<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1997
-----------------
[ ] 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value as of March 1, 1998 of the voting stock held by
non-affiliates of the registrant was $1,416,224,864.
On March 1, 1998 there were 33,629,908 shares outstanding.
Page 1 of 102
INDEX TO EXHIBITS ON PAGES 31-32
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DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the registrant's fiscal year ended December
31, 1997 is incorporated herein by reference for the following items:
PART I
Item 1. Business.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 8. Financial Statements and Supplementary Data.
The Proxy Statement of the Board of Directors for the fiscal year ended December
31, 1997 for the Annual Shareholders meeting to be held April 15, 1998 is
incorporated herein by reference for the following items:
PART III
Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.
2
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Ohio Casualty Corporation (the Corporation) was incorporated under the laws of
Ohio in August, 1969. The Corporation operates primarily as a holding company
and is principally engaged, through its direct and indirect subsidiaries, in the
business of property and casualty insurance and insurance premium finance.
The Corporation has two industry segments: property and casualty insurance and
insurance premium finance. The Corporation conducts its property and casualty
insurance business through The Ohio Casualty Insurance Company ("Ohio
Casualty"), an Ohio corporation organized in 1919, the Ohio Casualty's four
operating property and casualty insurance subsidiaries: West American Insurance
Company ("West American"), an Indiana corporation (originally incorporated under
the laws of the State of California) acquired in 1945; Ohio Security Insurance
Company ("Ohio Security"), an Ohio corporation acquired in 1962; American Fire
and Casualty Company ("American Fire"), an Ohio corporation (originally
incorporated under the laws of the State of Florida) acquired in 1969; and
Avomark Insurance Company ("Avomark"), an Indiana corporation created in 1997.
This group of companies presently underwrites most forms of property and
casualty insurance. The Corporation conducts its premium finance business
through Ocasco Budget, Inc. ("Ocasco"), an Ohio corporation (originally
incorporated under the laws of the State of California) organized in 1960.
Ocasco is a direct subsidiary of Ohio Casualty. On May 31, 1995 the states of
domicile of West American and Ocasco changed to Indiana and Ohio, respectively,
in connection with the withdrawal from property and casualty insurance
operations in California as previously announced and as discussed elsewhere
herein.
During 1995, the Corporation's third industry segment, life operations, was
discontinued. We found it increasingly difficult to achieve our targeted 16%
rate of return in this segment of our business. After extensive analysis, it was
determined that a 16% return could not be achieved without substantial capital
contributions and a dramatic overhaul of the life operations. Since this was a
small segment of our overall business, it was decided that this would not be a
prudent use of our capital. Therefore, on October 2, 1995, the Corporation
signed the final documents to reinsure the existing blocks of business and enter
a marketing agreement with Great Southern Life Insurance Company. The existing
blocks of business were reinsured through a 100% coinsurance arrangement with
Employer's Reassurance Corporation. 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 of this assumption, fourth quarter net income was
positively impacted by a partial recognition of unamortized ceding commission.
The after-tax impact was an increase to net income of $5.3 million. There
remains approximately $2.2 million in unamortized ceding commission. This will
continue to be amortized over the remaining life of the underlying policies. Net
income from discontinued operations amounted to $8.7 million or $.25 per share
in 1997 compared with $5.3 million or $.15 per share in 1996 and $4.4 million or
$.12 per share in 1995.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The revenues, operating profit and identifiable assets of each industry segment
for the three years ended December 31, 1997 are set forth in Note 12, Industry
Segment Information, in the Notes to the Consolidated Financial Statements on
page 29 of the Annual Report to Shareholders for the fiscal year ended December
31, 1997.
3
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ITEM 1. CONTINUED
PREMIUMS
The following table shows the total net premiums written (gross premiums less
premiums ceded pursuant to reinsurance treaties) by line of business by Ohio
Casualty, West American, American Fire, Avomark, Ohio Security and Ohio Life as
a group (collectively, the "Ohio Casualty Group") for the periods indicated.
Ohio Casualty Group
Net Premiums Written
By Line of Business
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Auto liability $ 384,358 $ 386,121 $ 403,781 $ 420,031 $ 430,852
Auto physical damage 219,870 208,541 207,534 212,005 210,987
Homeowners
multiple peril 168,168 166,457 160,444 160,089 156,797
Workers' compensation 97,176 115,398 140,558 145,641 165,577
Commercial
multiple peril 141,931 132,808 131,553 135,595 136,559
Other liability 96,610 101,688 108,483 112,906 107,983
All other lines 98,708 97,059 96,842 98,714 95,562
----------- ----------- ----------- ----------- -----------
Property and casualty
premiums $ 1,206,821 $ 1,208,072 $ 1,249,195 $ 1,284,981 $ 1,304,317
=========== =========== =========== =========== ===========
Premium finance
revenues $ 1,511 $ 1,981 $ 2,314 $ 2,528 $ 2,887
=========== =========== =========== =========== ===========
Discontinued operations-
Statutory premiums:
Individual life $ 0 $ 0 $ (126,979) $ 22,238 $ 38,409
Annuity 0 0 (195,870) 18,104 19,530
Other 6 215 (22,012) 8,606 6,716
----------- ----------- ----------- ----------- -----------
Total 6 215 (344,861) 48,948 64,655
FAS 97 adjustments 0 0 (1,533) (26,173) (44,748)
----------- ----------- ----------- ----------- -----------
Discontinued operations
revenues $ 6 $ 215 $ (346,394) $ 22,775 $ 19,907
=========== =========== =========== =========== ===========
</TABLE>
Property and casualty net premiums written decreased 0.1% in 1997. New Jersey
net premiums written decreased 2.3%, primarily due to a decline in the workers'
compensation, general liability and auto lines of business. Premiums written in
Pennsylvania declined 12.0% during 1997. This decline has primarily been driven
by competitive pricing conditions in commercial lines during 1997. The
Corporation is currently developing strategies to help counteract this decline.
Net premiums written increased in both Ohio and Kentucky during 1997. In Ohio,
premiums grew 4.8% in 1997. The growth has occurred in the auto and CMP lines of
business. In Kentucky, premiums grew 14.6% in 1997. This growth is seen in our
auto, homeowners and CMP lines of business.
4
<PAGE> 5
ITEM 1. CONTINUED
(c) NARRATIVE DESCRIPTION OF BUSINESS
The Ohio Casualty Group is represented on a commission basis by approximately
4,442 independent insurance agents. In most cases, these agents also represent
other unaffiliated companies which may compete with the Ohio Casualty Group. The
34 claim and 13 underwriting and service offices operated by the Ohio Casualty
Group assist these independent agents in producing and servicing the Group's
business.
The following table shows consolidated direct premiums written for the Ohio
Casualty Group's ten largest states:
Ohio Casualty Group
Ten Largest States
Direct Premiums Written
From Continuing Operations
(in thousands)
<TABLE>
<CAPTION>
Percent Percent Percent
1997 of Total 1996 of Total 1995 of Total
---- -------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New Jersey $220,588 18.0 New Jersey $218,553 18.0 New Jersey $220,373 17.6
Ohio 132,325 10.8 Ohio 125,675 10.3 Pennsylvania 128,603 10.3
Kentucky 101,341 8.3 Pennsylvania 114,998 9.5 Ohio 126,622 10.1
Pennsylvania 101,074 8.2 Kentucky 87,002 7.2 Kentucky 80,498 6.4
Illinois 63,347 5.2 Illinois 60,311 5.0 Illinois 64,352 5.1
Indiana 54,415 4.4 Maryland 52,204 4.3 Maryland 56,741 4.5
Maryland 46,660 3.8 Indiana 50,560 4.2 Indiana 49,353 3.9
Texas 42,005 3.4 Texas 37,678 3.1 Texas 43,036 3.4
North Carolina 37,383 3.0 Florida 36,995 3.0 Florida 42,061 3.4
Florida 34,570 2.8 North Carolina 34,108 2.8 North Carolina 33,955 2.7
--------- ----- --------- ------ --------- ------
$833,708 67.9 $818,084 67.4 $845,594 67.4
======== ==== ======== ==== ======== ====
</TABLE>
INVESTMENT OPERATIONS
Each of the companies in the Ohio Casualty Group must comply with the insurance
laws of its domiciliary state and of the other states in which it is licensed
for business. Among other things, these laws prescribe the kind, quality and
concentration of investments which may be made by insurance companies. In
general, these laws permit investments, within specified limits and subject to
certain qualifications, in federal, state and municipal obligations, corporate
bonds, preferred and common stocks, real estate mortgages and real estate.
The distribution of invested assets of the Ohio Casualty Group is determined by
a number of factors, including insurance law requirements, the Corporation's
liquidity needs, tax position, and general market conditions. In addition, our
business mix and liability payout patterns are considered. Adjustments are made
to the asset allocation from time to time. The Corporation has no real estate
investments. Assets relating to property and casualty operations are invested to
maximize after-tax returns with appropriate diversification of risk.
5
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ITEM 1. CONTINUED
The following table sets forth the carrying values and other data of the
consolidated invested assets of the Ohio Casualty Group as of the end of the
years indicated:
Ohio Casualty Group
Distribution of Invested Assets
(in millions)
<TABLE>
<CAPTION>
1997
Average % of % of % of
Rating 1997 Total 1996 Total 1995 Total
------- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. government AAA $ 69.8 2.2 $ 82.5 2.7 $ 116.5 3.8
Tax exempt bonds
and notes AA+ 875.7 27.8 794.5 25.8 898.5 29.1
Debt securities
issued by foreign
governments A+ 3.5 0.1 3.3 0.1 3.4 0.1
Corporate securities BBB+ 929.9 29.5 983.7 32.0 986.4 32.0
Mortgage backed
securities
U.S. government AAA 17.6 0.6 176.9 5.8 170.2 5.5
Other AA+ 329.5 10.4 270.0 8.8 232.9 7.6
-------- ----- -------- ----- -------- -----
Total bonds A+ 2,226.0 70.6 2,310.9 75.2 2,407.9 78.1
Common stocks 853.9 27.1 713.4 23.2 627.4 20.3
Preferred stocks 5.6 0.2 7.8 0.2 33.7 1.1
-------- ----- -------- ----- -------- -----
Total stocks 859.5 27.3 721.2 23.4 661.1 21.4
Short-term 65.9 2.1 41.5 1.4 14.4 0.5
-------- ----- -------- ----- -------- -----
Total investments $3,151.4 100.0 $3,073.6 100.0 $3,083.4 100.0
======== ===== ======== ===== ======== =====
Total market value
of investments $3,151.4 $3,073.6 $3,083.4
======== ======== ========
Total amortized cost
of investments $2,453.8 $2,573.9 $2,617.5
======== ======== ========
</TABLE>
The consolidated fixed income portfolio (identified as "Total Bonds" in the
foregoing table) of the Ohio Casualty Group had a weighted average rating of
"A+" and an average stated maturity of twelve years as of December 31, 1997.
Investments in below investment grade securities (Standard and Poor's rating
below BBB-) and unrated securities are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Below investment grade securities:
Carrying value $141.4 $184.6 $203.9
Amortized cost 135.6 180.0 203.7
Unrated securities:
Carrying value $242.8 $315.4 $286.3
Amortized cost 228.6 308.3 271.2
</TABLE>
6
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ITEM 1. CONTINUED
Utilizing ratings provided by other agencies, such as the NAIC, categorizes
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:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Below investment grade securities at
carrying value $141.4 $184.6 $203.9
Other rating agencies categorizing
unrated securities as below
investment grade 8.1 27.3 28.9
--------- -------- --------
Below investment grade securities at
carrying value $149.5 $211.9 $232.8
</TABLE>
All of the Corporation's below investment grade investments (based on carrying
value) are performing in accordance with contractual terms and are making
principal and interest payments as required. The securities in the Corporation's
below investment grade portfolio have been issued by 51 corporate borrowers in
approximately 36 industries. At December 31, 1997, the market value of the
Corporation's five largest investments in below investment grade securities
totaled $44.4 million, and had an approximate amortized cost of $41.2 million.
None of these holdings individually exceeded $15.9 million.
At December 31, 1997, the fixed income portfolio relating to property and
casualty operations totaled $2.2 billion which consisted of 89.1% investment
grade securities and 10.9% below investment grade and/or unrated securities. At
December 31, 1997, the fixed income portfolio relating to discontinued
operations totaled $18.2 million, all of which are classified as investment
grade securities.
Investments in below investment grade securities have greater risks than
investments in investment grade securities. The risk of default by borrowers
which issue securities rated below investment grade is significantly greater
because these securities are generally unsecured and often subordinated to other
debt and these borrowers are often highly leveraged and are more sensitive to
adverse economic conditions such as a recession or a sharp increase in interest
rates. Investment grade securities are also subject to significant adverse risks
including the risks of re-leveraging and changes in control of the issuer. In
most instances, investors are unprotected with respect to such risks, the
effects of which can be substantial.
Yield (based on cost of investments) for the taxable fixed income portfolio was
8.6% and 8.4% at December 31, 1997 and 1996, respectively. Below investment
grade securities were yielding 9.3% and 9.2% at December 31, 1997 and 1996,
respectively, while investment grade securities were yielding 8.5% in 1997 and
8.2% in 1996. Yield for tax exempt securities was 6.2% at December 31, 1997 and
1996, however, this yield is not directly comparable to taxable yield due to the
complexity of federal taxation of insurance companies.
The Corporation remains committed to a diversified common stock portfolio. As of
December 31, 1997, the portfolio consisted of 74 separate issues, diversified
across 53 different industries; and the largest single position was 10.2% of the
portfolio. The portfolio strategy with respect to common stocks has been to
invest in companies whose stocks have below average valuations, yet above
average growth prospects.
7
<PAGE> 8
ITEM 1. CONTINUED
Investment income is affected by the amount of new investable funds and
investable funds arising from maturities, prepayments, calls and exchanges as
well as the timing of receipt of such funds. In addition, other factors such as
interest rates at time of investment and the maturity, income tax status, credit
status and other risks associated with new investments are reflected in
investment income. Future changes in the distribution of investments and the
factors described above could affect overall investment income in the future;
however, the amount of any increase or decrease cannot be predicted. Further
details regarding investment distribution and investment income are described in
Note 2, Investments, in the Notes to Consolidated Financial Statements on pages
23 and 24 of the 1997 Annual Report to Shareholders.
Purchases of taxable fixed income securities in 1997 were as follows: $90.7
million of investment grade securities, $43.1 million of high yield securities
and $30.0 million of unrated securities. Purchases of tax-exempt and equity
securities in 1997 totaled $187.6 million and $66.4 million, respectively.
Disposals (including maturities, calls, exchanges and scheduled prepayments) of
taxable fixed income securities in 1997 were as follows: $200.9 million of
investment grade securities, $79.5 million of high yield securities and $68.8
million of unrated securities. Dispositions of tax-exempt and equity securities
in 1997 totaled $96.2 million and $154.7 million, respectively.
The Corporation continues to have no exposure to futures, forwards, caps,
floors, or similar derivative instruments as defined by Statement of Financial
Accounting Standards No. 119. However, as noted in footnote number 14 on page 30
of the Annual Report to Shareholders, we have an interest rate swap with Chase
Manhattan Bank covering one-half the outstanding balance of the revolving line
of credit. This swap is not classified as an investment but rather as a hedge
against a portion of the variable rate loan.
Consolidated net realized investment gains (before taxes) in 1997 totaled $50.7
million, $1.48 per share. Included in this amount are approximately $7.0 million
in writedowns of the carrying values of certain securities the Corporation
determined had an other than temporary decline in value.
SHARE REPURCHASES
During 1990 the Board of Directors of Ohio Casualty Corporation authorized the
additional purchase of as many as 3,000,000 (as adjusted for 1994 stock split)
shares of its common stock through open market or privately negotiated
transactions. During 1997, 1,544,688 shares were repurchased for $64.9 million.
This compares with 264,600 shares repurchased in 1996 for $9.2 million and
613,900 shares repurchased in 1995 for $20.9 million. In November 1997, the
Board of Directors authorized an additional 1.5 million shares to be
repurchased. This brings the remaining repurchase authorization to 2,026,812
shares as of December 31, 1997.
LIABILITIES FOR UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
Liabilities for loss and loss adjustment expenses are established for the
estimated ultimate costs of settling claims for insured events, both reported
claims and incurred but not reported claims, based on information known as of
the evaluation date. As more information becomes available and claims are
settled, the estimated liabilities are adjusted upward or downward with the
effect of increasing or decreasing net income at the time of adjustments. Such
estimated liabilities include direct costs of the loss under terms of insurance
policies as well as legal fees and
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<PAGE> 9
ITEM 1. CONTINUED
general expenses of administering the claims adjustment process. The liabilities
for claims incurred in accident years 1996, 1995 and 1994 were reduced in the
subsequent year as shown below:
Accident Year Loss and Loss Adjustment Expense Liabilities
Subsequent Year Adjustment
(in millions)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Property $ 2 $27 $ 11
Auto 12 14 30
Workers' compensation
and other liability 6 37 35
----- ----- -----
Total reduction $20 $78 $76
===== ===== =====
</TABLE>
In the normal course of business, the Ohio Casualty Group is involved in
disputes and litigation regarding terms of insurance contracts and the amount of
liability under such contracts arising from insured events. The liabilities for
loss and loss adjustment expenses include estimates of the amounts for which the
Ohio Casualty Group may be liable upon settlement or other conclusion of such
litigation.
Because of the inherent future uncertainties in estimating ultimate costs of
settling claims, actual loss and loss adjustment expenses may deviate
substantially from the amounts recorded in the Corporation's consolidated
financial statements. Furthermore, the timing, frequency and extent of
adjustments to the estimated liabilities cannot be accurately predicted since
conditions and events which established historical loss and loss adjustment
expense development and which serve as the basis for estimating ultimate claims
cost may not occur in the future in exactly the same manner, if at all.
The anticipated effect of inflation is implicitly considered when estimating the
liability for losses and loss adjustment expenses based on historical loss
development trends adjusted for anticipated changes in underwriting standards,
policy provisions and general economic trends.
The following table presents an analysis of losses and loss adjustment expenses
and related liabilities for the periods indicated. The accounting policies used
to estimate liabilities for losses and loss adjustment expenses are described in
Note 9, Losses and Loss Reserves, in the Notes to Consolidated Financial
Statements on pages 28 and 29 of the 1997 Annual Report to Shareholders.
9
<PAGE> 10
ITEM 1. CONTINUED
Reconciliation of Liabilities for Losses and Loss Adjustment Expense
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net liabilities, beginning of year $1,486,622 $1,557,065 $1,606,487
Provision for current accident year
claims 922,065 1,009,086 1,008,321
Increase (decrease)in provisions for
prior accident year claims (53,615) (76,920) (104,998)
---------- ---------- ----------
868,450 932,166 903,323
Payments for claims occurring during:
Current accident year 484,402 515,025 444,558
Prior accident years 484,866 487,584 508,187
---------- ---------- ----------
933,268 1,002,609 952,745
Net liabilities, end of year 1,421,804 1,486,622 1,557,065
Reinsurance recoverable 62,003 70,048 74,119
---------- ---------- ----------
Gross liabilities, end of year $1,483,807 $1,556,670 $1,631,184
========== ========== ==========
</TABLE>
10
<PAGE> 11
Property and Casualty Insurance Operations
Analysis of Development of Loss and Loss Adjustment Expense Liabilities
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31 1987 1988 1989 1990 1991 1992 1993
- ---------------------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Liability as originally
estimated: $ 1,171,392 $ 1,252,404 $ 1,370,054 $ 1,483,985 $ 1,566,139 $ 1,673,205 $ 1,692,895
Cumulative payments as of:
One year later 438,195 440,173 489,562 506,246 526,973 561,133 533,634
Two years later 667,894 695,364 745,766 783,948 822,634 869,620 833,399
Three years later 828,325 845,472 902,081 955,666 1,007,189 1,060,433 1,017,893
Four years later 922,744 937,034 1,000,299 1,063,507 1,123,591 1,176,831 1,147,266
Five years later 977,575 996,353 1,061,173 1,131,012 1,201,317 1,264,900
Six years later 1,015,889 1,033,508 1,100,683 1,182,110 1,266,605
Seven years later 1,041,563 1,055,972 1,134,145 1,235,315
Eight years later 1,057,509 1,078,561 1,177,259
Nine years later 1,076,321 1,112,120
Ten years later 1,105,530
Liability reestimated as of:
One year later 1,131,539 1,179,052 1,285,233 1,403,172 1,515,129 1,601,406 1,539,178
Two years later 1,139,684 1,175,861 1,299,428 1,407,197 1,500,890 1,555,452 1,510,943
Three years later 1,139,584 1,193,127 1,296,215 1,388,381 1,467,256 1,524,054 1,515,114
Four years later 1,156,930 1,195,712 1,281,246 1,368,530 1,449,789 1,559,492 1,525,493
Five years later 1,160,997 1,186,680 1,268,193 1,366,676 1,498,881 1,561,763
Six years later 1,159,372 1,178,126 1,270,734 1,423,277 1,499,009
Seven years later 1,154,169 1,184,233 1,327,228 1,420,105
Eight years later 1,162,837 1,233,809 1,325,938
Nine years later 1,208,920 1,230,778
Ten years later 1,204,196
Decrease (increase) in
original estimates: $ (32,804) $ 21,626 $ 44,116 $ 63,880 $ 67,130 $ 111,442 $ 167,402
<CAPTION>
Year Ended December 31 1994 1995 1996 1997
- ---------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Liability as originally
estimated: $ 1,605,526 $ 1,553,131 $ 1,482,900 $ 1,421,704
Cumulative payments as of:
One year later 510,219 486,168 483,574
Two years later 803,273 772,670
Three years later 997,027
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
Liability reestimated as of:
One year later 1,500,528 1,474,795 1,427,992
Two years later 1,501,530 1,441,081
Three years later 1,486,455
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
Decrease (increase) in
original estimates: $ 119,071 $ 112,050 $ 54,908
</TABLE>
This table presents the current period effects of changes in estimated loss and
loss adjustment expense liabilities of the most recent and all prior accident
years. Since conditions and trends that have affected loss and loss adjustment
expense development in the past may not occur in the future in exactly the same
manner, if at all, future results may not be reliably predicted by extrapolation
of the data presented.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Gross liability - end of year $ 1,624,197 $ 1,547,595 $ 1,481,657
Reinsurance recoverable 71,066 64,695 59,952
Net liability - end of year 1,553,131 1,482,900 1,421,704
Gross re-estimated liability - latest 1,532,567 1,481,399
Re-estimated recoverable - latest 57,772 53,407
Net re-estimated liability - latest 1,474,795 1,427,992
Gross cumulative deficiency 91,630 66,196
</TABLE>
11
<PAGE> 12
ITEM 1. CONTINUED
COMPETITION
More than 2,400 property and casualty insurance companies compete in the United
States and no one company or company group has a market share greater than
approximately 13%. The Ohio Casualty Group ranked as the forty-fifth largest
property and casualty insurance groups in the United States based on net
insurance premiums written in 1996, the latest year for which statistics are
available. The Ohio Casualty Group competes with other companies on the basis of
service, price and coverage.
STATE INSURANCE REGULATION
GENERAL. The Corporation and the Ohio Casualty Group are subject to regulation
under the insurance statutes, including the holding company statutes, of various
states. Ohio Casualty, American Fire and Ohio Security are all domiciled in
Ohio. West American and Avomark are domiciled in Indiana. Collectively, the Ohio
Casualty Group is authorized to transact the business of insurance in the
District of Columbia and all states except Maine. The Ohio Casualty Group is
subject to examination of their affairs by the insurance departments of the
jurisdictions in which they are licensed.
State laws also require prior notice or regulatory agency approval of changes in
control of an insurer or its holding company and of certain material
intercorporate transfers of assets within the holding company structure. Under
applicable provisions of the Indiana insurance statutes ("Indiana Insurance
Law") and the Ohio insurance statutes (the "Ohio Insurance Law"), a person would
not be permitted to acquire direct or indirect control of the Corporation or any
of the Ohio Casualty Group companies domiciled in such state, unless such person
had obtained prior approval of the Indiana Insurance Commissioner and the Ohio
Superintendent of Insurance, respectively, for such acquisition. For the
purposes of the Indiana Insurance Law and the Ohio Insurance Law, any person
acquiring more than 10% of the voting securities of a company is presumed to
have acquired "control" of such company.
Proposition 103 was passed in the State of California in 1988 in an attempt to
legislate premium rates for that state. Even after considering investment
income, total returns in California have been less than what would be considered
"fair" by any reasonable standard. During the fourth quarter of 1994, the State
of California billed the Corporation $59.9 million for Proposition 103
assessment. In February 1995, California revised this billing to $47.3 million
due to California Senate Bill 905 which permits reduction of the rollback due to
commissions and premium taxes paid. The billing was revised again in August of
1995 to $42.1 million plus interest.
The Corporation is currently involved in hearings with the State of California.
In mid 1997, the Administrative Law Judge presiding over the hearing requested a
submission from the state showing revised rollback calculations. The California
Department of Insurance filed two revised rollback calculations in December
1997. These alternatives, based on concession of certain issues, provide a range
of rollback liabilities between $35.9 million plus interest and $39.9 million
plus interest.
In January 1998, the Judge indicated her intent to rule under the Department's
regulations, without consideration of the Corporation's constitutional challenge
that the Corporation's liability should be below $30.0 million plus interest.
The Commissioner may accept or reject the Judge's ultimate decision in whole or
in part and her determination will be subject to de novo review by the State
Superior Court. After consultation with outside counsel, the Corporation has
determined that $35.9 million plus interest is the more reasonable of the two
Department
12
<PAGE> 13
ITEM 1. CONTINUED
calculations should the Department of Insurance prevail. As a result, the
Corporation's reserve for this alleged liability is $66.9 million. An
administrative hearing process is ongoing concerning the potential rollback
liability. It is uncertain when this matter will ultimately be resolved. The
Corporation will continue to challenge the validity of any rollback and plans to
continue negotiations with Department officials. To date, the Corporation has
paid $4.0 million in legal costs related to the withdrawal, Proposition 103 and
Fair Plan assessments.
The State of New Jersey has historically been a profitable state for the
Corporation. In recent years, however, the legislative environment in that state
has become more difficult. Due to legislative rules and regulations designed to
make insurance less expensive and more easily obtainable for New Jersey
residents, our results have been adversely impacted. In order to meet our state
imposed assessment obligations under the Fair Automobile Insurance Reform Act
and the Unsatisfied Claim and Judgment fund, the Corporation has incurred
expenses of $3.3 million in 1997, $3.6 million in 1996 and $3.7 million in 1995.
These assessments have negatively affected our combined ratios by .3 points in
each of the three years.
NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS. The National Association of
Insurance Commissioners (the "NAIC") annually calculates a number of financial
ratios to assist state insurance regulators in monitoring the financial
condition of insurance companies. A "usual range" of results for each ratio is
used as a benchmark. Departure from the usual range on four or more of the
ratios could lead to inquiries from individual state insurance commissioners as
to certain aspects of a company's business. None of the property and casualty
companies of the Ohio Casualty Group had more than three NAIC financial ratios
that were outside the usual range in the last five calendar years.
Beginning in 1994, the NAIC required inclusion of a risk-based capital
calculation in the Annual Statements. The risk-based capital model is used to
establish standards which relate insurance company statutory surplus to risks of
operations and assist regulators in determining solvency requirements. The model
is based on four risk factors in two categories: asset risk, consisting of
investment risk and credit risk; and underwriting risk, composed of loss
reserves and premiums written risks. Based on current calculations, all of the
Ohio Casualty Group companies have at least twice the necessary capital to
conform with the risk-based capital model.
The States of Ohio and Indiana have adopted the NAIC model law limiting dividend
payments by insurance companies. This law allows dividends to equal the greater
of 10% of policyholders' surplus or net income determined as of the preceding
year end without prior approval of the Insurance Department. For 1997, $170.1
million of policyholders' surplus is not subject to restrictions or prior
dividend approval.
EMPLOYEES
At December 31, 1997, the Ohio Casualty Group had approximately 3,280 employees
of which approximately 1,250 were located in Hamilton, Ohio.
YEAR 2000
The year 2000 is a point of concern within the industry as regards the extent of
liability for coverages under various property, general liability and directors
and officers liability policies. The Corporation believes that no coverage
exists under current liability contracts except as regards certain possible
products exposures. However, this exposure is minimal as our
13
<PAGE> 14
ITEM 1. CONTINUED
commercial lines business has historically excluded any heavy manufacturing
risks which might produce computer or computer dependent products. Furthermore,
in analyzing our property forms, the Corporation has found that there is no
coverage under our current contracts.
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 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 sighting specifically
that there is no coverage under the current property contracts and therefore,
there is no reason to accept a clarifying endorsement. It is our intention to
include the ISO clarification language in all of our applicable general
liability and property policies written in mid-1998 and thereafter.
Directors and officers could be held liable if a company in their control failed
to take necessary actions to fix 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.
For a discussion of the Corporation's preparedness for year 2000 issues, please
see page 18 of the 1997 Annual Report to Shareholders.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 130 "Reporting Comprehensive Income". This
statement requires display of comprehensive income in a set of general-purpose
financial statements. 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 major component for the Corporation will be unrealized
gains and losses from changes in market values for investments. The Corporation
will display comprehensive income in quarterly and annual reports for fiscal
periods beginning after December 15, 1997. If the Corporation reported
comprehensive income for 1997 it would have been $261.2 million.
Also 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 15, 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. 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.
14
<PAGE> 15
ITEM 1. CONTINUED
During 1997, the SEC issued Financial Reporting Release 48 " Disclosures about
Derivatives and Other Financial Instruments" which is effective for periods
ending after June 15, 1997 for registrants with market capitalizations in excess
of $2.5 billion and effective one year later for all other registrants. The
Corporation has a market capitalization of less than $2.5 billion. FRR 48 does
not impact the Corporation's financial statements but does require enhanced
disclosures about market risk inherent in derivatives and other financial
instruments. The additional information will be included in annual filings with
the SEC after June 15, 1998.
ITEM 2. PROPERTIES
The Ohio Casualty Group owns and leases office space in various parts of the
country. The principal office building consists of an owned facility in
Hamilton, Ohio.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Corporation or its
subsidiaries other than litigation arising in connection with settlement of
insurance claims as described on page 9 and Proposition 103 hearings described
on page 12.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
There were no matters submitted during the fourth quarter of the fiscal year
covered by this report to a vote of Shareholders through the solicitation of
proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is related to executive officers who are not
separately reported in the Corporation's Proxy Statement:
<TABLE>
<CAPTION>
Position with Company and/or
Principal Occupation or Employment
Name Age (1) During Last Five Years
---- ------- ----------------------
<S> <C> <C>
Barry S. Porter 61 Chief Financial Officer and Treasurer of The Ohio Casualty
Corporation, The Ohio Casualty Insurance Company, American Fire and
Casualty Company, Ocasco Budget, Inc., The Ohio Life Insurance
Company, The Ohio Security Insurance Company and West American
Insurance Company since August 1993. Treasurer of Avomark since
September 1997.
</TABLE>
15
<PAGE> 16
ITEM 4. CONTINUED
<TABLE>
<CAPTION>
Position with Company and/or
Principal Occupation or Employment
Name Age (1) During Last Five Years
---- ------- ----------------------
<S> <C> <C>
Michael L. Evans 54 Vice President of The Ohio Casualty Corporation and Executive Vice
President of The Ohio Casualty Insurance Company, American Fire and
Casualty Company, Ocasco Budget, Inc., The Ohio Life Insurance
Company, The Ohio Security Insurance Company and West American
Insurance Company since April 1995; prior thereto, Vice President of
The Ohio Casualty Insurance Company, American Fire and Casualty
Company, Ocasco Budget, Inc., The Ohio Life Insurance Company and West
American Insurance Company.
John S. Busby 52 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ohio Security Insurance Company and West
American Insurance Company since May 1991.
Donald J. Dehne 47 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance
Company and West American Insurance Company since May 1996 and Avomark
since September 1997; prior thereto, Assistant Secretary of The Ohio
Casualty Insurance Company, American Fire and Casualty Company, Ocasco
Budget, Inc., Ohio Security Insurance Company and West American
Insurance Company.
Steven J. Adams 43 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance
Company and West American Insurance Company since May 1996; prior
thereto, Assistant Secretary of The Ohio Casualty Insurance Company,
American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security
Insurance Company and West American Insurance Company; prior thereto,
Commercial Lines Customer Strategist; prior thereto, Imaging
Technology Expert.
Thomas P. Prentice 45 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance
Company and West American Insurance Company since May 1996 and Avomark
since September 1997; prior thereto, Assistant Secretary of The Ohio
Casualty Insurance Company, American Fire and Casualty Company, Ocasco
Budget, Inc., Ohio Security Insurance Company and West American
Insurance Company; prior thereto, Personal Lines Customer Specialist;
prior thereto, Claims Manager.
</TABLE>
16
<PAGE> 17
ITEM 4. CONTINUED
<TABLE>
<CAPTION>
Position with Company and/or
Principal Occupation or Employment
Name Age (1) During Last Five Years
---- ------- ----------------------
<S> <C> <C>
Coy Leonard, Jr. 53 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance
Company and West American Insurance Company since May 1996; prior
thereto, Assistant Vice President of The Ohio Casualty Insurance
Company, American Fire and Casualty Company, Ocasco Budget, Inc., Ohio
Security Insurance Company and West American Insurance Company; prior
thereto, Manager of Strategic Planning and Technology.
Frederick W. Wendt 57 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ohio Security Insurance Company and West
American Insurance Company since January 1991.
Elizabeth M. Riczko 31 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance
Company and West American Insurance Company since May 1996; prior
thereto, Assistant Secretary of The Ohio Casualty Insurance Company,
American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security
Insurance Company and West American Insurance Company; prior thereto,
Corporate Actuarial Manager.
William E. Minor 43 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ohio Security Insurance Company and West
American Insurance Company since September 1996; prior thereto,
Account Director for Sire/Young and Rubicam.
Susan D. Dillon 42 Assistant Vice President of The Ohio Casualty Insurance Company,
American Fire and Casualty Company, Ohio Security Insurance Company
and West American Insurance Company since May 1995; prior thereto,
Branch Manager; prior thereto, Field Representative.
</TABLE>
- ---------------------------------------
(1) Ages listed are as of the annual meeting.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
See inside front cover and pages 1 and 12 of the Annual Report to Shareholders
for the fiscal year ended December 31, 1997.
17
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
See pages 10 and 11 of the Annual Report to Shareholders for the fiscal year
ended December 31, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
See pages 12 through 18 of the Annual Report to Shareholders for the fiscal year
ended December 31, 1997.
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS
From time to time, the Company may publish forward looking statements relating
to such matters as anticipated financial performance, business prospects and
plans, regulatory developments and similar matters. The statements contained in
the Management's Discussion and Analysis of Financial Condition and Results of
Operations portion of the 1997 Annual Report, which portion has been
incorporated herein by reference in response to Item 7 hereof, 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. In
order to comply with the terms of the safe harbor, the Company notes that a
variety of factors could cause the Company's actual results and experience to
differ materially from the anticipated results or other expectations expressed
in the Company's forward-looking statements. The risks and uncertainties that
may affect the operations, performance, development and results of the Company's
business 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 and general economic and
market conditions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and Schedules.
(See Index to Financial Statements attached hereto.)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See pages 4 through 6 of the Proxy Statement of the Board of Directors for the
fiscal year ended December 31, 1997 and Executive Officers of the Registrant
separately captioned under Part I of this annual report.
18
<PAGE> 19
ITEM 11. EXECUTIVE COMPENSATION
See pages 7 through 14 of the Proxy Statement of the Board of Directors for the
fiscal year ended December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See pages 1 through 4 of the Proxy Statement of the Board of Directors for the
fiscal year ended December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See page 6 of the Proxy Statement of the Board of Directors for the fiscal year
ended December 31, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial statements and financial statement schedules required to
be filed by Item 8 of this Form and Regulation S-X
(b) Form 8-K announcing completion of initial assumption closing with
Great Southern Life Insurance Company in relation to Ohio Life
filed on November 25, 1997
(c) Exhibits. (See index to exhibits attached hereto.)
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OHIO CASUALTY CORPORATION
(Registrant)
March 27, 1998 By: /s/ Lauren N. Patch
-------------------
Lauren N. Patch, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
March 27, 1998 /s/ Joseph L. Marcum
-------------------------------------------------------
Joseph L. Marcum, Chairman of the Board
March 27, 1998 /s/ William L. Woodall
-------------------------------------------------------
William L. Woodall, Vice Chairman of the Board
March 27, 1998 /s/ Lauren N. Patch
-------------------------------------------------------
Lauren N. Patch, President and Chief Executive Officer
March 27, 1998 /s/ Arthur J. Bennert
-------------------------------------------------------
Arthur J. Bennert, Director
March 27, 1998 /s/ Jack E. Brown
-------------------------------------------------------
Jack E. Brown, Director
March 27, 1998 /s/ Catherine E. Dolan
-------------------------------------------------------
Catherine E. Dolan, Director
March 27, 1998 /s/ Wayne R. Embry
-------------------------------------------------------
Wayne R. Embry, Director
March 27, 1998 /s/ Vaden Fitton
-------------------------------------------------------
Vaden Fitton, Director
March 27, 1998 /s/ Jeffery D. Lowe
-------------------------------------------------------
Jeffery D. Lowe, Director
March 27, 1998 /s/ Stephen S. Marcum
-------------------------------------------------------
Stephen S. Marcum, Director
March 27, 1998 /s/ Stanley N. Pontius
-------------------------------------------------------
Stanley N. Pontius, Director
March 27, 1998 /s/ Howard L. Sloneker III
-------------------------------------------------------
Howard L. Sloneker III, Director
March 27, 1998 /s/ Barry S. Porter
-------------------------------------------------------
Barry S. Porter, Chief Financial Officer and Treasurer
March 27, 1998 /s/ Michael L. Evans
-------------------------------------------------------
Michael L. Evans, Vice President
20
<PAGE> 21
FORM 10-K, ITEM 14
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
OHIO CASUALTY CORPORATION
The following statements are incorporated by reference to the Annual Report to
Shareholders for registrant's fiscal year ended December 31, 1997:
<TABLE>
<CAPTION>
Page Number
in Annual Report
----------------
<S> <C>
Consolidated Balance Sheet at December 31, 1997, 1996, 1995 19
Statement of Consolidated Income for the years ended
December 31, 1997, 1996 and 1995 20
Statement of Consolidated Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995 21
Statement of Consolidated Cash Flow for the years ended
December 31, 1997, 1996 and 1995 22
Notes to Consolidated Financial Statements 23-31
Report of Independent Accountants 32
</TABLE>
<TABLE>
<CAPTION>
Page Number
in this Report
--------------
<S> <C>
The following financial statement schedules are included herein:
Schedule I - Consolidated Summary of Investments Other Than
Investments in Related Parties at December 31, 1997 23
Schedule II - Condensed Financial Information of Registrant for
the years ended December 31, 1997, 1996 and 1995 24
Schedule III - Consolidated Supplementary Insurance Information
for the years ended December 31, 1997, 1996 and 1995 25-27
Schedule IV - Consolidated Reinsurance for the years ended
December 31, 1997, 1996 and 1995 28
Schedule V - Valuation and Qualifying Accounts for the years
ended December 31, 1997, 1996 and 1995 29
Schedule VI - Consolidated Supplemental Information Concerning
Property and Casualty Insurance Operations for the
years ended December 31, 1997, 1996 and 1995 30
</TABLE>
21
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Ohio Casualty Corporation
Our report on the consolidated financial statements of Ohio Casualty Corporation
has been incorporated by reference in this Form 10-K from page 32 of the 1997
Annual Report of Ohio Casualty Corporation. In connection with our audits of
such consolidated financial statements, we have also audited the related
financial statement schedules on pages 23 through 32 of this Form 10-K.
In our opinion, the financial statement schedules referred to above when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
January 30, 1998
22
<PAGE> 23
Schedule I
Ohio Casualty Corporation and Subsidiaries
Consolidated Summary of Investments
Other than Investments in Related Parties
(In thousands)
<TABLE>
<CAPTION>
December 31, 1997
Amount shown
Type of investment Cost Value in balance sheet
- ------------------ ---- ----- ----------------
<S> <C> <C> <C>
Fixed maturities
Bonds:
United States govt. and
govt. agencies with auth $ 66,244 $ 69,844 $ 69,844
States, municipalities and
political subdivisions 835,355 875,741 875,741
Debt securities issued by
foreign governments 3,000 3,458 3,458
Corporate securities 872,904 929,924 929,924
Mortgage-backed securities:
U.S. government guaranteed 16,876 17,553 17,553
Other 317,912 329,510 329,510
---------- ---------- ----------
Total fixed maturities 2,112,291 2,226,030 2,226,030
Equity securities:
Common stocks:
Banks, trust and insurance
companies 56,116 276,626 276,626
Industrial, miscellaneous and
all other 214,777 577,225 577,225
Preferred stocks:
Non-redeemable 244 244 244
Convertible 4,500 5,380 5,380
---------- ---------- ----------
Total equity securities 275,637 859,475 859,475
Short-term investments 65,849 65,849 65,849
---------- ---------- ----------
Total investments $2,453,777 $3,151,354 $3,151,354
========== ========== ==========
</TABLE>
23
<PAGE> 24
Schedule II
Ohio Casualty Corporation
Condensed Financial Information of Registrant
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Condensed Balance Sheet:
Investment in wholly-owned
subsidiaries, at equity $ 1,258,432 $ 1,167,237 $ 1,156,718
Investment in bonds/stocks 85,742 57,233 20,165
Cash and other assets 13,000 5,706 2,468
----------- ----------- -----------
Total assets 1,357,174 1,230,176 1,179,351
Bank note payable 40,000 50,000 60,000
Other liabilities 2,345 5,076 8,337
----------- ----------- -----------
Total liabilities 42,345 55,076 68,337
Shareholders' equity $ 1,314,829 $ 1,175,100 $ 1,111,014
=========== =========== ===========
Condensed Statement of Income:
Dividends from subsidiaries $ 169,988 $ 100,000 $ 80,018
Equity in subsidiaries (30,867) 3,957 21,431
Operating (expenses) (74) (1,500) (1,714)
----------- ----------- -----------
Net income $ 139,047 $ 102,457 $ 99,735
=========== =========== ===========
Condensed Statement of Cash Flows:
Cash flows from operations
Net distributed income $ 169,914 $ 98,500 $ 78,304
Other (805) 4,879 4,358
----------- ----------- -----------
Net cash from operations 169,109 103,379 82,662
Investing
Purchase of bonds/stocks (57,031) (34,458) (4,555)
Sales of bonds/stocks 28,147 7,190 7,723
----------- ----------- -----------
Net cash from investing (28,884) (27,268) 3,168
Financing
Note payable (10,000) (10,000) (10,000)
Exercise of stock options 371 135 578
Purchase of treasury stock (64,858) (9,168) (21,193)
Dividends paid to shareholders (57,456) (56,380) (54,335)
----------- ----------- -----------
Net cash from financing (131,943) (75,413) (84,950)
Net change in cash 8,282 698 880
Cash, beginning of year 3,375 2,677 1,797
----------- ----------- -----------
Cash, end of year $ 11,657 $ 3,375 $ 2,677
=========== =========== ===========
</TABLE>
For complete disclosures see Notes to Consolidated Financial Statements on pages
23-31 of the 1997 Annual Report to Shareholders.
24
<PAGE> 25
Schedule III
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplementary Insurance Information
(In thousands)
December 31, 1997
<TABLE>
<CAPTION>
Deferred Future policy Benefits, Amortization
policy benefits Net losses and of deferred
acquisition losses and Unearned Premium investment loss acquisition
costs loss expenses premiums revenue income expenses costs
----------- ------------- ---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Segment
- -------
Property and
casualty insurance:
Underwriting
Automobile $ 38,082 $ 588,834 $ 186,886 $ 599,112 $ 483,171 $ 121,730
Workers' compensation 5,290 367,802 40,705 103,484 65,762 21,313
Gen. liability, A&H 14,036 254,159 43,030 98,971 55,331 33,731
Homeowners 26,582 64,681 94,752 166,474 125,136 44,666
CMP, fire and allied lines,
inland marine 33,537 193,885 103,751 200,330 131,499 64,520
Fidelity, surety, burglary 10,721 12,296 25,759 35,045 3,743 17,534
Miscellaneous Income 3,925
Investment 172,372
--------- ----------- --------- ----------- --------- --------- ---------
Total property and
casualty insurance 128,248 1,481,657 494,883 1,207,341 172,372 864,642 303,494
Life ins.(discontinued operations) (2,185) 36,298 23,865 3,954 268 15,049
Premium finance 193 1,632 65
Corporation 5,264
--------- ----------- --------- ----------- --------- --------- ---------
Total $ 126,063 $ 1,517,955 $ 495,076 $ 1,232,838 $ 181,655 $ 864,910 $ 318,543
========= =========== ========= =========== ========= ========= =========
<CAPTION>
General
operating Premiums
expenses written
----------- -----------
<S> <C> <C>
Segment
- -------
Property and
casualty insurance:
Underwriting $ 24,933 $ 604,228
Automobile 9,979 97,176
Workers' compensation 11,597 96,698
Gen. liability, A&H 15,897 168,168
Homeowners
CMP, fire and allied lines, 21,220 206,133
inland marine 5,220 34,418
Fidelity, surety, burglary
Miscellaneous Income
Investment -------- -----------
Total property and 88,846 1,206,821
casualty insurance
819 6
Life ins.(discontinued operations)
1,655 1,511
Premium finance
5,329
Corporation -------- -----------
$ 96,649 $ 1,208,338
Total ======== ===========
</TABLE>
1. Net investment income has been allocated to principal business segments on
the basis of separately identifiable assets.
2. The principal portion of general operating expenses has been directly
attributed to business segment classifications incurring such expenses
with the remainder allocated based on policy counts.
25
<PAGE> 26
Schedule III
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplementary Insurance Information
(In thousands)
December 31, 1996
<TABLE>
<CAPTION>
Deferred Future policy Benefits,
policy benefits Net losses and
acquisition losses and Unearned Premium investment loss
costs loss expenses premiums revenue income expenses
------------- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Segment
- -------
Property and
casualty insurance:
Underwriting
Automobile $ 36,325 $ 596,131 $ 181,834 $ 598,339 $ 495,278
Workers' compensation 7,990 387,951 47,012 124,157 80,975
Gen. liability, A&H 13,833 265,399 45,337 104,428 43,799
Homeowners 26,553 70,969 92,950 165,630 167,302
CMP, fire and allied lines,
inland marine 32,634 213,270 97,943 195,437 141,331
Fidelity, surety, burglary 10,835 13,867 26,312 34,135 1,904
Miscellaneous Income 2,410
Investment 179,407
--------- ----------- --------- ----------- --------- ---------
Total property and
casualty insurance 128,170 1,547,587 491,388 1,224,536 179,407 930,589
Life ins.(discontinued operations) (11,486) 289,086 4,582 4,812 693
Premium finance 225 2,115 293
Corporation 3,608
--------- ----------- --------- ----------- --------- ---------
Total $ 116,684 $ 1,836,673 $ 491,613 $ 1,231,233 $ 188,120 $ 931,282
========= =========== ========= =========== ========= =========
<CAPTION>
Amortization
of deferred General
acquisition operating Premiums
costs expenses written
------------- ------------ -------------
<S> <C> <C> <C>
Segment
- -------
Property and
casualty insurance:
Underwriting
Automobile $ 120,874 $ 34,268 $ 594,661
Workers' compensation 26,221 10,124 115,398
Gen. liability, A&H 34,829 14,081 101,793
Homeowners 46,149 12,641 166,457
CMP, fire and allied lines,
inland marine 62,688 20,364 195,290
Fidelity, surety, burglary 18,095 5,794 34,473
Miscellaneous Income
Investment
--------- --------- -----------
Total property and
casualty insurance 308,856 97,272 1,208,072
Life ins.(discontinued operations) 2,004 (193) 215
Premium finance 1,969 1,981
Corporation 5,907
--------- --------- -----------
Total $ 310,860 $ 104,955 $ 1,210,268
========= ========= ===========
</TABLE>
1. Net investment income has been allocated to principal business segments on
the basis of separately identifiable assets.
2. The principal portion of general operating expenses has been directly
attributed to business segment classifications incurring such expenses
with the remainder allocated based on policy counts.
26
<PAGE> 27
Schedule III
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplementary Insurance Information
(In thousands)
December 31, 1995
<TABLE>
<CAPTION>
Deferred Future policy Benefits,
policy benefits Net losses and
acquisition losses and Unearned Premium investment loss
costs loss expenses premiums revenue income expenses
------------ ------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Segment
- -------
Property and
casualty insurance:
Underwriting
Automobile $ 36,990 $ 608,689 $ 185,735 $ 620,866 $ $ 490,036
Workers' compensation 10,767 403,440 55,861 142,004 93,272
Gen. liability, A&H 14,736 335,428 48,042 110,487 67,201
Homeowners 27,209 74,599 92,099 161,116 123,140
CMP, fire and allied lines,
inland marine 32,270 225,004 98,098 195,014 123,179
Fidelity, surety, burglary 11,358 17,037 25,936 33,719 5,554
Miscellaneous Income 2,497
Investment 184,585
--------- ----------- --------- --------- --------- ---------
Total property and
casualty insurance 133,330 1,664,197 505,771 1,265,703 184,585 902,382
Life ins. (discontinued operations) (13,535) 367,061 7 (345,080) 4,143 (350,121)
Premium finance 257 2,370 522
Corporation 196 3,000
--------- ----------- --------- --------- --------- ---------
Total $ 119,795 $ 2,031,258 $ 506,035 $ 923,189 $ 192,250 $ 552,261
========= =========== ========= ========= ========= =========
<CAPTION>
Amortization
of deferred General
acquisition operating Premiums
costs expenses written
------------ ------------ --------------
<S> <C> <C> <C>
Segment
- -------
Property and
casualty insurance:
Underwriting
Automobile $ 129,058 $ 23,246 $ 611,315
Workers' compensation 30,196 10,806 140,558
Gen. liability, A&H 37,785 12,236 108,283
Homeowners 46,523 12,747 160,444
CMP, fire and allied lines,
inland marine 65,875 18,237 193,477
Fidelity, surety, burglary 17,618 4,904 35,118
Miscellaneous Income
Investment
--------- -------- ---------
Total property and
casualty insurance 327,055 82,176 1,249,195
Life ins. (discontinued operations) 4,097 1,471 (346,394)
Premium finance 1,819 2,314
Corporation 5,975
--------- -------- ---------
Total $ 331,152 $ 91,441 $ 905,115
========= ======== =========
</TABLE>
1. Net investment income has been allocated to principal business segments on
the basis of separately identifiable assets.
2. The principal portion of general operating expenses has been directly
attributed to business segment classifications incurring such expenses
with the remainder allocated based on premium volume.
27
<PAGE> 28
Schedule IV
Ohio Casualty Corporation and Subsidiaries
Consolidated Reinsurance
(In thousands)
December, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Percent of
amount
Ceded to Assumed assumed
Gross other from other Net to net
amount companies companies amount amount
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Life insurance in force $ 547 $ 547 $ 0 $ 0 0.0%
Premiums
Property and casualty insurance $ 1,225,813 $ 31,298 $ 12,306 $ 1,206,821 1.0%
Life insurance (Discontinued operations) 18,359 18,359 0 0 0.0%
Accident and health insurance 1,392 1,575 189 6 3150.0%
------------ ------------ ------------ ------------
Total premiums 1,245,564 51,232 12,495 1,206,827 1.0%
Premium finance charges 1,511
Life insurance - FAS 97 adjustment 0
------------
Total premiums and finance charges written 1,208,338
Change in unearned premiums and finance charges (3,283)
------------
Total premiums and finance charges earned 1,205,055
Miscellaneous income 3,925
Discontinued operations - life insurance (6)
------------
Total premiums & finance charges earned - continuing operations $ 1,208,974
============
Year Ended December 31, 1996
Life insurance in force $ 4,623,435 $ 4,623,435 $ 0 $ 0 0.0%
============ ============ ============ ============
Premiums
Property and casualty insurance $ 1,211,695 $ 29,039 $ 25,416 $ 1,208,072 2.1%
Life insurance (Discontinued operations) 29,822 29,822 0 0 0.0%
Accident and health insurance 2,204 3,502 1,513 215 703.7%
------------ ------------ ------------ ------------
Total premiums 1,243,721 62,363 26,929 1,208,287 2.2%
Premium finance charges 1,981
------------
Total premiums and finance charges written 1,210,268
Change in unearned premiums and finance charges 14,182
------------
Total premiums and finance charges earned 1,224,450
Miscellaneous income 2,416
Discontinued operations - life insurance (215)
------------
Total premiums & finance charges earned - continuing operations $ 1,226,651
============
Year Ended December 31, 1995
Life insurance in force $ 5,207,297 $ 5,298,297 $ 91,000 $ 0 0.0%
============ ============ ============ ============
Premiums
Property and casualty insurance $ 1,251,079 $ 41,252 $ 39,692 $ 1,249,519 3.2%
Life insurance (Discontinued operations) 38,456 384,974 136 (346,382) 0.0%
Accident and health insurance 1,456 1,780 1,521 1,197 127.1%
------------ ------------ ------------ ------------
Total premiums 1,290,991 428,006 41,349 904,334 4.6%
Premium finance charges 2,314
Life insurance - FAS 97 adjustment (1,533)
------------
Total premiums and finance charges written 905,115
Change in unearned premiums and finance charges 14,263
------------
Total premiums and finance charges earned 919,378
Miscellaneous income 3,810
Discontinued operations - life insurance 345,081
------------
Total premiums & finance charges earned - continuing operations $ 1,268,269
============
</TABLE>
28
<PAGE> 29
Schedule V
Ohio Casualty Corporation and Subsidiaries
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
Balance at Balance at
beginning Charged to end of
of period expenses Deductions period
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Reserve for bad debt 3,700 500 0 4,200
Year ended December 31, 1996
Reserve for bad debt 3,500 200 0 3,700
Year ended December 31, 1995
Reserve for bad debt 4,500 (1,000) 0 3,500
</TABLE>
29
<PAGE> 30
Schedule VI
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplemental Information Concerning Property and
Casualty Insurance Operations
(In thousands)
<TABLE>
<CAPTION>
Claims and claim
Reserves for adjustment expenses
Deferred unpaid claims incurred related to
policy and claim Discount Net ------------------------
Affiliation with acquisition adjustment of Unearned Earned investment Current Prior
registrant costs expenses reserves premiums premiums income year years
---------- ----------- ---------- ----------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property and casualty
subsidiaries
Year ended December 31,
1997 $ 128,248 $ 1,481,657 $ 0 $ 494,883 $1,207,341 $ 172,372 $ 921,818 $ (53,615)
========== =========== ========== =========== =========== ========== ============ ===========
Year ended December 31,
1996 $ 128,170 $ 1,547,587 $ 0 $ 491,388 $1,224,536 $ 179,407 $1,008,395 $ (76,920)
========== =========== ========== =========== =========== ========== ============ ===========
Year ended December 31,
1995 $ 133,330 $ 1,664,197 $ 0 $ 505,771 $1,265,703 $ 184,585 $1,007,380 $ (104,998)
========== =========== ========== =========== =========== ========== ============ ===========
<CAPTION>
Amortization Paid
of deferred claims
policy and claim
Affiliation with acquisition adjustment Premiums
registrant costs expenses written
------------ ----------- -----------
<S> <C> <C> <C>
Property and casualty
subsidiaries
Year ended December 31,
1997 $ 303,494 $ 929,399 $ 1,206,821
============ =========== ===========
Year ended December 31,
1996 $ 308,856 $1,001,706 $ 1,208,072
============ =========== ===========
Year ended December 31,
1995 $ 327,055 $ 954,777 $ 1,249,195
============ =========== ===========
</TABLE>
30
<PAGE> 31
FORM 10-K
OHIO CASUALTY CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
Exhibit 13 Annual Report to Shareholders for the Registrant's fiscal year
ended December 31, 1997 33-68
Exhibit 21 Subsidiaries of Registrant 69
Exhibit 22 Proxy Statement of the Board of Directors for the fiscal year
ended December 31, 1997 70-86
Exhibit 23 Consent of Independent Accountants to incorporation of their
opinion by reference in Registration Statement on Form S-3 87
Exhibit 27 Financial Data Schedule 88
Exhibit 28 Information from Reports Furnished to State Insurance
Regulation Authorities 89-102
Exhibits incorporated by reference to previous filings:
Exhibit 3 Articles of Incorporation and By Laws amended 1986 and filed
with Form 8-K on January 15, 1987
Exhibit 3a Amendment to Amended Articles of Incorporation increasing
authorized number of shares to 150,000,000 common shares and
authorized 2,000,000 preferred shares, dated April 17, 1996
Exhibit 4a Rights Agreement amended as of April 1, 1994 between Ohio
Casualty Corporation and Mellon Bank, N.A. as rights agent
filed with Form 8-K on April 1, 1994
Exhibit 4b First Supplement to Rights Agreement filed with Form 8-K
on November 6, 1990
Exhibit 4c Second Supplement to Rights Agreement filed with
Form 8-K on November 6, 1990
Exhibit 4d Rights Agreement amended as of September 5, 1995 between
Ohio Casualty Corporation and First Chicago Trust Company of
New York as rights agent filed with Form 8-K on September 5,
1995
Exhibit 10 Credit Agreement dated as of October 25, 1994 between Ohio
Casualty Corporation and Chase Manhattan Bank, N.A., as agent,
filed with Form 10-Q on November 1, 1994
Exhibit 10a Ohio Casualty Corporation 1993 Stock Incentive Program
filed with Form 10-Q as Exhibit 10d on May 31, 1993
Exhibit 10a1 Ohio Casualty Corporation amended 1993 Stock Incentive
Program filed with Form 10-Q dated May 14, 1997
</TABLE>
31
<PAGE> 32
FORM 10-K
OHIO CASUALTY CORPORATION
INDEX TO EXHIBITS, CONTINUED
Exhibit 10b Coinsurance Life, Annuity and Disability Income Reinsurance
Agreement between Employer's Reassurance Corporation and
The Ohio Life Insurance Company dated as of October 2, 1995
Exhibit 10c Credit Agreement dated October 27, 1997 with Chase
Manhattan Bank, N.A. as agent, filed with Form 10-Q on
November 13, 1997
Exhibit 99.1 Press release dated November 25, 1997, announcing the
settlement with Great Southern Life Insurance Company
32
<PAGE> 1
OHIO CASUALTY CORPORATION & SUBSIDIARIES Exhibit 13
SHAREHOLDER INFORMATION
STOCK PRICE AND DIVIDEND INFORMATION
(NASDAQ: OCAS)
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 HIGH 42 46 3/4 47 15/16 50 3/4
LOW 34 3/8 36 1/8 44 43 5/16
DIVIDEND
DECLARED $0.42 $0.42 $0.42 $0.42
1996 High 39 1/4 36 1/2 35 1/4 36 5/8
Low 33 1/4 33 1/4 30 3/8 32
Dividend
Declared $0.40 $0.40 $0.40 $0.40
</TABLE>
1998 ANTICIPATED DIVIDEND SCHEDULE
DECLARATION DATE RECORD DATE PAYABLE DATE
- ----------------------------------------------------------------------------
February 19, 1998 March 2, 1998 March 10, 1998
May 21, 1998 June 1, 1998 June 10, 1998
August 20, 1998 September 1, 1998 September 10, 1998
November 19, 1998 December 1, 1998 December 10, 1998
DIVIDEND REINVESTMENT/STOCK PURCHASE PLAN
The Corporation offers a dividend reinvestment/stock purchase plan for all
registered holders of common stock. Under the Plan, shareholders may reinvest
their dividends to buy additional shares of common stock, and may also make
extra cash payments of up to $60,000 yearly toward the purchase of Ohio Casualty
shares. Participation is entirely voluntary. More information on the dividend
reinvestment/stock purchase plan can be obtained by writing to the Transfer
Agent listed below.
FORM 10-K ANNUAL REPORT
The Form 10-K annual report for 1996, as filed with the Securities and
Exchange Commission, is available without charge upon written request from:
Ohio Casualty Corporation
Office of the Chief Financial Officer
136 N. Third St.
Hamilton, OH 45025
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company
of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
1-800-317-4445
ANNUAL MEETING
The annual meeting of shareholders will be held at 10:30 a.m. on Wednesday,
April 15, 1998, in the meeting rooms of The Hamiltonian Hotel, One Riverfront
Plaza, Hamilton, OH 45011.
VISIT OUR INTERNET WEB SITE HTTP://WWW.OCAS.COM
The site includes current financial data about Ohio Casualty as well as
other corporate and product information.
<PAGE> 2
OHIO CASUALTY CORPORATION & SUBSIDIARIES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
============================================================================
<S> <C> <C> <C>
Gross premiums and
finance charges $1,240,681 $1,240,354 $1,294,541
Investment income,
less expenses 177,700 183,308 188,107
Income before investment
gains 97,406 64,941 91,400
Realized investment gains,
after taxes 32,986 32,287 3,963
Income from discontinued
operations 8,655 5,229 4,372
Net income 139,047 102,457 99,735
Property and casualty
combined ratio 105.3% 109.5% 104.0%
BASIC AND DILUTED EARNINGS
PER COMMON SHARE
Income before investment
gains $ 2.85 $ 1.85 $ 2.56
Realized investment
gains, after taxes 0.96 0.91 0.11
Income from discontinued
operations 0.25 0.15 0.12
Net income 4.06 2.91 2.79
Book value 39.11 33.44 31.39
Dividends 1.68 1.60 1.52
FINANCIAL CONDITION
Assets $3,778,782 $3,889,981 $3,980,142
Shareholders' equity 1,314,829 1,175,100 1,111,014
Average shares
outstanding - basic 34,228 35,247 35,750
Average shares
outstanding - diluted 34,257 35,254 35,759
Shares outstanding
on December 31 33,622 35,141 35,396
Number of shareholders 6,200 6,500 6,100
</TABLE>
<PAGE> 3
OHIO CASUALTY CORPORATION & SUBSIDIARIES
TEN-YEAR SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
(IN MILLIONS) 1997 1996 1995 1994
================================================================================================================================
<S> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS
Income after taxes
Operating income $ 97.4 $ 64.9 $ 91.4 $ 77.1
Realized investment gains (losses) 33.0 32.3 4.0 14.2
- --------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 130.4 97.2 95.4 91.3
Discontinued operations 8.7 5.3 4.3 5.9
Cumulative effect of accounting changes 0.0 0.0 0.0 (0.3)
- --------------------------------------------------------------------------------------------------------------------------------
Net income 139.1 102.5 99.7 96.9
================================================================================================================================
Income after taxes per average share outstanding - BASIC
Operating income 2.85 1.85 2.56 2.14
Realized investment gains (losses) 0.96 0.91 0.11 0.40
Discontinued operations 0.25 0.15 0.12 0.16
Cumulative effect of accounting changes 0.00 0.00 0.00 (0.01)
- --------------------------------------------------------------------------------------------------------------------------------
Net income 4.06 2.91 2.79 2.69
================================================================================================================================
Average shares outstanding - BASIC 34.2 35.2 35.8 36.0
Income after taxes per average share outstanding - DILUTED
Operating income 2.85 1.85 2.56 2.14
Realized investment gains (losses) 0.96 0.91 0.11 0.40
Discontinued operations 0.25 0.15 0.12 0.16
Cumulative effect of accounting changes 0.00 0.00 0.00 (0.01)
- --------------------------------------------------------------------------------------------------------------------------------
Net income 4.06 2.91 2.79 2.69
================================================================================================================================
Average shares outstanding -DILUTED 34.3 35.3 35.8 36.0
Total assets 3,778.8 3,890.0 3,980.1 3,739.0
Shareholders' equity 1,314.8 1,175.1 1,111.0 850.8
Book value per share 39.11 33.44 31.39 23.64
Dividends paid per share 1.68 1.60 1.52 1.46
Percent increase over previous year 5.0% 5.3% 4.1% 2.8%
PROPERTY AND CASUALTY OPERATIONS
Net premiums written 1,207.6 1,209.0 1,250.6 1,286.4
Net premiums earned 1,204.3 1,223.4 1,264.6 1,297.7
GAAP underwriting gain (loss) before taxes (49.6) (112.2) (68.8) (92.9)
Loss ratio 62.7% 66.5% 61.2% 61.6%
Loss expense ratio 9.4% 9.7% 10.2% 10.0%
Underwriting expense ratio 33.2% 33.3% 32.6% 32.2%
Combined ratio 105.3% 109.5% 104.0% 103.8%
Investment income before taxes 172.4 179.4 184.6 183.8
Per average share outstanding 5.04 5.09 5.16 5.10
Property and casualty reserves
Unearned premiums 494.9 491.4 505.8 517.8
Losses 1,174.5 1,215.8 1,268.1 1,303.6
Loss adjustment expense 307.2 331.8 356.1 367.3
Statutory policyholders' surplus 1,109.5 984.9 876.9 660.0
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
10-Year Compound
1993 1992 1991 1990 1989 1988 Annual Growth
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
$ 51.5 $ 57.8 $ 99.1 $ 94.6 $ 109.3 $ 135.2 0.6%
28.7 35.1 9.8 (8.7) (10.5) (14.2) 0.0%
- --------------------------------------------------------------------------------------------------------------------------------
80.2 92.9 108.9 85.9 98.8 121.0 5.8%
6.8 4.1 (1.0) (1.8) 2.7 7.0 6.8%
0.0 1.5 0.0 0.0 0.0 0.0 0.0%
- --------------------------------------------------------------------------------------------------------------------------------
87.0 98.5 107.9 84.1 101.5 128.0 5.9%
================================================================================================================================
1.43 1.60 2.77 2.47 2.56 3.10 3.4%
0.80 0.98 0.27 (0.23) (0.25) (0.32) 0.0%
0.19 0.12 (0.03) (0.05) 0.06 0.16 9.6%
0.00 0.04 0.00 0.00 0.00 0.00 0.0%
- --------------------------------------------------------------------------------------------------------------------------------
2.42 2.74 3.01 2.19 2.37 2.94 8.8%
================================================================================================================================
36.0 36.0 35.8 38.4 42.8 43.6 (2.7)%
1.43 1.60 2.76 2.47 2.55 3.10 3.4%
0.79 0.98 0.27 (0.23) (0.25) (0.32) 0.0%
0.19 0.12 (0.03) (0.05) 0.06 0.16 9.6%
0.00 0.04 0.00 0.00 0.00 0.00 0.0%
- --------------------------------------------------------------------------------------------------------------------------------
2.41 2.74 3.00 2.19 2.36 2.94 8.8%
================================================================================================================================
36.0 36.0 35.9 38.5 42.9 43.6 (2.7)%
3,816.8 3,760.7 3,531.3 3,252.9 3,145.7 2,922.0 3.5%
862.3 825.2 774.5 651.2 775.0 718.5 7.9%
23.93 23.43 21.58 18.19 18.46 16.65 10.9%
1.42 1.34 1.24 1.16 1.04 0.94 7.2%
6.0% 8.1% 6.9% 11.5% 10.6% 11.9%
1,306.0 1,508.5 1,492.3 1,468.4 1,377.6 1,353.2 (1.2)%
1,379.4 1,517.6 1,469.1 1,438.0 1,364.2 1,339.6 (1.2)%
(147.3) (130.8) (74.5) (79.4) (62.6) (16.3)
64.9% 63.7% 60.4% 61.4% 58.4% 55.2%
11.8% 10.8% 10.6% 10.9% 12.1% 11.8%
33.6% 33.5% 33.9% 33.0% 33.2% 33.8%
110.3% 108.0% 104.9% 105.3% 103.7% 100.8%
190.4 194.6 191.6 176.7 187.7 169.8 0.9%
5.29 5.41 5.34 4.59 4.38 3.89 3.8%
529.6 596.1 605.2 582.0 551.6 538.2 (0.6)%
1,378.0 1,309.2 1,216.1 1,148.9 1,061.5 979.3 2.4%
390.6 364.0 350.0 335.1 308.5 273.1 2.4%
713.6 674.2 643.4 465.8 531.6 452.1 9.3%
</TABLE>
<PAGE> 5
MANAGEMENT'S DISCUSSION & ANALYSIS
RESULTS OF OPERATIONS
Net income increased 35.7% for 1997 to $139.0 million or $4.06 per share
while the combined ratio decreased by 4.2 points to 105.3%. Losses were
negatively impacted by catastrophes with $21.4 million of catastrophe losses in
1997 versus $62.2 million in 1996. Underwriting expenses continued to decline in
1997, down, $2.1 million from 1996, which had declined over $3.8 million from
1995. General operating expenses, a component of underwriting expenses, have
increased over the period of 1995 to 1997. The increase in operating expenses is
primarily due to expenditures in two categories. First, advertising expenses
increased as part of the Corporation's efforts to increase name recognition of
its property and casualty companies. Second, the branch consolidation process
results in extra expenditures in the year of closing. We are beginning to see
the efficiencies that are produced through this process in declining statutory
underwriting expenses. Branch consolidation resulted in closing 16 branches in
1997, 7 branches in 1996 and 3 branches in 1995. We anticipate closing an
additional 3 branches in 1998.
Net premiums written were flat for the year. However, if the impact of
residual market and canceled agent reductions are excluded, there was an
increase of 5.3% of written premium from our active agents. Our growth campaign
continued to be led in 1997 by our key agents with a 7.1% increase in written
premium for the year.
Net cash produced from operations was $26.4 million compared with cash
used of $14.0 million in 1996 and cash used of $56.4 million in 1995. Investing
activities produced net cash of $164.0 million in 1997, compared with $112.7
million in 1996 and $151.0 million in 1995. Dividend payments were $57.5 million
in 1997 compared with $56.4 million in 1996 and $54.3 million in 1995. Total
cash used for financing activities was $131.9 million in 1997 compared with
$75.4 million in 1996 and $85.0 million in 1995. Overall, total cash generated
in 1997 was $58.4 million, compared with $23.3 million in 1996 and $9.6 million
in 1995.
In order to evaluate corporate performance relative to shareholders'
expectations, the Corporation calculates a five-year average return on equity.
Net income and unrealized gains and losses on investments are included in the
calculation to derive a total return. A five-year average is used to correspond
to our planning horizon and emphasize consistent long term returns, not
intermediate fluctuations. At December 31, 1997, our five-year average return on
equity was 15.5% compared with 13.4% calculated at December 31, 1996 compared
with 16.2% at December 31, 1995.
PROPERTY AND CASUALTY
Property and casualty operating income was $97.4 million, $2.84 per
share, in 1997 compared with $66.1 million, $1.88 per share, in 1996 and $92.5
million, $2.59 per share in 1995. Catastrophe losses in 1997 totaled $21.4
million compared with $62.2 million in 1996 and $27.3 million in 1995. There
were 25 separate catastrophes in 1997 compared with 39 catastrophes in 1996 and
34 in 1995. Catastrophe losses added 1.8 points to the combined ratio in 1997
compared with 5.1 points in 1996 and 2.2 points in 1995. The 1996 losses were
largely due to winter and spring storms in the Midwest.
Statutory surplus, a traditional insurance industry measure of strength
and underwriting capacity, was $1,109.5 million at December 31, 1997 compared
with $984.9 million at December 31, 1996 and $876.9 million at December 31,
1995. The increases were due primarily to the unrealized gains in our investment
portfolio.
The ratio of premiums written to statutory surplus has not exceeded 1.7
to 1 for any property and casualty company in The Ohio Casualty Group in any of
the last three years. This ratio is one of the measures used by insurance
regulators to gauge the financial strength of an insurance company and indicates
the ability of the Corporation to grow by writing additional business.
Currently, the Corporation's ratio is 1.1 to 1. Ratios below 3 to 1 generally
<PAGE> 6
indicate additional capacity and financial strength.
The National Association of Insurance Commissioners has developed a "Risk
Based Capital" formula for property and casualty insurers and life insurers. The
formulas are intended to measure the adequacy of an insurer's capital given the
asset structure and product mix of the company. Under the current formulas, all
insurance companies in The Ohio Casualty Group have at least twice the necessary
capital.
In a continuing effort to maximize the use of technology in our industry,
we are furthering the expansion of our Internet applications. This is being
accomplished with our newest subsidiary, Avomark, which began operations on
January 1, 1998. Targeting two New York locales, the company plans to reach
those consumers who find ease and convenience in buying our product through use
of the Internet and direct telemarketing.
In addition to identifying new marketing opportunities, we continue
working to improve customer retention through improved service and better
products thus leading to increased premium income and profitability. This focus
on our policyholders has yielded increasing retention. By retaining valued
customers, the Corporation is able to increase premium volume while limiting the
higher expense associated with new business underwriting.
<TABLE>
<CAPTION>
PREMIUM DISTRIBUTIONS BY TOP STATES
1997 1996 1995
<S> <C> <C> <C>
New Jersey 17.9% 18.3% 18.1%
Ohio 10.7% 10.2% 9.6%
Pennsylvania 8.3% 9.4% 10.0%
Kentucky 8.2% 7.2% 6.5%
Illinois 5.2% 5.0% 5.1%
</TABLE>
After declining in 1995, premiums written increased in both Ohio and
Kentucky in 1996 and 1997. In Ohio, premiums grew 4.8% in 1997, 1.6% in 1996,
and declined 3.3% in 1995. Primarily, this growth has come from the auto and CMP
lines of business. Net written premiums in Ohio totaled $129.8 million in 1997,
$123.8 million in 1996 and $120.4 million in 1995. In Kentucky, premiums grew
14.6% in 1997, 6.1% in 1996 and declined .2% in 1995. Net written premiums in
Kentucky totaled $99.1 million in 1997, $86.5 million in 1996 and $81.7 million
in 1995.
New Jersey showed a small decline in premiums written of 2.3% during
1997. Net premiums written were $216.0 million compared with $221.2 million in
1996 and $226.5 million in 1995. The reduction in premium growth is primarily
due to a decline in the workers compensation, general liability and auto lines
of business. New Jersey requires insurers to write all submitted auto business
that meets underwriting guidelines regardless of risk concentration.
Premiums written in Pennsylvania declined during 1997 to $99.8 million
compared with $113.5 million in 1996 and $125.7 million in 1995. This decline
has primarily been driven by competitive pricing conditions in commercial lines
during 1997. The Corporation is currently developing strategies to help
counteract this decline. We remain committed to the state of Pennsylvania and
believe we can generate premium growth in all lines in 1998.
<TABLE>
<CAPTION>
COMBINED RATIOS
1997 1996 1995 1994 1993
================================== ============== ============ ============ =========== ===========
<S> <C> <C> <C> <C> <C>
Automobile 107.1% 109.1% 103.9% 101.9% 103.5%
Commercial Multiple Peril, Fire
and Inland Marine 107.7% 115.0% 105.7% 108.6% 124.2%
General Liability 103.0% 89.1% 105.3% 90.3% 120.6%
Workers' Compensation 93.0% 94.3% 93.7% 87.8% 111.3%
Homeowners 111.2% 135.9% 113.7% 135.7% 118.0%
Fidelity and Surety 76.5% 73.4% 84.5% 72.8% 79.1%
- ---------------------------------- -------------- ------------ ------------ ----------- -----------
Total 105.3% 109.5% 104.0% 103.8% 110.3%
================================== ============== ============ ============ =========== ===========
</TABLE>
<PAGE> 7
DISCONTINUED OPERATIONS
During 1995, the Corporation's life operations were discontinued. We
found it increasingly difficult to achieve our targeted 16% rate of return in
this segment of our business. After extensive analysis, it was determined that a
16% return could not be achieved without substantial capital contributions and a
dramatic overhaul of the life operations. Since this was a small segment of our
overall business, it was decided that this would not be a prudent use of our
capital. Therefore, on October 2, 1995, the Corporation signed the final
documents to reinsure the existing blocks of business with Great Southern Life
Insurance Company. The existing blocks of business were reinsured through a 100%
coinsurance arrangement.
During the fourth quarter of 1997, Great Southern Life Insurance Company
legally replaced Ohio Life as the primary insurer on approximately 76% of the
life insurance business subject to the 1995 reinsurance agreement with Ohio
Life. As a result of this assumption, fourth quarter net income for the
Corporation was positively impacted by a partial recognition of unamortized
ceding commission from the original agreement. The before-tax income impact for
the quarter was $8.1 million or $.24 per share. The after-tax impact was $5.3
million or $.16 per share. There remains approximately $2.2 million in
unamortized ceding commission. This will continue to be amortized over the
remaining life of the policies which have yet to be assumed by Great Southern.
Net income from discontinued operations amounted to $8.7 million or $.25
per share in 1997 compared with $5.2 million or $.15 per share in 1996 and $4.4
million or $.12 per share in 1995.
REINSURANCE
In order to preserve capital and shareholder value, Ohio Casualty
Corporation purchases reinsurance to protect the Corporation against large or
catastrophic losses. The Property Per Risk contract covers Ohio Casualty in the
event that an insured sustains a property loss in excess of $1.0 million in a
single insured event. Property reinsurance covers $15.0 million in excess of the
retention. The Casualty Per Occurrence contract covers the Corporation in the
event that an insured sustains a liability loss in excess of $1.0 million in a
single insured event. Casualty reinsurance covers $11.0 million in excess of the
retention; and workers' compensation reinsurance covers $74.0 million in excess
of the retention.
The Catastrophe Reinsurance contract protects the Corporation against an
accumulation of losses arising from one defined catastrophic occurrence or
series of events. The 1998 Catastrophe Program, similar to 1997, provides $150.0
million coverage in excess of the Corporation's $25.0 million retention. In
1997, a portion of the Catastrophe Program was again renewed with a multi-year
placement. In 1998, approximately 55% of our reinsurance program is on a
three-year placement. The multi-year placements maintain rates, continuity, and
each reinsurers' overall share on the program. Over the last twenty years, there
were two events that triggered coverage under our catastrophe contract. Losses
and loss adjustment expenses from the Oakland Fires in 1991 and Hurricane Andrew
in 1992 totaled $31.5 million and $29.8 million, respectively. Both of these
losses exceeded our prior retention amount of $13.0 million. The Corporation
recovered $30.3 million from reinsurers as a result of these events. Our
reinsurance limits are designed to cover our exposure to an event expected to
occur once every 300 years.
Since the Corporation's reinsurance protection is an important component
in our financial plan, we closely monitor the financial health of each of our
reinsurers. Annually, financial statements are reviewed and various ratios
calculated to identify reinsurers who have ceased to meet our high standards of
financial strength. If any reinsurers fail these tests, they are removed from
the program at renewal.
LOSS AND LOSS ADJUSTMENT EXPENSES
The Corporation's largest liabilities are the reserves for losses and
loss adjustment expenses. Loss and loss adjustment expense reserves are
established for all incurred claims and are carried on an undiscounted basis
before any credits for reinsurance recoverable. These reserves amounted to $1.5
billion at December 31, 1997 and $1.6 billion at December 31, 1996 and 1995.
<PAGE> 8
In 1997, the Corporation continued the use of a toll free number for
direct reporting of claims. The percentage of all claims handled by direct
reporting was approximately 55% in 1997. This compares with 50% in 1996 and 30%
in 1995. The Corporation continues to receive positive feedback on this option
from our policyholders.
In recent years, environmental liability claims have expanded greatly in
the insurance industry. Fortunately, Ohio Casualty has a substantially different
mix of business than the industry. We have historically written small commercial
accounts, and have not attracted significant manufacturing liability coverage.
As a result, our environmental liability claims are substantially below the
industry average. Our liability business reflected our current mix of
approximately 67% contractors, 15% building/premises, 13% mercantile and only 5%
manufacturers. Within the manufacturing category, we have concentrated on the
light manufacturers which further limits our exposure to environmental claims.
Estimated asbestos and environmental reserves are composed of case
reserves, incurred but not reported reserves and reserves for loss adjustment
expense. For 1997, 1996 and 1995 respectively those reserves were $40.1 million,
$41.0 million and $40.7 million. Asbestos reserves were $7.0 million , $5.2
million and $5.2 million and environmental reserves were $33.2 million, $35.7
million and $35.5 million for those respective years. These loss estimates are
based on the currently available information. However, given the expansion of
coverage and liability by the courts and legislatures, there is some uncertainty
as to the ultimate liability. The Corporation's insurance subsidiaries changed
their pollution exclusion policy language between 1985 and 1987 to effectively
eliminate these coverages.
CALIFORNIA WITHDRAWAL
On June 15, 1992, the Corporation announced its intention to withdraw its
business operations from California due to the lack of profitability and the
difficult regulatory environment. In December 1992, the Corporation stopped
writing business in California and filed a withdrawal plan with the California
Department of Insurance.
Under the terms of the plan, The Ohio Casualty Insurance Company, Ohio
Security Insurance Company, and West American Insurance Company would withdraw
from California, leaving American Fire and Casualty Company licensed to wind
down the affairs of the Group. Also, the plan required the withdrawing companies
to transfer their California liabilities to American Fire and Casualty Company
along with assets to secure those liabilities. In April 1995, the California
Department of Insurance gave final approval for withdrawal and the Corporation
implemented the withdrawal plan.
Proposition 103 was passed in the State of California in 1988 in an
attempt to legislate premium rates for that state. Based on previous statements
by the California Department of Insurance and the Corporation's lack of
profitability in the state, it was concluded that no significant liability for
premium rollbacks existed. However, at the end of 1994, and again in 1995, the
State of California billed the Corporation for varying amounts. At year end
1996, the state's assertion of the Corporation's liability was $42.1 million
plus accrued interest. An administrative hearing process is ongoing concerning
the potential rollback liability.
Upon the Administrative Law Judge's request that it submit what it now
asserts is the rollback liability for Ohio Casualty, the California Department
of Insurance filed two revised rollback calculations in December 1997. These
alternatives, based on concession of certain issues, provide a range of rollback
liabilities between $35.9 million plus interest and $39.9 million plus interest.
In January 1998, the Judge indicated her intent to rule under the
departments regulations, without consideration of Ohio Casualty's constitutional
challenge, that Ohio Casualty's liability should be below $30 million plus
interest. The commissioner may accept or reject the Judge's ultimate decision in
whole or in part, and his determination will be subject to de novo review by the
state superior court.
After consultation with outside counsel, the Corporation has determined
that the $35.9 million plus interest is the
<PAGE> 9
more reasonable of the two Department calculations should the Department of
Insurance prevail. Our current reserve of $66.9 million is based on this
testimony. We made no additions to reserves for principal amounts in 1997;
however, we continue to accrue interest on the assessed liability. Reducing this
alleged liability positively impacted net income by $4.9 million or $.14 per
share in 1997. Increases in reserve due to accruing interest negatively impacted
net income by $2.7 million or $.08 per share in 1996 and $14.9 million or $.42
per share in 1995.
The Corporation continues to challenge the validity of any rollback and
plans to continue negotiations with Department officials. While we anticipate an
administrative decision in 1998, it is uncertain when this matter will
ultimately be resolved.
INVESTMENTS
Consolidated pre-tax investment income from continuing operations
decreased 3.1% to $177.7 million in 1997 compared with $183.3 million in 1996
and $188.1 million in 1995. After-tax investment income totaled $133.6 million
in 1997 compared with $138.6 million in 1996 and $138.4 million in 1995. Pre-tax
and after-tax investment income comparisons are impacted by an increased
investment in municipal bonds beginning in 1996.
Cash flow from investment income has been impacted by our continued share
repurchase program. During 1997, Ohio Casualty Corporation purchased 1,544,688
shares of its common stock at a cost of $64.9 million compared with 264,600
shares for $9.2 million in 1996 and 613,900 shares for $20.9 million in 1995.
The Corporation is currently authorized to repurchase 2.0 million additional
shares of its common stock to be held as treasury shares for stock options or
other general corporate purposes. Since the beginning of 1987, we have
repurchased 12.2 million shares at an average cost of $24.55 per share. We
believe that when the market value of our stock fails to reflect the prospects
of our operations, repurchasing shares is a prudent use of our capital. In the
future, we intend to continue repurchasing shares when doing so makes economic
sense for the Corporation and its shareholders.
At year end 1997, consolidated investments had a carrying value of $3.2
billion. The excess of market value over cost was $697.6 million, compared with
a $499.7 million excess at year end 1996 and $465.9 million at year end 1995.
The increase in the excess of market value over cost in 1997 was attributable to
the strong performance of our equity and fixed income portfolios. After-tax
realized investment gains from continuing operations amounted to $33.0 million
in 1997 compared with $32.3 million in 1996 and $4.0 million in 1995.
We continue to have no exposure to futures, forwards, caps, floors, or
similar derivative instruments as defined by Statement of Financial Accounting
Standards No. 119. However, as noted in footnote number 14, we have an interest
rate swap with Chase Manhattan Bank covering the outstanding balance of our line
of credit. This swap is not classified as an investment but rather as a hedge
against a portion of the variable rate loan. As of December 31, 1997, Ohio
Casualty maintained a $347.1 million mortgage-backed securities portfolio
compared with $446.9 million at December 31, 1996 and $403.1 million at December
31, 1995. The majority of our mortgage-backed securities holdings are less
volatile planned amortization class, sequential structures and agency
pass-through securities. $5.8, $27.0, $27.8 million of this portfolio was
invested in more volatile bond classes (e.g.
interest-only, super-floaters, inverses) in 1997, 1996 and 1995, respectively.
Ohio Casualty's fixed income strategy has been to maintain a portfolio
with a laddered maturity structure and an intermediate duration. We believe that
our portfolio composition and duration continue to be appropriate for our
insurance business. Further, we do not try to time the financial markets.
Instead, we believe it is prudent to remain fully invested at all times, subject
only to our liquidity needs.
Tax exempt bonds were 39.4% of the fixed income portfolio at year end
1997 versus 34.4% at December 31, 1996 and 37.3% at December 31, 1995. This
higher average exposure to municipals reflects our internal tax planning
strategy as well as our belief that, coming into 1997, municipals
<PAGE> 10
were attractive relative to taxable bond alternatives.
Our commitment to a diversified, growth-oriented equity portfolio remains
unchanged. Equity investments have increased as a percentage of our consolidated
portfolio from 21.4% in 1995 to 23.5% in 1996 to 27.3% at year end 1997. This
increase is entirely attributable to market appreciation of existing investments
as opposed to commitment of new funds. In fact, no new funds have been allocated
to equities in the last three years.
YEAR 2000
Recently, the "Year 2000 Problem" has received extensive press in the
insurance industry. According to published reports, many companies are making
large expenditures in order to convert their computer systems to recognize the
year 2000. Most computer systems were originally written with two digit date
fields. Therefore, the computer believes that the difference between `99 and `00
is a negative 99 years instead of one year. This would obviously create havoc
with date related calculations such as policy premiums.
Ohio Casualty started very early converting our computer systems to be
year 2000 compliant as we modified and adjusted the programs for other purposes.
As such, the Corporation has not had to make such a dedicated and expensive
effort to fix the problem. Currently over 70% of our systems have been modified
for year 2000. We have added compliance testing to our year 2000 compliance
criteria. Compliance testing involves migrating our data forward and changing
the internal date in the computer to critical dates in late 1999 and early 2000.
With this addition to our criteria we are over 50% completed with the entire
year 2000 compliance process. Complete testing of year 2000 compliance for all
systems is set to be completed by the end of 1998. To date, we have spent
approximately $.7 million and expect to spend an additional $1.4 million to
complete our efforts.
The readiness of outside parties, such as vendors, agents or governmental
units, also play a role in the Company's exposure to the "Year 2000 Problem." In
1997, Ohio Casualty contacted those parties to request written verification that
their software will be compliant. As of year end 1997, over 50% have responded.
The Corporation expects this process to be completed by year end 1998.
<PAGE> 11
OHIO CASUALTY CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31 (IN THOUSANDS) 1997 1996 1995
=======================================================================================================================
<S> <C> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at fair value $ 2,226,030 $ 2,310,938 $ 2,407,853
(Cost: $2,112,291; $2,225,517; $2,276,150)
Equity securities, at fair value 859,475 721,152 661,154
(Cost: $275,637; $306,865; $326,999)
Short-term investments at cost 65,849 41,546 14,399
- -----------------------------------------------------------------------------------------------------------------------
Total investments 3,151,354 3,073,636 3,083,406
Cash 54,206 20,078 23,883
Premiums and other receivables 193,615 186,676 196,175
Deferred policy acquisition costs 126,063 116,684 119,795
Property and equipment 50,699 42,239 43,846
Reinsurance recoverable 108,962 362,683 446,167
Other assets 93,883 87,985 66,870
- -----------------------------------------------------------------------------------------------------------------------
Total assets $ 3,778,782 $ 3,889,981 $ 3,980,142
=======================================================================================================================
LIABILITIES
Insurance reserves:
Unearned premiums $ 495,076 $ 491,613 $ 506,035
Losses 1,176,614 1,224,873 1,275,077
Loss adjustment expenses 307,193 331,797 356,107
Future policy benefits 34,148 280,002 360,074
Note payable 40,000 50,000 60,000
California Proposition 103 reserve 66,908 74,376 70,167
Deferred income taxes 95,389 27,993 2,112
Other liabilities 248,625 234,227 239,556
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 2,463,953 2,714,881 2,869,128
Commitments and contingent liabilities (see Notes 1 and 8)
- -----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, $.125 par value 5,850 5,850 5,850
Authorized: 150,000,000 shares
Issued shares: 46,803,872
Additional paid-in capital 3,923 3,603 3,422
Unrealized gain on investments,
net of applicable income taxes 454,241 332,042 305,049
Retained earnings 1,158,308 1,076,545 1,030,468
Treasury stock, at cost
(Shares: 13,182,240; 11,662,559; 11,407,745) (307,493) (242,940) (233,775)
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 1,314,829 1,175,100 1,111,014
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 3,778,782 $ 3,889,981 $ 3,980,142
=======================================================================================================================
</TABLE>
See notes to consolidated financial statements
<PAGE> 12
OHIO CASUALTY CORPORATION & SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 (IN THOUSANDS) 1997 1996 1995
===============================================================================================================
<S> <C> <C> <C>
Premiums and finance charges earned $ 1,208,974 $ 1,226,651 $ 1,268,269
Investment income less expenses 177,700 183,308 188,107
Investment gains realized, net 50,749 49,672 6,096
- ---------------------------------------------------------------------------------------------------------------
Total income 1,437,423 1,459,631 1,462,472
Losses and benefits for policyholders 751,207 812,234 774,282
Loss adjustment expenses 113,435 118,354 128,099
General operating expenses 103,299 100,939 89,970
Amortization of deferred policy
acquisition costs 303,494 308,856 327,055
California Proposition 103 reserve,
including interest (7,469) 4,210 22,889
- ---------------------------------------------------------------------------------------------------------------
Total expenses 1,263,966 1,344,593 1,342,295
Income from continuing operations
before income taxes 173,457 115,038 120,177
Income taxes
Current 44,263 10,173 23,514
Deferred (1,198) 7,637 1,300
- ---------------------------------------------------------------------------------------------------------------
Total income taxes 43,065 17,810 24,814
- ---------------------------------------------------------------------------------------------------------------
Income before discontinued operations 130,392 97,228 95,363
Income from discontinued operations
net of taxes of $4,661, $2,663 and
$4,345 (see Note 17) 8,655 5,229 4,372
- ---------------------------------------------------------------------------------------------------------------
Net income $ 139,047 $ 102,457 $ 99,735
===============================================================================================================
Average shares outstanding 34,228 35,247 35,750
Basic and diluted earnings per share:
Income before discontinued operations $ 3.81 $ 2.76 $ 2.67
Income from discontinued operations 0.25 0.15 0.12
- ---------------------------------------------------------------------------------------------------------------
Net income per share $ 4.06 $ 2.91 $ 2.79
===============================================================================================================
</TABLE>
See notes to consolidated financial statements
<PAGE> 13
OHIO CASUALTY CORPORATION & SUBSIDIARIES
STATEMENT OF CONSOLIDATED
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED TOTAL
COMMON PAID-IN GAIN (LOSS) RETAINED TREASURY SHAREHOLDERS'
(IN THOUSANDS) STOCK CAPITAL ON INVESTMENTS EARNINGS STOCK EQUITY
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1995 $ 5,850 $ 3,271 $ 69,610 $ 985,068 $ (213,009) $ 850,790
Unrealized gain 360,372 360,372
Deferred income tax on
net unrealized loss (124,933) (124,933)
Net issuance of treasury
stock under stock option
plan and by charitable
donation (16,771 shares) 151 427 578
Repurchase of treasury
stock (613,900 shares) (21,193) (21,193)
Net income 99,735 99,735
Cash dividends paid
($1.52 per share) (54,335) (54,335)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1995 $ 5,850 $ 3,422 $ 305,049 $ 1,030,468 $ (233,775) $ 1,111,014
Unrealized gain 40,297 40,297
Deferred income tax on
net unrealized gain (13,304) (13,304)
Net issuance of treasury
stock under stock option
plan and by charitable
donation (9,786 shares) 181 3 184
Repurchase of treasury
stock (264,600 shares) (9,168) (9,168)
Net income 102,457 102,457
Cash dividends paid
($1.60 per share) (56,380) (56,380)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1996 $ 5,850 $ 3,603 $ 332,042 $ 1,076,545 $ (242,940) $ 1,175,100
Unrealized gain 188,081 188,081
Deferred income tax on
net unrealized gain (65,882) (65,882)
Net issuance of treasury
stock under stock option
plan and by charitable
donation (25,007 shares) 320 172 305 797
Repurchase of treasury
stock (1,544,688 shares) (64,858) (64,858)
Net income 139,047 139,047
Cash dividends paid
($1.68 per share) (57,456) (57,456)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1997 $ 5,850 $ 3,923 $ 454,241 $ 1,158,308 $ (307,493) $ 1,314,829
===================================================================================================================================
</TABLE>
See notes to consolidated financial statements
<PAGE> 14
OHIO CASUALTY CORPORATION & SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 (IN THOUSANDS) 1997 1996 1995
===============================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM:
Operations
Net income $ 139,047 $ 102,457 $ 99,735
Adjustments to reconcile net income to
cash from operations:
Changes in:
Insurance reserves (315,255) (169,006) 116,397
Income taxes 10,691 8,238 (7,157)
Premiums and other receivables (6,939) 9,500 2,993
Deferred policy acquisition costs (9,379) 3,111 45,838
Reinsurance recoverable 253,720 83,484 (358,418)
Other assets (22,339) 775 6,871
Other liabilities 20,677 (18,442) 14,577
California Proposition 103 reserves (7,469) 4,209 21,353
Depreciation and amortization 16,035 12,388 12,600
Investment (gains) losses (52,382) (50,674) (11,199)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash from operations 26,407 (13,960) (56,410)
- -------------------------------------------------------------------------------------------------------------------------------
INVESTING
Purchase of securities:
Fixed income securities - available for sale (351,393) (539,690) (944,077)
Equity securities (66,433) (74,243) (86,517)
Proceeds from sales:
Fixed income securities - available for sale 342,193 501,394 929,890
Equity securities 144,688 122,970 89,771
Proceeds from maturities and calls:
Fixed income securities - available for sale 103,165 101,970 132,572
Equity securities 10,013 6,702 47,605
Property and equipment:
Purchases (18,968) (7,340) (19,071)
Sales 702 952 813
- -------------------------------------------------------------------------------------------------------------------------------
Net cash from investments 163,967 112,715 150,986
- -------------------------------------------------------------------------------------------------------------------------------
FINANCING
Note payable repayment (10,000) (10,000) (10,000)
Proceeds from exercise of stock options 371 135 578
Purchase of treasury stock (64,858) (9,168) (21,193)
Dividends paid to shareholders (57,456) (56,380) (54,335)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (131,943) (75,413) (84,950)
- -------------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 58,431 23,342 9,626
Cash and cash equivalents, beginning of year 61,624 38,282 28,656
- -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 120,055 $ 61,624 $ 38,282
===============================================================================================================================
</TABLE>
See notes to consolidated financial statements
<PAGE> 15
NOTE 1 -- ACCOUNTING POLICIES
A. The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles and include the accounts of Ohio
Casualty Corporation and its subsidiaries. All significant inter-company
transactions have been eliminated. All dollar amounts except share and per share
data are in thousands of dollars.
B. Investment securities are classified upon acquisition into one of the
following categories: (1) held to maturity securities (2) trading securities (3)
available for sale securities
Available for sale securities are those securities that would be available
to be sold in the future in response to liquidity needs, changes in market
interest rates, and asset-liability management strategies, among others.
Available for sale securities are reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component of
shareholders' equity, net of deferred tax. Equity securities are carried at
quoted market values and include non-redeemable preferred stocks and common
stocks. Fair values of fixed maturities and equity securities are determined on
the basis of dealer or market quotations or comparable securities on which
quotations are available.
Short-term investments include commercial paper and notes with original
maturities of 90 days or less and are stated at cost or amortized cost which
approximates market. Short-term investments are deemed to be cash equivalents.
Realized gains or losses on disposition of investments are determined on
the basis of specific cost of investments.
C. Property and casualty insurance premiums are earned principally on a monthly
pro rata basis over the term of the policy; the premiums applicable to the
unexpired terms of the policies are included in unearned premium reserve.
D. Acquisition costs incurred at policy issuance net of applicable ceding
commissions are deferred and amortized over the term of the policy for property
and casualty insurance, over the estimated life in proportion to future profits
of universal life type contracts and over the estimated premium paying period
for other life insurance contracts. Deferred policy acquisition costs are
reviewed to determine that they do not exceed recoverable amounts, including
anticipated investment income.
E. Liabilities for future policy benefits are computed based on contract terms
and issue date using interest rates ranging from 4% to 8 3/4%, select and
ultimate mortality experience and industry withdrawal experience. Interest rates
on $24,611 of such liabilities in 1997, $230,843 in 1996 and $293,732 in 1995
are periodically adjusted based on market conditions. Fair value is determined
by discounting cash flows at current market interest rates.
F. Deferred income taxes result from temporary differences between financial and
taxable income.
G. Property and equipment are carried at cost less accumulated depreciation.
Depreciation is computed principally on the straight-line method over the
estimated lives of the assets.
H. The Corporation's primary products consist of insurance for: personal
auto, commercial property, homeowners, workers' compensation and other
miscellaneous lines. Ohio Casualty operates through the independent agency
system in 38 states. Of net premiums written, approximately 17.9% was generated
in the State of New Jersey, 10.8% in Ohio and 8.3% in Pennsylvania. The
insurance industry is subject to heavy regulation that differs by state. A
dramatic change in regulation in a given state may have a material adverse
impact on the Corporation.
I. The Corporation believes that the fair value of long-term debt is
approximately equal to its carrying value due to the market-based variable
interest rates associated with the debt.
J. The Corporation is dependent on dividend payments from its insurance
subsidiaries in order to meet operating expenses and to pay dividends. Insurance
regulatory authorities impose various restrictions and prior approval
requirements on the payment of dividends by insurance companies and holding
companies. At December 31, 1997, approximately $170,115 of retained earnings are
not subject to restriction or prior dividend approval requirements.
K. The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of financial statements, and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 2 -- INVESTMENTS
Investment income is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------
Investment income from:
<S> <C> <C> <C>
Fixed maturities $166,554 $176,160 $177,621
Equity securities 13,776 14,135 14,721
Short-term securities 3,477 2,129 3,096
- ---------------------------------------------------------------
Total investment income 183,807 192,424 195,438
Investment expenses 6,107 9,116 7,331
- ---------------------------------------------------------------
Net investment income $177,700 $183,308 $188,107
===============================================================
</TABLE>
<PAGE> 16
Realized and unrealized gains (losses) on investments in securities are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturities $ 9,317 $ 4,567 $ (8,104)
Equity securities 42,956 41,278 16,913
Other investments (1,524) 3,827 (2,713)
- ---------------------------------------------------------------
$ 50,749 $ 49,672 $ 6,096
===============================================================
Unrealized gains (losses):
Securities $ 188,081 $ 40,297 $ 360,372
Deferred tax (65,882) (13,304) (124,933)
- ---------------------------------------------------------------
$ 122,199 $ 26,993 $ 235,439
===============================================================
</TABLE>
The amortized cost and estimated market values of investments in debt and
equity securities are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
1997 COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------
Securities available for
sale:
<S> <C> <C> <C> <C>
U.S. Government $66,244 $3,601 $(1) $69,844
States, municipalities
and political
subdivisions 835,355 40,405 (19) 875,741
Debt securities
issued by
foreign
governments 3,000 458 0 3,458
Corporate securities 872,904 58,046 (1,026) 929,924
Mortgage-backed
securities:
U.S. Government
Agency 16,876 678 (1) 17,553
Other 317,912 12,838 (1,240) 329,510
- ---------------------------------------------------------------------------------
Total fixed 2,112,291 116,026 (2,287) 2,226,030
maturities
Equity securities 275,637 597,803 (13,965) 859,475
Short-term
investments 65,849 0 0 65,849
- ---------------------------------------------------------------------------------
Total securities,
available for sale $2,453,777 $713,829 $(16,252) $3,151,354
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
1996 COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
Securities
available for
sale:
<S> <C> <C> <C> <C>
U.S. Government $ 80,822 $ 2,101 $ (382) $ 82,541
States,
municipalities
and political
subdivisions 760,602 34,966 (1,029) 794,539
Debt securities
issued by
foreign
governments 3,000 296 0 3,296
Corporate securities 940,540 50,126 (7,008) 983,658
Mortgage-backed
securities:
U.S. Government
Agency 171,291 12,992 (7,377) 176,906
Other 269,262 14,274 (13,538) 269,998
- --------------------------------------------------------------------------------
Total fixed maturities 2,225,517 114,755 (29,334) 2,310,938
Equity securities 306,865 425,022 (10,735) 721,152
Short-term
investments 41,546 0 0 41,546
- --------------------------------------------------------------------------------
Total securities,
available for sale $2,573,928 $ 539,777 $ (40,069) $3,073,636
================================================================================
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
1995 COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities
available for
sale:
U.S. Government $ 110,628 $ 5,864 $ (5) 116,487
States, municipalities
and political
subdivisions 845,729 52,796 (59) 898,466
Debt securities
issued by
foreign
governments 3,000 423 0 3,423
Corporate securities 927,375 66,309 (7,285) 986,398
Mortgage-backed
securities:
U.S. Government
Agency 168,219 7,556 (5,581) 170,193
Other 221,199 18,281 (6,594) 232,886
- --------------------------------------------------------------------------------
Total fixed maturities 2,276,150 151,229 (19,524) 2,407,853
Equity securities 326,999 336,130 (1,974) 661,154
Short-term
investments 14,399 0 0 14,399
- --------------------------------------------------------------------------------
Total securities,
available for sale $2,617,548 $ 487,359 $ (21,498) $3,083,406
================================================================================
</TABLE>
The amortized cost and estimated fair value of debt securities at December
31, 1997, by contractual maturity are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<PAGE> 17
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
- --------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 21,712 $ 21,869
Due after one year through five years 337,931 356,217
Due after five years through ten years 736,400 779,447
Due after ten years 681,460 721,434
Mortgage-backed securities:
U.S. Government Agency 16,876 17,553
Other 317,912 329,510
- --------------------------------------------------------------
Total fixed maturities $2,112,291 $2,226,030
==============================================================
</TABLE>
Certain securities were determined to have other than temporary declines in
book value and were written down through realized investment losses. Total
write-downs were $14,433, $19,456 and $26,290 during 1997, 1996 and 1995,
respectively, representing a reduction in value of $0, $7,055 and $9,696 on
fixed maturities and $14,433, $12,401 and $16,595 on equity securities.
Proceeds from maturities and sales of investments in debt securities during
1997, 1996 and 1995 were $445,358, $603,364 and $1,062,462, respectively. Gross
gains of $12,665, $14,257 and $20,834 and gross losses of $4,311, $10,388 and
$24,500 were realized on those maturities and sales in 1997, 1996 and 1995,
respectively.
NOTE 3 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Corporation's financial instruments:
<TABLE>
<CAPTION>
CARRYING FAIR
1997 AMOUNT VALUE
- -----------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 120,055 $ 120,055
Securities - available for sale 3,085,505 3,085,505
Liabilities
Future policy benefits $ 34,148 $ 34,148
Long-term debt 40,000 40,000
<CAPTION>
CARRYING FAIR
1996 AMOUNT VALUE
- -----------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 61,624 $ 61,624
Securities - available for sale 3,032,090 3,032,090
Liabilities
Future policy benefits $ 280,002 $ 280,002
Long-term debt 50,000 50,000
<CAPTION>
CARRYING FAIR
1995 AMOUNT VALUE
- -------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 38,282 $ 38,282
Securities - available for sale 3,069,007 3,069,007
Liabilities
Future policy benefits $ 360,074 $ 360,074
Long-term debt 60,000 60,000
</TABLE>
See footnote 1 for disclosure related to fair value determination.
NOTE 4 -- DEFERRED POLICY ACQUISITION COSTS
Changes in deferred policy acquisition costs are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Deferred, January 1 $116,684 $119,795 $165,633
- ---------------------------------------------------------------
Additions:
Commissions and brokerage 190,029 190,461 204,594
Salaries and employee 46,241 47,092 43,867
benefits
Other 67,301 66,143 73,090
- ---------------------------------------------------------------
Deferral of expense 303,571 303,696 321,551
- ---------------------------------------------------------------
Amortization to expense
Discontinued operations (9,302) (2,049) 40,333
Continuing operations 303,494 308,856 327,055
- ---------------------------------------------------------------
Deferred, December 31 $126,063 $116,684 $119,795
===============================================================
</TABLE>
The above schedule includes deferred policy acquisition costs (net of
unamortized ceding commission) for discontinued life insurance operations of
$(2,185), $(11,486) and $(13,535) as of 1997, 1996 and 1995, respectively. See
Note 17 for additional information regarding discontinued operations.
NOTE 5 -- INCOME TAX
The effective income tax rate is less than the statutory corporate tax rate of
35% for 1997, 1996 and 1995 for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate $ 60,710 $ 40,263 $ 42,062
Tax exempt interest (16,522) (18,367) (16,150)
Dividends received deduction
(DRD) (3,239) (4,056) (3,446)
Proration of DRD and tax
exempt interest 2,796 3,017 3,319
Reduction in provision for
audit issues 0 (3,000) 0
Miscellaneous (680) (47) (971)
- --------------------------------------------------------------
Actual tax $ 43,065 $ 17,810 $ 24,814
==============================================================
</TABLE>
Tax years 1993 through 1995 are being examined by The Internal Revenue
Service. Management believes
<PAGE> 18
there will not be a significant impact on the financial position or results of
operations of the Corporation as a result of this audit.
The components of the net deferred tax asset (liability) were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Unearned premium proration $ 34,065 $ 33,833 $ 34,823
Accrued expenses 43,164 59,217 64,658
Postretirement benefits 28,522 27,355 26,331
Discounted loss and loss
expense reserves 78,217 81,350 88,589
- -------------------------------------------------------------
Total deferred tax assets 183,968 201,755 214,401
Deferred policy
acquisition costs (44,122) (51,129) (53,616)
Unrealized gains on
investments (235,235) (178,619) (162,897)
- -------------------------------------------------------------
Total deferred tax
liabilities (279,357) (229,748) (216,513)
- -------------------------------------------------------------
Net deferred tax asset
(liability) $ (95,389) $ (27,993) $ (2,112)
=============================================================
</TABLE>
Taxes paid amounted to $37,035 in 1997, $16,336 in 1996 and $37,346 in 1995.
NOTE 6 -- EMPLOYEE BENEFITS
The Corporation has a non-contributory defined benefit retirement plan,
contributory health care, life and disability insurance and savings plans
covering substantially all employees. Benefit expenses are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Employee benefit costs:
Retirement $ (252) $ (136) $(1,689)
Health care 12,555 14,415 13,339
Life and disability
insurance 463 555 594
Savings plan 2,321 2,489 2,586
- --------------------------------------------------------------
$15,087 $17,323 $14,830
==============================================================
</TABLE>
The pension benefit is determined as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Service cost/(benefit) earned
during the year $ 6,354 $ 6,256 $ 5,701
Interest cost on projected
benefit obligation 15,003 13,927 13,262
Actual return on plan assets (62,113) (19,070) (34,448)
Amortization of unrecognized
net asset existing at 40,504 (1,249) 13,796
January 1
- --------------------------------------------------------------
Net pension benefit $ (252) $ (136) $ (1,689)
==============================================================
</TABLE>
Pension plan funding at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Plan assets at fair value
(primarily fixed income
and equity securities) $276,477 $225,681 $217,274
- --------------------------------------------------------------
Plan benefit obligations:
Vested benefits 179,601 160,667 157,371
Non-vested benefits 3,061 2,780 3,046
Future benefits due to
salary increases 31,058 34,091 30,591
- --------------------------------------------------------------
Total 213,720 197,538 191,008
- --------------------------------------------------------------
Excess plan assets over
obligations $ 62,757 $ 28,143 $ 26,266
==============================================================
Unrecognized net gain
(loss) $ 42,443 $ 1,617 $ (3,082)
Unrecognized net assets 15,085 18,102 21,119
Unrecognized prior service
cost (2,508) (566) (624)
Expected long-term return
on plan assets 8.25% 8.75% 8.50%
Discount rate on plan
benefit obligations 7.25% 7.75% 7.50%
Expected future rate of
salary increases 5.25% 5.25% 5.25%
</TABLE>
Pension benefits are based on service years and average compensation using
the five highest consecutive years of earnings in the last decade of employment.
The pension plan measurement date is October 1 for 1997, 1996 and 1995. The
maximum pension expense deductible for income tax purposes has been funded. Plan
assets at December 31, 1997 include $37,585 of the Corporation's common stock at
market value compared to $29,899 and $32,637 at December 31, 1996 and 1995,
respectively.
Employee contributions to the health care plan have been established as a
flat dollar amount with periodic adjustments as determined by the Corporation.
The health care plan is unfunded.
Accrued postretirement benefit liability at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $(46,119) $(40,313) $(39,084)
Active employees (35,575) (31,484) (32,435)
- -------------------------------------------------------------
Total (81,694) (71,797) (71,519)
Unrecognized net loss (gain) 203 (6,203) (2,481)
- -------------------------------------------------------------
Accrued postretirement
benefit liability $(81,491) $(78,000) $(74,000)
=============================================================
</TABLE>
Postretirement benefit cost at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Service cost $1,739 $1,967 $1,883
Interest cost 5,588 5,412 5,144
- -------------------------------------------------------------
Net periodic
postretirement benefit
cost $7,327 $7,379 $7,027
=============================================================
</TABLE>
<PAGE> 19
Postretirement benefit rate assumptions at October 1:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Medical trend rate 8% 9% 10%
Dental trend rate 6% 7% 8%
Ultimate health care trend rate 5% 5% 5%
Discount rate 8.00% 7.75% 8.00%
</TABLE>
The postretirement plan measurement date is October 1 for 1997, 1996 and
1995.
Increasing the assumed health care cost trend by 1 percentage point in each
year would increase the accumulated postretirement benefit obligation as of
December 31, 1997 by approximately $14,705 and increase the postretirement
benefit cost for 1997 by $1,685.
The Corporation's health care plan is a predominately managed care plan.
Retired employees continue to be eligible to participate in the health care and
life insurance plans. Benefit costs are accrued based on actuarial projections
of future payments. There are currently 3,000 active employees and 1,378 retired
employees covered by these plans.
Employees may contribute a percentage of their compensation to a savings
plan. A portion of employee contributions is matched by the Corporation and
invested in Corporation stock purchased on the open market by trustees of the
plan.
NOTE 7 - STOCK OPTIONS
The Corporation is authorized under provisions of the 1993 Stock Incentive
Programs to grant options to purchase 1,293,500 shares of the Corporation's
common stock to key executive employees, directors, and other full time salaried
employees at a price not less than the fair market value of the shares on dates
the options are granted. The options granted may be either "Incentive Stock
Options" or "Nonqualified Stock Options" as defined by the Internal Revenue
Code; the difference in the option plans affects treatment of the options for
income tax purposes by the individual employee and the Corporation. The options
are non-transferable and exercisable at any time after the vesting requirements
are met. Option expiration dates are five and ten years from the grant date.
Options vest either at 100% six months from the grant date or at 33% per year
for three consecutive years from the date of the grant. At December 31, 1997,
988,289 remaining options may be granted.
In addition, the 1993 Stock Incentive Program provides for the grant of
Stock Appreciation Rights in tandem with the stock options. Stock Appreciation
Rights provide the recipient with the right to receive payment in cash or stock
equal to appreciation in value of the optioned stock from the date of grant in
lieu of exercise of the stock options held. At December 31, 1997, there were no
outstanding stock appreciation rights.
Restricted stock awards are occasionally issued by the Corporation. The
common shares covered by a restricted stock award may be sold or otherwise
disposed of only after a minimum of six months from the grant date of the award.
The difference between issue price and the fair market value on the date of
issuance is recorded as compensation expense. The amount of compensation expense
recognized in 1997 related to restricted stock awards was $345 before tax. There
were no restricted stock awards in 1996 or 1995. Currently there are 7,136
shares of restricted stock outstanding.
The Corporation also issues, at its discretion, dividend payment rights in
connection with the grant of stock options. These rights entitle the holder to
receive, for each dividend payment right, an amount in cash equal to the
aggregate amount of dividends that the Corporation has paid on each common share
from the date on which such right becomes effective through the payout date. One
third of these rights becomes vested on each anniversary after the grant.
Dividends accrue and payments are made when the rights are fully vested by the
rightholder. The Corporation recognizes compensation expense accordingly. The
amount of compensation expense related to dividend payment rights recognized in
1997 was $517 before tax. There was not any compensation expense recognized in
1996 or 1995 related to dividend payment rights. As of December 31, 1997,
213,000 dividend payment rights were outstanding.
The Corporation continues to elect APB 25 for recognition of stock-based
compensation expense. Under APB 25, expense is recognized based on the intrinsic
value of the options. However, under the provision of FAS 123 the Corporation is
required to estimate on the date of grant the fair value of each option using an
option-pricing model. Accordingly, the Black-Scholes option pricing model is
used with the following weighted-average assumptions for 1997, 1996 and 1995,
respectively: dividend yield of 4.5% for 1997, 1996 and 1995, expected
volatility of 26.1% for 1997 and 25.3% for both 1996 and 1995, risk free
interest rate of 6.87%, 6.34% and 6.20%, and expected life of 8 years. The
following table summarizes information about the stock-based compensation plan
as of December 31, 1997, 1996 and 1995, and changes that occurred during the
year:
<PAGE> 20
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------------
Weighted- Weighted- Weighted-
Avg Avg Avg
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
beginning of year 173 $33.84 74 $30.02 91 $28.71
Granted 120 41.44 127 34.93 12 30.50
Exercised (27) 33.33 (28) 28.75 (29) 26.11
Canceled (4) 32.38 0 0
------ ------ ------
Outstanding
end of year 262 $37.38 173 $33.84 74 $30.02
====== ====== ======
Options exercisable
at year-end 81 52 74
Weighted-Avg
fair value of
options granted
during the year $10.18 $ 8.14 $ 7.02
</TABLE>
At year end 1997, 262,494 options were outstanding with an average
remaining contractual life of 8.35 years and weighted exercise price of $37.38.
Of the amount outstanding, 81,493 were exercisable with a weighted average
exercise price of $34.05. At year end 1996, 172,500 options were outstanding
with an average remaining contractual life of 8.49 years and a weighted exercise
price of $33.84. Of the amount outstanding, 51,500 were exercisable with a
weighted average exercise price of $31.23. At year end 1995, 73,800 options were
outstanding with an average remaining contractual life of 5.81 years and a
weighted exercise price of $30.02. Of the amount outstanding, 73,800 were
exercisable with a weighted average exercise price of $30.02.
Had the Corporation adopted FAS 123, the amount of compensation expense
that would have been recognized in 1997, 1996 and 1995 respectively, would be
$755, $350 and $84. The Corporation's net income and earnings per share would
have been reduced to the pro forma amounts disclosed below:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Net Income As Reported: $139,047 $102,457 $99,735
Pro Forma: $138,557 $102,229 $99,680
Basic/diluted earnings per share
As Reported: $4.06 $2.91 $2.79
Pro Forma: $4.05 $2.90 $2.79
</TABLE>
NOTE 8 -- REINSURANCE AND OTHER CONTINGENCIES
In the normal course of business, the Corporation seeks to reduce the loss that
may arise from catastrophes or other events that cause unfavorable underwriting
results by reinsuring certain levels of risk with other insurers or reinsurers.
In the event that such reinsuring companies might be unable at some future date
to meet their obligations under the reinsurance agreements in force, the
Corporation would continue to have primary liability to policyholders for losses
incurred. The following amounts are reflected in the financial statements as a
result of reinsurance ceded:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Premiums earned $32,169 $ 30,534 $ 41,012
Losses incurred 13,387 11,846 22,030
Reserve for unearned
premiums 8,242 8,062 8,294
Reserve for losses 54,209 61,205 62,847
Reserve for future policy
benefits 34,148 280,002 360,074
Reserve for loss adjustment
expenses 7,794 8,833 11,272
</TABLE>
Annuities are purchased from other insurers to pay certain claim
settlements; should such insurers be unable to meet their obligations under the
annuity contracts, the Corporation would be liable to claimants for the
remaining amount of annuities. The total amount of unpaid annuities was $25,123,
$25,139 and $24,300 at December 31, 1997, 1996 and 1995, respectively.
On October 2, 1995, as part of the transaction involving the reinsurance of
the Ohio Life business to Employers' Reassurance Corporation, Ohio Casualty
Insurance Company agreed to manage a $163,615 fixed income portfolio for
Employers' Reassurance. The term of the agreement is seven years, terminating on
October 2, 2002. There is no separate fee to Ohio Casualty for this investment
management service. The agreement requires that Ohio Casualty pay an annual rate
of 7.25% interest to Employers' Reassurance and maintain the market value of the
account at $163,615. In the event the market value falls below this amount, Ohio
Casualty is required to make up any deficiency. At the termination of the
contract, any excess over $163,615 is payable to Ohio Casualty. In October 1997,
this obligation was transferred from Ohio Casualty Insurance Company to Ohio
Casualty Corporation. At December 31, 1997, the market value of the account
exceeded the $163,615 required balance by $2,080 compared with $699 in 1996 and
$2,497 in 1995. The annual interest obligation of 7.25% was also being
adequately serviced by the portfolio assets.
NOTE 9 -- LOSSES AND LOSS RESERVES
The reserves for unpaid losses and loss adjustment expenses are based on
estimates of ultimate claim costs, including claims incurred but not reported,
salvage and subrogation and inflation without discounting. The methods of making
such estimates are continually reviewed and updated, and any resulting
adjustments are reflected in earnings currently.
<PAGE> 21
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Balance as of January 1, net of
reinsurance recoverables of
$70,048, $74,119 and
$65,336 $1,486,622 $1,557,065 $1,606,487
Incurred related to:
Current year 922,065 1,009,086 1,008,321
Prior years (53,615) (76,920) (104,998)
- -----------------------------------------------------------------------
868,450 932,166 903,323
Paid related to:
Current year 448,402 515,025 444,558
Prior years 484,866 487,584 508,187
- -----------------------------------------------------------------------
Total paid 933,268 1,002,609 952,745
Balance as of December 31, net
of reinsurance recoverables
of $62,003, $70,048 and
$74,119 $1,421,804 $1,486,622 $1,557,065
========================================================================
</TABLE>
As a result of favorable development in estimates for insured events of
prior years, the incurred related to prior years shows a favorable development.
The following table presents catastrophe losses incurred and the respective
impact on the loss ratio:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Incurred losses $21,389 $62,189 $27,277
Loss ratio effect 1.8% 5.1% 2.2%
</TABLE>
The effect of catastrophes on the Corporation's results cannot be
accurately predicted. As such, severe weather patterns could have a material
adverse impact on the Corporation's results.
Inflation has historically affected operating costs, premium revenues and
investment yields as business expenses have increased over time. The long term
effects of inflation are considered when estimating the ultimate liability for
losses and loss adjustment expenses. The liability is based on historical loss
development trends which are adjusted for anticipated changes in underwriting
standards, policy provisions and general economic trends. It is not adjusted to
reflect the effect of discounting.
Reserves for asbestos-related illnesses and toxic waste cleanup claims
cannot be estimated with traditional loss reserving techniques. In establishing
liabilities for claims for asbestos-related illnesses and for toxic waste
cleanup claims, management considers facts currently known and the current state
of the law and coverage litigation. However, given the expansion of coverage and
liability by the courts and the legislatures in the past and the possibilities
of similar interpretations in the future, there is uncertainty regarding the
extent of remediation. Accordingly, additional liability could develop.
Estimated asbestos and environmental reserves are composed of case reserves,
incurred but not reported reserves and reserves for loss adjustment expense. For
1997, 1996 and 1995, respectively, total case, incurred but not reported and
loss adjustment expense reserves were $40,121, $40,956 and $40,719. Asbestos
reserves were $6,966, $5,215 and $5,215 and environmental reserves were $33,155,
$35,741 and $35,504 for those respective years.
NOTE 10 -- EARNINGS PER SHARE
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>
1997 1996 1995
- ---------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing
operations $130,392 $97,228 $95,363
Average common shares
outstanding - basic 34,228 35,247 35,750
Basic income from continuing
operations per average share $3.81 $2.76 $2.67
===============================================================
Average common shares
outstanding 34,228 35,247 35,750
Effect of dilutive securities 29 7 9
- ---------------------------------------------------------------
Average common shares
outstanding - diluted 34,257 35,254 35,759
Diluted income from
continuing operations per
average share $3.81 $2.76 $2.67
===============================================================
</TABLE>
NOTE 11 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1997 FIRST SECOND THIRD FOURTH
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and
finance charges
earned $302,479 $307,788 $300,252 $298,455
Net investment
income 43,717 45,153 45,365 43,465
Investment gains
(losses) realized 13,340 8,498 20,806 8,105
Income from
continuing
operations 31,257 32,962 25,324 40,849
Income from
discontinued
operations 1,458 1,143 (85) 6,139
Net income 32,715 34,105 25,239 46,988
Basic and diluted
net income per
share .94 1.00 .74 1.39
</TABLE>
<PAGE> 22
<TABLE>
<CAPTION>
1996 First Second Third Fourth
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums and
finance charges $310,217 $304,641 $301,054 $310,739
earned
Net investment
income 44,988 43,302 46,105 48,913
Investment gains
(losses)
realized 5,954 14,948 13,507 15,263
Income from
continuing
operations 2,835 12,652 27,333 54,408
Income from
discontinued
operations 713 2,181 1,056 1,279
Net income 3,548 14,833 28,389 55,687
Basic and diluted
net income per
share .10 .43 .81 1.58
</TABLE>
NOTE 12 -- INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Property and Casualty Insurance
Revenue $1,430,590 $1,453,623 $1,456,242
Income before taxes 173,608 116,906 121,741
Identifiable assets 3,585,030 3,437,622 3,457,750
Premium Finance and Other
Revenue 6,833 6,008 6,230
Loss before taxes (151) (1,868) (1,564)
Identifiable assets 108,858 65,039 26,939
Discontinued Operations
(Life insurance)
Revenue 29,452 10,396 (335,835)
Income before taxes 13,316 7,892 8,717
Identifiable assets 65,337 347,477 511,818
</TABLE>
NOTE 13 -- STATUTORY ACCOUNTING INFORMATION
The following information has been prepared on the basis of statutory accounting
principles which differ from generally accepted accounting principles. The
principal differences relate to deferred acquisition costs, required statutory
reserves, assets not admitted for statutory reporting, California Proposition
103 reserve and deferred federal income taxes.
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Property and Casualty
Insurance
Statutory net income $ 142,457 $104,137 $103,802
Statutory policyholders'
surplus 1,109,517 984,859 876,918
Life Insurance
Statutory net income 29,794 4,885 38,981
Statutory
policyholders' surplus 29,971 58,511 92,297
</TABLE>
The Ohio Casualty Insurance Company, domiciled in Ohio, prepares its
statutory financial statements in accordance with the accounting practices
prescribed or permitted by the Ohio Insurance Department. Prescribed statutory
accounting practices include a variety of publications of the National
Association of Insurance Commissioners (NAIC), as well as state laws,
regulations, and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed.
The Company received written approval from the Ohio Insurance Department to
have the California Proposition 103 liability reported as a direct charge to
surplus and not included as a charge in the 1995 statutory statement of
operations. Following this same treatment, during 1997 the principal reduction
in the Proposition 103 liability was taken as an increase to statutory surplus
and not included in the 1997 statutory statement of operations.
<PAGE> 23
NOTE 14 -- BANK NOTE PAYABLE
In 1994, $70,000 was borrowed under a term loan credit facility. During 1997,
the Corporation signed a new credit facility that makes available a $300,000
revolving line of credit which was immediately accessed to refinance the
outstanding term loan balance. The credit agreement contains financial covenants
and provisions customary for such arrangements. The agreement expires in 2002,
with any outstanding loan balance due at that time. The revolving line of credit
maintains the interest rate swap that existed on the term loan. The effect of
the swap agreement was to establish a fixed rate of 6.34% on $20,000 of the
outstanding balance of $40,000 converted to the revolving line of credit. The
remaining balance and any additional borrowings under the line of credit bear
interest at a periodically adjustable rate. The interest rate was 6.08% at
December 31, 1997. The interest rate is determined on various bases including
prime rates, certificate of deposit rates and the London Interbank Offered Rate.
Interest incurred on borrowings amounted to $3,147, $3,769 and $4,474 in 1997,
1996 and 1995 respectively. Under the loan agreement, statutory surplus is
$359,517 in excess of the minimum amount required to be maintained at December
31, 1997.
NOTE 15 -- CALIFORNIA WITHDRAWAL
As a result of the lack of profitability and the difficult regulatory
environment, the Corporation announced its intention to withdraw from business
operation in California on June 15, 1992. In December 1992, the Corporation
stopped writing business in California and filed a withdrawal plan with the
California Department of Insurance. Under the terms of the plan, subsidiary
American Fire and Casualty Company would wind down the affairs of the Group. In
November 1994, the California Department of Insurance published the required
notices of the withdrawal application. In April 1995, the California Department
of Insurance gave final
<PAGE> 24
approval for withdrawal, and the Corporation implemented the withdrawal plan.
Proposition 103 was passed in the State of California in 1988 in an attempt
to legislate premium rates for that state. Even after considering investment
income, total returns in California have been less than what would be considered
"fair" by any reasonable standard. During the fourth quarter of 1994, the State
of California billed the Corporation $59,867 for Proposition 103 assessment. In
February 1995, California revised this billing to $47,278 due to California
Senate Bill 905 which permits reduction of the rollback due to commissions and
premium taxes paid. The billing was revised again in August of 1995, to $42,100
plus interest.
The Corporation is currently involved in hearings with the State of
California. In mid 1997, the Administrative Law Judge presiding over the hearing
requested a submission from the state showing revised rollback calculations. The
California Department of Insurance filed two revised rollback calculations in
December 1997. These alternatives, based on concession of certain issues,
provide a range of rollback liabilities between $35.9 million plus interest and
$39.9 million plus interest.
In January 1998, the Judge indicated her intent to rule under the
Department's regulations, without consideration of the Corporation's
constitutional challenge that the Corporation's liability should be below $30.0
million plus interest. The Commissioner may accept or reject the Judge's
ultimate decision in whole or in part and his determination will be subject to
de novo review by the State Superior Court. After consultation with outside
counsel, the Corporation has determined that $35.9 million plus interest is the
more reasonable of the two Department calculations should the Department of
Insurance prevail. As a result, the Corporation's reserve for this alleged
liability is $66,908. An administrative hearing process is ongoing concerning
the potential rollback liability. It is uncertain when this matter will
ultimately be resolved. The Corporation will continue to challenge the validity
of any rollback and plans to continue negotiations with Department officials. To
date, the Corporation has paid $3,955 in legal costs related to the withdrawal,
Proposition 103, and Fair Plan assessments.
NOTE 16 -- SHAREHOLDER RIGHTS PLAN
In December 1989, the Board of Directors adopted a Shareholder Rights Plan
declaring a dividend of one Common Share Purchase Right for each outstanding
share of common stock. This plan was amended by the Board of Directors on
February 19, 1998 which extended the expiration of the rights from 1999 to 2009.
Each right entitles the registered holder, under certain conditions, to purchase
one share of common stock at a price of $250, subject to adjustment at the time
rights become exercisable if a person or group acquires or announces its
intention to acquire 20% or more of the common stock of the Corporation without
the prior approval of the Board of Directors. The rights may be redeemed by the
rightholder for one cent per right at any time prior to becoming exercisable.
NOTE 17 -- DISCONTINUED OPERATIONS (LIFE INSURANCE) Discontinued operations
include the operations of Ohio Life, a subsidiary of the Ohio Casualty Insurance
Company.
On October 2, 1995, the Company transferred its life insurance and related
businesses through a 100% coinsurance arrangement to Employers' Reassurance
Corporation and entered into an administrative and marketing agreement with
Great Southern Life Insurance Company. In connection with the reinsurance
agreement, $144,469 in cash and $161,401 of securities were transferred to
Employers' Reassurance to cover the liabilities of $348,479. Ohio Life received
an adjusted ceding commission of $37,641 as payment. After deduction of deferred
acquisition costs, the net ceding commission from the transaction was $17,284.
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 of this
assumption, fourth quarter net income was positively impacted by a partial
recognition of unamortized ceding commission. The after-tax impact was an
increase to net income of $5,300. There remains approximately $2,200 in
unamortized ceding commission. This will continue to be amortized over the
remaining life of the underlying policies.
Results of the discontinued life insurance operations for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Gross premiums written $ 1,267 $ 1,428 $ 38,580
Net premiums earned 23,865 4,582 (345,080)
Net investment income 3,954 4,812 4,143
Realized investment
gains 1,633 1,002 5,102
- ------------------------------------------------------------
Total income 29,452 10,396 (335,835)
Income before income
taxes 13,316 7,892 8,717
- ------------------------------------------------------------
Provision for income
taxes 4,661 2,663 4,345
- ------------------------------------------------------------
Net income $ 8,655 $ 5,229 $ 4,372
============================================================
</TABLE>
Assets and liabilities of the discontinued life insurance operations as of
the years ended December 31 were as follows:
<PAGE> 25
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Cash $ 9,214 $ 1,150 $ 9,793
Investments 21,320 71,313 107,603
Receivables 0 (4) 5,165
Deferred policy
acquisition costs,
net of unamortized
ceding commission (2,185) (11,486) (13,535)
Reinsurance receivable 36,198 285,354 363,127
Other assets 4,219 7,380 3,570
- --------------------------------------------------------------
Total assets $68,766 $353,707 $475,723
==============================================================
Future policy benefits $34,148 $280,002 $360,074
Deferred income tax (1,357) 1,728 11,172
Other liabilities 35,512 17,505 18,196
- --------------------------------------------------------------
Total liabilities $68,303 $299,235 $389,442
==============================================================
</TABLE>
NOTE 18 -- NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 130 "Reporting Comprehensive Income". This
statement requires display of comprehensive income in a set of general-purpose
financial statements. 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 will display comprehensive income in
quarterly and annual reports for fiscal periods beginning after December 15,
1997.
Also 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 15, 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. 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.
During 1997, the SEC issued Financial Reporting Release 48 "Disclosures
about Derivatives and Other Financial Instruments" which is effective for
periods ending after June 15, 1997 for registrants with market capitalizations
in excess of $2.5 billion and effective one year later for all other
registrants. The Corporation has a market capitalization of less than $2.5
billion. FRR 48 does not impact the Corporation's financial statements but does
require enhanced disclosures about market risk inherent in derivatives and other
financial instruments. The additional information will be included in annual
filings with the SEC after June 15, 1998.
<PAGE> 1
Exhibit 21
Ohio Casualty Corporation
Subsidiaries of Registrant
December 31, 1997
Name of Subsidiary State of Incorporation
The Ohio Casualty Insurance Company Ohio
West American Insurance Company Indiana
Ohio Security Insurance Company Ohio
American Fire and Casualty Company Ohio
Avomark Insurance Company Indiana
The Ohio Life Insurance Company Ohio
Ocasco Budget, Inc. Ohio
69
<PAGE> 1
Exhibit 22
OHIO CASUALTY CORPORATION
136 NORTH THIRD STREET
HAMILTON, OHIO 45025
NOTICE OF ANNUAL MEETING
OF
SHAREHOLDERS
TO BE HELD APRIL 15, 1998
Hamilton, Ohio
March 13, 1998
To the Shareholders:
The Annual Meeting of Shareholders (the "Annual Meeting") of Ohio Casualty
Corporation (the "Company") will be held in the meeting rooms of The Hamiltonian
Hotel, One Riverfront Plaza, Hamilton, Ohio, 45011, on Wednesday, April 15,
1998, at 10:30 a.m., local time, for the following purposes:
(1) To elect the following four Directors for terms expiring in 2001
(Class II), as successors to the class of Directors whose terms
expire in 1998: Wayne Embry, Stephen S. Marcum, Stanley N.
Pontius and William L. Woodall.
(2) To ratify the selection of Coopers & Lybrand L.L.P. as
independent public accountants of the Company for the fiscal year
ending December 31, 1998.
(3) In their discretion, to consider and vote upon such other matters
as may properly come before the Annual Meeting or any adjournment
thereof.
Holders of record of common shares of the Company as of the close of
business on March 2, 1998 are entitled to notice of and to vote at the Annual
Meeting and at any adjournment thereof. As of March 2, 1998, there were
33,629,908 common shares outstanding. Each common share is entitled to one vote
on all matters properly brought before the Annual Meeting.
By Order of the Board of Directors,
Howard L. Sloneker III, Secretary
EVERY SHAREHOLDER'S VOTE IS IMPORTANT. IF YOU ARE UNABLE TO BE PRESENT AT THE
ANNUAL MEETING, YOU ARE REQUESTED TO COMPLETE AND RETURN PROMPTLY THE ENCLOSED
PROXY SO THAT YOUR COMMON SHARES WILL BE REPRESENTED. A POSTAGE PAID, ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
<PAGE> 2
OHIO CASUALTY CORPORATION
136 NORTH THIRD STREET
HAMILTON, OHIO 45025
PROXY STATEMENT
---------------
ANNUAL MEETING OF SHAREHOLDERS
APPROXIMATE DATE TO MAIL -- MARCH 13, 1998
On behalf of the Board of Directors of Ohio Casualty Corporation (the
"Company"), a proxy is solicited from you to be used at the Company's 1998
Annual Meeting of Shareholders (the "Annual Meeting") scheduled for Wednesday,
April 15, 1998 at 10:30 a.m., local time, in the meeting rooms of The
Hamiltonian Hotel, One Riverfront Plaza, Hamilton, Ohio 45011, or at any
adjournment thereof.
Proxies in the form enclosed herewith are being solicited on behalf of the
Company's Board of Directors. The common shares represented by proxies which are
properly executed and returned will be voted at the Annual Meeting, or any
adjournment thereof, as directed. Common shares represented by proxies properly
executed and returned which indicate no direction will be voted in favor of the
nominees of the Board of Directors identified in the Notice of Annual Meeting
accompanying this Proxy Statement and for the ratification of the selection of
Coopers & Lybrand L.L.P. as independent public accountants of the Company for
the fiscal year ending December 31, 1998. Any shareholder giving the enclosed
proxy has the power to revoke the same prior to its exercise by filing with the
Secretary of the Company a written revocation or duly executed proxy bearing a
later date, or by giving notice of revocation in open meeting. ATTENDANCE AT THE
ANNUAL MEETING WILL NOT, IN AND OF ITSELF, CONSTITUTE REVOCATION OF A PROXY.
VOTING AT ANNUAL MEETING
As of March 2, 1998, the record date fixed for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting, there were
outstanding 33,629,908 common shares, which is the only outstanding class of
capital stock of the Company. Each such common share is entitled to one vote on
all matters properly coming before the Annual Meeting.
A quorum for the Annual Meeting is a majority of the outstanding common
shares. Common shares represented by signed proxies that are returned to the
Company will be counted toward the quorum in all matters even though they are
marked "Abstain", "Against" or " Withhold Authority" on one or more or all
matters or they are not marked at all. Broker non-votes are also counted for
purposes of determining the presence or absence of a quorum. Broker non-votes
occur when brokers, who hold their customers' shares in street name, sign and
submit proxies for such shares on some matters, but not others. Typically, this
would occur when brokers have not received any instructions from their
customers, in which case the brokers, as the holders of record, are permitted to
vote on " routine" matters, which typically include the election of directors,
but not on non-routine matters.
1
<PAGE> 3
PRINCIPAL SHAREHOLDERS
The table below identifies the only persons known to the Company to own
beneficially (within the meaning of Rule 13d-3 under the Securities Exchange Act
of 1934) more than 5% of the Company's outstanding common shares.
<TABLE>
<CAPTION>
COMMON SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OF COMMON
OF BENEFICIAL OWNER OWNED SHARES DATE
------------------- ----- ------ ----
<S> <C> <C> <C>
FIRST NATIONAL BANK OF 3,178,294(1) 9.45% 12-31-97
SOUTHWESTERN OHIO
Third and High Streets
Hamilton, Ohio 45011
THE CAPITAL GROUP, INC. 2,997,500(3) 8.92% 12-31-97
333 South Hope Street
Los Angeles, California 90071
THE CHASE MANHATTAN BANK, N.A., 2,351,357(2) 6.99% 12-31-97
Trustee
1211 Avenue of the Americas
New York, New York 10036
JOSEPH L. MARCUM 2,208,416(4) 6.57% 03-02-98
136 North Third Street
Hamilton, Ohio 45025
<FN>
- --------------------
(1) Based upon information provided to the Company by First National Bank of
Southwestern Ohio (the "Bank"). The Bank holds the reported shares as
trustee under various trust agreements and arrangements. The Bank has
advised the Company that it has sole voting power for 2,732,124 shares,
shared voting power for 0 shares, sole investment power for 1,482,960
shares, and shared investment power for 1,283,542 shares. 413,371 shares
are held under trust arrangements for certain directors of the Company,
and their respective spouses, which shares are also reported in the
following table showing share ownership by directors and executive
officers of the Company.
(2) 1,509,125 shares are held as trustee for the Company's Employee Savings
Plan and 842,232 shares are held as trustee for the Company's Employees
Retirement Plan. Voting power with respect to shares held in the Employee
Savings Plan is exercised by the plan participants; investment power with
respect to these shares is held by plan participants subject to
limitations in the Plan. Voting and investment power with respect to
shares held in the Employees Retirement Plan is exercised by the
committee which administers the Employees Retirement Plan (the
"Retirement Committee"). The Retirement Committee consists of Joseph L.
Marcum, Lauren N. Patch and Barry S. Porter.
(3) Based upon information contained in a Schedule 13G dated February 12,
1998, filed with the Securities and Exchange Commission by The Capital
Group, Inc. The Capital Group, Inc. reported sole voting power for 0
shares, shared voting power for 0 shares and sole investment power for
2,997,500 shares as of December 31, 1997.
(4) See share ownership information for Mr. Marcum in the following table.
</TABLE>
2
<PAGE> 4
SHAREHOLDINGS OF DIRECTORS, EXECUTIVE OFFICERS
AND NOMINEES FOR ELECTION AS DIRECTOR
As of March 2, 1998, the directors of the Company, including the four
persons intended by the Board of Directors to be nominated for election as
directors, the executive officers of the Company named in the Summary
Compensation Table, and all executive officers and directors of the Company as a
group, beneficially owned common shares of the Company as set forth below.
<TABLE>
<CAPTION>
SHARED INVESTMENT/
NUMBER OF OPTIONS VOTING POWER
COMMON SHARES EXERCISABLE OVER EMPLOYEES
NAME OF BENEFICIALLY WITHIN RETIREMENT PERCENT
INDIVIDUAL OR GROUP OWNED(1) 60 DAYS PLAN SHARES(2) TOTAL OF CLASS(3)
- ------------------- -------- ------- -------------- ----- -----------
<S> <C> <C> <C>
Arthur J. Bennert 16,178 6,000 22,178
Jack E. Brown 1,100 6,000 7,100
Catherine E. Dolan 100 6,000 6,100
Wayne Embry 200 6,000 6,200
Vaden Fitton 227,779 (4) 6,000 233,799
Jeffery D. Lowe 162,119 (4) 3,000 165,119
Joseph L. Marcum 1,363,184 (4)(5)(6) 3,000 842,232 2,208,416 6.57%
Stephen S. Marcum 212,744 (4) 6,000 218,744
Lauren N. Patch 246,569 (4)(7) 30,000 842,232 1,118,801 3.33%
Stanley N. Pontius 1,163 6,000 7,163
Howard L. Sloneker III 221,164 (7) 6,666 227,830
William L. Woodall 20,700 6,000 26,700
Michael L. Evans 5,673 (7) 9,999 15,672
Coy Leonard, Jr. 639 (7) 3,000 3,779
Barry S. Porter 28,135 (7) 9,999 842,232 880,366 2.62%
All Executive Officers
and Directors as a
Group (31 Persons) 2,775,718 152,491 842,232 3,770,441 11.21%
<FN>
- --------------------------------
(1) Unless otherwise indicated, each named person has voting and investment
power over the listed shares and such voting and investment power is
exercised solely by the named person or shared with a spouse.
(2) Includes 842,232 shares held in the Company's Employees Retirement Plan as
to which the named individuals share voting and investment power solely by
reason of being a member of the Retirement Committee which administers such
Plan. See Note (2) of the preceding table. Messrs. Marcum, Patch and Porter
disclaim beneficial ownership of these shares.
(3) Percentages are listed only for those individuals who are the beneficial
owners of more than of 1% of the outstanding shares.
(4) Includes the following number of shares owned by family members as to which
beneficial ownership is disclaimed: Mr. Fitton, 102,857; Mr. Lowe, 140,350;
Mr. Joseph L. Marcum, 614,154; Mr. Stephen S. Marcum, 84,090; and Mr.
Patch, 207,601.
</TABLE>
3
<PAGE> 5
(5) Includes 225,852 shares held by Mr. Marcum's wife in her capacity as a
co-trustee of the estate of Howard Sloneker as to which shares Mr. Marcum
has no voting or investment power.
(6) Includes 97,806 shares held as co-trustee of the Joseph L. and Sarah S.
Marcum Foundation as to which voting and investment power is shared by
Joseph L. and Stephen S. Marcum.
(7) The share ownership for Messrs. Patch, Sloneker, Evans, Leonard and Porter
includes 4,658; 2,382; 1,284; 140; and 9,757 shares, respectively, held
for the accounts of these individuals by the trustee of the Company's
Employee Savings Plan. Such persons have sole voting power with respect to
these shares and also hold investment power subject to limitations in the
Plan.
ELECTION OF DIRECTORS
The Board of Directors intends that the four persons named under Class II
in the following table (the "Nominees") will be nominated for election at the
Annual Meeting for three-year terms expiring in 2001. The terms of the remaining
directors in Classes I and III will continue as indicated below. It is intended
that the common shares represented by the accompanying Proxy will be voted for
the election as directors of the Nominees, unless otherwise instructed on the
Proxy. In the event that any one or more of the Nominees unexpectedly becomes
unavailable for election, the common shares represented by the accompanying
Proxy will be voted in accordance with the best judgment of the proxy holders
for the election of the remaining Nominees and for the election of any
substitute nominee or nominees designated by the Board of Directors.
Under Ohio law and the Company's Code of Regulations, the nominees
receiving the greatest number of votes will be elected as directors. Shares as
to which the authority to vote is withheld will be counted for quorum purposes
but will not be counted toward the election of the Nominees.
<TABLE>
<CAPTION>
POSITION WITH COMPANY AND/OR
PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
NAME AND AGE(1) DURING LAST FIVE YEARS(2) SINCE
---------------------------------------------------------------------------- -----
NOMINEES: CLASS II --TERMS EXPIRING IN 2001:
<S> <C> <C>
Wayne Embry, Executive Vice President and General Manager of the Cleveland Cavaliers 1991
61 (professional basketball franchise).
Stephen S. Marcum, Member of the law firm of Parrish, Beimford, Fryman, Smith & Marcum Co., 1989
40 L.P.A., Hamilton, Ohio; such firm has provided legal services to the
Company and its subsidiaries during the last fiscal year and continues to
do so.
Stanley N. Pontius, President and Chief Executive Officer of First Financial Bancorp and its 1994
51 principal subsidiary, First National Bank of Southwestern Ohio,
Hamilton, Ohio.
William L. Woodall, Director of the Company, The Ohio Casualty Insurance Company, West 1986
74 American Insurance Company, American Fire and Casualty Company, Ohio
Security Insurance Company, OCASCO Budget, Inc. and The Ohio Life
Insurance Company; retired as an executive officer of the Company and
its subsidiaries on December 31, 1990.
</TABLE>
4
<PAGE> 6
<TABLE>
<CAPTION>
POSITION WITH COMPANY AND/OR
PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR
NAME AND AGE(1) DURING LAST FIVE YEARS(2) SINCE
- --------------- ---------------------------------------------------------------------------- ----------
DIRECTORS WHOSE TERMS CONTINUE BEYOND THE ANNUAL MEETING
CLASS III -- TERMS EXPIRING IN 1999
<S> <C> <C>
Arthur J. Bennert, Director of the Company, The Ohio Casualty Insurance Company, West 1989
71 American Insurance Company, American Fire and Casualty Company, Ohio
Security Insurance Company and The Ohio Life Insurance Company; retired
as an executive officer of the Company and its subsidiaries on January
1, 1992.
Catherine E. Dolan, Managing Director of the Financial Institutions Group, First Union 1994
40 National Bank, Charlotte, North Carolina.
Jeffery D. Lowe, Director of the Company, The Ohio Casualty Insurance Company, West 1983
52 American Insurance Company, American Fire and Casualty Company, Ohio
Security Insurance Company and The Ohio Life Insurance Company.
Lauren N. Patch, President, Chief Executive Officer and Director of the Company, The Ohio 1987
47 Casualty Insurance Company, West American Insurance Company, American Fire
and Casualty Company, Ohio Security Insurance Company and OCASCO Budget,
Inc.; Vice Chairman and Director of The Ohio Life Insurance Company. Mr.
Patch became Chief Executive Officer of the Company on January 1, 1994,
and President of the Company on January 1, 1991.
CLASS I: TERMS EXPIRING IN 2000
Jack E. Brown, Chairman of the Board, BBI Marketing Services, Inc., Cincinnati, Ohio 1994
54 (professional marketing consulting firm).
Vaden Fitton, Director and Retired First Vice President of First National Bank of 1967
69 Southwestern Ohio, Hamilton, Ohio.
Joseph L. Marcum, Chairman of the Board and Director of the Company, The Ohio Casualty 1949
74 Insurance Company, West American Insurance Company, American Fire and
Casualty Company, Ohio Security Insurance Company, OCASCO Budget, Inc.
and The Ohio Life Insurance Company. Mr. Marcum served as Chief
Executive Officer of the Company and its subsidiaries until December 31,
1993, and President of the Company and its subsidiaries until December
31, 1990.
Howard L. Sloneker III, Vice President, Secretary and Director of the Company, The Ohio Casualty 1983
41 Insurance Company, West American Insurance Company, American Fire and
Casualty Company, Ohio Security Insurance Company and OCASCO Budget,
Inc.; Secretary and Director of The Ohio Life Insurance Company.
</TABLE>
- -----------------------
(1) Ages are listed as of the date of the Annual Meeting.
5
<PAGE> 7
(2) The Ohio Casualty Insurance Company, Ohio Security Insurance Company,
American Fire and Casualty Company, West American Insurance Company,
OCASCO Budget, Inc. and The Ohio Life Insurance Company are subsidiaries
of the Company.
OTHER DIRECTORSHIPS AND RELATED TRANSACTIONS AND RELATIONSHIPS
Wayne Embry is also a director of M.A. Hanna Company and Society
Corporation; Vaden Fitton, Joseph L. Marcum and Stanley N. Pontius are also
directors of First Financial Bancorp.
Joseph L. Marcum, the Chairman of the Board of the Company, retired as the
Chief Executive Officer of the Company on December 31, 1993. Mr. Marcum receives
annual benefits from the Company of $142,393 pursuant to the Company's Employees
Retirement Plan. See "Pension Plans."
Jeffery D. Lowe is the son-in-law of Joseph L. Marcum; Lauren N. Patch and
Howard L. Sloneker III are brothers-in-law; and Stephen S. Marcum is the son of
Joseph L. Marcum.
MEETINGS OF THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
During 1997, the Board of Directors held five meetings. No director
attended fewer than 75% of the aggregate number of meetings of the Board of
Directors and the committees on which he or she served. The Board of Directors
has standing Executive, Audit, Executive Compensation and Nominating Committees.
The Executive Committee held one meeting during 1997. The members of the
Executive Committee are Joseph L. Marcum, Lauren N. Patch, and Howard L.
Sloneker III. All Executive Committee members attended the meeting in 1997. The
Executive Committee is empowered to exercise all the powers of the Board of
Directors in the management of the Company between meetings of the Board of
Directors, other than filling vacancies on the Board or any other committee of
the Board.
The Audit Committee held three meetings during 1997. The members of the
Audit Committee are Arthur J. Bennert, Jack E. Brown, Catherine E. Dolan, Wayne
Embry, Vaden Fitton, Joseph L. Marcum, Stephen S. Marcum, Stanley N. Pontius,
and William L. Woodall. Each Audit Committee member attended all of the meetings
in 1997 except Ms. Dolan and Mr. Fitton who attended two meetings. The Audit
Committee's primary function is to meet with the independent auditors for the
Company and to review the Company's internal and independent auditing and
financial controls.
The Executive Compensation Committee held one meeting during 1997. The
members of the Executive Compensation Committee are Jack E. Brown, Vaden Fitton,
Stephen S. Marcum and Stanley N. Pontius. All members of the Executive
Compensation Committee attended the meeting in 1997. The Executive Compensation
Committee administers the Company stock option plans and carries out the
responsibilities described in the Executive Compensation Committee Report in
this Proxy Statement.
The Nominating Committee held one meeting during 1997. The members of the
Nominating Committee are Jack E. Brown, Wayne Embry, Vaden Fitton, Joseph L.
Marcum, Stephen S. Marcum, Stanley N. Pontius and Howard L. Sloneker III. The
Nominating Committee's responsibilities include the selection of potential
candidates for director and the recommendation of candidates to the Board. The
Nominating Committee will consider nominees for director recommended by
shareholders for the 1999
6
<PAGE> 8
Annual Meeting of Shareholders provided that the names of such nominees are
submitted not later than November 13, 1998, to Howard L. Sloneker III,
Secretary, 136 North Third Street, Hamilton, Ohio 45025.
DIRECTORS' FEES AND COMPENSATION
Each director received $25,000 for services as a director of the Company
during 1997. Each non-employee director of the Company also received $1,500 per
meeting for attending the meetings of the Board of Directors in 1997. Members of
the Audit Committee also received $5,000 each for serving on that committee. In
addition, members of the Executive Compensation Committee received $300 per
meeting for each meeting attended. Joseph L. Marcum was paid an additional
$65,000 during 1997 as compensation for serving as the Chairman of the Board.
On May 20, 1997, Jack E. Brown, Vaden Fitton and Joseph L. Marcum, each
of whom is a non-employee director of the Company, were granted a non-qualified
stock option (an "NQSO") to purchase 3,000 common shares of the Company at an
exercise price of $42.25 per share, the closing market price of the common
shares on the date of grant. Any individual who becomes or is re-elected a
non-employee director is automatically granted an NQSO to purchase 3,000 common
shares effective on the third business day following the first meeting of the
Board of Directors after his/her election or appointment to the Board. The
exercise price of each NQSO granted to a non-employee director is equal to the
fair market value of the common shares on the date of grant. NQSOs granted to
non-employee directors have terms of ten years (subject to earlier termination
in certain cases) and may not be exercised during the six months following their
date of grant.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table presents information concerning compensation provided
by the Company to its Chief Executive Officer and to each of the Company's four
most highly compensated executive officers, other than the Chief Executive
Officer, for services rendered in all capacities for each of the Company's last
three completed fiscal years:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------- -------------------------------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING DIVIDEND
NAME AND SALARY COMPENSATION STOCK OPTIONS/ PAYMENT
PRINCIPAL POSITION YEAR ($)(1) ($)(2)(3) AWARDS($)(4) SARS(#) RIGHTS(#)(5)
------------------ ---- ------ --------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Lauren N. Patch 1997 530,000 70,898 98,025 30,000 30,000
President and Chief 1996 529,560 47,881 57,709 30,000 30,000
Executive Officer 1995 474,231 13,477 0 0 0
Barry S. Porter 1997 258,000 32,463 40,165 10,000 10,000
Chief Financial 1996 248,604 22,484 24,956 10,000 10,000
Officer and Treasurer 1995 233,208 6,996 0 0 0
Michael L. Evans 1997 213,750 11,083 6,694 10,000 10,000
Executive Vice President 1996 199,500 19,051 18,686 10,000 10,000
1995 174,462 4,500 0 0 0
Howard L. Sloneker III 1997 209,500 23,488 27,760 10,000 10,000
Vice President 1996 197,698 16,603 16,335 10,000 10,000
1995 181,398 4,597 0 0 0
Coy Leonard, Jr. 1997 158,821 14,312 18,163 3,000 3,000
Vice President 1996 132,352 7,952 9,446 3,000 3,000
1995 117,108 1,171 0 0 0
</TABLE>
7
<PAGE> 9
(1) Includes annual directors' fees for Messrs. Patch and Sloneker.
(2) Includes for Messrs. Patch, Porter, Evans, Sloneker and Leonard for 1997
the amounts of $4,800, $4,800, $4,800, $4,800 and $1,588, respectively,
contributed by the Company under the Company's Employee Savings Plan. Also
includes for Messrs. Patch, Porter, Evans and Sloneker for 1997 the
amounts of $10,350, $3,060, $1,612 and $748, respectively, contributed by
the Company under the Company's Supplemental Executive Savings Plan.
(3) Includes for Messrs. Patch, Porter, Evans, Sloneker and Leonard for 1997,
the amounts of $55,748, $24,603, $4,671, $17,940 and $12,724,
respectively, paid to reimburse them for income taxes incurred as a result
of the grant of restricted shares described in note (4) below. These
amounts were paid in 1998.
(4) Shares of restricted stock were granted on February 20, 1997 for services
rendered in 1996 and on February 19, 1998 for services rendered in 1997.
The value of the outstanding restricted stock awards at the end of the
fiscal year 1997 was $62,430, $25,615, $20,215, $17,672 and $10,219 for
Messrs. Patch, Porter, Evans, Sloneker and Leonard, respectively. The
number of the restricted stock awards held by Messrs. Patch, Porter,
Evans, Sloneker and Leonard at the end of the fiscal year 1997 was 1,399,
574, 453, 396 and 229, respectively. Such restricted common shares vest on
the third anniversary of the date of the grant so long as the executive
officer is an employee on such date (with earlier vesting occurring on
retirement, death or disability or termination of employment following a
change of control). During the restriction period, the executive officer
will receive all dividends paid on the shares.
(5) Dividend payment rights were granted to the named executive officers in
1997 and 1998. These rights entitle the executive officer on the April
15th following the third anniversary of the grant date to receive, for
each dividend payment right, an amount in cash equal to the aggregate
amount of dividends that the Company has paid on each common share from
the date on which such right becomes effective through the payout date
subject to certain restrictions
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning the grant of stock
options during the last fiscal year to each of the executive officers of the
Company named in the Summary Compensation Table. No stock appreciation rights
were granted during the last fiscal year.
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
NUMBER OF GRANTED ANNUAL RATES OF STOCK
SECURITIES TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION ($) ($)
NAME GRANTED # (1) YEAR ($/SH) DATE 5% 10%
---- ------------ ---------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Lauren N. Patch 30,000 29.41 41.375 02-20-07 780,615 1,978,233
Barry S. Porter 10,000 9.80 41.375 02-20-07 260,205 659,411
Michael L. Evans 10,000 9.80 41.375 02-20-07 260,205 659,411
Howard L. Sloneker III 10,000 9.80 41.375 02-20-07 260,205 659,411
Coy Leonard, Jr. 3,000 2.94 41.375 02-20-07 78,062 197,823
</TABLE>
8
<PAGE> 10
(1) All of these stock options, which were granted pursuant to the Ohio
Casualty Corporation 1993 Stock Incentive Program, were granted at the
fair market value of the underlying option shares on the date of grant,
become exercisable as to one-third of the option shares on each of the
first three anniversaries of the date of grant and have a term of ten
years. In the event of a change in control of the Company, the stock
options would become exercisable in full. Stock options reported consist
of incentive stock options and non-qualified stock options.
(2) The dollar amounts under these columns are the result of calculations at
the 5% and 10% annual appreciation rates set by the Securities and
Exchange Commission for illustrative purposes, and, therefore, are not
intended to forecast future financial performance or possible future
appreciation in the price of the Company's common shares. Shareholders are
therefore cautioned against drawing any conclusions from the appreciation
data shown, aside from the fact that optionees will only realize value
from the option grants shown when the price of the Company's common shares
appreciates, which benefits all shareholders commensurately.
OPTION EXERCISES IN LAST FISCAL YEAR
The following table sets forth information concerning the exercise of
stock options during the last fiscal year by each of the executive officers of
the Company named in the Summary Compensation Table and the fiscal year-end
value of unexercised stock options and SARs held by such executive officers:
AGGREGATED OPTION EXERCISES IN
------------------------------
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
-------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
---------------------------- --------------------------
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ----------- ----------- ------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Lauren N. Patch 0 0 10,000 50,000 96,250 290,000
Barry S. Porter 0 0 3,333 16,667 32,081 96,670
Michael L. Evans 0 0 3,333 16,667 32,081 96,670
Howard L. Sloneker III 3,333 37,734 0 16,667 0 96,670
Coy Leonard, Jr. 0 0 1,000 5,000 9,625 116,750
</TABLE>
(1) "Value of Unexercised In-the-Money Options at Fiscal Year-End" is based
upon the fair market value of the Company's common shares on December
31, 1997 ($44.625), less the exercise price of in-the-money options at
the end of the last fiscal year.
PENSION PLANS
The following table sets forth the estimated annual benefits payable
under the Employees Retirement Plan and The Ohio Casualty Insurance Company
Benefit Equalization Plan (the "Benefit Equalization Plan") to participants in
such plans, including the executive officers named in the Summary Compensation
Table, upon retirement in specified compensation and years of service
classifications:
9
<PAGE> 11
<TABLE>
<CAPTION>
PENSION PLANS TABLE
15 20 25 30 35 40 45
ANNUAL EARNINGS YEARS YEARS YEARS YEARS YEARS YEARS YEARS
--------------- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$125,000 $27,932 $37,242 $46,553 $55,864 $65,174 $74,485 $83,795
175,000 39,932 53,242 66,553 79,864 93,174 106,485 119,795
225,000 51,932 69,242 86,553 103,864 121,174 138,485 155,795
275,000 63,932 85,242 106,553 127,864 149,174 170,485 191,795
325,000 75,932 101,242 126,553 151,864 177,174 202,485 227,795
375,000 87,932 117,242 146,553 175,864 205,174 234,485 263,795
400,000 93,932 125,242 156,553 187,864 219,174 250,485 281,795
425,000 99,932 133,242 166,553 199,864 233,174 266,485 299,795
450,000 105,932 141,242 176,553 211,864 247,174 282,485 317,795
475,000 111,932 149,242 186,553 223,864 261,174 298,485 335,795
500,000 117,932 157,242 196,553 235,864 275,174 314,485 353,795
525,000 123,932 165,242 206,553 247,864 289,174 330,485 371,795
550,000 129,932 173,242 216,553 259,864 303,174 346,485 389,795
600,000 141,932 189,242 236,553 283,864 331,174 378,485 425,795
</TABLE>
Retirement benefits under the Company's Employees Retirement Plan, a
defined benefit plan qualified under Section 401(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), are generally payable to full-time and regular
part-time salaried employees whose participation in the plan has vested
(currently requiring the completion of five years of service) upon retirement at
age 65 or in reduced amounts upon retirement prior to age 65 if the participant
has ten years of vested service. A retiree's benefit amount is based upon his or
her credited years of service and average annual compensation (salary) for the
five consecutive years of highest salary during the last ten years of service
immediately prior to age 65 or, if greater, the average annual compensation paid
during the 60 consecutive month period immediately preceding retirement or other
termination of employment. Such retirement benefits are reduced by a portion of
the retiree's Social Security-covered compensation. Benefits figures shown in
the table above are computed on the assumption that participants retire at age
65 and are entitled to a single life annuity.
Section 401(a)(17) of the Code limits compensation in excess of
$160,000 from being taken into account in determining benefits payable under a
qualified pension plan. As a result, the Benefit Equalization Plan was adopted
for those employees who are adversely affected by these provisions of the Code.
The Benefit Equalization Plan provides for payment of benefits that would have
been payable under the Employees Retirement Plan but for the limitation on
compensation imposed by the Code. Upon retirement, participants receive the
actuarial equivalent present value of the benefit payable under the Benefit
Equalization Plan in a lump sum.
At December 31, 1997, credited years of service and average annual
earnings for purposes of the Employees Retirement Plan and the Benefit
Equalization Plan for the executive officers named in the Summary Compensation
Table were: Lauren N. Patch, 21.5 years ($421,643); Barry S. Porter, 23.5 years
($228,217); Michael L. Evans, 22.5 years ($171,050); Howard L. Sloneker III,
15.75 years ($154,721); and Coy Leonard, Jr., 4.4 years ($124,980). The
compensation covered by the Employees Retirement Plan and the Benefit
Equalization Plan is the amount shown in the Summary Compensation Table as
salary, less any directors' fees.
10
<PAGE> 12
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
EXECUTIVE COMPENSATION POLICIES
The Company's executive compensation programs are designed to attract
and retain quality talent, and to motivate the Company's key employees to
maximize shareholder returns by achieving both the short-term and long-term
goals of the Company. The Executive Compensation Committee of the Board of
Directors (the " Committee"), consisting entirely of non-employee directors,
approves all of the policies under which compensation is paid or awarded to the
Company's executive officers.
The Committee believes that the Company's executive compensation
opportunities, including those for the Company's Chief Executive Officer
("CEO"), should create incentives for superior performance and consequences for
below-target performance. In 1996, the Company's executive compensation program
was redesigned to link each executive officer's compensation directly to
individual and Company performance. A significant portion of each executive
officer's total compensation is now variable and dependent upon the attainment
of annual objectives and long-term shareholder returns. The compensation
structure provides a portion of each executive officer's compensation in stock
thereby creating a mutuality of interest between executive officers and
shareholders.
The Committee annually reviews the short-term and long-term
compensation levels for the CEO and other senior executives to consider and
implement any changes necessary to achieve its on-going objectives. In
determining the comparable compensation levels discussed further below, the
Committee considers information from surveys of compensation practices within
the property and casualty industry which surveys may include some or all of the
companies included in the Performance Graph on page 14.
SPECIFIC COMPENSATION PROGRAMS
There are three components to the Company's "pay for performance"
system established for its executive officers and 16 additional key executives
(collectively called the "partners"): (i) base salary established on an annual
basis, (ii) awards under the Annual Incentive Plan and (iii) awards under the
Long-Term Incentive Plan. Each component of the Company's executive compensation
program aims to accomplish a different purpose.
BASE SALARY. Base salary levels for the CEO and the other executive
officers of the Company are based on individual performance, the
responsibilities associated with an individual's position in the Company, skill
level and experience and potential future contribution, all of which are
reviewed annually and benchmarked against similar positions within the survey
companies. The base salary of the CEO is established by the Committee. The base
salaries of the other executive officers are established by the CEO on an annual
basis. Salary adjustments are based on individual performance, as determined in
accordance with the Company's executive performance evaluation system, and
reflective of competitive conditions existing at the time.
11
<PAGE> 13
ANNUAL INCENTIVE PLAN AWARDS: The potential award opportunities for
each of the executive officers who participates in the Annual Incentive Plan are
determined at the beginning of each fiscal year. Potential award opportunities
for a fiscal year, which are expressed as a percentage of a participant's salary
for that fiscal year, are based on the participant's level within the
organization, with higher percentages being assigned to executive officers who
hold more senior positions. Actual awards are based on a combination of
individual and team performance. This balance supports the accomplishment of
overall objectives and rewards individual contributions by the executives. Team
performance, which accounts for up to 50% of the total award potential, is based
on the Company's actual performance against pre-determined targets for return on
equity and growth in premiums for the year. A performance threshold for each
measure ensures that no awards are made for substandard accomplishments. If the
performance threshold is achieved, each of the eligible executive officers
receives a team award, the amount of which depends on the extent to which the
Company's performance exceeds the threshold level and the potential award
opportunity assigned to each individual participant, as described above.
Individual awards, which account for the remaining 50% of the award potential,
are made only if the performance level required for team awards has been met and
then only if a determination is made by the Committee and the CEO to fund such
individual awards. The Committee determines, based on a recommendation from the
CEO, the level of funding for the individual award pool based on the performance
achieved by the management team on a number of criteria such as the achievement
of pre-established Company and individual goals. The pool is allocated among the
participants on the basis of their performance evaluations as determined by the
CEO (the CEO's performance evaluation is conducted by the Committee).
Currently, awards under the Annual Incentive Plan are paid in
restricted shares of the Company. Such restricted shares may not be transferred
by the participant for a three-year period following the date of the grant,
unless the participant dies or his employment is terminated as a result of
disability or retirement or following a change in control of the Company. If the
employment of the participant terminates for any other reason during such three
year period, the restricted shares will be forfeited to the Company. Awards
under the Annual Incentive Plan for the 1997 fiscal year were paid in the form
of restricted common shares issued in February of 1998.
LONG-TERM INCENTIVE PLAN Awards under the Long-Term Incentive Plan
consist of incentive stock options, non-qualified stock options, or a
combination of both, and dividend payment rights, one-third of which vests on
each of the first three anniversaries of the date of the grant. Stock options
are granted at market value on the date of grant and increase in value only to
the extent of appreciation in the Company's common shares. Stock options expire
at the end of ten years from the date of grant. Stock option grants are
generally made at the beginning of the fiscal year, although grants may be made
at different times to participants who are promoted or newly hired. The number
of stock options to be granted is based on the participant's salary level and
position. While it is the intention of the Committee to make stock option grants
annually, the Committee has reserved the right to eliminate stock option awards
or make other modifications in the Long-Term Incentive Plan. The Committee also
intends to hold constant the number of options granted to each participant over
each three-year period, beginning in 1996.
12
<PAGE> 14
DIVIDEND PAYMENT RIGHTS In addition to stock options, the participants
in the Long-Term Incentive Plan may be granted dividend payment rights.
One-third of these rights become effective on each anniversary of the grant
date. These rights entitle the holder on the April 15th following the third
anniversary of the grant date (or earlier if the holder dies, becomes disabled
or retires or is terminated from employment after a change in control of the
Company) to receive, for each dividend payment right, an amount in cash equal to
the aggregate amount of dividends that the Company has paid on each common share
from the date on which the dividend payment right becomes effective through the
payout date. Unless the employment of the holder of a dividend payment right
terminates as a result of death, disability, retirement at normal retirement
age, or following a change in control, the holder forfeits the right if his or
her employment terminates prior to the scheduled payout date. The employees to
whom stock options and dividend payment rights are to be awarded are determined
annually by the Committee for the executive officers, including the CEO, and by
the CEO for all other partners.
The Company's Annual Incentive Plan and its Long Term Incentive Plan
are designed to provide participants with the opportunity to receive total
compensation targeted at the 75th percentile of salaries for similar positions
among the survey companies.
Section 162(m) of the Code generally limits the corporate tax deduction
for the compensation paid to executive officers named in the Summary
Compensation Table in the proxy statement to $1 million, unless certain
requirements for qualifying compensation as "performance based" are met. The
compensation paid to each of the executive officers of the Company in 1997 was
less than the threshold for deductibility under Section 162(m).
BASES FOR CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee evaluates the performance of the CEO at least annually.
In 1997, Mr. Patch received a base salary of $505,000. Mr. Patch also received
an award under the Annual Incentive Plan for service in 1997 of a total of 2,094
restricted common shares of the Company, which were issued to him in February of
1998 and which will be forfeited to the Company if he leaves the Company during
the three-year period following the date of issue. As described in detail above,
the Committee's determination of the number of restricted common shares awarded
to Mr. Patch (and to all of the other executive officers) under the Annual
Incentive Plan was based on the Company's 1997 total return performance as
measured against established return on equity and growth in premium targets. The
Company also granted to Mr. Patch in 1998 pursuant to the Long-Term Incentive
Plan, a non-qualified stock option for 30,000 shares. The number of stock
options granted to Mr. Patch was based on his salary level and position with the
Company. As previously indicated, in establishing the compensation of Mr. Patch
and the other executive officers, the goal of the Committee has been to create a
total compensation opportunity through base salary and awards under the Annual
Incentive Plan and the Long-Term Incentive Plan which, if realized as a result
of the Company's performance, would result in total compensation being at the
75th percentile for similar positions at the survey companies.
The foregoing report on executive compensation is provided by the
following directors, who constituted the Executive Compensation Committee during
1997:
Jack E. Brown Vaden Fitton Stephen S. Marcum Stanley N. Pontius
13
<PAGE> 15
EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The directors of the Company who served as members of the Company's
Executive Compensation Committee during 1997 were Jack E. Brown, Vaden Fitton,
Stephen S. Marcum and Stanley N. Pontius. Mr. Fitton and Mr. Porter, the
Company's Chief Financial Officer and Treasurer, also served as members of the
Executive Compensation Committee of First Financial Bancorp during 1997, whose
Chief Executive Officer, Stanley N. Pontius, is a member of the Executive
Compensation Committee of the Company.
As indicated in the Executive Compensation Committee Report on
Executive Compensation, Lauren N. Patch, the Company's President and Chief
Executive Officer, participates in decision-making regarding the compensation of
certain executive officers named in the Summary Compensation Table. Mr. Patch is
not a member of the Executive Compensation Committee.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following graph compares the five-year cumulative total shareholder
return, including reinvested dividends, of the Company with the Dow Jones Equity
Market Index and the Dow Jones Insurance Index for Property and Casualty
Companies(1):
PERFORMANCE GRAPH FOR
OHIO CASUALTY CORPORATION
[GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
DJ EQUITY MARKET INDEX 100.00 109.95 110.76 152.49 187.63 251.34
DJ INSURANCE P&C 100.00 100.83 106.03 148.53 178.61 263.14
OHIO CASUALTY CORP 100.00 105.76 98.47 161.23 135.39 176.75
</TABLE>
14
<PAGE> 16
(1) The Dow Jones Insurance Index for Property and Casualty Companies is
comprised of 13 companies, including the Company that are traditionally
considered as a peer group of property and casualty insurance companies
within the United States. The companies making up the Index are
Allstate Corp.; American International Group Inc.; Chubb Corp.; HSB
Group Inc.; Loews Corp.; MBIA Inc.; Ohio Casualty Corporation;
Progressive Corp.; SAFECO Corp.; St. Paul Cos.; and USF&G Corp.
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended December 31,
1997, accompanies this Proxy Statement.
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Coopers & Lybrand L.L.P. has been selected by
the Board of Directors to serve as independent public accountants of the Company
for the fiscal year ending December 31, 1998. Management expects that
representatives of that firm will be present at the Annual Meeting, will have
the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions. The affirmative vote of the
holders of a majority of the Common Shares represented in person or by proxy at
the Annual Meeting is necessary to ratify the selection of the Company's
independent public accountants. Under Ohio law, abstentions and broker non-votes
are counted as present; the effect of an abstention or broker non-vote on this
proposal is the same as a "no" vote. Unless otherwise indicated, the persons
named in the Proxy will vote all Proxies in favor of ratifying the selection of
independent public accountants.
Coopers & Lybrand L.L.P. were the independent public accountants of the
Company for the fiscal year ended December 31, 1997. In connection with the
audit function, the firm also reviewed the Company's annual and quarterly
reports and reviewed its filings with the Securities and Exchange Commission.
SHAREHOLDER PROPOSALS
If an eligible shareholder wishes to present a proposal for action at
the next annual meeting of shareholders of the Company, it must be received by
the Company no later than November 13, 1998, for inclusion in the Company's
Proxy Statement and form of Proxy relating to that meeting. An eligible
shareholder may present no more than one proposal of not more than five hundred
(500) words, including supporting statements, for inclusion in the Company's
proxy materials for the next annual meeting. Proposals shall be sent to Ohio
Casualty Corporation, Attention: Howard L. Sloneker III, Secretary, 136 North
Third Street, Hamilton, Ohio 45025.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission (SEC). Officers, directors and greater than ten percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Forms 3, 4 and 5 they file.
15
<PAGE> 17
Based on the Company's review of the copies of such forms it has
received, the Company believes that all its officers, directors, and greater
than ten percent beneficial owners complied with all filing requirements
applicable to them with respect to transactions during fiscal 1997.
OTHER MATTERS
The Company files annually with the Securities and Exchange Commission
an Annual Report on Form 10-K. This report includes financial statements and
financial statement schedules.
A SHAREHOLDER OF THE COMPANY MAY OBTAIN A COPY OF THE ANNUAL REPORT ON
FORM 10-K, INCLUDING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES, FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1997, WITHOUT CHARGE BY SUBMITTING A WRITTEN
REQUEST TO THE FOLLOWING ADDRESS:
OHIO CASUALTY CORPORATION
Attention: Barry S. Porter
Chief Financial Officer/Treasurer
136 North Third Street
Hamilton, Ohio 45025
Management and the Board of Directors of the Company know of no
business to be brought before the Annual Meeting other than as set forth in this
Proxy Statement. However, if any matters other than those referred to in this
Proxy Statement should properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy to vote the common shares
represented by such proxy on such matters in accordance with their best
judgment.
EXPENSES OF SOLICITATION
The expense of proxy solicitation will be borne by the Company. Proxies
will be solicited by mail and may be solicited, for no additional compensation,
by officers, directors or employees of the Company or its subsidiaries, by
telephone, telegraph or in person. Brokerage houses and other custodians,
nominees and fiduciaries may be requested to forward soliciting material to the
beneficial owners of common shares of the Company, and will be reimbursed for
their related expenses. In addition, the Company has retained Morrow & Co.,
Inc., a professional soliciting organization, to assist in soliciting proxies
from brokerage houses, custodians and nominees. The fees and expenses of that
firm in connection with such solicitation are not expected to exceed $12,000.
By Order of the Board of Directors,
Howard L. Sloneker III, Secretary
March 13, 1998
16
<PAGE> 1
Exhibit 23
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statement of
Ohio Casualty Corporation on Form S-3 (File No. 05544) of our report dated
January 30, 1998, except as to the information presented in Note 16, for which
the date is February 19, 1998, on our audits of the consolidated financial
statements and financial statement schedules of Ohio Casualty Corporation and
Subsidiaries as of December 31 1997, 1996 and 1995 and for the years then ended,
which report is incorporated by reference in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
March 27, 1998
87
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 2,291,879,190
<DEBT-CARRYING-VALUE> 2,291,879,190
<DEBT-MARKET-VALUE> 2,291,879,190
<EQUITIES> 859,474,835
<MORTGAGE> 0
<REAL-ESTATE> 22,423,125
<TOTAL-INVEST> 3,173,777,150
<CASH> 54,205,850
<RECOVER-REINSURE> 108,962,306
<DEFERRED-ACQUISITION> 126,063,105
<TOTAL-ASSETS> 3,778,781,705
<POLICY-LOSSES> 1,483,807,193
<UNEARNED-PREMIUMS> 495,075,999
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 34,148,430
<NOTES-PAYABLE> 40,000,000
0
0
<COMMON> 5,850,484
<OTHER-SE> 1,308,978,681
<TOTAL-LIABILITY-AND-EQUITY> 3,778,781,705
1,208,973,644
<INVESTMENT-INCOME> 177,700,834
<INVESTMENT-GAINS> 50,748,606
<OTHER-INCOME> 0
<BENEFITS> 864,642,003
<UNDERWRITING-AMORTIZATION> 303,493,633
<UNDERWRITING-OTHER> 95,830,257
<INCOME-PRETAX> 173,457,191
<INCOME-TAX> 43,065,298
<INCOME-CONTINUING> 130,391,893
<DISCONTINUED> 8,655,340
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139,047,233
<EPS-PRIMARY> 4.06
<EPS-DILUTED> 4.06
<RESERVE-OPEN> 1,482,900,208
<PROVISION-CURRENT> 382,999,209
<PROVISION-PRIOR> 1,065,199,225
<PAYMENTS-CURRENT> 310,752,838
<PAYMENTS-PRIOR> 386,370,376
<RESERVE-CLOSE> 1,448,198,434
<CUMULATIVE-DEFICIENCY> (31,330,607)
</TABLE>
<PAGE> 1
OHIO CASUALTY GROUP Exhibit 28
SCHEDULE P-PART 1 - SUMMARY
<TABLE>
<CAPTION>
ALLOCATED LOSS EXPENSE
PREMIUMS EARNED LOSS PAYMENTS PAYMENTS
(1) (2) (3) (4) (5) (6) (7) (8)
ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX 31,122,523 7,490,766 4,828,071 274,810
1988 1,375,824,489 36,271,960 1,339,552,529 705,464,895 8,457,053 64,160,378 725,963
1989 1,393,527,230 29,350,534 1,364,176,696 793,898,714 15,327,292 66,860,717 822,169
1990 1,462,962,148 24,961,247 1,438,000,901 852,221,181 10,305,649 75,671,263 790,339
1991 1,495,615,389 26,560,767 1,469,054,622 891,074,182 36,268,521 72,688,163 2,039,592
1992 1,550,273,214 32,683,713 1,517,589,501 903,276,673 23,467,796 71,336,489 1,206,000
1993 1,423,123,140 43,696,082 1,379,427,058 805,047,725 7,902,613 59,808,045 742,220
1994 1,342,790,625 45,133,158 1,297,657,467 758,495,103 7,759,345 48,213,877 27,027
1995 1,305,588,605 41,012,065 1,264,576,540 645,100,926 7,828,413 32,909,842 51,011
1996 1,253,886,669 30,533,833 1,223,867,888 629,576,753 6,872,901 23,691,729 16,917
1997 1,236,434,526 32,169,380 1,204,265,146 393,661,889 3,192,174 7,387,254 0
TOTAL XXXX XXXX XXXX 7,408,940,565 134,872,524 527,555,828 6,696,048
</TABLE>
<TABLE>
<CAPTION>
SALVAGE & NUMBER OF
UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS
PAYMENTS RECEIVED TOTAL NET PAID REPORTED
(1) (9) (10) (11) (12) (13)
ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C>
PRIOR 1,024,738 0 1,289,137 29,209,756 XXXX
1988 62,215,667 0 31,763,856 822,657,925 XXXX
1989 64,989,089 0 34,752,270 909,599,059 XXXX
1990 67,223,602 0 34,428,003 984,020,058 XXXX
1991 66,972,643 0 33,919,812 992,426,876 XXXX
1992 72,251,346 0 34,509,115 1,022,190,712 XXXX
1993 65,375,857 0 27,711,529 921,586,794 XXXX
1994 68,091,543 0 27,228,035 867,014,151 XXXX
1995 61,199,812 0 24,878,259 731,331,155 XXXX
1996 65,370,455 0 21,769,290 711,749,118 XXXX
1997 46,675,676 0 11,478,801 444,532,645 XXXX
TOTAL 641,390,428 0 283,728,105 8,436,318,250 XXXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID
CASE BASIS BULK + IBNR CASE BASIS
(14) (15) (16) (17) (18) (19)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C>
PRIOR 85,055,588 29,344,406 17,351,574 31,335 5,092,265 267,203
1988 13,442,545 1,851,995 4,160,360 11,121 1,333,758 73,876
1989 21,475,029 3,431,571 6,036,448 15,505 1,670,714 108,462
1990 23,420,965 2,460,204 7,888,926 85,126 2,246,541 140,193
1991 24,657,016 478,297 11,822,593 170,035 3,220,015 194,001
1992 34,834,271 772,969 16,083,298 83,741 4,653,802 244,095
1993 45,625,840 1,715,203 17,430,086 228,399 7,058,983 327,796
1994 64,466,641 945,602 20,552,698 259,911 11,069,448 477,693
1995 96,014,806 1,513,179 42,101,008 566,111 19,259,064 756,513
1996 130,041,591 2,301,051 91,889,817 1,159,159 25,581,129 1,018,363
1997 198,549,181 2,033,444 201,562,872 2,699,505 33,197,183 1,310,225
TOTAL 737,583,474 46,847,921 436,879,680 5,309,948 114,382,902 4,918,421
</TABLE>
<TABLE>
<CAPTION>
SALVAGE & TOTAL NET NUMBER OF
ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS
BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING
(20) (21) (22) (23) (24) (25) (26)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 15,094,837 11,539 6,810,262 1,084,342 0 98,665,702 XXXX
1988 2,331,828 4,030 713,426 47,871 0 19,993,023 XXXX
1989 3,345,524 5,125 1,149,732 96,179 0 30,020,606 XXXX
1990 3,764,110 8,468 1,580,528 96,402 0 36,110,677 XXXX
1991 6,908,286 17,026 1,880,492 15,497 0 47,613,546 XXXX
1992 7,201,908 29,786 2,851,935 35,005 0 64,459,618 XXXX
1993 10,102,341 59,399 3,538,483 60,928 0 81,364,009 XXXX
1994 12,040,239 105,705 4,915,511 54,901 0 111,200,725 XXXX
1995 16,687,530 191,389 8,012,674 65,099 0 178,982,790 XXXX
1996 20,048,116 247,205 13,310,848 137,732 0 276,007,991 XXXX
1997 24,570,378 326,121 25,951,497 176,291 0 477,285,525 XXXX
TOTAL 122,095,096 1,005,792 70,715,387 1,870,246 0 1,421,704,211 XXXX
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE
(27) (28) (29) (30) (31) (32)
DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX XXXX XXXX XXXX
1988 853,822,856 11,171,909 842,650,948 62.1 30.8 62.9
1989 959,425,967 19,806,302 939,619,665 68.8 67.5 68.9
1990 1,034,017,116 13,886,381 1,020,130,735 70.7 55.6 70.9
1991 1,079,223,391 39,182,969 1,040,040,422 72.2 147.5 70.8
1992 1,112,489,722 25,839,392 1,086,650,330 71.8 79.1 71.6
1993 1,013,987,360 11,036,557 1,002,950,803 71.3 25.3 72.7
1994 987,845,061 9,630,185 978,214,876 73.6 21.3 75.4
1995 921,285,661 10,971,716 910,313,945 70.6 26.8 72.0
1996 999,510,438 11,753,328 987,757,109 79.7 38.5 80.7
1997 931,555,930 9,737,760 921,818,170 75.3 30.3 76.5
TOTAL XXXX XXXX XXXX XXXX XXXX XXXX
</TABLE>
<TABLE>
<CAPTION>
INTER-COMPANY
POOLING NET BALANCE SHEET RESERVES
NONTABULAR DISCOUNT PARTICIPATION AFTER DISCOUNT
(33) (34) (35) (36) (37)
LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID
<S> <C> <C> <C> <C> <C>
PRIOR 0 0 XXXX 73,031,422 25,634,280
1988 0 0 0.0 15,739,789 4,253,234
1989 0 0 0.0 24,064,401 5,956,204
1990 0 0 0.0 28,764,561 7,346,115
1991 0 0 0.0 35,831,277 11,782,269
1992 0 0 0.0 50,060,859 14,398,759
1993 0 0 0.0 61,112,324 20,251,685
1994 0 0 0.0 83,813,827 27,386,898
1995 0 0 0.0 136,036,523 42,946,266
1996 0 0 0.0 218,471,198 57,536,793
1997 0 0 0.0 395,379,104 81,906,421
TOTAL 0 0 XXXX 1,122,305,285 299,398,926
</TABLE>
<PAGE> 2
OHIO CASUALTY GROUP
SCHEDULE P-PART 1A - HOMEOWNERS
<TABLE>
<CAPTION>
ALLOCATED LOSS EXPENSE
PREMIUMS EARNED LOSS PAYMENTS PAYMENTS
(1) (2) (3) (4) (5) (6) (7) (8)
ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX 186,231 89,392 26,365 0
1988 168,375,661 1,787,037 166,588,624 87,466,758 50,000 4,662,700 17
1989 167,250,533 2,262,236 164,988,297 103,361,168 0 5,833,465 13
1990 172,691,271 2,320,885 170,370,386 114,448,983 378,204 5,779,220 179
1991 180,475,310 3,102,136 177,373,174 145,879,863 19,995,461 6,045,896 287,977
1992 187,626,381 3,099,967 184,526,414 137,614,497 6,593,491 6,932,884 618,218
1993 176,137,420 8,407,961 167,729,459 126,292,252 494,000 6,985,820 4,165
1994 167,093,737 9,016,379 158,077,358 135,128,241 91,905 7,036,000 595
1995 169,545,732 8,427,980 161,117,752 105,994,317 0 4,675,044 0
1996 170,607,856 4,977,843 165,630,013 148,764,684 0 5,754,049 0
1997 172,710,473 6,175,490 166,534,984 80,971,145 0 1,749,811 0
TOTAL XXXX XXXX XXXX 1,186,108,139 27,692,452 55,481,253 911,164
<CAPTION>
SALVAGE 8 NUMBER OF
UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS
PAYMENTS RECEIVED TOTAL NET PAID REPORTED
(1) (9) (10) (11) (12) (13)
ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C>
PRIOR 6,520 0 4,678 129,723 XXXX
1988 3,565,362 0 1,597,850 95,644,804 64,996
1989 4,061,915 0 1,561,829 113,256,536 65,760
1990 4,576,537 0 1,891,764 124,426,356 65,034
1991 5,502,852 0 1,337,984 137,145,173 66,254
1992 9,449,520 0 1,651,800 146,785,192 67,899
1993 9,056,377 0 1,256,499 141,836,285 67,878
1994 10,811,009 0 1,427,657 152,882,749 72,531
1995 8,249,620 0 866,272 118,918,980 54,930
1996 12,029,791 0 862,824 166,548,523 73,001
1997 8,016,515 0 219,154 90,737,471 45,690
TOTAL 75,326,017 0 12,678,311 1,288,311,793 XXXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID
CASE BASIS BULK + IBNR CASE BASIS
(14) (15) (16) (17) (18) (19)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C>
PRIOR 160,117 2,000 0 0 30,894 15
1988 114,462 0 0 0 24,834 8
1989 142,574 0 0 0 38,504 9
1990 129,801 1,165 0 0 41,492 14
1991 221,582 11,632 0 0 68,578 27
1992 1,323,513 1 0 0 200,754 72
1993 1,957,188 5,000 606,398 0 319,708 143
1994 2,293,627 0 144,594 4,426 588,459 286
1995 4,179,650 3 390,627 13,279 1,181,332 573
1996 6,734,399 0 1,013,062 39,838 1,849,969 898
1997 24,284,070 0 9,390,565 385,105 3,145,315 1,526
TOTAL 41,540,983 19,801 11,545,246 442,649 7,489,839 3,570
<CAPTION>
SALVAGE & TOTAL NET NUMBER OF
ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS
BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING
(20) (21) (22) (23) (24) (25) (26)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 5,212 328 5,199 51 0 199,027 10
1988 2,606 164 3,545 0 0 145,275 5
1989 3,103 195 4,118 0 0 188,094 10
1990 4,964 312 4,172 30 0 178,907 10
1991 9,308 586 7,737 299 0 294,661 22
1992 24,820 1,562 42,399 0 0 1,589,851 38
1993 644,977 3,124 267,955 128 0 3,787,830 65
1994 135,951 6,249 96,861 211 0 3,248,320 118
1995 266,948 12,545 180,492 633 0 6,172,015 219
1996 359,118 19,645 283,506 1,899 0 10,177,774 590
1997 589,994 33,400 1,158,122 18,357 0 38,129,678 5,126
TOTAL 2,047,000 78,110 2,054,104 21,609 0 64,111,433 6,213
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE
(27) (28) (29) (30) (31) (32)
DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX XXXX XXXX XXXX
1988 95,840,268 50,188 95,790,080 56.9 2.8 57.5
1989 113,444,847 217 113,444,630 67.8 0.0 68.8
1990 124,985,168 379,905 124,605,263 72.4 16.4 73.1
1991 157,735,815 20,295,982 137,439,834 87.4 654.3 77.5
1992 155,588,386 7,213,343 148,375,043 82.9 232.7 80.4
1993 146,130,675 506,560 145,624,115 83.0 6.0 86.8
1994 156,234,742 103,672 156,131,070 93.5 1.1 98.8
1995 125,118,029 27,033 125,090,996 73.8 0.3 77.6
1996 176,788,577 62,280 176,726,297 103.6 1.3 106.7
1997 129,305,537 438,388 128,867,148 74.9 7.1 77.4
TOTAL XXXX XXXX XXXX XXXX XXXX XXXX
<CAPTION>
INTER-COMPANY
POOLING NET BALANCE SHEET RESERVES
NONTABULAR DISCOUNT PARTICIPATION % AFTER DISCOUNT
(33) (34) (35) (36) (37)
LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID
<S> <C> <C> <C> <C> <C>
PRIOR 0 0 XXXX 158,117 40,910
1988 0 0 0.0 114,462 30,813
1989 0 0 0.0 142,574 45,520
1990 0 0 0.0 128,636 50,271
1991 0 0 0.0 209,950 84,711
1992 0 0 0.0 1,323,512 266,339
1993 0 0 0.0 2,558,586 1,229,244
1994 0 0 0.0 2,433,795 814,526
1995 0 0 0.0 4,556,994 1,615,021
1996 0 0 0.0 7,707,622 2,470,151
1997 0 0 0.0 33,289,530 4,840,147
TOTAL 0 0 XXXX 52,623,779 11,487,654
</TABLE>
<PAGE> 3
OHIO CASUALTY GROUP
SCHEDULE P-PART 1B - PRIVATE PASSENGER AUTO
<TABLE>
<CAPTION>
ALLOCATED LOSS EXPENSE
PREMIUMS EARNED LOSS PAYMENTS PAYMENTS
(1) (2) (3) (4) (5) (6) (7) (8)
ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX 2,206,835 1,653,638 133,066 19,406
1988 318,131,302 7,787,046 310,344,256 227,849,215 3,498,716 14,142,566 18,506
1989 318,461,609 7,648,858 310,812,750 239,651,557 3,036,953 12,852,802 3,108
1990 333,396,443 6,675,812 326,720,631 255,302,212 2,334,181 13,868,445 0
1991 339,450,775 6,390,994 333,059,781 245,189,405 2,611,787 14,349,638 0
1992 362,947,213 7,108,258 355,838,955 261,027,458 2,891,266 16,335,470 1,874
1993 334,285,756 12,196,407 322,089,349 245,312,510 4,898,819 15,144,842 22,044
1994 320,149,419 12,617,186 307,532,233 225,213,012 4,892,937 12,834,983 33,443
1995 305,098,094 7,698,429 297,399,665 196,333,914 4,074,985 9,455,254 0
1996 290,090,509 7,674,484 282,416,025 149,968,524 3,055,440 5,407,345 0
1997 286,421,257 9,267,645 277,153,612 81,242,268 1,722,961 1,649,646 0
TOTAL XXXX XXXX XXXX 2,129,296,910 34,671,683 116,174,056 98,381
<CAPTION>
SALVAGE & NUMBER OF
UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS
PAYMENTS RECEIVED TOTAL NET PAID REPORTED
(1) (9) (10) (11) (12) (13)
ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C>
PRIOR 181,986 0 60,074 848,842 XXXX
1988 23,279,631 0 4,923,005 261,754,191 69,365
1989 24,184,765 0 5,793,421 273,649,063 64,144
1990 24,757,634 0 5,745,992 291,594,109 61,389
1991 22,892,987 0 4,857,591 279,820,242 57,898
1992 22,616,275 0 4,816,644 297,086,063 60,080
1993 21,003,958 0 5,270,081 276,540,446 54,981
1994 21,345,732 0 4,335,831 254,467,347 53,263
1995 19,650,618 0 3,515,600 221,364,801 49,181
1996 19,422,658 0 2,262,598 171,743,087 47,845
1997 12,111,332 0 904,430 93,280,286 45,067
TOTAL 211,447,575 0 42,485,266 2,422,148,478 XXXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID
CASE BASIS BULK + IBNR CASE BASIS
(14) (15) (16) (17) (18) (19)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C>
PRIOR 15,378,054 12,207,976 295,908 1,970 146,131 10,414
1988 323,297 29,320 355,090 2,363 65,749 4,663
1989 801,829 165,965 591,816 3,939 76,814 5,440
1990 1,058,034 52,096 828,542 5,515 101,006 6,994
1991 2,301,589 107,948 946,906 6,302 178,455 12,434
1992 5,059,268 596,495 1,561,099 10,241 338,467 23,781
1993 9,229,660 123,907 2,197,179 14,574 832,297 59,063
1994 17,280,276 170,247 2,367,264 15,756 2,181,062 155,429
1995 33,731,652 247,163 9,232,330 61,449 4,209,450 299,978
1996 56,314,387 890,160 26,986,811 179,620 5,888,868 419,658
1997 76,305,471 450,137 73,030,099 486,076 7,808,203 556,436
TOTAL 217,783,517 15,041,414 118,393,045 787,806 21,826,504 1,554,291
<CAPTION>
SALVAGE & TOTAL NET NUMBER OF
ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS
BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING
(20) (21) (22) (23) (24) (25) (26)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 95,351 612 1,054,691 593,626 0 4,155,538 144,000
1988 42,767 274 48,301 1,560 0 797,024 19,000
1989 49,918 319 98,697 8,329 0 1,435,082 26,000
1990 64,692 411 131,482 2,957 0 2,115,785 52,000
1991 114,756 730 226,176 5,720 0 3,634,746 79,000
1992 218,826 1,396 456,560 29,772 0 6,972,535 165,000
1993 541,590 3,468 784,836 7,048 0 13,377,502 392,000
1994 1,423,142 9,127 1,337,900 9,400 0 24,229,686 821,000
1995 2,746,664 17,615 2,959,423 16,423 0 52,236,891 1,696,000
1996 3,842,484 24,643 5,813,734 56,243 0 97,275,961 3,627,000
1997 5,094,849 32,674 10,624,185 57,050 0 171,280,434 13,589,000
TOTAL 14,235,039 91,268 23,535,985 788,128 0 377,511,183 20,610,000
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE
(27) (28) (29) (30) (31) (32)
DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX XXXX XXXX XXXX
1988 266,106,615 3,555,401 262,551,214 83.6 45.7 84.6
1989 278,308,198 3,224,053 275,084,145 87.4 42.2 88.5
1990 296,112,048 2,402,154 293,709,894 88.8 36.0 89.9
1991 286,199,910 2,744,922 283,454,988 84.3 42.9 85.1
1992 307,613,423 3,554,826 304,058,598 84.8 50.0 85.4
1993 295,046,872 5,128,924 289,917,948 88.3 42.1 90.0
1994 283,983,372 5,286,338 278,697,033 88.7 41.9 90.6
1995 278,319,306 4,717,613 273,601,693 91.2 61.3 92.0
1996 273,644,812 4,625,764 269,019,048 94.3 60.3 95.3
1997 267,866,054 3,305,334 264,560,720 93.5 35.7 95.5
TOTAL XXXX XXXX XXXX XXXX XXXX XXXX
<CAPTION>
INTER-COMPANY
POOLING NET BALANCE SHEET RESERVES
NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT
(33) (34) (35) (36) (37)
LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID
<S> <C> <C> <C> <C> <C>
PRIOR 0 0 XXXX 3,464,017 691,521
1988 0 0 0.0 646,703 150,320
1989 0 0 0.0 1,223,741 211,341
1990 0 0 0.0 1,828,966 286,819
1991 0 0 0.0 3,134,244 500,502
1992 0 0 0.0 6,013,631 958,904
1993 0 0 0.0 11,288,357 2,089,144
1994 0 0 0.0 19,461,537 4,768,149
1995 0 0 0.0 42,655,370 9,581,521
1996 0 0 0.0 82,231,419 15,044,543
1997 0 0 0.0 148,399,357 22,881,077
TOTAL 0 0 XXXX 320,347,342 57,163,841
</TABLE>
<PAGE> 4
OHIO CASUALTY GROUP
SCHEDULE P-PART 1C - COMMERCIAL AUTO
<TABLE>
<CAPTION>
ALLOCATED LOSS EXPENSE
PREMIUMS EARNED LOSS PAYMENTS PAYMENTS
(1) (2) (3) (4) (5) (6) (7) (8)
ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX 964,108 161,990 95,138 10,453
1988 111,554,866 2,979,933 108,574,933 62,193,799 1,313,307 6,048,627 28,060
1989 115,498,723 3,154,328 112,344,396 65,389,176 1,194,192 5,585,223 16,253
1990 123,518,477 3,020,941 120,497,536 76,761,136 881,609 6,407,371 15,302
1991 130,823,468 3,059,789 127,763,679 80,100,299 706,087 6,515,896 8,280
1992 135,772,129 3,261,305 132,510,824 77,672,317 1,933,969 6,884,043 17,459
1993 129,920,600 4,227,838 125,692,762 72,554,844 1,023,625 6,732,684 251,005
1994 124,061,161 4,326,619 119,734,542 76,367,258 1,322,529 5,820,063 10,590
1995 118,167,750 3,897,033 114,270,717 54,988,886 1,688,556 3,491,016 18,879
1996 111,494,112 3,041,823 108,452,289 39,001,708 1,592,222 1,860,712 16,847
1997 108,150,971 2,584,990 105,565,981 21,327,334 728,855 559,842 0
TOTAL XXXX XXXX XXXX 627,320,861 12,546,941 50,000,616 393,128
<CAPTION>
NUMBER OF
UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS
PAYMENTS RECEIVED TOTAL NET PAID REPORTED
(1) (9) (10) (11) (12) (13)
ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C>
PRIOR 62,879 0 4,097 949,678 XXXX
1988 6,027,433 0 400,096 72,928,493 12,872
1989 6,032,368 0 755,732 75,796,322 13,362
1990 6,202,776 0 762,646 88,474,371 13,344
1991 6,184,103 0 703,099 92,085,931 13,261
1992 5,502,743 0 1,111,788 88,107,675 13,834
1993 5,262,136 0 683,331 83,275,034 13,769
1994 5,725,211 0 685,966 86,579,412 13,921
1995 5,101,137 0 583,780 61,873,604 12,321
1996 4,489,733 0 397,055 43,743,084 12,350
1997 2,844,076 0 266,158 24,002,396 10,904
TOTAL 53,434,594 0 6,353,747 717,816,002 XXXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID
CASE BASIS BULK + IBNR CASE BASIS
(14) (15) (16) (17) (18) (19)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C>
PRIOR 1,368,142 1,118,393 897,750 675 42,036 1,572
1988 296,250 0 171,537 506 31,518 1,209
1989 497,835 71,320 297,787 506 47,277 1,814
1990 1,525,900 582,511 123,863 506 83,631 3,224
1991 1,014,505 0 415,863 676 114,837 4,433
1992 2,523,512 0 457,882 1,015 243,096 9,269
1993 5,489,231 74,001 363,895 1,013 456,224 17,732
1994 13,425,549 82,000 294,955 1,857 926,793 36,270
1995 16,186,072 173,774 4,833,193 30,386 1,983,338 77,617
1996 19,144,398 809,250 15,016,837 94,534 2,883,357 112,839
1997 23,095,993 336,722 32,709,658 205,950 3,501,219 137,019
TOTAL 84,567,387 3,247,971 55,583,222 337,627 10,313,327 402,998
<CAPTION>
SALVAGE & TOTAL NET NUMBER OF
ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS
BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING
(20) (21) (22) (23) (24) (25) (26)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 778,784 183 349,692 53,226 0 2,262,354 22
1988 101,174 141 53,327 36 0 651,914 3
1989 230,986 211 107,154 3,433 0 1,103,755 10
1990 78,844 376 113,835 27,721 0 1,311,734 14
1991 275,991 517 129,043 47 0 1,944,565 25
1992 175,597 1,081 163,923 71 0 3,552,573 51
1993 395,585 2,068 389,798 3,592 0 6,996,326 96
1994 573,496 4,230 846,575 4,022 0 15,938,991 252
1995 1,234,374 9,052 1,317,548 10,398 0 25,253,298 425
1996 1,787,009 13,160 2,166,510 45,127 0 39,923,200 818
1997 2,167,263 15,980 3,569,132 30,481 0 64,317,113 2,917
TOTAL 7,799,103 47,000 9,206,535 178,154 0 163,255,824 4,633
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE
(27) (28) (29) (30) (31) (32)
DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX XXXX XXXX XXXX
1988 74,923,665 1,343,259 73,580,407 67.2 45.1 67.8
1989 78,187,806 1,287,729 76,900,077 67.7 40.8 68.5
1990 91,297,356 1,511,250 89,786,106 73.9 50.0 74.5
1991 94,750,537 720,041 94,030,497 72.4 23.5 73.6
1992 93,623,113 1,962,864 91,660,249 69.0 60.2 69.2
1993 91,644,396 1,373,036 90,271,360 70.5 32.5 71.8
1994 103,979,900 1,461,497 102,518,403 83.8 33.8 85.6
1995 89,135,565 2,008,663 87,126,902 75.4 51.5 76.2
1996 86,350,265 2,683,980 83,666,284 77.4 88.2 77.1
1997 89,774,516 1,455,007 88,319,509 83.0 56.3 83.7
TOTAL XXXX XXXX XXXX XXXX XXXX XXXX
<CAPTION>
INTER-COMPANY
POOLING NET BALANCE SHEET RESERVES
NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT
(33) (34) (35) (36) (37)
LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID
<S> <C> <C> <C> <C> <C>
PRIOR 0 0 XXXX 1,146,824 1,115,530
1988 0 0 0.0 467,280 184,634
1989 0 0 0.0 723,796 379,960
1990 0 0 0.0 1,066,746 244,989
1991 0 0 0.0 1,429,692 514,873
1992 0 0 0.0 2,980,379 572,194
1993 0 0 0.0 5,778,112 1,218,214
1994 0 0 0.0 13,636,647 2,302,343
1995 0 0 0.0 20,815,105 4,438,192
1996 0 0 0.0 33,257,451 6,665,749
1997 0 0 0.0 55,262,979 9,054,134
TOTAL 0 0 XXXX 136,565,011 26,690,813
</TABLE>
<PAGE> 5
OHIO CASUALTY GROUP
SCHEDULE P-PART 1D - WORKERS COMPENSATION
<TABLE>
<CAPTION>
ALLOCATED LOSS EXPENSE
PREMIUMS EARNED LOSS PAYMENTS PAYMENTS
(1) (2) (3) (4) (5) (6) (7) (8)
ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXXX 0 0 6,459,377 859,275 496,502 2,484
1988 179,207,624 3,811,020 175,396,604 109,079,952 543,565 9,233,122 0
1989 201,801,876 4,147,639 197,654,237 131,777,799 1,478,138 11,539,838 86,120
1990 220,036,820 3,333,416 216,703,404 150,055,753 613,935 13,428,570 45
1991 219,109,861 3,143,510 215,966,351 137,941,800 94,787 12,484,995 647
1992 213,577,106 2,909,054 210,668,052 117,912,378 19,280 8,986,981 1,771
1993 185,737,510 2,443,331 183,294,179 87,404,497 0 5,923,739 0
1994 153,211,860 1,955,046 151,256,814 58,725,413 1,500 3,867,013 1,696
1995 143,658,352 1,654,337 142,004,015 47,762,300 0 2,846,731 0
1996 124,749,682 592,288 124,157,394 32,675,567 228,201 1,850,182 0
1997 103,906,558 422,962 103,483,596 14,328,948 0 552,949 0
TOTAL XXXX XXXX XXXX 894,123,784 3,838,681 71,210,624 92,763
<CAPTION>
SALVAGE & NUMBER OF
UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS
PAYMENTS RECEIVED TOTAL NET PAID REPORTED
(9) (10) (11) (12) (13)
DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C>
PRIOR 257,370 0 256,171 6,351,490 XXXX
1988 4,101,456 0 3,152,252 121,870,965 31,194
1989 5,098,397 0 3,255,082 146,851,776 33,409
1990 5,627,298 0 4,594,005 168,497,641 32,853
1991 5,748,549 0 3,483,732 156,079,911 28,094
1992 6,582,748 0 3,037,460 133,461,056 24,644
1993 4,986,282 0 1,376,913 98,314,518 17,625
1994 3,930,527 0 906,106 66,519,758 13,939
1995 4,201,355 0 536,728 54,810,386 11,795
1996 3,288,229 0 293,527 37,585,778 10,763
1997 2,409,588 0 37,124 17,291,486 9,093
TOTAL 46,231,802 0 20,929,101 1,007,634,765 XXXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID
CASE BASIS BULK + IBNR CASE BASIS
(14) (15) (16) (17) (18) (19)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C>
PRIOR 55,772,075 15,085,607 6,283,440 9,567 1,501,117 198,500
1988 10,859,242 1,747,675 2,150,639 3,878 432,123 (55,357)
1989 16,883,989 3,194,276 3,366,947 6,462 650,324 86,391
1990 14,831,478 1,263,364 4,011,343 7,755 855,277 111,644
1991 15,349,279 135,897 6,154,025 12,924 1,220,851 148,860
1992 16,377,029 139,734 9,514,780 22,743 1,524,359 167,471
1993 16,230,317 1,073,657 10,227,768 25,843 1,836,734 188,739
1994 16,434,635 0 11,986,286 31,011 1,961,889 190,071
1995 20,901,407 872,435 12,985,144 33,595 2,140,243 207,350
1996 18,076,765 25,860 18,978,287 49,101 2,853,657 276,466
1997 19,322,749 0 21,475,430 55,561 3,745,425 362,862
TOTAL 221,038,966 23,538,505 107,134,090 258,439 18,722,000 1,993,711
<CAPTION>
SALVAGE & TOTAL NET NUMBER OF
ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS
BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING
(20) (21) (22) (23) (24) (25) (26)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 1,177,769 1,525 1,382,150 397,073 0 50,424,279 763
1988 323,634 450 288,327 46,114 0 12,200,492 124
1989 513,655 658 462,583 84,231 0 18,505,480 200
1990 658,499 878 392,647 33,477 0 19,332,127 223
1991 849,284 1,317 458,333 4,038 0 23,728,736 236
1992 901,605 1,756 556,921 4,429 0 28,538,563 267
1993 973,706 2,194 587,782 29,109 0 28,536,765 293
1994 940,525 2,414 658,549 1,064 0 31,757,325 302
1995 1,026,027 2,633 829,416 24,117 0 36,742,106 430
1996 1,368,036 3,511 1,040,283 2,383 0 41,959,707 813
1997 1,795,547 4,608 3,721,988 1,899 0 49,636,209 3,289
TOTAL 10,528,288 21,944 10,378,978 627,934 0 341,361,789 6,940
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE
(27) (28) (29) (30) (31) (32)
DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX XXXX XXXX XXXX
1988 136,468,495 2,397,038 134,071,456 76.2 62.9 76.4
1989 170,293,533 4,936,277 165,357,256 84.4 119.0 83.7
1990 189,860,867 2,031,099 187,829,768 86.3 60.9 86.7
1991 180,207,117 398,470 179,808,647 82.2 12.7 83.3
1992 162,356,802 357,183 161,999,619 76.0 12.3 76.9
1993 128,170,826 1,319,542 126,851,283 69.0 54.0 69.2
1994 98,504,838 227,755 98,277,083 64.3 11.6 65.0
1995 92,692,622 1,140,130 91,552,492 64.5 68.9 64.5
1996 80,131,006 585,521 79,545,485 64.2 98.9 64.1
1997 67,352,624 424,930 66,927,694 64.8 100.5 64.7
TOTAL XXXX XXXX XXXX XXXX XXXX XXXX
<CAPTION>
INTER-COMPANY
POOLING NET BALANCE SHEET RESERVES
NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT
(33) (34) (35) (36) (37)
LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID
<S> <C> <C> <C> <C> <C>
PRIOR 0 0 XXXX 46,960,341 3,463,938
1988 0 0 0.0 11,258,328 942,163
1989 0 0 0.0 17,050,198 1,455,282
1990 0 0 0.0 17,571,703 1,760,424
1991 0 0 0.0 21,354,484 2,374,252
1992 0 0 0.0 25,729,333 2,809,230
1993 0 0 0.0 25,358,585 3,178,180
1994 0 0 0.0 28,389,911 3,367,414
1995 0 0 0.0 32,980,521 3,761,586
1996 0 0 0.0 36,980,091 4,979,616
1997 0 0 0.0 40,742,617 8,893,591
TOTAL 0 0 XXXX 304,376,112 36,985,677
</TABLE>
<PAGE> 6
OHIO CASUALTY GROUP
SCHEDULE P-PART 1E - COMMERCIAL MULTI-PERIL
<TABLE>
<CAPTION>
ALLOCATED LOSS EXPENSE
PREMIUMS EARNED LOSS PAYMENTS PAYMENTS
(1) (2) (3) (4) (5) (6) (7) (8)
ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX 18,812,831 5,000,000 1,329,329 196,166
1988 100,340,132 2,434,770 97,905,362 30,089,989 25,447 5,821,234 180
1989 98,708,427 2,400,642 96,307,785 41,022,492 647,866 6,851,714 58,206
1990 109,609,476 2,062,177 107,547,299 49,369,930 1,783,294 9,168,682 18,100
1991 125,345,866 2,460,164 122,885,702 64,158,314 4,939,604 9,822,773 107,587
1992 147,343,234 4,565,315 142,777,919 93,553,143 8,323,911 11,101,651 56,139
1993 146,366,198 5,672,668 140,693,530 78,042,340 135,217 9,759,834 89,650
1994 143,239,939 6,537,857 136,702,082 77,086,819 242,715 7,742,048 138,532
1995 139,601,917 6,742,565 132,859,352 63,513,395 189,151 5,269,689 0
1996 136,835,193 4,550,420 132,284,773 68,774,107 181,349 3,699,487 0
1997 142,019,235 4,984,286 137,034,949 40,991,633 114,940 981,663 0
TOTAL XXXX XXXX XXXX 625,414,993 21,583,494 71,548,103 664,560
<CAPTION>
SALVAGE & NUMBER OF
UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS
PAYMENTS RECEIVED TOTAL NET PAID REPORTED
(1) (9) (10) (11) (12) (13)
ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C>
PRIOR 21,669 0 2,698 14,967,663 XXXX
1988 3,477,064 0 1,301,587 39,362,661 10,872
1989 2,556,821 0 1,791,476 49,724,955 12,532
1990 3,319,262 0 1,645,090 60,056,480 13,469
1991 4,235,059 0 4,956,553 73,168,955 15,813
1992 5,284,688 0 2,384,972 101,559,432 19,208
1993 5,004,790 0 1,437,904 92,582,096 19,562
1994 5,204,195 0 1,920,751 89,651,814 19,623
1995 4,907,265 0 1,471,987 73,501,198 17,003
1996 4,798,173 0 953,409 77,090,418 17,753
1997 2,885,276 0 399,607 44,743,633 13,766
TOTAL 41,694,263 0 18,266,035 716,409,304 XXXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID
CASE BASIS BULK + IBNR CASE BASIS
(14) (15) (16) (17) (18) (19)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C>
PRIOR 3,982,637 118,310 3,647,071 10,082 629,588 1,471
1988 118,600 0 83,344 2,161 194,278 551
1989 296,550 5 9,731 2,161 202,438 551
1990 1,165,026 0 89,151 3,601 404,875 1,103
1991 1,575,998 5,000 1,048,848 5,761 645,012 2,757
1992 2,818,475 5,750 323,773 8,642 911,830 4,596
1993 6,030,677 0 1,305,702 28,807 1,845,695 11,029
1994 6,096,380 30,000 1,447,476 43,211 2,935,003 20,221
1995 8,520,951 3 4,787,647 144,036 5,336,368 36,765
1996 13,291,175 301,270 12,098,272 360,089 6,670,460 45,956
1997 24,575,838 898,063 27,587,289 831,806 8,538,189 58,824
TOTAL 68,472,307 1,358,401 52,428,304 1,440,356 28,313,736 183,824
<CAPTION>
SALVAGE & TOTAL NET NUMBER OF
ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS
BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING
(20) (21) (22) (23) (24) (25) (26)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 5,143,765 3,867 1,193,187 1,926 0 14,460,592 228
1988 203,502 1,450 43,840 84 0 639,319 15
1989 134,134 1,450 28,116 84 0 666,718 23
1990 371,356 2,901 111,131 140 0 2,133,794 33
1991 1,694,867 7,251 90,224 289 0 5,033,889 39
1992 824,522 12,086 150,350 410 0 4,997,467 66
1993 1,970,964 29,006 297,732 1,120 0 11,380,808 136
1994 2,394,657 53,177 288,592 2,069 0 13,013,429 245
1995 4,340,155 96,686 447,148 5,598 0 23,149,181 415
1996 5,569,367 120,857 819,710 17,902 0 37,602,910 728
1997 6,942,027 154,697 1,512,960 43,973 0 67,168,942 2,937
TOTAL 29,589,315 483,428 4,982,990 73,594 0 180,247,049 4,865
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE
(27) (28) (29) (30) (31) (32)
DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX XXXX XXXX XXXX
1988 40,031,852 29,873 40,001,979 39.9 1.2 40.9
1989 51,101,996 710,323 50,391,672 51.8 29.6 52.3
1990 63,999,412 1,809,138 62,190,275 58.4 87.7 57.8
1991 83,271,094 5,068,250 78,202,844 66.4 206.0 63.6
1992 114,968,432 8,411,534 106,556,898 78.0 184.2 74.6
1993 104,257,732 294,829 103,962,903 71.2 5.2 73.9
1994 103,195,168 529,925 102,665,243 72.0 8.1 75.1
1995 97,122,619 472,239 96,650,380 69.6 7.0 72.7
1996 115,720,751 1,027,423 114,693,328 84.6 22.6 86.7
1997 114,014,877 2,102,302 111,912,575 80.3 42.2 81.7
TOTAL XXXX XXXX XXXX XXXX XXXX XXXX
<CAPTION>
INTER-COMPANY
POOLING NET BALANCE SHEET RESERVES
NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT
(33) (34) (35) (36) (37)
LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID
<S> <C> <C> <C> <C> <C>
PRIOR 0 0 XXXX 7,501,315 6,959,276
1988 0 0 0.0 199,784 439,535
1989 0 0 0.0 304,116 362,602
1990 0 0 0.0 1,250,576 883,218
1991 0 0 0.0 2,614,084 2,419,805
1992 0 0 0.0 3,127,856 1,869,611
1993 0 0 0.0 7,307,572 4,073,236
1994 0 0 0.0 7,470,645 5,542,784
1995 0 0 0.0 13,164,559 9,984,622
1996 0 0 0.0 24,728,088 12,874,822
1997 0 0 0.0 50,433,259 16,735,684
TOTAL 0 0 XXXX 118,101,854 62,145,195
</TABLE>
<PAGE> 7
OHIO CASUALTY GROUP
SCHEDULE P-PART 1G - BOILER & MACHINERY
<TABLE>
<CAPTION>
ALLOCATED LOSS EXPENSE
PREMIUMS EARNED LOSS PAYMENTS PAYMENTS
(1) (2) (3) (4) (5) (6) (7) (8)
ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX 0 0 0 0
1988 0 0 0 0 0 0
1989 0 0 0 0 0 0 0
1990 143,036 57,628 85,408 94,811 62,034 669 0
1991 271,065 213,756 57,309 82,738 70,799 12,530 0
1992 225,513 183,902 41,611 326,539 260,881 0 0
1993 36,594 43,445 (6,851) 0 0 0 0
1994 18,241 16,879 1,362 9,366 2,238 209 0
1995 32,924 30,389 2,535 0 0 0 0
1996 49,025 48,882 143 5,068 5,068 0 0
1997 59,177 59,177 0 0 0 0 0
TOTAL XXXX XXXX XXXX 518,522 401,019 13,409 0
<CAPTION>
SALVAGE & NUMBER OF
UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS
PAYMENTS RECEIVED TOTAL NET PAID REPORTED
(1) (9) (10) (11) (12) (13)
ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C>
PRIOR 0 0 0 0 XXXX
1988 0 0 0 0 XXXX
1989 0 0 0 0 XXXX
1990 0 0 0 33,447 XXXX
1991 0 0 0 24,470 XXXX
1992 0 0 0 65,659 XXXX
1993 0 0 0 0 XXXX
1994 0 0 0 7,338 XXXX
1995 0 0 0 0 XXXX
1996 0 0 0 0 XXXX
1997 0 0 0 0 XXXX
TOTAL 0 0 0 130,912 XXXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID
CASE BASIS BULK + IBNR CASE BASIS
(14) (15) (16) (17) (18) (19)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0
1988 0 0 0 0 0 0
1989 0 0 0 0 0 0
1990 0 0 0 0 0 0
1991 689 459 0 0 0 0
1992 0 0 0 0 0 0
1993 0 0 0 0 0 0
1994 0 0 0 0 0 0
1995 0 0 0 0 0 0
1996 0 0 0 0 0 0
1997 0 0 0 0 0 0
TOTAL 689 459 0 0 0 0
<CAPTION>
SALVAGE & TOTAL NET NUMBER OF
ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS
BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING
(20) (21) (22) (23) (24) (25) (26)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0
1991 0 0 0 0 0 230 1
1992 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
TOTAL 0 0 0 0 0 230 1
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE
(27) (28) (29) (30) (31) (32)
DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX XXXX XXXX XXXX
1988 0 0 0 0.0 0.0 0.0
1989 0 0 0 0.0 0.0 0.0
1990 95,480 62,034 33,447 66.8 107.6 39.2
1991 95,957 71,258 24,700 35.4 33.3 43.1
1992 326,539 260,881 65,659 144.8 141.9 157.8
1993 0 0 0 0.0 0.0 0.0
1994 9,576 2,238 7,338 52.5 13.3 538.7
1995 0 0 0 0.0 0.0 0.0
1996 5,068 5,068 0 10.3 10.4 0.0
1997 0 0 0 0.0 0.0 0.0
TOTAL XXXX XXXX XXXX XXXX XXXX XXXX
<CAPTION>
INTER-COMPANY
POOLING NET BALANCE SHEET RESERVES
NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT
(33) (34) (35) (36) (37)
LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID
<S> <C> <C> <C> <C> <C>
PRIOR 0 0 XXXX 0 0
1988 0 0 0.0 0 0
1989 0 0 0.0 0 0
1990 0 0 0.0 0 0
1991 0 0 0.0 230 0
1992 0 0 0.0 0 0
1993 0 0 0.0 0 0
1994 0 0 0.0 0 0
1995 0 0 0.0 0 0
1996 0 0 0.0 0 0
1997 0 0 0.0 0 0
TOTAL 0.00 0.00 XXXX 230 0
</TABLE>
<PAGE> 8
OHIO CASUALTY GROUP
SCHEDULE P-PART 1H(1) - GENERAL LIABILITY (OCCURENCE)
<TABLE>
<CAPTION>
ALLOCATED LOSS EXPENSE
PREMIUMS EARNED LOSS PAYMENTS PAYMENTS
(1) (2) (3) (4) (5) (6) (7) (8)
ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX 1,283,970 (61,000) 665,295 (46,829)
1988 140,322,272 2,728,277 137,593,995 39,636,113 1,007,842 14,357,372 20,489
1989 138,825,255 2,811,203 136,014,052 46,392,896 3,244,810 14,754,092 87,049
1990 140,819,473 2,495,606 138,323,867 48,852,045 2,866,669 17,719,367 692,428
1991 128,769,170 2,252,476 126,516,694 45,095,728 1,679,873 13,785,474 74,211
1992 120,598,579 2,154,696 118,443,883 39,504,950 2,251,930 12,655,788 3,072
1993 111,023,544 1,962,492 109,061,052 31,589,468 615,683 9,217,142 29,690
1994 112,505,526 1,992,713 110,512,813 26,068,341 1,384,782 6,147,310 11,292
1995 111,545,266 1,892,511 109,652,755 14,974,193 0 3,075,130 0
1996 104,751,105 1,051,089 104,217,068 12,374,721 500,000 1,621,678 0
1997 98,938,574 726,289 98,212,286 4,774,806 0 336,485 0
TOTAL XXXX XXXX XXXX 310,547,229 13,490,588 94,335,134 871,403
<CAPTION>
SALVAGE & NUMBER OF
UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS
PAYMENTS RECEIVED TOTAL NET PAID REPORTED
(1) (9) (10) (11) (12) (13)
ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C>
PRIOR 128,954 0 522,000 2,186,048 XXXX
1988 7,036,044 0 935,549 60,001,198 6,910
1989 7,737,951 0 1,206,502 65,553,080 7,454
1990 8,445,349 0 717,761 71,457,664 7,941
1991 7,998,664 0 648,027 65,125,782 7,387
1992 5,608,404 0 1,123,282 55,514,140 7,030
1993 4,355,663 0 577,604 44,516,900 6,655
1994 4,786,356 0 440,540 35,605,933 6,507
1995 2,600,799 0 326,342 20,650,121 5,527
1996 3,971,790 0 287,584 17,468,188 5,219
1997 1,527,294 0 172,572 6,638,585 3,960
TOTAL 54,197,268 0 6,957,763 444,717,641 XXXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID
CASE BASIS BULK + IBNR CASE BASIS
(14) (15) (16) (17) (18) (19)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C>
PRIOR 4,439,110 250,010 6,079,130 843 1,554,020 51,888
1988 881,500 0 1,338,420 667 337,232 10,938
1989 832,860 5 1,704,492 889 395,364 12,392
1990 3,563,259 500,000 2,650,149 1,111 482,563 14,573
1991 3,793,859 77,741 2,969,107 1,200 749,564 20,499
1992 6,118,095 1 3,996,518 2,668 1,137,113 30,191
1993 6,172,365 300,665 2,384,040 6,231 1,452,558 37,328
1994 8,317,089 544,367 3,948,459 28,935 2,131,517 53,306
1995 10,413,688 3 9,247,500 68,464 3,875,485 96,920
1996 13,081,390 0 16,518,789 122,415 4,627,329 115,722
1997 6,335,331 0 28,484,214 211,712 5,038,130 125,996
TOTAL 63,948,546 1,672,792 79,320,818 445,135 21,780,875 569,753
</TABLE>
<PAGE> 9
OHIO CASUALTY GROUP
SCHEDULE P-PART 1H2 - GENERAL LIABILITY (CLAIMS MADE)
<TABLE>
<CAPTION>
ALLOCATED LOSS EXPENSE
PREMIUMS EARNED LOSS PAYMENTS PAYMENTS
(1) (2) (3) (4) (5) (6) (7) (8)
ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX 0 0 0 0
1988 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0
1990 15,331 198 15,133 0 0 0 0
1991 49,676 606 49,070 0 0 0 0
1992 108,651 1,326 107,325 0 0 0 0
1993 137,578 1,728 135,850 60,000 0 23,077 0
1994 158,192 2,025 156,167 20,192 0 256,325 0
1995 395,268 108,203 287,065 255,868 0 176,361 0
1996 807,258 290,207 515,052 46,476 0 22,304 0
1997 1,010,179 369,462 640,717 13,736 0 1,735 0
TOTAL XXXX XXXX XXXX 396,272 0 479,802 0
<CAPTION>
SALVAGE & NUMBER OF
UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS
PAYMENTS RECEIVED TOTAL NET PAID REPORTED
(1) (9) (10) (11) (12) (13)
ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 XXXX
1988 0 0 0 0 0
1989 0 0 0 0 0
1990 0 0 0 0 0
1991 0 0 0 0 0
1992 0 0 0 0 0
1993 25,830 0 0 108,907 0
1994 29,324 0 0 305,841 0
1995 50,137 0 0 482,366 32
1996 840 0 250 69,620 43
1997 1,849 0 1,183 17,319 23
TOTAL 107,979 0 1,433 984,053 XXXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID
CASE BASIS BULK + IBNR CASE BASIS
(14) (15) (16) (17) (18) (19)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 153 1 54 0
1988 0 0 121 1 17 0
1989 0 0 161 1 28 0
1990 0 0 201 1 43 0
1991 0 0 217 1 103 0
1992 0 0 482 3 172 0
1993 0 0 1,126 7 241 0
1994 0 0 5,227 32 378 0
1995 0 0 12,367 76 688 0
1996 10,000 0 22,113 136 821 0
1997 100 0 38,243 234 894 0
TOTAL 10,100 0 80,411 493 3,440 0
<CAPTION>
SALVAGE & TOTAL NET NUMBER OF
ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS
BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING
(20) (21) (22) (23) (24) (25) (26)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 555 1 17 0 0 777 0
1988 182 0 13 0 0 332 0
1989 274 0 18 0 0 479 0
1990 435 1 22 0 0 699 0
1991 884 1 24 0 0 1,226 0
1992 1,624 2 53 0 0 2,326 0
1993 2,512 3 123 0 0 3,991 0
1994 3,827 4 570 (1) 0 9,967 0
1995 6,843 8 1,348 (3) 0 21,165 0
1996 8,182 10 4,457 (5) 0 45,434 1
1997 8,946 10 4,189 (9) 0 52,137 1
TOTAL 34,264 40 10,832 (18) 0 138,532 2
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE
(27) (28) (29) (30) (31) (32)
DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX XXXX XXXX XXXX
1988 333 1 332 0 0 0
1989 480 1 479 0 0 0
1990 701 2 699 5 1 5
1991 1,228 2 1,226 2 0 2
1992 2,331 5 2,326 2 0 2
1993 112,908 10 112,898 82 1 83
1994 315,843 35 315,808 200 2 202
1995 503,612 81 503,531 127 0 175
1996 115,194 140 115,053 14 0 22
1997 69,692 236 69,456 7 0 11
TOTAL XXXX XXXX XXXX XXXX XXXX XXXX
<CAPTION>
INTER-COMPANY
POOLING NET BALANCE SHEET RESERVES
NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT
(33) (34) (35) (36) (37)
LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID
<S> <C> <C> <C> <C> <C>
PRIOR 0 0 XXXX 152 625
1988 0 0 0.0 120 212
1989 0 0 0.0 160 319
1990 0 0 0.0 200 500
1991 0 0 0.0 216 1,010
1992 0 0 0.0 480 1,847
1993 0 0 0.0 1,119 2,872
1994 0 0 0.0 5,195 4,772
1995 0 0 0.0 12,291 8,873
1996 0 0 0.0 31,977 13,456
1997 0 0 0.0 38,109 14,028
TOTAL 0 0 XXXX 90,018 48,514
</TABLE>
<PAGE> 10
OHIO CASUALTY GROUP
SCHEDULE P-PART 1I - SPECIAL PROPERTY
<TABLE>
<CAPTION>
ALLOCATED LOSS EXPENSE
PREMIUMS EARNED LOSS PAYMENTS PAYMENTS
(1) (2) (3) (4) (5) (6) (7) (8)
ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX (107,450) 0 163,409 0
1996 66,985,134 3,519,797 63,465,337 42,310,868 57,722 1,338,626 0
1997 67,467,867 3,977,870 63,489,997 25,319,777 0 476,636 0
TOTAL XXXX XXXX XXXX 67,523,195 57,722 1,978,672 0
<CAPTION>
SALVAGE & NUMBER OF
UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS
PAYMENTS RECEIVED TOTAL NET PAID REPORTED
(1) (9) (10) (11) (12) (13)
ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C>
PRIOR (4,537) 0 757,192 51,422 XXXX
1996 2,788,745 0 433,950 46,380,517 XXXX
1997 2,362,951 0 213,123 28,159,365 XXXX
TOTAL 5,147,159 0 1,404,266 74,591,304 XXXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID
CASE BASIS BULK + IBNR CASE BASIS
(14) (15) (16) (17) (18) (19)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C>
PRIOR 822,697 6,196 335,838 19,633 67,039 68
1996 951,563 2,278 190,611 11,143 28,256 34
1997 5,816,079 0 1,288,891 75,347 56,512 68
TOTAL 7,590,339 8,474 1,815,340 106,122 151,807 169
<CAPTION>
SALVAGE & TOTAL NET NUMBER OF
ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS
BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING
(20) (21) (22) (23) (24) (25) (26)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 32,006 953 19,910 0 0 1,250,641 69
1996 16,733 498 64,006 0 0 1,237,216 101
1997 32,412 965 391,260 0 0 7,508,774 1,043
TOTAL 81,151 2,416 475,176 0 0 9,996,632 1,213
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE
(27) (28) (29) (30) (31) (32)
DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX XXXX XXXX XXXX
1996 47,689,409 71,675 47,617,734 71.2 2.0 75.0
1997 35,744,518 76,379 35,668,139 53.0 1.9 56.2
TOTAL XXXX XXXX XXXX XXXX XXXX XXXX
<CAPTION>
INTER-COMPANY
POOLING NET BALANCE SHEET RESERVES
NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT
(33) (34) (35) (36) (37)
LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID
<S> <C> <C> <C> <C> <C>
PRIOR 0 0 XXXX 1,132,706 117,935
1996 0 0 0.0 1,128,753 108,463
1997 0 0 0.0 7,029,624 479,151
TOTAL 0 0 XXXX 9,291,083 705,549
</TABLE>
<PAGE> 11
OHIO CASUALTY GROUP
SCHEDULE P-PART 1J - AUTO PHYSICAL DAMAGE
<TABLE>
<CAPTION>
ALLOCATED LOSS EXPENSE
PREMIUMS EARNED LOSS PAYMENTS PAYMENTS
(1) (2) (3) (4) (5) (6) (7) (8)
ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX (1,848,317) (18,519) 304,142 0
1996 209,636,877 938,825 208,698,052 132,662,761 1,000,187 1,744,007 0
1997 217,918,241 569,662 217,348,579 123,441,854 502,806 1,001,758 0
TOTAL XXXX XXXX XXXX 254,256,298 1,484,473 3,049,907 0
<CAPTION>
SALVAGE & NUMBER OF
UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS
PAYMENTS RECEIVED TOTAL NET PAID REPORTED
(1) (9) (10) (11) (12) (13)
ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C>
PRIOR (103,427) 0 2,345,508 (1,629,083) XXXX
1996 13,108,482 0 16,085,239 146,515,063 XXXX
1997 13,609,123 0 9,217,315 137,549,929 XXXX
TOTAL 26,614,178 0 27,648,061 282,435,909 XXXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID
CASE BASIS BULK + IBNR CASE BASIS
(14) (15) (16) (17) (18) (19)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C>
PRIOR 312,427 0 0 0 475,453 1,621
1996 659,666 3,000 225,415 598 321,630 1,097
1997 16,594,092 67,910 4,282,893 11,361 601,307 2,050
TOTAL 17,566,185 70,910 4,508,308 11,959 1,398,390 4,768
<CAPTION>
SALVAGE & TOTAL NET NUMBER OF
ALLOCATED LOSS EXPENSES UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS
BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING
(20) (21) (22) (23) (24) (25) (26)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 201,199 516 26,637 0 0 1,014,779 176
1996 143,460 366 56,585 0 0 1,401,696 564
1997 266,173 679 1,421,710 0 0 23,084,175 9,988
TOTAL 612,032 1,561 1,504,933 0 0 25,500,650 10,728
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE
(27) (28) (29) (30) (31) (32)
DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX XXXX XXXX XXXX
1996 148,922,007 1,005,247 147,916,760 71.0 107.1 70.9
1997 161,218,910 584,806 160,634,104 74.0 102.7 73.9
TOTAL XXXX XXXX XXXX XXXX XXXX XXXX
<CAPTION>
INTER-COMPANY
POOLING NET BALANCE SHEET RESERVES
NONTABULAR DISCOUNT PARTICIPATION AFTER DISCOUNT
(33) (34) (35) (36) (37)
LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID
<S> <C> <C> <C> <C> <C>
PRIOR 0 0 XXXX 312,427 702,352
1996 0 0 0.0 881,483 520,213
1997 0 0 0.0 20,797,714 2,286,462
TOTAL 0 0 XXXX 21,991,624 3,509,026
</TABLE>
<PAGE> 12
OHIO CASUALTY GROUP
SCHEDULE P-PART 1K - FIDELITY AND SURETY
<TABLE>
<CAPTION>
ALLOCATED LOSS EXPENSE
PREMIUMS EARNED LOSS PAYMENTS PAYMENTS
(1) (2) (3) (4) (5) (6) (7) (8)
ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX (382,370) (1,268,301) 562,120 314,977
1996 36,197,340 2,549,177 33,648,163 2,606,745 0 317,534 0
1997 36,372,708 1,967,157 34,405,551 1,093,201 0 70,925 0
TOTAL XXXX XXXX XXXX 3,317,577 (1,268,301) 950,578 314,977
<CAPTION>
SALVAGE & NUMBER OF
UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS
PAYMENTS RECEIVED TOTAL NET PAID REPORTED
(1) (9) (10) (11) (12) (13)
ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C>
PRIOR (67,620) 0 905,830 1,065,454 XXXX
1996 900,588 0 190,283 3,824,867 XXXX
1997 633,091 0 46,907 1,797,217 XXXX
TOTAL 1,466,059 0 1,143,020 6,687,538 XXXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID UNALLOCATED LOSS EXPENSES UNPAID
CASE BASIS BULK + IBNR CASE BASIS
(14) (15) (16) (17) (18) (19)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C>
PRIOR 2,593,347 313,187 706,564 37,506 641,900 34,451
1996 983,435 0 400,606 21,287 290,438 17,225
1997 1,836,033 0 2,708,858 143,942 580,876 34,450
TOTAL 5,412,815 313,187 3,816,028 202,735 1,513,214 86,126
<CAPTION>
SALVAGE & TOTAL NET NUMBER OF
ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS
BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING
(20) (21) (22) (23) (24) (25) (26)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 537,623 28,492 81,852 0 0 4,147,649 268,000
1996 280,957 14,896 33,718 0 0 1,935,744 170,000
1997 544,203 28,854 63,303 0 0 5,526,027 316,000
TOTAL 1,362,782 72,243 178,873 0 0 11,609,421 754,000
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE
(27) (28) (29) (30) (31) (32)
DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX XXXX XXXX XXXX
1996 5,814,020 53,409 5,760,611 16.1 2.1 17.1
1997 7,530,490 207,246 7,323,244 20.7 10.5 21.3
TOTAL XXXX XXXX XXXX XXXX XXXX XXXX
<CAPTION>
INTER-COMPANY
POOLING NET BALANCE SHEET RESERVES
NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT
(33) (34) (35) (36) (37)
LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID
<S> <C> <C> <C> <C> <C>
PRIOR 0 0 XXXX 2,949,218 1,198,431
1996 0 0 0.0 1,362,754 572,991
1997 0 0 0.0 4,400,949 1,125,078
TOTAL 0 0 XXXX 8,712,921 2,896,500
</TABLE>
<PAGE> 13
OHIO CASUALTY GROUP
SCHEDULE P-PART 1L - ACCIDENT & HEALTH
<TABLE>
<CAPTION>
ALLOCATED LOSS EXPENSE
PREMIUMS EARNED LOSS PAYMENTS PAYMENTS
(1) (2) (3) (4) (5) (6) (7) (8)
ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX 374,642 374,642 2,868 2,868
1996 1,297,719 1,297,719 0 252,713 252,713 70 70
1997 1,062,936 1,062,937 (1) 122,612 122,612 0 0
TOTAL XXXX XXXX XXXX 749,967 749,967 2,938 2,938
<CAPTION>
SALVAGE & NUMBER OF
UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS
PAYMENTS RECEIVED TOTAL NET PAID REPORTED
(1) (9) (10) (11) (12) (13)
ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C>
PRIOR 0 0 0 (0) XXXX
1996 0 0 0 0 XXXX
1997 0 0 0 0 XXXX
TOTAL 0 0 0 0 XXXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID
CASE BASIS BULK + IBNR CASE BASIS
(14) (15) (16) (17) (18) (19)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C>
PRIOR 676,162 676,162 703,602 703,602 0 0
1996 269,233 269,233 280,160 280,160 0 0
1997 280,612 280,612 292,000 292,000 0 0
TOTAL 1,226,007 1,226,007 1,275,762 1,275,762 0 0
<CAPTION>
SALVAGE & TOTAL NET NUMBER OF
ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS
BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING
(20) (21) (22) (23) (24) (25) (26)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 1
1996 0 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
TOTAL 0 0 0 0 0 0 1
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE
(27) (28) (29) (30) (31) (32)
DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX XXXX XXXX XXXX
1996 802,176 802,176 0 61.8 61.8 0.0
1997 695,224 695,224 0 65.4 65.4 0.0
TOTAL XXXX XXXX XXXX XXXX XXXX XXXX
<CAPTION>
INTER-COMPANY
POOLING NET BALANCE SHEET RESERVES
NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT
(33) (34) (35) (36) (37)
LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID
<S> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0
1996 0 0 0.0 0 0
1997 0 0 0.0 0 0
TOTAL 0 0 XXXX 0 0
</TABLE>
<PAGE> 14
OHIO CASUALTY GROUP
SCHEDULE P-PART 1R1 - PRODUCT LIABILITY (OCCURENCE)
<TABLE>
<CAPTION>
ALLOCATED LOSS EXPENSE
PREMIUMS EARNED LOSS PAYMENTS PAYMENTS
(1) (2) (3) (4) (5) (6) (7) (8)
ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX 1,494,690 (30,000) 1,943,480 0
1988 16,133,804 290,408 15,843,396 3,931,259 0 4,153,400 0
1989 14,373,177 258,717 14,114,460 4,283,110 0 2,227,584 0
1990 13,298,268 218,187 13,080,081 3,389,882 0 3,071,275 0
1991 10,830,510 132,713 10,697,797 3,221,387 45,000 1,712,524 10,785
1992 9,395,225 114,623 9,280,602 1,911,538 0 1,398,415 0
1993 6,068,861 75,297 5,993,564 1,878,390 0 1,066,404 0
1994 1,231,286 15,761 1,215,525 576,351 0 492,850 0
1995 485,873 6,255 479,618 296,297 0 112,132 0
1996 384,859 1,279 383,580 132,811 0 75,734 0
1997 396,349 1,454 394,895 34,574 0 5,804 0
TOTAL XXXX XXXX XXXX 21,150,289 15,000 16,259,603 10,785
<CAPTION>
SALVAGE & NUMBER OF
UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS
PAYMENTS RECEIVED TOTAL NET PAID REPORTED
(9) (10) (11) (12) (13)
DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C>
PRIOR 411,165 0 274,441 3,879,335 XXXX
1988 654,623 0 289,636 8,739,282 556
1989 619,243 0 26,870 7,129,936 481
1990 366,654 0 43,592 6,827,812 374
1991 357,421 0 103,241 5,235,547 320
1992 261,443 0 31,953 3,571,397 266
1993 288,347 0 21,483 3,233,141 105
1994 285,045 0 3,570 1,354,246 203
1995 1,095,454 0 7,261 1,503,883 123
1996 571,426 0 2,572 779,971 106
1997 274,581 0 1,227 314,959 66
TOTAL 5,185,401 0 805,847 42,569,508 XXXX
</TABLE>
<TABLE>
<CAPTION>
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID
CASE BASIS BULK + IBNR CASE BASIS
(14) (15) (16) (17) (18) (19)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED
<S> <C> <C> <C> <C> <C> <C>
PRIOR 3,315,670 350,000 81,388 2 1,140,994 1,872
1988 714,030 0 32,983 1 220,802 596
1989 1,541,040 0 37,286 2 222,891 954
1990 990,520 0 65,677 2 226,026 1,490
1991 188,850 0 69,807 2 173,021 3,576
1992 370,210 0 83,757 5 186,952 5,961
1993 178,510 0 48,233 12 135,688 8,345
1994 219,800 0 37,547 56 76,624 13,113
1995 279,010 0 88,843 133 139,317 23,842
1996 525,180 0 158,854 238 166,344 28,467
1997 102,813 0 274,731 411 181,111 30,995
TOTAL 8,425,633 350,000 979,106 865 2,869,771 119,210
<CAPTION>
SALVAGE & TOTAL NET NUMBER OF
ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS
BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING
(20) (21) (22) (23) (24) (25) (26)
DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED
<S> <C> <C> <C> <C> <C> <C> <C>
PRIOR 18,291 3 256,677 22,367 0 4,438,777 907
1988 14,249 1 49,144 0 0 1,030,609 37
1989 19,364 2 99,495 0 0 1,919,120 37
1990 21,803 3 63,507 0 0 1,366,038 26
1991 33,140 5 13,103 0 0 474,337 21
1992 39,948 10 125,816 13 0 800,694 10
1993 50,196 15 13,557 0 0 417,812 15
1994 59,577 23 23,111 0 0 403,467 13
1995 65,810 42 27,047 0 0 576,010 16
1996 65,765 50 55,182 0 0 942,570 22
1997 70,767 54 10,917 0 0 608,880 27
TOTAL 458,909 208 737,557 22,380 0 12,978,313 1,131
</TABLE>
<TABLE>
<CAPTION>
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE
(27) (28) (29) (30) (31) (32)
DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET
<S> <C> <C> <C> <C> <C> <C>
PRIOR XXXX XXXX XXXX XXXX XXXX XXXX
1988 9,770,489 598 9,769,890 60.6 0.2 61.7
1989 9,050,013 957 9,049,056 63.0 0.4 64.1
1990 8,195,345 1,495 8,193,850 61.6 0.7 62.6
1991 5,769,252 59,369 5,709,883 53.3 44.7 53.4
1992 4,378,080 5,989 4,372,091 46.6 5.2 47.1
1993 3,659,325 8,372 3,650,953 60.3 11.1 60.9
1994 1,770,905 13,193 1,757,712 143.8 83.7 144.6
1995 2,103,909 24,017 2,079,892 433.0 384.0 433.7
1996 1,751,296 28,755 1,722,542 455.0 2248.2 449.1
1997 955,299 31,460 923,839 241.0 2163.6 233.9
TOTAL XXXX XXXX XXXX XXXX XXXX XXXX
<CAPTION>
INTER-COMPANY
POOLING NET BALANCE SHEET RESERVES
NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT
(33) (34) (35) (36) (37)
LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID
<S> <C> <C> <C> <C> <C>
PRIOR 0 0 XXXX 3,047,057 1,391,720
1988 0 0 0.0 747,012 283,597
1989 0 0 0.0 1,578,324 340,795
1990 0 0 0.0 1,056,195 309,844
1991 0 0 0.0 258,655 215,682
1992 0 0 0.0 453,962 346,733
1993 0 0 0.0 226,730 191,082
1994 0 0 0.0 257,291 146,176
1995 0 0 0.0 367,720 208,290
1996 0 0 0.0 683,796 258,774
1997 0 0 0.0 377,133 231,747
TOTAL 0 0 XXXX 9,053,874 3,924,439
</TABLE>
