareholder proposal or a tender or exchange offer for
securities of Ohio Casualty Corporation or any change of
control of Ohio Casualty Corporation, or for the purpose of
convening a shareholders' meeting of Ohio Casualty Corporation;

(iii) Form, join or in any way participate in a
partnership, limited partnership, syndicate or other group (or
otherwise act in concert with any other Person) for the purpose
of acquiring, holding, voting or disposing of equity securities
of Ohio Casualty Corporation or taking any other actions
restricted or prohibited, under this Section 5.2, or announce
an intention to do, or enter into any arrangement or
understanding with others to do, any of the actions restricted
or prohibited under this Section 5.2; or

(iv) Request or propose to amend, modify or waive
any provisions of this Section 5.2 (other than in response to a
request or proposal made or solicited in writing by Ohio
Casualty Corporation or an Affiliate of Ohio Casualty
Corporation).

Section 5.3. Access to Information; Confidentiality; Renewal
Business.
-----------------------------------------------

5.3.1 The Sellers shall afford to the Purchaser and to the
officers, employees, counsel, financial advisors, accountants, actuaries and
other representatives of the Purchaser reasonable access during normal
business hours during the period prior to the Closing Date to all of the (i)
Insurance Contracts, Books and Records and Transferred Assets, including
without limitation all of their records relating to the agents and brokers who
produced the Business and shall otherwise assist Purchaser and its Affiliates
in determining whether to enter into agreements with any such agents and
brokers; and (ii) personnel involved in the business and, during such period,
shall furnish as promptly as practicable to the Purchaser such information
concerning the Business as the Purchaser may from time to time reasonably
request. The Purchaser agrees that it will hold, and will cause its
Affiliates and each of their respective directors, officers, employees,
partners, counsel, financial advisors, accountants, actuaries and other
representatives and Affiliates to hold, any information so obtained in
confidence except as otherwise required by law.

5.3.2 After the Closing Date, the Sellers shall cooperate
with Purchaser and its Affiliates as reasonably requested by them to assist
them in writing, in the name of Purchaser or a

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<PAGE> 31

Purchaser Affiliate, such renewals of the Business as they shall seek to
write, as provided in the Reinsurance Agreement.

5.3.3 Each of the parties shall afford the other party, its
officers, employees, counsel, accountants, actuaries and other representatives
reasonable access during normal business hours after the Closing Date to all
of the Database, the Insurance Contracts, Books and Records and Transferred
Assets and to personnel of one another for the purpose of enabling each party
to conduct its businesses and operations after the Closing, including, without
limitation, to prepare the Closing Statement, to defend the Excluded
Litigation, and similar matters. Each party agrees that it will hold, and
will cause its respective directors, officers, employees, counsel,
accountants, actuaries and other representatives to hold, any information so
obtained in confidence except as otherwise required by law.

Section 5.4. Reasonable Best Efforts. Upon the terms and subject
------------------------
to the conditions and other agreements set forth in this Agreement, each of
the parties agrees to use its reasonable best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.

Section 5.5. Consents, Approvals and Filings.
--------------------------------

5.5.1 The Sellers and the Purchaser will make all necessary
filings, as soon as practicable, including any filing required under state
insurance laws, in order to facilitate prompt consummation of the transactions
contemplated by this Agreement. In addition, the Sellers and the Purchaser
will each use their reasonable best efforts (without the payment of money or
the commencement of litigation), and will cooperate fully with each other (i)
to comply as promptly as practicable with all governmental requirements
applicable to the transactions contemplated by this Agreement and (ii) to
obtain as promptly as practicable all necessary consents, approvals, permits
or authorizations of Governmental Entities and consents or waivers of all
third parties necessary or advisable for the consummation of the transactions
contemplated by this Agreement. Each of the Sellers and the Purchaser shall
use its reasonable best efforts to provide such information and communications
to Governmental Entities as such Governmental Entities may reasonably request.

5.5.2 The Sellers and the Purchaser will, as promptly as
practicable, file, or cause to be filed, Notification and Report Forms under
the HSR Act with the Federal Trade Commission (the "FTC") and the Antitrust
-----
Division of the United States Department of Justice (the "Antitrust Division")
--------------------
in connection with the transactions contemplated by this Agreement, and will
use their respective reasonable best efforts to respond as promptly as
practicable to all inquiries received from the FTC or the Antitrust Division
for additional information or documentation and to cause the waiting periods
under the HSR Act to terminate or expire at the earliest possible date. The
Sellers and the Purchaser will each furnish to the other such necessary
information and reasonable assistance as the other may request in connection
with its preparation of necessary filings or

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<PAGE> 32

submissions to any governmental or regulatory agency, including any filings
necessary under the provisions of the HSR Act.

5.5.3 Each of the Sellers' Representative and the Purchaser
shall notify the other party and keep it advised as to the status of all
applications to, and proceedings before, Governmental Entities in connection
with the transactions contemplated by this Agreement.

Section 5.6. Notifications. The Sellers' Representative shall
--------------
notify the Purchaser and the Purchaser shall notify the Sellers' Representa-
tive and keep the other advised as to (i) any litigation or administrative
proceeding pending and known to it or, to its Knowledge, threatened which
challenges or seeks to restrain or enjoin the consummation of any of the
transactions contemplated by this Agreement, (ii) the breach of any
representation or warranty of the Sellers or the Purchaser, as the case may
be, contained in this Agreement and (iii) any event, condition, result or
change that has resulted in or could reasonably be expected to result in, any
Sellers Material Adverse Effect or Purchaser Material Adverse Effect.

Section 5.7. Further Assurances. On the Closing Date, the parties
-------------------
shall execute the Ancillary Agreements to which they are a party. On and
after the Closing Date, the Sellers and the Purchaser shall take all reasonably
appropriate action and execute any additional documents, instruments or
conveyances of any kind consistent with the negotiated terms of this Agreement
which may be reasonably necessary to carry out any of the provisions of this
Agreement or consummate any of the transactions contemplated by this Agreement.

Section 5.8. Expenses. Except as otherwise specifically provided
---------
in this Agreement, the parties to this Agreement shall bear their respective
expenses incurred in connection with the preparation, execution and performance
of this Agreement and consummation of the transactions contemplated hereby,
including all fees and expenses of agents, representatives, counsel, financial
advisors, actuaries and accountants.

Section 5.9. Employees and Employee Benefits.
--------------------------------

5.9.1 Effective as of the Closing Date, the employees of
Sellers involved in the Business and listed on Schedule 5.9.1 (the "Business
---------
Employees") shall be offered employment by Purchaser on terms which are
- ----------
substantially equivalent to those that such employees presently enjoy.
Schedule 5.9.1 may be modified after the date hereof and the Closing Date as
may be required to reflect personnel changes, so long as such changes do not
violate Section 5.1(v). Business Employees who are on short-term disability
leave on the Closing Date shall remain employees of the appropriate Seller and
covered under such Seller's employee benefit plans until such time as such
Business Employees' return to employment, at which time they shall be offered
employment by the Purchaser. The Business Employees who accept employment
with Purchaser shall be referred to as the "Transferred Employees". Schedule
-----------------------
5.9.2 lists personnel providing accounting, unit statistical and state filings
services to the Sellers' Specialty, Personal Lines and Commercial Lines
Divisions. Between the date hereof and the Closing Date, Purchaser and Seller
shall use reasonable best efforts to designate appropriate representatives
associated with the Business among such personnel as

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<PAGE> 33

Transferred Employees. Except as provided in Section 5.9.5, Transferred
Employees shall be credited for years employed by the Sellers for purposes of
all benefits offered by Purchaser. The Sellers and Purchaser anticipate that
Purchaser will terminate certain of its employees and certain Transferred
Employees (collectively, the "Terminated Employees") as a result of the
consolidation of the Business and Purchaser's business. Purchaser, on the one
hand, and Sellers, collectively on the other hand, shall share equally in the
cost of all severance obligations (including all applicable FICA taxes and
outplacement fees) paid to all Terminated Employees whose employment was
terminated by the Purchaser within ninety (90) days after the Closing Date,
provided, however, that Sellers shall not be obligated to pay a sum in
respect of any individual Terminated Employee in excess of what the Sellers
would have been obligated to pay under Sellers' severance policies and
provided, further, that Sellers shall share equally with Purchaser the
severance obligations of up to and including 400 Terminated Employees. Those
Terminated Employees who were Transferred Employees shall be paid severance
in accordance with the terms of Sellers' existing severance policy. Any other
severance obligations relating to the transactions contemplated hereby shall
be born solely by Purchaser. Purchaser shall provide a schedule of the
Terminated Employees entitled to the severance payments. Sellers shall pay
one-half of such severance payments within ten (10) Business Days after
receipt of each such schedule.

5.9.2 With respect to the Transferred Employees, the
Purchaser shall be responsible for all accrued but not taken vacation and all
accrued salary and wages and for all accrued bonuses, in each case as of the
Closing Date but only if and to the extent that such liabilities are accrued
and reserved for by the Sellers in the Closing Statement. Nothing in this
Agreement shall be construed as limiting in any way the right of the Purchaser,
on and after the Closing Date, to terminate the employment of any Transferred
Employee, to change his or her salary or wages or to modify benefits or other
terms and conditions of employment of Transferred Employees.

5.9.3 With respect to each Transferred Employee:

(i) The Sellers' welfare benefit plans shall be
responsible for welfare benefit claims relating to the
Transferred Employees incurred on or prior to the
Closing Date. For this purpose, a claim is incurred
when the medical or other service giving rise to the
claim is performed, except that in the case of death or
disability, a claim is incurred on the date of death or
date of disability as the case may be.

(ii) Except as otherwise expressly provided in this
Section 5.9, (A) the Purchaser shall be responsible for,
and shall indemnify and hold harmless the Sellers
against, any actions, claims or proceedings brought by
or on behalf of any Transferred Employee at any time
with respect to any event occurring or condition
arising after the Closing Date and (B) the Sellers shall
be responsible for, and shall indemnify and hold harm-
less the Purchaser against, any actions, claims or
proceedings brought by or on behalf of any Transferred
Employee at any time with respect to any event occurring
or condition existing on or prior to the Closing Date.

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<PAGE> 34

5.9.4 The Sellers shall be responsible for all deferred
compensation due to Transferred Employees under the Sellers' deferred compen-
sation plans with respect to services rendered prior to the Closing Date by
any Transferred Employee.

5.9.5 Notwithstanding any provisions contained in this
Section 5.9, retirement benefits shall be provided by Purchaser to the
Transferred Employees in accordance with the following terms and conditions:

(i) As of the Closing Date, each Transferred
Employee who has attained age 21 and completed at least one
year of service (for this purpose, one year of service shall
mean the completion of 1,000 hours of service during a
consecutive 12 month period) with a Seller or an Affiliate
of any Seller shall be eligible to participate in the Ohio
Casualty Employees Retirement Plan (the "Pension Plan") as
of the first day of the month following the Closing Date.
Each other Transferred Employee shall be eligible to
participate in the Pension Plan in accordance with the
terms and conditions of the Pension Plan. For purposes of
the Pension Plan, all Transferred Employees shall, for
eligibility and vesting purposes (but not for benefit
accrual), receive credit for all service with any Seller or
Affiliate of any Seller prior to the Closing Date.

(ii) As of the Closing Date, each Transferred
Employee who was actively employed and eligible, as of the
Closing Date, to participate in the 401(k) contribution
account in the RASP shall become eligible to participate
in The Ohio Casualty Employee Savings Plan (the "Savings
Plan"). Each other Transferred Employee shall be eligible
to participate in the Savings Plan in accordance with the
terms and conditions of the Savings Plan. For purposes of
the Savings Plan, all Transferred Employees shall, for
eligibility and vesting purposes, receive credit for all
services with any Seller or Affiliate of any Seller prior to
the Closing Date.

5.9.6 As of the Closing Date, Purchaser shall assume and be
responsible for, and shall indemnify and hold harmless Sellers for, all
obligations to provide post-retirement medical and life benefits to all
Transferred Employees; but only if the liabilities for such post-retirement
coverages are accrued and reserved for by the Sellers in the Final Closing
Statement in a manner that satisfies the requirements of FAS 106. Purchaser
shall provide the coverage described in the preceding sentence in accordance
with the terms of Purchaser's group health plan, as may be in effect from time
to time. Nothing contained in this Section 5.9.6 or elsewhere in this
Agreement shall be construed as limiting in any way the right of the
Purchaser, on and after the Closing Date, to amend or terminate any of the
benefits provided under its group health plan (including post-retirement
benefits) to either the Transferred Employees or its other employees.

Section 5.10. Information Systems. The Sellers and Purchaser
--------------------
recognize that the operation of the Business has required that computer and
telecommunications systems and services have been shared with other operations
of Sellers, such systems and services including but not limited to, mainframe
access, wide-area-network administration, software (including programming

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<PAGE> 35

development and maintenance support), long distance services, frame relay
services, etc. (the "Information Services"). On the Closing Date, Sellers and
----------------------
Purchaser shall enter into the Information Systems Agreement.

Section 5.11. Disclosure Schedules.
---------------------

5.11.1 Sellers shall deliver to Purchaser the disclosure
schedules referenced in various sections of this Agreement (the "Disclosure
-----------
Schedules") (together with copies of the documents referred to therein) at the
- ----------
execution hereof, except that the Disclosure Schedules referenced in Section
3.5 and a supplement to Schedule 3.13, which supplement shall contain a list
of the operating systems software utilized in the Business (the "Later
------
Delivered Schedules") shall be delivered within twelve (12) Business Days
- --------------------
after the execution and delivery of this Agreement.

5.11.2 Purchaser shall have five (5) Business Days to review
the Later Delivered Schedules. If Purchaser, after reasonable consultation
with Sellers, determines in good faith that the items disclosed in the Later
Delivered Schedules, have or could reasonably be expected to have a Sellers
Material Adverse Effect, Purchaser may terminate this Agreement on five (5)
Business Days written notice to Sellers and neither party shall have any
further obligations to the other hereunder. The Disclosure Schedules and the
Later Delivered Schedules, when so delivered, shall be deemed to constitute an
integral part of this Agreement and to modify the respective representations,
warranties, covenants or agreements of the parties hereto contained herein to
the extent that such representations, warranties, covenants or agreements
expressly refer to schedules. Anything to the contrary contained herein or in
the Disclosure Schedules and the Later Delivered Schedules notwithstanding,
any and all statements, representations, warranties or disclosures set forth
in the Disclosure Schedules and the Later Delivered Schedules shall be deemed
to have been made on and as of the date hereof.

5.11.3 Sellers shall give detailed written notice to Buyer
promptly upon the occurrence of any event that would cause or constitute a
material breach of any representations or warranties of Sellers contained in
this Agreement or in the Disclosure Schedules. Notwithstanding the foregoing,
Sellers shall have the right from time to time after the date hereof to update
the Disclosure Schedules (the "Updated Disclosure Schedules") until twelve
------------------------------
(12) days before the scheduled date of the Closing. Any Updated Disclosure
Schedule shall be promptly furnished to Purchaser, and Purchaser shall have
five (5) Business Days to review the Updated Disclosure Schedule. If
Purchaser, after reasonable consultation with Sellers, determines in good
faith that the items disclosed on the Updated Disclosure Schedules have or
could reasonably be expected to have a Sellers Material Adverse Effect,
Purchaser may terminate the Agreement on five (5) Business Days written notice
hereof to Sellers and neither party shall have any further obligations to the
other hereunder. In the event that the Purchaser does not terminate this
Agreement and the Closing occurs, the information set forth in such Updated
Disclosure Schedule, to the extent the matters referred to therein arise on or
after the delivery of the Disclosure Schedules, shall not be taken into
account in determining whether there has been a breach of Sellers'
representations and warranties for purposes of Section 9.1.

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<PAGE> 36

Section 5.12. Purchaser's Database Obligation. From and after the
--------------------------------
Closing Date, Purchaser shall timely enter (consistent with Sellers' current
practices) in the Database on the appropriate Owned Software and/or Licensed
Software all information, including without limitation all premium and loss
information, reasonably required by Sellers in order to administer and collect
other ceded reinsurance applicable to the Business and to complete their
financial statements and other required statements, schedules and reports. If
any such information cannot be entered in the Database and accessed by Sellers,
Purchaser shall provide such information at such times and in such form and
detail as Sellers shall reasonably request.

Section 5.13 Sublease of Premises. On the Closing Date, at the
---------------------
option of Purchaser and upon 30 days notice to Sellers, the Sellers and the
Purchaser shall enter into subleases or lease assignments (on terms no less
favorable than the primary lease) with respect to the premises listed on
Schedule 5.13.

Section 5.14 License of Intangible Assets. On the Closing Date,
-----------------------------
the Sellers and Purchaser shall enter into a contract granting the Purchaser a
perpetual, royalty-free, non-exclusive license to use the Intangible Assets
listed on Schedule 5.14.

Section 5.15 Right to Bid. Sellers hereby grant Purchaser an
-------------
exclusive right to submit, during the period beginning on the date hereof and
ending ninety (90) days thereafter, a proposal to purchase Sellers' Specialized
Markets Business (identified by Sellers as Profit Center 1645) (the
"Specialized Markets Business"). Except as otherwise provided in this section,
- ------------------------------
during such ninety (90) day period, Sellers shall not solicit or entertain any
other offers with respect to the Specialized Markets Business. Upon request of
Purchaser and after execution of a confidentiality agreement, in form and
substance substantially similar to the Confidentiality Agreement referred to
in Section 10.2 hereof reasonably acceptable to the parties, the Sellers shall
provide to the Purchaser reasonable access to the books and records relating
to the Specialized Markets Business. If Purchaser submits a proposal to
purchase the Specialized Markets Business that is acceptable to Sellers, the
parties shall negotiate in good faith the terms of a definitive purchase and
sale agreement for a period of not less than thirty (30) days. If either this
Agreement is terminated pursuant to Article 10, the Purchaser fails to submit
a proposal acceptable to Sellers within the ninety (90) day period or the
parties are unable to negotiate a definitive agreement within the thirty (30)
days after submission of a proposal acceptable to Sellers, the rights granted
to Purchaser under this Section 5.15 shall be rendered null and void and of no
further effect.

Section 5.16 Actions With Respect to the Warrants. If, after the
-------------------------------------
date hereof and prior to issuance of the Warrants, Ohio Casualty Corporation
shall take any action which, if the Warrants had been issued and outstanding as
of the date of any such action, would have required an adjustment in the
exercise price of the Warrants or in the number of shares purchasable upon
exercise of the Warrants pursuant to Section 10 of the Warrant Agreement, then
the exercise price of the Warrants and/or such number of shares shall be
adjusted pursuant to Section 10 of the Warrant Agreement upon issuance of the
Warrants.

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<PAGE> 37

ARTICLE 6

CONDITIONS PRECEDENT TO THE OBLIGATIONS
---------------------------------------
OF THE PURCHASER
----------------

The obligations of the Purchaser under this Agreement are subject to
the satisfaction on or prior to the Closing Date of the following conditions,
any one or more of which may be waived by the Purchaser to the extent
permitted by law.

Section 6.1. Representations and Covenants.
------------------------------

6.1.1 The representations and warranties of the Sellers in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date with the same force and effect as though made on and as of
the Closing Date, except to the extent that any such representation and
warranty is made as of a particular date including references to the date
hereof, in which case such representation and warranty shall have been true
and correct as of such date and except to the extent that any such statement
is qualified as to materiality in which case such statement shall be true and
correct in all respects as of the Closing Date or such other time as may be
specified in such statement.

6.1.2 The Sellers shall have performed or complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by each of the Sellers on or prior to the
Closing Date.

6.1.3 On the Closing Date, each of the Sellers shall have
delivered to the Purchaser a certificate of the Sellers, dated as of the
Closing Date and signed by an executive officer of each of the Sellers, as to
the matters set forth in this Section 6.1.

Section 6.2. No Material Adverse Change. Since June 30, 1998,
---------------------------
there shall have been no event or condition which individually or in the
aggregate resulted in or could reasonably be expected to adversely affect the
Sellers' ability to consummate the transactions contemplated hereby or the
Purchaser's ability to operate the Business after the Closing substantially as
it is being operated on the date hereof or have a material adverse effect on
the Transferred Assets or the business, financial condition, results of oper-
ations, prospects or value of the Business, taken as a whole.

Section 6.3. Secretary's Certificate. Each of the Sellers shall
------------------------
have delivered to the Purchaser a certificate of the secretary or assistant
secretary of such Seller, dated as of the Closing Date, as to the resolutions
of the Board of Directors of such Sellers authorizing the execution, delivery
and performance of the agreements to which it is a party.

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<PAGE> 38

Section 6.4. Legal Opinion. The Purchaser shall have received a
--------------
written opinion from counsel to the Sellers reasonably acceptable to the
Purchaser, dated the Closing Date, in form and substance reasonably satisfac-
tory to the Purchaser.

Section 6.5. Other Documents. The Purchaser shall have received
----------------
such other instruments and certificates as are to be delivered under Section
5.7 as the Purchaser may reasonably request.

Section 6.6. Other Agreements. The Ancillary Agreements, subleases
-----------------
or assignments with respect to the premises listed on Schedule 5.13, and each
of the other agreements and instruments contemplated hereby and thereby to
which any Seller is a party shall have been duly executed and delivered by such
Seller on the Closing Date and each of such agreements and instruments shall be
in full force and effect with respect to the Sellers on the Closing Date.

Section 6.7. Governmental and Regulatory Consents and Approvals.
---------------------------------------------------
6.7.1 All filings required to be made prior to the Closing
Date with, and all consents, approvals, permits and authorizations required to
be obtained prior to the Closing Date from, Governmental Entities, including
those set forth in Schedules 3.3 and 4.3 hereto, in connection with the
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby and to enable Purchaser to conduct the Business in
substantially the manner conducted prior to Closing shall have been made or
obtained (as the case may be).

6.7.2 The waiting period prescribed by the HSR Act shall have
expired or been terminated.

Section 6.8. No Injunctions or Restraints. No temporary restraining
-----------------------------
order, preliminary or permanent injunction or other order or decree shall be
issued by any Governmental Entity nor shall any other legal restraint or pro-
hibition preventing, restricting or which is reasonably likely to prevent or
restrict the consummation of any of the transactions contemplated hereby be in
effect.

ARTICLE 7

CONDITIONS PRECEDENT TO THE OBLIGATIONS
---------------------------------------
OF THE SELLERS
--------------

The obligations of the Sellers under this Agreement are subject to the
satisfaction on or prior to the Closing Date of the following conditions, any
one or more of which may be waived by the Sellers to the extent permitted by
law.

Section 7.1. Representations and Covenants.
------------------------------

7.1.1 The representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material respects
on and as of the Closing Date with the same force and effect as though made on
and as of the Closing Date, except to the extent that any such

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<PAGE> 39

representation and warranty is made as of a particular date, in which case such
representation and warranty shall have been true and correct as of such date
and except to the extent that any such statement is qualified as to
materiality, in which case such statement shall be true and correct in all
respects as of the Closing Date or such time as may be specified in such
statement.

7.1.2 The Purchaser shall have performed or complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by the Purchaser on or prior to the Closing
Date.

7.1.3 On the Closing Date, the Purchaser shall have delivered
to the Sellers a certificate of the Purchaser, dated as of the Closing Date
and signed by an executive officer of the Purchaser, as to the matters set
forth in this Section 7.1.

Section 7.2. No Material Adverse Change. Since the date of this
---------------------------
Agreement, there shall have been no event or condition which, individually or
in the aggregate, resulted in or could reasonably be expected to adversely
affect the Purchaser's or Ohio Casualty Corporation's ability to consummate
the transactions contemplated hereby or the Purchaser's ability to operate the
Business after the Closing substantially as it is being operated on the date
hereof.

Section 7.3. Secretary's Certificate. The Purchaser shall have
------------------------
delivered to the Sellers a certificate of the secretary or assistant secretary
of the Purchaser, dated as of the Closing Date, as to the resolutions of the
Board of Directors of the Purchaser authorizing the execution, delivery and
performance of the agreements to which it is a party.

Section 7.4. Legal Opinion. The Sellers shall have received a
--------------
written opinion from counsel to the Purchaser reasonably acceptable to the
Sellers, dated the Closing Date, in form and substance reasonably satisfactory
to the Sellers.

Section 7.5 Other Documents. The Seller shall have received such
----------------
other instruments and certificates as are to be delivered under Section 5.7 as
the Seller may reasonably request.

Section 7.6. Other Agreements. The Ancillary Agreements and each of
-----------------
the other agreements and instruments contemplated hereby and thereby to which
the Purchaser or any of its Affiliates is a party shall have been duly executed
and delivered by the Purchaser on the Closing Date and each of such agreements
and instruments shall be in full force and effect with respect to the Purchaser
on the Closing Date.

Section 7.7. Governmental and Regulatory Consents and Approvals.
---------------------------------------------------

7.7.1 All filings required to be made prior to the Closing
Date with, and all consents, approvals, permits and authorizations required to
be obtained prior to the Closing Date from, Governmental Entities, including
those set forth in Schedules 3.3 and 4.3, in connection with the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby shall have been made or obtained (as the case may be).

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<PAGE> 40

7.7.2 The waiting period prescribed by the HSR Act shall have
expired or been terminated.

Section 7.8. No Injunctions or Restraints. No temporary restraining
-----------------------------
order, preliminary or permanent injunction or other order or decree shall have
been issued by any Governmental Entity nor shall any other legal restraint or
prohibition preventing, restricting or which is reasonably likely to prevent or
restrict the consummation of any of the transactions contemplated hereby be in
effect.

ARTICLE 8

SURVIVAL OF REPRESENTATIONS AND WARRANTIES
------------------------------------------

Section 8.1. Survival of Representations and Warranties. All repre-
-------------------------------------------
sentations and warranties contained in this Agreement shall survive the Closing
and shall terminate and expire at the close of business on the date which is 18
months following the Closing Date; provided, however, that the representations
and warranties of the Sellers contained in Section 3.15 shall survive for the
applicable statute of limitation with respect to any Tax.

ARTICLE 9

INDEMNIFICATION
---------------

Section 9.1. General Indemnification Obligation of Sellers. From
----------------------------------------------
and after the Closing, Sellers will reimburse, indemnify and hold harmless Pur-
chaser and its successors and assigns (an "Indemnified Purchaser Party")
-----------------------------
against and in respect of:

9.1.1 Any and all damages, losses, liabilities, costs and
expenses incurred or suffered by any Indemnified Purchaser Party that result
from, relate to or arise out of:

(i) any and all liabilities and obligations of
Sellers of any nature whatsoever, except for the Transferred
Liabilities; or

(ii) any misrepresentation, breach of warranty or
non-fulfillment of any agreement or covenant on the part of
Sellers under this Agreement, or from any misrepresentation
in or omission from any certificate, schedule, statement,
document or instrument furnished to Purchaser pursuant
hereto or in connection with the negotiation, execution or
performance of this Agreement; and

9.1.2 Any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and
other expenses (including, without limitation, reasonable legal fees and
expenses) incident to any of the foregoing or to the enforcement of this
Section 9.1.

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<PAGE> 41

Section 9.2. General Indemnification Obligation of Purchaser. From
------------------------------------------------
and after the Closing, Purchaser will reimburse, indemnify and hold harmless
the Sellers, and their respective successors or assigns (an "Indemnified Seller
Party") against and in respect of:

9.2.1 Any and all damages, losses, deficiencies, liabilities,
costs and expenses incurred or suffered by any Indemnified Seller Party that
result from, relate to or arise out of:

(i) the Transferred Liabilities; or

(ii) any misrepresentation, breach of warranty or
non-fulfillment of any agreement or covenant on the part of
Purchaser under this Agreement, or from any misrepresentation
in or omission from any certificate, schedule, statement,
document or instrument furnished to Sellers pursuant hereto
or in connection with the negotiation, execution or per-
formance of this Agreement; and

9.2.2 Any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs and
other expenses (including, without limitation, reasonable legal fees and
expenses) incident to any of the foregoing or to the enforcement of this
Section 9.2.

Section 9.3. Method of Asserting Claims, Etc. In the event that
--------------------------------
any claim or demand for which any of the Sellers would be liable to an
Indemnified Purchaser Party hereunder is asserted against or sought to be
collected from an Indemnified Purchaser Party by a third party, the
Indemnified Purchaser Party shall promptly notify such Seller of such claim or
demand, specifying the nature of such claim or demand and the amount or the
estimated amount thereof to the extent then feasible (which estimate shall not
be conclusive of the final amount of such claim and demand) (the "Claim
------
Notice"). Sellers' Representative shall have ten (10) days from the personal
- -------
delivery or mailing of the Claim Notice (the "Notice Period") to notify the
---------------
Indemnified Purchaser Party, (A) whether or not Sellers dispute their
liability to the Indemnified Purchaser Party hereunder with respect to such
claim or demand and (B) notwithstanding any such dispute, whether or not
Sellers desire, at their sole cost and expense, to defend the Indemnified
Purchaser Party against such claims or demand.

9.3.1 In the event that Sellers' Representative notifies the
Indemnified Purchaser Party within the Notice Period that Sellers desire to
defend the Indemnified Purchaser Party against such claim or demand then,
except as hereinafter provided, Sellers shall have the right to defend the
Indemnified Purchaser Party by appropriate proceedings, which proceedings
shall be promptly settled or prosecuted by them to a final conclusion in such
a manner as to avoid any risk of Indemnified Purchaser Party becoming subject
to liability for any other matter; provided, however, Sellers shall not,
without the prior written consent of the Indemnified Purchaser Party, consent
to the entry of any judgment against the Indemnified Purchaser Party or enter
into any settlement or compromise which does not include, as an unconditional
term thereof, the giving of the claimant or plaintiff to the Indemnified
Purchaser Party of a release, in form and substance satisfactory to the
Indemnified Purchaser Party, as the case may be, from all liability in respect
of such claim or

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<PAGE> 42

litigation. If any Indemnified Purchaser Party desires to participate in, but
not control, any such defense or settlement, it may do so at its sole cost and
expense.

9.3.2(i) If Sellers' Representative elects not to defend
the Indemnified Purchaser Party against such claim or demand,
whether by not giving the Indemnified Purchaser Party timely
notice as provided above or otherwise, then the amount of any
such claim or demand, or if the same be defended by Sellers or
by the Indemnified Purchaser Party (but no Indemnified
Purchaser Party shall have any obligation to defend any such
claim or demand), then that portion thereof as to which such
defense is unsuccessful, in each case shall be conclusively
deemed to be a liability of Sellers hereunder.

(ii) In the event an Indemnified Purchaser Party
should have a claim against Sellers hereunder that does not
involve a claim or demand being asserted against or sought to
be collected from it by a third party, the Indemnified
Purchaser Party shall promptly send a Claim Notice with respect
to such claim to Sellers' Representative. If Sellers'
Representative does not notify the Indemnified Purchaser Party
within the Notice Period that it disputes such claim, the
amount of such claim shall be conclusively deemed a liability
of Sellers hereunder.

9.3.3 All claims for indemnification by an Indemnified Seller
Party under this Agreement shall be asserted and resolved under the procedures
set forth above substituting in the appropriate place "Indemnified Seller
Party" for "Indemnified Purchaser Party" and variations thereof and
"Purchaser" for "Sellers."

Section 9.4. Payment. Upon the determination of the liability under
--------
Section 9.3 hereof, the appropriate party shall pay to the other, as the case
may be, within ten days after such determination, the amount of any claim for
indemnification made hereunder. Any indemnity payment under Section 9.3 in
respect of any claim shall be reduced by an amount equal to (x) any third party
insurance proceeds realized by and paid to the indemnified party minus (y) any
related costs and expenses, including the aggregate cost of pursuing any
related insurance claims plus any correspondent increases in insurance premiums
or other chargebacks. The indemnified party shall use its reasonable best
efforts to make insurance claims relating to any claim for which it is seeking
indemnification pursuant to Article 9; provided, that (i) the indemnified
--------
party shall not be obligated to make such an insurance claim if the
indemnified party in its reasonable judgment believes that the cost of pur-
suing such an insurance claim together with any correspondent increase in
insurance premiums or other chargebacks to the indemnified party would exceed
the value of the claim for which the indemnified party is seeking
indemnification pursuant to this Article 9 and (ii) no indemnified party shall
be required to keep or maintain any particular level of insurance. Upon the
payment in full of any claim, the entity making payment shall be subrogated to
the rights of the indemnified party against any person, firm or corporation
with respect to the subject matter of such claim.

-37-
<PAGE> 43

Section 9.5. Limitations on Amount -- Sellers.
---------------------------------

9.5.1 Sellers shall have no liability (for indemnification or
otherwise) with respect to the matters described in Section 9.1.1(i) and (ii)
until the total of all damages actually paid or incurred by an Indemnified
Purchaser Party with respect to such matters exceeds Five Million and 00/100
Dollars ($5,000,000.00), and then only for the amount by which such damages
actually paid or incurred by an Indemnified Purchaser Party exceed Five
Million and 00/100 Dollars ($5,000,000.00), and Sellers shall have no
liability (for indemnification or otherwise) with respect to matters described
in Section 9.1.1(ii) which are not also described in Section 9.1.1(i) in
respect of any individual loss or any series of losses attributable to the
same or related cause of less than Five Hundred Thousand and 00/100 Dollars
($500,000.00). Anything contained in this Agreement to the contrary
notwithstanding, in no event shall the aggregate liability of Sellers under
this Agreement, including, without limitation, Article 9, exceed Three Hundred
Million and 00/100 Dollars ($300,000,000.00).

9.5.2 If Purchaser has a claim for indemnification under
Section 9.1.1(i) involving Retained Extra Contractual Obligations, which claim
could also be asserted under Section 9.1.1(i) or (ii), the limitations on
Sellers' liability for such claim shall be governed by Article 5 of the
Reinsurance Agreement and shall not be subject to the provisions of Section
9.5.1.

Section 9.6. Limitations on Amount - Purchaser. The Purchaser shall
----------------------------------
not be required to indemnify an Indemnified Seller Party with respect to any
claim for indemnification pursuant to Section 9.2.1, unless and until the
aggregate amount of all claims against the Sellers under this Section 9.2.1
exceeds Five Million and 00/100 Dollars ($5,000,000.00), in which case the
Purchaser shall be liable only for the losses in excess of such amount;
provided, however, that (A) the aggregate liability of the Purchaser to all
Indemnified Seller Parties under this Agreement shall not exceed Three Hundred
Million Dollars ($300,000,000) and (B) the Purchaser shall have no liability
under clause (ii) of Section 9.2.1 in respect of any individual loss or any
series of losses attributable to the same or related cause of less than
$500,000.

ARTICLE 10

TERMINATION PRIOR TO CLOSING
----------------------------

Section 10.1. Termination. Notwithstanding any other provision
------------
contained herein, this Agreement may be terminated at any time prior to the
Closing Date:

10.1.1 by mutual written consent of the Sellers and the
Purchaser;

10.1.2 the Purchaser may terminate this Agreement in
accordance with Section 5.11 hereof;

10.1.3 by the Sellers or the Purchaser, upon written notice to
the other party, if the Closing Date shall not have occurred on or prior to
December 31, 1998, unless such failure of

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<PAGE> 44

consummation shall be due to the failure of the party seeking such termination
to perform or observe in all material respects the covenants and agreements
hereof to be performed or observed by such party; provided, however, that if
-------- -------
the transaction contemplated by this Agreement has not received required
approvals from all necessary insurance departments or commissioners, such date
shall be February 28, 1999;

10.1.4 by the Sellers or the Purchaser, upon written notice
to the other parties, if a governmental authority of competent jurisdiction
shall have issued an injunction, order or decree enjoining or otherwise
prohibiting the consummation of the transactions contemplated by this
Agreement, and such injunction, order or decree shall have become final and
non-appealable or if a governmental authority has otherwise made a final
determination that any required regulatory consent would not be forthcoming;
provided, however, that the party seeking to terminate this Agreement pursuant
- -------- -------
to this clause has used all commercially reasonable efforts to remove such
injunction, order or decree;

10.1.5 by the Purchaser if any of the Sellers (i) breaches or
fails in any material respect to perform or comply with any of its material
covenants and agreements contained herein or (ii) breaches any of the
representations and warranties in any material respect referred to in Section
6.1 and such breach would reasonably be likely to have a Sellers Material
Adverse Effect and such breach has not been remedied within 20 days after
receipt of notice thereof from the Purchaser; and provided, however, that such
breach was not within the Knowledge of Purchaser at the time the Agreement was
executed by Purchaser; and

10.1.6 by the Sellers if the Purchaser (i) breaches or fails
in any material respect to perform or comply with any of its material
covenants and agreements contained herein or (ii) breaches its representations
and warranties in any material respect referred to in Section 7.1 and such
breach would reasonably be likely to have a Purchaser Material Adverse Effect
and such breach has not been remedied within 20 days after receipt of notice
thereof from the Sellers' Representative.

Section 10.2. Effect of Termination. In the event of termination of
----------------------
this Agreement by either the Purchaser or the Sellers as provided in Section
10.1, this Agreement shall forthwith become void and have no effect, without
any liability or obligation on the part of the Purchaser or the Sellers, other
than Articles 9, 10 and 11. Nothing contained in this Section 10.2 shall
relieve any party from its obligations under the Confidentiality Agreement
between The Ohio Casualty Insurance Company and American Financial Group, Inc.
dated June 11, 1998 or from any liability resulting from any willful and
material breach of its representations, warranties, covenants or agreements
set forth in this Agreement.

ARTICLE 11

GENERAL PROVISIONS
------------------

Section 11.1. Publicity. Except as may otherwise be required by
----------
law or the rules of applicable stock exchanges, no press release or public
announcement concerning this Agreement

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<PAGE> 45

or the transactions contemplated hereby shall be made by either the Purchaser
or any Seller without advance approval thereof by the other party, which shall
not be unreasonably withheld. The parties hereto shall cooperate with each
other in making any press release or public announcement.

Section 11.2. Dollar References. All dollar references in this
------------------
Agreement are to the currency of the United States.

Section 11.3. Notices. Any notice or other communication required
--------
or permitted hereunder shall be in writing and shall be deemed given if
delivered personally, by fax (upon confirmation of receipt by sender's machine)
or sent by overnight courier (providing proof of delivery), to the parties at
the following address:

(1) If to the Purchaser:
The Ohio Casualty Insurance Company
136 North Third Street
Hamilton, Ohio 45025
Attention: Chief Executive Officer

With a concurrent copy to:

Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
P. O. Box 1008
Columbus, Ohio 43216-1008
Attention: James A. Yano, Esq.

(2) If to the Sellers:

Great American Insurance Company
580 Walnut Street
Cincinnati, Ohio 45202
Attention: President

With a concurrent copy to:

Keating, Muething & Klekamp, P.L.L.
One East Fourth Street
Cincinnati, Ohio 45202
Attention: Edward E. Steiner, Esq.

Any party may, by notice given in accordance with this Section 11.3 to
the other parties, designate another address or person for receipt of notices
hereunder provided that notice of such a change shall be effective upon
receipt.

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<PAGE> 46

Section 11.4. Entire Agreement. This Agreement (including the
-----------------
Ancillary Agreements, the other agreements contemplated hereby and thereby and
the Exhibits and Schedules hereto) contains the entire agreement among the
parties with respect to the subject matter hereof, superseding all prior or
contemporaneous agreements, understandings or arrangements, written or oral,
with respect thereto. Neither Sellers nor American Financial Group, Inc. have
made or shall be deemed to have made to Purchaser or any Affiliate of Purchaser
any representations or warranty with respect to the Business, the Transferred
Assets, the Insurance Liabilities, the Other Assumed Liabilities or any other
matter, event or condition except as expressly set forth in Article 3 of this
Agreement. Without limiting the generality of the foregoing, and except as
otherwise expressly represented or warranted by Seller in Article 3 of this
Agreement, neither Sellers nor American Financial Group, Inc. have made or
shall be deemed to have made any representations or warranty with respect to
any projections, estimates or budgets of future revenues, expenses or
expenditures or any future results of operations to which Purchaser or any
Affiliate of Purchaser may have had or been provided access or that Purchaser
or any Affiliate of Purchaser may have reviewed during the due diligence
activities.

Section 11.5. Waivers and Amendments. This Agreement may be amended,
-----------------------
superseded, canceled, renewed or extended, and the terms hereof may be waived,
only by a written instrument signed by each of the parties or, in the case of
a waiver, by the party waiving compliance. No delay on the part of any party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any right, power or
privilege, nor any single or partial exercise of any such right, power or priv-
ilege, preclude any further exercise thereof or the exercise of any other such
right, power or privilege.

Section 11.6. Governing Law; Choice of Forum. 11.6.1 THIS AGREE-
-------------------------------
MENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF OHIO, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF. 11.6.2 EACH PARTY HERETO CONSENTS TO THE NON-EXCLUSIVE JURISDICTION
OF THE COMMON PLEAS COURT OF HAMILTON COUNTY, OHIO (THE "CHOSEN COURT") IN
-------------
RESPECT OF ANY CLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
TRANSACTIONS CONTAINED IN OR CONTEMPLATED BY THIS AGREEMENT AND THE ANCILLARY
AGREEMENTS, WHETHER IN TORT OR CONTRACT OR AT LAW OR IN EQUITY AND SOLELY IN
CONNECTION WITH SUCH CLAIMS, (I) WAIVES ANY OBJECTION TO LAYING VENUE IN ANY
SUCH ACTION OR PROCEEDINGS IN THE CHOSEN COURT, (II) WAIVES ANY OBJECTION THAT
THE CHOSEN COURT IS AN INCONVENIENT FORUM OR DOES NOT HAVE JURISDICTION OVER
ANY PARTY HERETO AND (III) AGREES THAT SERVICE OF PROCESS UPON SUCH PARTY IN
ANY SUCH ACTION OR PROCEEDING SHALL BE EFFECTIVE IF NOTICE IS GIVEN IN
ACCORDANCE WITH SECTION 11.3 OF THIS AGREEMENT.

Section 11.7. Binding Effect, Assignment. This Agreement shall be
---------------------------
binding upon and inure to the benefit of the parties and their respective
successors, permitted assigns and legal representatives. Neither this
Agreement, nor any of the rights, interests or obligations hereunder, may be
assigned, in whole or in part, by operation of law or otherwise by any party
without the prior

-41-
<PAGE> 47

written consent of the other parties hereto and any such assignment that is
not consented to shall be null and void; however, that the Purchaser may
assign any rights, interests or obligations hereunder to any of its Affiliates
without the prior written consent of the Sellers; provided, further, that in
the event of any such assignment that Purchaser shall remain liable with
respect to its obligations hereunder.

Section 11.8. Interpretation.
---------------

11.8.1 Notwithstanding anything in this Agreement to the
contrary, no term or condition of this Agreement shall be construed to
supersede, restrict or otherwise limit any term or condition set forth in the
Reinsurance Agreement.

11.8.2 The parties acknowledge and agree that they may pursue
judicial remedies at law or equity in the event of a dispute with respect to
the interpretation or construction of this Agreement. In the event that any
alternative dispute resolution procedure is provided for in any of the
Ancillary Agreements or any other agreement contemplated hereby or thereby,
and there is a dispute with respect to the construction or interpretation of
such Ancillary Agreement, the dispute resolution procedure provided for in
such Ancillary Agreement shall be the procedure that shall apply with respect
to the resolution of such dispute.

11.8.3 For purposes of this Agreement, the words "hereof",
"herein", "hereby" and other words of similar import refer to this Agreement
as a whole unless otherwise indicated. Whenever the words "include",
"includes", or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation".

Section 11.9. No Third Party Beneficiaries. Nothing in this Agree-
-----------------------------
ment is intended or shall be construed to give any person (including, but not
limited to, the employees of the Sellers), other than the parties hereto, their
successors and permitted assigns, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.

Section 11.10. Counterparts. This Agreement may be executed by the
-------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.

Section 11.11. Exhibits and Schedules. The Exhibits and the
-----------------------
Schedules to this Agreement that are specifically referred to herein are a
part of this Agreement as if fully set forth herein. All references herein to
Articles, Sections, subsections, paragraphs, subparagraphs, clauses, Exhibits
and Schedules shall be deemed references to such parts of this Agreement,
unless the context shall otherwise require. Any fact or item disclosed on
any Schedule to this Agreement shall be deemed disclosed on all other Schedules
to this Agreement to which such fact or item may apply.

Section 11.12. Headings. The headings in this Agreement are for
---------
reference only, and shall not affect the interpretation of this Agreement.

Section 11.13. Compliance with Bulk Sales Laws. Purchaser and Sellers
--------------------------------
hereby waive compliance by Purchaser and Sellers with the bulk sales law and
any other similar laws in any applicable jurisdiction in respect of the
transactions contemplated by this Agreement. Purchaser

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<PAGE> 48

shall indemnify Sellers from, and hold them harmless against, any liabilities,
damages, costs and expenses resulting from or arising out of (i) the parties'
failure to comply with any of such laws in respect of the transactions
contemplated by this Agreement, or (ii) any action brought or levy made as a
result thereof.

-43-
<PAGE> 49

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

THE OHIO CASUALTY INSURANCE COMPANY

By: /s/Lauren N. Patch
--------------------------------
Name: Lauren N. Patch
Title: President and CEO

GREAT AMERICAN INSURANCE COMPANY

By: /s/Karen Holley Horrell
----------------------------------
Karen Holley Horrell
Senior Vice President

AMERICAN NATIONAL FIRE INSURANCE
COMPANY

By: /s/Karen Holley Horrell
----------------------------------
Karen Holley Horrell
Senior Vice President

AGRICULTURAL EXCESS AND SURPLUS
INSURANCE COMPANY

By: /s/Karen Holley Horrell
----------------------------------
Karen Holley Horrell
Senior Vice President

AGRICULTURAL INSURANCE COMPANY

By: /s/Karen Holley Horrell
----------------------------------
Karen Holley Horrell
Senior Vice President

<PAGE> 50

AMERICAN ALLIANCE INSURANCE COMPANY

By: /s/Karen Holley Horrell
----------------------------------
Karen Holley Horrell
Senior Vice President

AMERICAN DYNASTY SURPLUS LINES
INSURANCE COMPANY

By: /s/Karen Holley Horrell
---------------------------------
Karen Holley Horrell
Senior Vice President

AMERICAN SPIRIT INSURANCE COMPANY

By: /s/Karen Holley Horrell
---------------------------------
Karen Holley Horrell
Senior Vice President

CONTEMPORARY AMERICAN INSURANCE
COMPANY

By: /s/Karen Holley Horrell
---------------------------------
Karen Holley Horrell
Senior Vice President

EAGLE AMERICAN INSURANCE COMPANY

By: /s/Karen Holley Morrell
---------------------------------
Karen Holley Morrell
Senior Vice President

<PAGE> 51

EDEN PARK INSURANCE COMPANY

By: /s/Karen Holley Morrell
---------------------------------
Karen Holley Morrell
Senior Vice President

GREAT TEXAS COUNTY MUTUAL INSURANCE
COMPANY

By: /s/Karen Holley Horrell
----------------------------------
Karen Holley Horrell
Senior Vice President

GREAT AMERICAN LLOYD'S INSURANCE
COMPANY,
By: GREAT AMERICAN LLOYD'S, INC.,
its Manager

By: /s/Karen Holley Horrell
----------------------------------
Karen Holley Horrell
Senior Vice President

With respect to Section 5.2 only:
AMERICAN FINANCIAL GROUP, INC.

By: /s/James C. Kennedy
----------------------------------
James C. Kennedy
Vice President and Deputy General
Counsel

<PAGE> 52

SCHEDULE 1.1(d)
---------------

"Business" means (i) except for such products written by Sellers
specialty and/or personal lines divisions, the commercial lines insurance (as
that term in commonly used in the insurance industry) written or assumed by or
attributable to the commercial lines division of each of the Sellers primarily
including the following lines of insurance business as categorized by Sellers:

Workers' Compensation
Commercial Multi-peril
SAFEPAKr and Business Owners
Umbrella and Excess
Commercial Auto
Other Liability
All Other Commercial Lines

and (ii) insurance business written or assumed in profit centers classified by
Sellers as commercial lines division typically by designating business with
certain numerical prefixes, including the designations listed below, whether
or not the policies given such designations are in-force at the Closing Date:

0330 Mid Atlantic 2360 Surplus Share Treaty Adjustment -
Comm'l
0331 Southern Profit Center 2380 Umbrella Claims
0334 Alabama Prior Yr Expenses 2390 South P & C Claims
0335 Tennessee Prior Yr Expenses 2391 South WC Claims
0348 Texas Prior Yr Expenses 2392 Northeast P & C Claims
0349 Southern Mkts Prior Yr Exp 2393 Northeast WC Claims
0388 Alabama Run-Off 2394 Midwest P & C Claims
0389 Texas Run-Off 2395 Midwest WC Claims
1032 Supplemental Expense - 2396 West P & C Claims
Comm'l
1035 Supplemental IBNR - Comm'l 2397 West WC Claims
1232 New England 2931 Alternative Markets
1234 Syracuse 3138 Rocky Mountains
1236 New Jersey 3141 Seattle
1237 Lancaster Prior Yr Expenses 3143 Specialized Mkt Prior Yr Exp
1631 Cincinnati 3144 Willis Corroon of Eugene
1635 Michigan 3188 Rocky Mountains Run-Off
1637 Chicago 5132 Surplus Share Treaty 1/84
1639 Fargo Prior Yr Expenses 5660 Corp. Cat Treaty - Commercial
1640 Mid-American Prior Yr Exp 5735 Commercial Umbrella Buyback
1687 Mass Marketing Run-Off 5740 Commercial Umbrella XDL
1692 Minnesota Workers Comp 5745 Commercial Umbrella Buyback 7/90
2300 Comml Mkt Administration 8741 Basic XDL
2330 Buyer Protection Services 8747 Workers Comp XDL
2331 Commercial LinesAlternative 8751 Catastrophe XDL Buyback
Distribution
2335 Self Insured Services 8758 Casualty XDL Buyback
8765 E&O XDL Buyback

-i-

<PAGE> 53

provided, however, that the term Business shall not include (a) California
risks written by the Sellers' commercial lines divisions; (b) liabilities
related to asbestos and environmental matters arising from policy years 1986
and prior; provided, however that any such asbestos and environmental
liabilities shall be allocated according to years of coverage with years of
coverage after 1986 being included in Business; (c) GoldenCarer Nursing Home
business; (d) Classic Collectors Auto Insurance business; (e) Truck Physical
Damage; (f) policies reinsured under that certain Reinsurance Agreement dated
March 31, 1998 between Gulf Insurance Company and Great American Insurance
Company together with any other business produced by the MLW Agency and (g)
the Specialized Markets unit of the Commercial Lines Division.

-ii-

<PAGE> 54

SCHEDULE 1.1(c)
---------------

OFFICERS OR AGENTS OF SELLERS HAVING KNOWLEDGE
----------------------------------------------

Robert F. Amory
John L. Doellman
Ronald C. Hayes
Thomas A. Hayes
Karen Holley Horrell
Keith A. Jensen
James C. Kennedy
Carl H. Lindner III
John J. McGovern
Lawrence J. Otto
Lisa A. Pennekamp
Eve Cutler Rosen
Jerry S. Runnels
Roger Smith

-iii-

<PAGE> 55

SCHEDULE 1.1(f)
---------------

OFFICERS OR AGENTS OF PURCHASER HAVING KNOWLEDGE
------------------------------------------------

Barbara Aras
John S. Busby
Debra K. Crane
Richard B. Kelly
Edward M. Kuss
Coy Leonard
Lauren N. Patch
Dale A. Thatcher
Fred W. Wendt

-iv-

<PAGE> 56

SCHEDULE 2.2.1.1

TRANSFERRED INVESTMENT SECURITIES PROTOCOL
------------------------------------------

No later than thirty (30) days prior to the Closing Date, Sellers will
select a portfolio of investment securities from the investments owned by
Sellers or their Affiliates or cash to constitute the proposed Transferred
Investment Securities and will provide Purchaser with a written list of such
investment securities and a proposed valuation for each such security (the
"Proposed Investment Securities List"). Purchaser will have the right, for a
period of ten (10) days after receipt thereof, to review the Proposed
Investment Securities List and to object, based on its reasonable judgment, to
the inclusion therein of any security or to the proposed valuation of any such
security.

Any such objection will be given in writing by Purchaser to Sellers and
shall state in reasonable detail the ground(s) for such objection. If no such
written objection is received by Sellers within ten (10) days after
Purchaser's receipt of the Proposed Investment Securities List, subject to
adjustment pursuant to Section 2.2.2 of the Agreement based on the value of
such securities on the Closing Date. If a written objection is received by
Sellers within ten (10) days after Purchaser's receipt of the Proposed
Investment Securities List, the parties will negotiate in good faith with
respect to the composition of the Transferred Investment Securities portfolio
and the valuation of the investment securities included therein for a period
of seven (7) days. If agreement is not reached notwithstanding such good
faith negotiation, the Proposed Investment Securities List shall be comprised
of (i) those investment securities as to which the parties have reached an
agreement as to the identity and valuation, and (ii) cash or United States
Treasury securities, subject to adjustment pursuant to Section 2.2.2 of the
Agreement based on the value of such securities on the Closing Date.

The investment securities, cash and/or United States Treasury
securities, as identified and valued as aforesaid, shall be identified and
included in an addendum to Schedule 2.2.1.1 and shall be incorporated herein
by this reference.

-v-

<PAGE> 57

SCHEDULE 2.2.2

CLOSING STATEMENT OF TRANSFERRED LIABILITIES
AND TRANSFERRED ASSETS
--------------------------------------------

As of June 30, 1998

Transferred Liabilities:
Loss and LAE Reserves $548.6

Unearned Premiums (net) 153.1

Commissions Payable 8.9

Agreed Accrual for Extra Contractual Obligations 1.0

Other Liabilities .1

Employee Liabilities 1.0
-------
712.7

Less:
Other Transferred Assets:
Premiums Receivable (116.3)

Fixed Assets (3.3)

Contractual Amount (300.0)
-------
Transferred Investment Securities $293.1
======

-vi-

<PAGE> 58

SCHEDULE 2.2.1.2

CALCULATION OF FINAL INSTALLMENT
--------------------------------

The Purchase Price may be increased up to $40 million, subject to the
terms and conditions of this Schedule 2.2.1.2.

As soon as practicable after the Closing Date, Seller shall prepare a
report ( the "Base Report") of the gross written premiums for the Business for
the twelve (12) calendar months immediately preceding the Closing Date, the
amount of said premiums being hereinafter referred to as the "Base Premiums."

As soon as practicable after eighteen (18) months after the Closing
Date, Purchaser shall prepare a report (the "18-Month Report") of the gross
written premiums written with respect to the following lines of insurance for
the eighteen (18) month period immediately following the final month covered
by the Base Report, (A) all renewals of the Business in force as of the
Closing Date, plus (B) all new policies of insurance written by those
----
insurance agents and brokers who are listed on Schedule 3.18 of the Agreement
who as of the Closing Date do not have agency appointments with the Purchaser
---
or any of its Affiliates (the "Agents"), plus (C) all new policies of personal
----
lines insurance written by the Agents on policies issued by Purchaser or any
of its Affiliates. The amount of such premiums shall be multiplied by 0.67
and shall be referred to as the "Incentive Premiums."

The 18-Month Report shall calculate a percentage, with the Incentive
Premiums constituting the numerator and the Base Premiums constituting the
denominator. In the event the percentage exceeds 71%, the Purchaser shall pay
to Sellers' Representative an amount equal to the amount derived by
multiplying the difference between the percentage calculated above and 71% and
then multiplied by One Million Three Hundred Seventy-Nine Thousand One Hundred
Three Dollars ($1,379,103), such payment not to exceed Forty Million Dollars
($40,000,000), provided, however, that in the cases of clauses (A), (B) or (C)
-------- -------
in the preceding paragraph neither Purchaser nor any Affiliate shall have
engaged in an effort to eliminate such renewals or such new policies and
provided further that in the cases of clauses (A), (B) or (C) in the preceding
- -------- -------
paragraph Purchaser and its Affiliates shall have utilized their best efforts
at cross-selling such products.

Sellers' Representative shall have 30 days to review the Base Report
and 18-month Report and all supporting papers and documentation and to suggest
changes, if any, therein. If at the end of such 30 day period, the Sellers'
Representative and the Purchaser are able to agree in writing on the amount of
the final payment, then Purchaser shall make the final payment within five
Business Days in the manner set forth in Section 2.2.3. If at the end of such
30 day period, the Sellers' Representative and the Purchaser are unable to
agree on the amount of the final payment, all items in dispute shall be
submitted to the Neutral Auditors. The Neutral Auditors

-i-
<PAGE> 59

shall, acting as an arbitrator, determine only those items in dispute which
result in the inability of the Purchaser and the Sellers' Representative to
reach agreement on the amount of the final payment. Purchaser and Sellers'
Representative shall use their best efforts to cause the Neutral Auditors to
reach their determinations as soon as practicable, and each will cooperate
with such firm and provide such firm with reasonable access to its books and
records and such other information as such firm may require in order to render
its determinations. All such determinations shall be made by the Neutral
Auditors within 30 days of their selection, shall be set forth in a written
statement delivered to Purchaser and Sellers' Representative, and shall be
final, binding and conclusive. As promptly as practicable after the amount of
the Final Payment has been determined, and in no event after five Business Days
after such determination, Purchaser shall make any payment due as set forth in
Section 2.2.3.

Each party agrees to execute, if requested by the Neutral Auditors, a
reasonable engagement letter. All fees and expenses relating to the work, if
any, to be performed by the Neutral Auditors shall be borne equally by the
Purchaser and the Sellers.

-ii-

<PAGE> 60
EXHIBIT A
---------
==============================================================================

REINSURANCE AGREEMENT

EFFECTIVE , 1998
---------------

BETWEEN

GREAT AMERICAN INSURANCE COMPANY
AMERICAN NATIONAL FIRE INSURANCE COMPANY
AGRICULTURAL EXCESS AND SURPLUS INSURANCE COMPANY
AGRICULTURAL INSURANCE COMPANY
AMERICAN ALLIANCE INSURANCE COMPANY
AMERICAN DYNASTY SURPLUS LINES INSURANCE COMPANY
AMERICAN SPIRIT INSURANCE COMPANY
CONTEMPORARY AMERICAN INSURANCE COMPANY
EAGLE AMERICAN INSURANCE COMPANY
EDEN PARK INSURANCE COMPANY
GREAT AMERICAN LLOYD'S INSURANCE COMPANY
GREAT TEXAS COUNTY MUTUAL INSURANCE COMPANY
SEVEN HILLS INSURANCE COMPANY
("COMPANY" or "COMPANIES")

AND

THE OHIO CASUALTY INSURANCE COMPANY
("REINSURER")

=============================================================================

<PAGE> 61

TABLE OF CONTENTS

Page
----

ARTICLE 1 DEFINITIONS...................................................1

ARTICLE 2 BUSINESS REINSURED............................................2

ARTICLE 3 OBLIGATORY AGREEMENT..........................................2

ARTICLE 4 NET RETAINED LINES............................................2

ARTICLE 5 EXTRA CONTRACTUAL LIMITATIONS.................................3

ARTICLE 6 REINSURER'S RIGHTS AND OBLIGATIONS............................4

ARTICLE 7 RENEWALS AND NEW BUSINESS.....................................4

ARTICLE 8 REPORTING.....................................................5

ARTICLE 9 INDEMNIFICATION...............................................6

ARTICLE 10 NOTICES.......................................................6

ARTICLE 11 NON-ASSIGNABILITY.............................................6

ARTICLE 12 INSOLVENCY....................................................7

ARTICLE 13 APPLICABLE LAW................................................7

<PAGE> 62

REINSURANCE AGREEMENT
---------------------

THIS AGREEMENT is made and entered into as of , 1998 by Great
----------
American Insurance Company, American National Fire Insurance Company,
Agricultural Excess and Surplus Insurance Company, Agricultural Insurance
Company, American Alliance Insurance Company, American Dynasty Surplus Lines
Insurance Company, American Spirit Insurance Company, Contemporary American
Insurance Company, Eagle American Insurance Company, Eden Park Insurance
Company, Great American Lloyd's Insurance Company, Great Texas County Mutual
Insurance Company and Seven Hills Insurance Company (hereinafter called the
"COMPANY" or the "COMPANIES") and The Ohio Casualty Insurance Company
(hereinafter called the "REINSURER").

WHEREAS, COMPANIES and REINSURER are entering into this Agreement pursuant to
the Purchase Agreement (as defined below); and

WHEREAS, COMPANIES have agreed to cede to REINSURER and REINSURER has agreed
to assume certain liabilities and obligations of COMPANIES under the Insurance
Contracts (as defined in the Purchase Agreement).

NOW, THEREFORE, in consideration of the mutual covenants and promises and upon
the terms and conditions set forth herein, the parties hereto agree as
follows:

ARTICLE 1

DEFINITIONS
-----------

Capitalized terms used herein and not otherwise defined in this Agreement
shall have the meaning given to them in the Purchase Agreement. The following
terms shall have the following meanings:

"Effective Date" means the date specified in the first paragraph hereof.

"Purchase Agreement" means the Asset Purchase Agreement dated as of September
14, 1998 among the COMPANIES and the REINSURER.

"Ultimate Net Aggregate Losses" shall mean the sum of:

1) Actual loss payments paid in settlement of claims or suits
or in satisfaction of judgments on business covered by this
Agreement; plus

2) Loss Expense paid in connection with the business covered by
this Agreement; plus

3) Extra Contractual Obligations arising from conduct of the
COMPANIES paid in connection with the handling or resolution
of any losses reinsured hereunder; less

<PAGE> 63

4) Sums recovered by way of salvage and subrogation, less the cost
of such recovery, in connection with the business covered under
this Agreement.

"Loss Expense" shall mean all expenses incurred in the investigation,
adjustment and defense of all claims under the Insurance Contracts, including
without limitation, loss expenses, court costs and pre-judgment and post-
judgment interest and declaratory judgment action expense; provided that Loss
Expense shall not include any expenses incurred by, nor shall Loss Expense
duplicate expenses incurred by, the REINSURER in performing its duties under
Article 6 herein.

ARTICLE 2

BUSINESS REINSURED
------------------

Each Insurance Contract shall be reinsured on a 100% quota share indemnity
reinsurance basis, and the COMPANIES shall cede, and the REINSURER shall
accept and assume and indemnify the COMPANIES for, 100% of the Insurance
Liabilities under such Insurance Contracts.

ARTICLE 3

OBLIGATORY AGREEMENT
--------------------

The liability of the REINSURER with respect to all business reinsured under
this Agreement is obligatory and the liability shall begin and end
simultaneously with that of the COMPANIES. Subject to the provisions of
Article 6 herein, the REINSURER shall be bound by all alterations, waivers,
cancellations, rates, terms, conditions, interpretations, amendments and
extensions agreed to by the COMPANIES in connection with all Insurance
Contracts.

ARTICLE 4

NET RETAINED LINES
------------------

This Agreement applies only to that portion of the business covered under
Article 2 which the COMPANIES retains net for its own account. In calculating
the amount of any loss payable under this Agreement, only losses in respect of
that portion of the business which the COMPANIES retains net for its own
account shall be included. The REINSURER shall be liable to pay the Ultimate
Net Aggregate Losses on that portion of the business retained by the
COMPANIES.

The COMPANIES shall not amend, modify or terminate any of the reinsurance
treaties identified on Schedule 3.11 of the Purchase Agreement, or enter into
any new reinsurance treaties (whether ceded or assumed) related to the
Insurance Contracts, to the extent that any such action affects liability
under any such reinsurance treaties for periods on or prior to the Effective
Date, without the prior written consent of the REINSURER. As relating to the
business reinsured hereunder, all run-off protection shall either (i) be
maintained by the COMPANIES or (ii) be deemed to be maintained by the
COMPANIES. The COMPANIES also shall maintain (at its sole cost and expense)
and
-2-
<PAGE> 64

reinstate, if necessary, all such reinsurance treaties until their natural
expiration; provided, that the COMPANIES and the REINSURER shall allocate all
reinstatement premiums, costs and expenses between them in the same manner in
which the COMPANIES and its Affiliates historically have made such allocation
in the ordinary course of their business.

The COMPANIES shall indemnify, defend and hold REINSURER harmless from and
against all loss, liability and expense arising out of any breach of or
default under, including those arising out of the insolvency of any reinsurer
under, any of the reinsurance treaties identified on Schedule 3.11 of the
Purchase Agreement, which losses, liabilities or expenses relate to any
periods prior to the Effective Date.

REINSURER may request that the COMPANIES consent to amend, modify or terminate
any reinsurance treaties identified on Schedule 3.11 of the Purchase
Agreement, which consent shall not be unreasonably withheld. Any such
reinsurance treaty may be so amended, modified or terminated on terms
acceptable to the COMPANIES and the REINSURER.

ARTICLE 5

EXTRA CONTRACTUAL LIMITATIONS
-----------------------------

Notwithstanding anything to the contrary contained herein or in the Purchase
Agreement, REINSURER's obligation for Extra Contractual Obligations shall be
limited on any individual loss, or any series of losses attributable to the
same or related cause, to Ten Million and 00/100 Dollars ($10,000,000). In
the case of any Extra Contractual Obligation claim asserted by a third party
in excess of One Million and 00/100 Dollars ($1,000,000), REINSURER shall
immediately notify COMPANIES of such claim and shall permit the COMPANIES to
participate in any settlement negotiations regarding such claim. REINSURER
shall not consent to any settlement of such claim without the prior written
consent of COMPANIES, which consent shall not be unreasonably withheld. If
the COMPANIES, against the written objection of the REINSURER, reject any such
settlement and if either (i) a settlement of such claim is thereafter reached,
the amount of which exceeds the rejected settlement, or (ii) a court of
competent jurisdiction enters a judgment adverse to any of the COMPANIES or
the REINSURER regarding such claim, the amount of which judgment exceeds the
rejected settlement, then the COMPANIES shall be liable to the REINSURER
(subject to the provisions of the first sentence of this Article 5) for the
difference between the actual settlement referenced in clause (i) or the
judgment entered pursuant to clause (ii), whichever the case may be, minus the
amount of the settlement which the COMPANIES rejected. Notwithstanding
anything to the contrary in this Agreement, REINSURER's liability for Extra
Contractual Obligations shall be for the first Ten Million and 00/100 Dollars
($10,000,000) payable without regard to any other reinsurance of COMPANIES.

-3-
<PAGE> 65

ARTICLE 6

REINSURER'S RIGHTS AND OBLIGATIONS
----------------------------------

On and after the Effective Date the parties agree that REINSURER shall have
the right and obligation, at its own expense, to exercise and perform all of
the COMPANIES' rights and obligations under and in connection with the
Insurance Contracts and COMPANIES hereby assign, transfer and grant to
REINSURER all of the rights, powers and privileges of COMPANIES to exercise
and perform the same. On and after the Effective Date, the COMPANIES shall
not take any action, nor shall it fail to take any action, which adversely
affects the ability of REINSURER to fully administer the Insurance Contracts
and the liabilities related thereto. Without limiting the generality of the
foregoing, it is agreed that REINSURER shall have the right and/or obligation
(a) to give, receive, execute, issue and deliver all notices, endorsements,
waivers, demands, proofs and agreements of every kind and nature which may be
necessary or desirable in connection with the Insurance Contracts, (b) to ask,
demand, attach, sue for, recover, receive and receipt for all premiums, debts
and sums of money due or becoming due under or in connection with the
Insurance Contracts, (c) to adjust, settle, pay, defend, arbitrate and/or
compromise any and all claims under or in connection with the Insurance
Contracts, and (d) to prosecute or defend any action which REINSURER deems
necessary or desirable in order to exercise the rights, powers and privileges
granted to REINSURER hereunder. COMPANIES hereby reserve all rights with
respect to other ceded reinsurance applicable to the Insurance Contracts and
REINSURER shall have no right with respect to such ceded reinsurance.

ARTICLE 7

RENEWALS AND NEW BUSINESS
-------------------------

A. Except only as provided in Article 7C below, from and after the
Effective Date, the COMPANIES shall cease renewing any and all
Insurance Contracts, and the REINSURER shall possess the sole and
exclusive right to renew any and all Insurance Contracts. The
COMPANIES shall send to each policyholder and contractholder of the
Insurance Contracts written notice substantially in the form of
Schedule 1 hereto, informing the policyholder or contractholder of
this Agreement and encouraging him, her or it to renew the Insurance
Contracts with the REINSURER.

B. The REINSURER intends to appoint all of the agents of the COMPANIES
who produced the Insurance Contracts to offer the REINSURER's own
policies and contracts of the insurance to renew and replace the
Insurance Contracts. The COMPANIES authorize the REINSURER to make
such appointments, and the COMPANIES shall send to each such agent
written notice substantially in the form of Schedule 2 hereto,
informing the agents of the Agreement and encouraging him, her or it
to accept the appointment of the REINSURER.

-4-
<PAGE> 66

C. If, from the Effective Date and continuing for a period of 24 months
thereafter, the REINSURER is unable to renew for any reason whatsoever,
the Insurance Contracts on its own policies and contracts of insurance,
then, upon the REINSURER's written request, the COMPANIES shall offer
to renew such of the Insurance Contracts which the REINSURER cannot
renew on its own policies. If, during this same period, the REINSURER
is unable to issue for any reason whatsoever a policy or contract of
insurance representing new business, which policy or contract would
have been an Insurance Contract had the policy been in force on the
Effective Date, then, upon the REINSURER's written request, the
COMPANIES shall offer to issue policies or contracts of insurance for
such new business. All policies and contracts of insurance issued by
the COMPANIES under this Article 7C shall be deemed to be Insurance
Contracts reinsured hereunder for all purposes of this Agreement.
Likewise, if REINSURER does not for any reason renew any of the
Insurance Contracts and the COMPANIES are required to renew them, such
renewal policies shall be deemed to be Insurance Contracts reinsured
hereunder. All policies and contracts of insurance issued by the
COMPANIES under this Article 7C shall be reinsured one hundred percent
(100%) by REINSURER with no portion of the liabilities thereunder ceded
by the COMPANIES to other reinsurers.

D. The REINSURER will comply with all applicable renewal and/or nonrenewal
laws and regulations. The COMPANIES will be responsible for compliance
with all laws and regulations applicable to issuance of policies and
contracts under Article 7C above.

E. The REINSURER agrees (i) to reimburse the COMPANIES for commissions and
premium taxes incurred in issuing policies and contracts under Article
7C above and (ii) to pay to the COMPANIES a ceding commission equal to
two and one half percent (2.5%) of the net premiums received on such
policies and contracts. "Net premiums" shall mean gross the group of
premiums received on such policies less return premiums paid for
reinsurance ceded to third parties.

ARTICLE 8

REPORTING
---------

Within fifteen (15) days after the end of each calendar month hereunder, the
REINSURER shall provide to the Sellers' Representative a written report
summarizing all reinsurance hereunder, in such form and addressing such items
as the parties shall mutually agree. If the Seller's Representative does not
object to any such report within ten (10) days of its receipt thereof, then
the report shall be deemed to be final and conclusive as to all parties and
all matters addressed in the report, and all payments required to be made
under the report shall be made by the responsible party by wire transfer of
immediately available funds within five (5) business days after the expiration
of the aforesaid ten (10) day review period.

-5-
<PAGE> 67

ARTICLE 9

INDEMNIFICATION
---------------

REINSURER shall indemnify, defend and hold COMPANIES harmless from and against
all loss, liability and expense arising out of any failure of REINSURER to
properly perform its obligations under this Agreement.

The COMPANIES, jointly and severally, shall indemnify, defend and hold
REINSURER harmless from and against all loss, liability and expense arising
out of any failure of any of the COMPANIES to properly perform its or their
obligations under the Agreement.

ARTICLE 10

NOTICES
-------

All notices, requests, demands and other communications hereunder must be in
writing and shall be deemed to have been delivered (a) upon receipt if
delivered by hand, and (b) three days after mailing if mailed by first class,
registered or certified mail, return receipt requested, postage and registry
fees prepaid and addressed as follows:

If to COMPANIES:

Great American Insurance Company
580 Walnut Street
Cincinnati, Ohio 45202
Attention: President

If to REINSURER

The Ohio Casualty Insurance Company
136 North Third Street
Hamilton, Ohio 45025
Attention: Chief Executive Officer

Addresses may be changed by written notice signed by the addressee.

ARTICLE 11

NON-ASSIGNABILITY
-----------------

Neither COMPANIES nor REINSURER may assign any of its rights or obligations
under this Agreement without the express written consent of the other;
provided, that the REINSURER may

-6-
<PAGE> 68

assign any rights, interests or obligations hereunder to any of its
Affiliates without the prior written consent of the COMPANIES; provided
further, that in the event of any such assignment the REINSURER shall
remain liable with respect to its obligations hereunder.

ARTICLE 12

INSOLVENCY
----------

In the event of a COMPANY's insolvency (an "Insolvent Company"), the
reinsurance afforded by this Agreement will be payable by the REINSURER on the
basis of the Insolvent Company's liability under the Insurance Contracts
without diminution because of the Insolvent Company's insolvency or because
its liquidator, receiver, conservator, or statutory successor has failed to
pay all or a portion of any claims, subject however, to the right of the
REINSURER to offset against such funds due hereunder, any sums that may be
payable to it by the Insolvent Company in accordance with this Agreement. The
reinsurance will be payable by the REINSURER directly to the Insolvent
Company, its liquidator, receiver, conservator, or statutory successor except
(a) where this Agreement specifically provides another payee of such
reinsurance in the event of the Insolvent Company's insolvency, or (b) where
the REINSURER, with the consent of the direct insured or insureds, has assumed
such policy obligations of the Insolvent Company as direct obligations of
itself to the payees under such policies in substitution for the Insolvent
Company's obligation to such payees. The Insolvent Company's liquidator,
receiver, conservator, or statutory successor will give written notice of
pendency of a claim against the Insolvent Company under the policies reinsured
within a reasonable time after such claim is filed in the insolvency
proceeding. During the pendency of such claim, the REINSURER may investigate
said claim and interpose in the proceeding where the claim is to be
adjudicated, at its own expense, any defense that it may deem available to the
Insolvent Company, its liquidator, receiver, conservator, or statutory
successor. The expense thus incurred by the REINSURER will be chargeable
against the Insolvent Company, subject to court approval, as part of the
expense of conservation or liquidation to the extent that such proportionate
share of the benefit will accrue to the Insolvent Company solely as a result
of the defense undertaken by the REINSURER. Where two or more reinsurers are
involved in the same claim, and a majority in interest elect to interpose
defense to such claim, the expense will be apportioned in accordance with the
terms of this Agreement as though such expense had been incurred by the
Insolvent Company.

ARTICLE 13

APPLICABLE LAW
--------------

This Agreement shall be construed in accordance with the laws of the State of
Ohio.
-7-

<PAGE> 69

IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate
effective the date first above written.

GREAT AMERICAN INSURANCE COMPANY