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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1996
------------------
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the transition period from _________________
to _____________________
Commission File Number 0-5544
OHIO CASUALTY CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 31-0783294
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
136 NORTH THIRD STREET, HAMILTON, OHIO 45025
(Address of principal executive offices) (Zip Code)
(513) 867-3000
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Shares, Par Value $.125 Each
(Title of Class)
Common Share Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---------- ----------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value as of March 1, 1997 of the voting stock held by
non-affiliates of the registrant was $1,251,573,458.
On March 1, 1997 there were 35,110,231 shares outstanding.
Page 1 of 127
INDEX TO EXHIBITS ON PAGE 28
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DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the registrant's fiscal year ended December
31, 1996 is incorporated herein by reference for the following items:
PART I
Item 1. Business.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 8. Financial Statements and Supplementary Data.
The Proxy Statement of the Board of Directors for the fiscal year ended December
31, 1996 for the Annual Shareholders meeting to be held April 16, 1997 is
incorporated herein by reference for the following items:
PART III
Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Ohio Casualty Corporation (the Corporation) was incorporated under the laws of
Ohio in August, 1969. The Corporation operates primarily as a holding company
and is principally engaged, through its direct and indirect subsidiaries, in the
business of property and casualty insurance and insurance premium finance.
The Corporation has two industry segments: property and casualty insurance and
insurance premium finance. The Corporation conducts its property and casualty
insurance business through The Ohio Casualty Insurance Company ("Ohio
Casualty"), an Ohio corporation organized in 1919, the Ohio Casualty's three
operating property and casualty insurance subsidiaries: West American Insurance
Company ("West American"), an Indiana corporation (originally incorporated under
the laws of the State of California) acquired in 1945; Ohio Security Insurance
Company ("Ohio Security"), an Ohio corporation acquired in 1962; and American
Fire and Casualty Company ("American Fire"), an Ohio corporation (originally
incorporated under the laws of the State of Florida) acquired in 1969. This
group of companies presently underwrites most forms of property and casualty
insurance. The Corporation conducts its premium finance business through Ocasco
Budget, Inc. ("Ocasco"), an Ohio corporation (originally incorporated under the
laws of the State of California) organized in 1960. Ocasco is a direct
subsidiary of Ohio Casualty. On May 31, 1995 the states of domicile of West
American and Ocasco changed to Indiana and Ohio, respectively, in connection
with the withdrawal from property and casualty insurance operations in
California as previously announced and as discussed elsewhere herein.
During 1995, the Corporation's third industry segment, life operations, was
discontinued. We found it increasingly difficult to achieve our targeted 16%
rate of return in this segment of our business. After extensive analysis, it was
determined that a 16% return could not be achieved without substantial capital
contributions and a dramatic overhaul of the life operations. Since this was a
small segment of our overall business, it was decided that this would not be a
prudent use of our capital. Therefore, on October 2, 1995, the Corporation
signed the final documents to reinsure the existing blocks of business and enter
a marketing agreement with Great Southern Life Insurance Company. The existing
blocks of business were reinsured through a 100% coinsurance arrangement with
Employer's Reassurance Corporation. As of December 31, 1996, $12.9 million of
the net ceding commission from the transaction remains unamortized. This will be
amortized into income over the remaining expected life of the underlying
reinsured policies, in this case, 14 years. It is anticipated that Great
Southern will replace Ohio Life as the primary carrier of these policies in the
second quarter of 1997 through an assumption. Upon assumption, the remaining
unamortized gain will be recognized. Net income from discontinued operations
amounted to $5.3 million or $.15 per share in 1996 compared with $4.4 million or
$.12 per share in 1995 and $5.9 million or $.16 per share in 1994.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The revenues, operating profit and identifiable assets of each industry segment
for the three years ended December 31, 1996 are set forth in Note 11, Industry
Segment Information, in the Notes to the Consolidated Financial Statements on
page 33 of the Annual Report to Shareholders for the fiscal year ended December
31, 1996.
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ITEM 1. CONTINUED
PREMIUMS
The following table shows the total net premiums written (gross premiums less
premiums ceded pursuant to reinsurance treaties) by line of business by Ohio
Casualty, West American, American Fire, Ohio Security and Ohio Life as a group
(collectively, the "Ohio Casualty Group") for the periods indicated.
Ohio Casualty Group
Net Premiums Written
By Line of Business
(in thousands)
1996 1995 1994 1993 1992
--------------------------------------------------------------------------------------
Auto liability $ 386,121 $ 403,781 $ 420,031 $ 430,852 $ 493,214
Auto physical damage 208,541 207,534 212,005 210,987 240,913
Homeowners
multiple peril 166,457 160,444 160,089 156,797 185,518
Workers' compensation 115,398 140,558 145,641 165,577 199,402
Commercial
multiple peril 132,808 131,553 135,595 136,559 147,894
Other liability 101,688 108,483 112,906 107,983 122,277
All other lines 97,059 96,842 98,714 95,562 116,450
---------- ---------- ---------- ---------- ----------
Property and casualty
premiums $1,208,072 $1,249,195 $1,284,981 $1,304,317 $1,505,668
========== ========== ========== ========== ==========
Premium finance
revenues $ 1,981 $ 2,314 $ 2,528 $ 2,887 $ 4,313
========== ========== ========== ========== ==========
Discontinued operations-
Statutory premiums:
Individual life $ 0 $ (126,979) $ 22,238 $ 38,409 $ 36,698
Annuity 0 (195,870) 18,104 19,530 16,983
Other 215 (22,012) 8,606 6,716 7,113
---------- ---------- ---------- ---------- ----------
Total 215 (344,861) 48,948 64,655 60,794
FAS 97 adjustments 0 (1,533) (26,173) (44,748) (41,582)
---------- ---------- ---------- ---------- ----------
Discontinued operations
revenues $ 215 $ (346,394) $ 22,775 $ 19,907 $ 19,212
========== ========== ========== ========== ==========
Property and casualty net premiums written decreased 3.3% in 1996. New Jersey
net premiums written decreased 2.2%, however, private passenger automobile line
of business increased .4% due to continuing legislation requiring insurers to
accept all automobile risks meeting broad underwriting guidelines regardless of
risk concentration. Pennsylvania net premiums written decreased 9.5% principally
due to a 23% reduction in workers' compensation, as a result of management's
decision to limit writing due to poor underwriting experience.
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ITEM 1. CONTINUED
(c) NARRATIVE DESCRIPTION OF BUSINESS
The Ohio Casualty Group is represented on a commission basis by approximately
4,306 independent insurance agents. In most cases, these agencies also represent
other unaffiliated companies which may compete with the Ohio Casualty Group. The
37 claim and 29 underwriting and service offices operated by the Ohio Casualty
Group assist these independent agencies in the producing and servicing of the
Group's business.
The following table shows consolidated direct premiums written for the Ohio
Casualty Group's ten largest states:
Ohio Casualty Group
Ten Largest States
Direct Premiums Written
From Continuing Operations
(in thousands)
Percent Percent Percent
1996 of Total 1995 of Total 1994 of Total
---- -------- ---- -------- ---- --------
New Jersey $218,553 18.0 New Jersey $220,373 17.6 New Jersey $211,233 16.4
Ohio 125,675 10.3 Pennsylvania 128,603 10.3 Pennsylvania 145,687 11.3
Pennsylvania 114,998 9.5 Ohio 126,622 10.1 Ohio 129,303 10.0
Kentucky 87,002 7.2 Kentucky 80,498 6.4 Kentucky 79,710 6.2
Illinois 60,311 5.0 Illinois 64,352 5.1 Illinois 63,682 4.9
Maryland 52,204 4.3 Maryland 56,741 4.5 Florida 56,846 4.4
Indiana 50,560 4.2 Indiana 49,353 3.9 Maryland 56,637 4.4
Texas 37,678 3.1 Texas 43,036 3.4 Indiana 47,817 3.7
Florida 36,995 3.0 Florida 42,061 3.4 Texas 45,171 3.5
North Carolina 34,108 2.8 North Carolina 33,955 2.7 Michigan 32,846 2.6
-------- ---- -------- ---- -------- ----
$818,084 67.4 $845,594 67.4 $868,932 67.5
======== ==== ======== ==== ======== ====
INVESTMENT OPERATIONS
Each of the companies in the Ohio Casualty Group must comply with the insurance
laws of its domiciliary state and of the other states in which it is licensed
for business. Among other things, these laws prescribe the kind, quality and
concentration of investments which may be made by insurance companies. In
general, these laws permit investments, within specified limits and subject to
certain qualifications, in federal, state and municipal obligations, corporate
bonds, preferred and common stocks, real estate mortgages and real estate.
The distribution of invested assets of the Ohio Casualty Group is determined by
a number of factors, including insurance law requirements, the Corporation's
liquidity needs, tax position, and general market conditions. In addition, our
business mix and liability payout patterns are considered. Adjustments are made
to the asset allocation from time to time. The Corporation has no real estate
investments. Assets relating to property and casualty operations are invested to
maximize after-tax returns with appropriate diversification of risk.
The following table sets forth the carrying values and other data of the
consolidated invested assets of the Ohio Casualty Group as of the end of the
years indicated:
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ITEM 1. CONTINUED
Ohio Casualty Group
Distribution of Invested Assets
(in millions)
1996
Average % of % of % of
Rating 1996 Total 1995 Total 1994 Total
------ ---- ----- ---- ----- ---- -----
U.S. government AAA $ 82.5 2.7 $ 116.5 3.8 $ 88.0 2.9
Tax exempt bonds
and notes AA+ 794.5 25.8 898.5 29.1 694.3 22.8
Debt securities
issued by foreign
governments A+ 3.3 0.1 3.4 0.1 38.1 1.3
Corporate securities BBB+ 983.7 32.0 986.4 32.0 1,091.9 35.9
Mortgage backed
securities
U.S. government AAA 176.9 5.8 170.2 5.5 371.9 12.2
Other AA 270.0 8.8 232.9 7.6 225.7 7.4
-------- ----- -------- ----- -------- -----
Total bonds A+ 2,310.9 75.2 2,407.9 78.1 2,509.9 82.5
Common stocks 713.4 23.2 627.4 20.3 459.5 15.1
Preferred stocks 7.8 0.2 33.7 1.1 60.5 2.0
-------- ----- -------- ----- -------- -----
Total stocks 721.2 23.4 661.1 21.4 520.0 17.1
Short-term 41.5 1.4 14.4 0.5 13.6 0.4
-------- ----- -------- ----- -------- -----
Total investments $3,073.6 100.0 $3,083.4 100.0 $3,043.5 100.0
======== ===== ======== ===== ======== =====
Total market value
of investments $3,073.6 $3,083.4 $3,043.5
======== ======== ========
Total amortized cost
of investments $2,573.9 $2,617.5 $2,938.1
======== ======== ========
The consolidated fixed income portfolio (identified as "Total Bonds" in the
foregoing table) of the Ohio Casualty Group had a weighted average rating of
"A+" and an average stated maturity of twelve years as of December 31, 1996.
Investments in below investment grade securities (Standard and Poor's rating
below BBB-) had an aggregate carrying value of $184.6 million and an aggregate
amortized cost of $180.0 million at year-end 1996. Unrated securities had an
aggregate carrying value of $315.4 million and an aggregate amortized cost of
$308.3 million. At year-end 1995 and 1994, respectively, aggregate carrying
values for below investment grade securities were $203.9 million and $266.0
million and aggregate amortized costs were $203.7 million and $282.3 million. At
year-end 1995 and 1994, respectively, aggregate carrying values for unrated
securities were $286.3 million and $257.9 million and aggregate amortized costs
were $271.2 million and $262.8 million. Utilizing ratings provided by other
agencies such as the NAIC, categorizes $27.3 million of $315.4 million in
unrated securities as non-investment grade. This brings the aggregate market
value of non-investment grade securities to $211.9 million at December 31, 1996,
compared with $232.8 million and $302.2 million at year-end 1995 and 1994,
respectively.
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ITEM 1. CONTINUED
All of the Corporation's below investment grade investments (based on carrying
value) are performing in accordance with contractual terms and are making
principal and interest payments as required. The securities in the Corporation's
below investment grade portfolio have been issued by 78 corporate borrowers in
approximately 35 industries. At December 31, 1996, the Corporation's five
largest investments in securities totaled $54.8 million, and had an approximate
amortized cost of $51.6 million. None of these holdings individually exceeded
$21.6 million.
At December 31, 1996, the fixed income portfolio relating to property and
casualty operations totaled $2.2 billion which consisted of 90.6% investment
grade securities and 9.4% below investment grade and/or unrated securities. At
December 31, 1996, the fixed income portfolio relating to discontinued
operations totaled $41.0 million which consisted of 96.4% investment grade
securities and 3.6% high yield securities.
Investments in below investment grade securities have greater risks than
investments in investment grade securities. The risk of default by borrowers
which issue securities rated below investment grade is significantly greater
because these securities are generally unsecured and often subordinated to other
debt and these borrowers are often highly leveraged and are more sensitive to
adverse economic conditions such as a recession or a sharp increase in interest
rates. Investment grade securities are also subject to significant adverse risks
including the risks of re-leveraging and changes in control of the issuer. In
most instances, investors are unprotected with respect to such risks, the
effects of which can be substantial.
Yield (based on cost of investments) for the taxable fixed income portfolio was
8.4% and 8.7% at December 31, 1996 and 1995, respectively. Below investment
grade securities were yielding 9.5% and 10.1% at December 31, 1996 and 1995,
respectively, while investment grade securities were yielding 8.7% in 1996 and
7.5% in 1995. Yield for tax exempt securities was 6.4% at December 31, 1996 and
6.3% at December 31, 1995; however, this yield is not directly comparable to
taxable yield due to the complexity of federal taxation of insurance companies.
The Corporation remains committed to a diversified common stock portfolio. As of
December 31, 1996, the portfolio consisted of 65 separate issues, diversified
across 36 different industries; and the largest single position was 8.1% of the
portfolio. The portfolio strategy with respect to common stocks has been to
invest in companies whose stocks have below average valuations, yet above
average growth prospects.
Investment income is affected by the amount of new investable funds and
investable funds arising from maturities, prepayments, calls and exchanges as
well as the timing of receipt of such funds. In addition, other factors such as
interest rates at time of investment and the maturity, income tax status, credit
status and other risks associated with new investments are reflected in
investment income. Future changes in the distribution of investments and the
factors described above could affect overall investment income in the future;
however, the amount of any increase or decrease cannot be predicted. Further
details regarding investment distribution and investment income are described in
Note 2, Investments, in the Notes to Consolidated Financial Statements on pages
27 and 28 of the 1996 Annual Report to Shareholders.
Purchases of taxable fixed income securities in 1996 were as follows: $312.9
million of investment grade securities, $113.4 million of high yield securities
and $36.3 million of unrated securities. Purchases of tax-exempt and equity
securities in 1996 totaled $76.6 million and $74.4 million, respectively.
7
8
ITEM 1. CONTINUED
Disposals (including maturities, calls, exchanges and scheduled prepayments) of
taxable fixed income securities in 1996 were as follows: $266.1 million of
investment grade securities, $160.3 million of high yield securities and $13.4
million of unrated securities. Dispositions of tax-exempt and equity securities
in 1996 totaled $163.8 million and $129.7 million, respectively. During 1993,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards 115, "Accounting for Certain Investments in Debt and Equity
Securities". This statement was adopted on January 1, 1994, and required the
Corporation to classify equity securities and debt securities into the following
categories: 1) held to maturity; 2) trading; 3) available for sale.
The Corporation continues to have no exposure to futures, forwards, caps,
floors, or similar derivative instruments as defined by Statement of Financial
Accounting Standards No. 119. However, as noted in footnote number 13 on page 34
of the Annual Report to Shareholders, we have an interest rate swap with Chase
Manhattan Bank covering our term loan. This swap is not classified as an
investment but rather as a hedge against a portion of the variable rate loan.
All holdings were placed in the "available for sale" category. This accounting
change increased shareholders' equity by $116.1 million in 1994. Consolidated
net realized investment gains (before taxes) in 1996 totaled $49.7 million,
$1.41 per share. Included in this amount are approximately $6.5 million in
writedowns of the carrying values of certain securities the Corporation
determined had an other than temporary decline in value.
SHARE REPURCHASES
During 1990 the Board of Directors of Ohio Casualty Corporation authorized the
additional purchase of as many as 3,000,000 (as adjusted for 1994 stock split)
shares of its common stock through open market or privately negotiated
transactions. 264,600 shares were repurchased during 1996 for $9.2 million.
613,900 shares were repurchased during 1995 for $20.9 million and 50,000 shares
were repurchased during 1994 for $1.4 million. The remaining repurchase
authorization is 2,071,500 shares as of December 31, 1996.
LIABILITIES FOR UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
Liabilities for loss and loss adjustment expenses are established for the
estimated ultimate costs of settling claims for insured events, both reported
claims and incurred but not reported claims, based on information known as of
the evaluation date. As more information becomes available and claims are
settled, the estimated liabilities are adjusted upward or downward with the
effect of increasing or decreasing net income at the time of adjustments. Such
estimated liabilities include direct costs of the loss under terms of insurance
policies as well as legal fees and general expenses of administering the claims
adjustment process. The liabilities for claims incurred in accident years 1995,
1994 and 1993 were reduced in the subsequent year as shown below:
Accident Year Loss and Loss Adjustment Expense Liabilities
Subsequent Year Adjustment
(in millions)
1995 1994 1993
---- ---- ----
Property $27 $11 $ 31
Auto 14 30 26
Workers' compensation
and other liability 37 35 51
--- --- ----
Total reduction $78 $76 $108
=== === ====
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ITEM 1. CONTINUED
In the normal course of business, the Ohio Casualty Group is involved in
disputes and litigation regarding terms of insurance contracts and the amount of
liability under such contracts arising from insured events. The liabilities for
loss and loss adjustment expenses include estimates of the amounts for which the
Ohio Casualty Group may be liable upon settlement or other conclusion of such
litigation.
Because of the inherent future uncertainties in estimating ultimate costs of
settling claims, actual loss and loss adjustment expenses may deviate
substantially from the amounts recorded in the Corporation's consolidated
financial statements. Furthermore, the timing, frequency and extent of
adjustments to the estimated liabilities cannot be accurately predicted since
conditions and events which established historical loss and loss adjustment
expense development and which serve as the basis for estimating ultimate claims
cost may not occur in the future in exactly the same manner, if at all.
The anticipated effect of inflation is implicitly considered when estimating the
liability for losses and loss adjustment expenses based on historical loss
development trends adjusted for anticipated changes in underwriting standards,
policy provisions and general economic trends.
The following table presents an analysis of losses and loss adjustment expenses
and related liabilities for the periods indicated. The accounting policies used
to estimate liabilities for losses and loss adjustment expenses are described in
Note 9, Losses and Loss Reserves, in the Notes to Consolidated Financial
Statements on page 32 of the 1996 Annual Report to Shareholders.
Reconciliation of Liabilities for Losses and Loss Adjustment Expense
(in thousands)
1996 1995 1994
---- ---- ----
Net liabilities, beginning of year $1,557,065 $1,606,487 $1,693,551
Provision for current accident year
claims 1,009,086 1,008,321 1,084,072
Increase (decrease)in provisions for
prior accident year claims (76,920) (104,998) (153,717)
---------- ---------- ----------
932,166 903,323 930,355
Payments for claims occurring during:
Current accident year 515,025 444,558 483,129
Prior accident years 487,584 508,187 534,290
---------- ---------- ----------
1,002,609 952,745 1,017,419
Net liabilities, end of year 1,486,622 1,557,065 1,606,487
Reinsurance recoverable 70,048 74,119 65,336
---------- ---------- ----------
Gross liabilities, end of year $1,556,670 $1,631,184 $1,671,823
========== ========== ==========
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ITEM 1. CONTINUED
Property and Casualty Insurance Operations
Analysis of Development of Loss and Loss Adjustment Expense Liabilities
(In thousands)
Year Ended December 31 1986 1987 1988 1989 1990 1991
- ---------------------- ---- ---- ---- ---- ---- ----
Liability as originally
estimated: $ 981,335 $1,171,392 $1,252,404 $1,370,054 $1,483,985 $1,566,139
Cumulative payments as of:
One year later 380,290 438,195 440,173 489,562 506,246 526,973
Two years later 598,478 667,894 695,364 745,766 783,948 822,634
Three years later 730,106 828,325 845,472 902,081 955,666 1,007,189
Four years later 828,365 922,744 937,034 1,000,299 1,063,507 1,123,591
Five years later 884,606 977,575 996,353 1,061,173 1,131,012 1,201,317
Six years later 919,026 1,015,889 1,033,508 1,100,683 1,182,110
Seven years later 942,572 1,041,563 1,055,972 1,134,145
Eight years later 959,174 1,057,509 1,078,561
Nine years later 968,586 1,076,321
Ten years later 980,782
Liability reestimated as of:
One year later 989,512 1,131,539 1,179,052 1,285,233 1,403,172 1,515,129
Two years later 1,029,086 1,139,684 1,175,861 1,299,428 1,407,197 1,500,890
Three years later 1,032,435 1,139,584 1,193,127 1,296,215 1,388,381 1,467,256
Four years later 1,028,893 1,156,930 1,195,712 1,281,246 1,368,530 1,449,789
Five years later 1,048,419 1,160,997 1,186,680 1,268,193 1,366,676 1,498,881
Six years later 1,054,589 1,159,372 1,178,126 1,270,734 1,423,277
Seven years later 1,049,447 1,154,169 1,184,233 1,327,228
Eight years later 1,046,494 1,162,837 1,233,809
Nine years later 1,049,464 1,208,920
Ten years later 1,091,480
Decrease (increase) in
original estimates: $(110,145) $ (37,528) $ 18,595 $ 42,826 $ 60,708 $ 67,258
Year Ended December 31 1992 1993 1994 1995 1996
- ---------------------- ---- ---- ---- ---- ----
Liability as originally
estimated: $1,673,205 $1,692,895 $1,605,526 $1,553,131 $1,482,900
Cumulative payments as of:
One year later 561,133 533,634 510,219 486,168
Two years later 869,620 833,399 803,273
Three years later 1,060,433 1,017,893
Four years later 1,176,831
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
Liability reestimated as of:
One year later 1,601,406 1,539,178 1,500,528 1,474,795
Two years later 1,555,452 1,510,943 1,501,530
Three years later 1,524,054 1,515,114
Four years later 1,559,492
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later
Decrease (increase) in
original estimates: $ 113,713 $ 177,781 $ 103,996 $ 78,336
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.
1994 1995 1996
---- ---- ----
Gross liability - end of year $1,670,862 $1,624,197 $1,547,595
Reinsurance recoverable 65,336 71,066 64,695
Net liability - end of year 1,605,526 1,553,131 1,482,900
Gross re-estimated liability - latest 1,556,914 1,532,567
Re-estimated recoverable - latest 55,383 57,772
Net re-estimated liability - latest 1,501,530 1,474,795
Gross cumulative deficiency 113,949 91,630
10
11
ITEM 1. CONTINUED
COMPETITION
More than 3,200 property and casualty insurance companies compete in the United
States and no one company or company group has a market share greater than
approximately 12%. The Ohio Casualty Group ranked as the forty-second largest
property and casualty insurance groups in the United States based on net
insurance premiums written in 1995, the latest year for which statistics are
available. The Ohio Casualty Group competes with other companies on the basis of
service, price and coverage.
STATE INSURANCE REGULATION
General. The Corporation and the Ohio Casualty Group are subject to regulation
under the insurance statutes, including the holding company statutes, of various
states. Ohio Casualty, American Fire and Ohio Security are all domiciled in
Ohio. West American is domiciled in Indiana. Collectively, the Ohio Casualty
Group is authorized to transact the business of insurance in the District of
Columbia and all states except Maine. The Ohio Casualty Group is subject to
examination of their affairs by the insurance departments of the jurisdictions
in which they are licensed.
State laws also require prior notice or regulatory agency approval of changes in
control of an insurer or its holding company and of certain material
intercorporate transfers of assets within the holding company structure. Under
applicable provisions of the Indiana insurance statutes ("Indiana Insurance
Law") and the Ohio insurance statutes (the "Ohio Insurance Law"), a person would
not be permitted to acquire direct or indirect control of the Corporation or any
of the Ohio Casualty Group companies domiciled in such state, unless such person
had obtained prior approval of the Indiana Insurance Commissioner and the Ohio
Superintendent of Insurance, respectively, for such acquisition. For the
purposes of the Indiana Insurance Law and the Ohio Insurance Law, any person
acquiring more than 10% of the voting securities of a company is presumed to
have acquired "control" of such company.
Proposition 103 was passed in the State of California in 1988 in an attempt to
legislate premium rates for that state. Even after considering investment
income, total returns in California have been less than what would be considered
"fair" by any reasonable standard. During the fourth quarter of 1994, the State
of California billed the Corporation $59.9 million for Proposition 103
assessment. In February 1995, California revised this billing to $47.3 million
due to California Senate Bill 905 which permits reduction of the rollback due to
commissions and premium taxes paid. The billing was revised again in August of
1995 and at present the State has indicated the Corporation should not be
required to pay in excess of $42.1 million plus interest as a Proposition 103
assessment. As a result, the Corporation's reserve for this alleged liability is
$74.4 million at December 31, 1996.
The Corporation is currently involved in hearings with the State of California.
The final arguments are expected to conclude in the first quarter of 1997. A
ruling from the Administrative Law Judge is expected in the second quarter of
1997. At that time, the Insurance Commissioner will have 60 days to take the
ruling under advisement and return with a final ruling.
The Corporation will continue to challenge the validity of any rollback and
plans to continue negotiations with Department officials. It is uncertain when
this will be resolved. To date, the Corporation has paid $2.9 million in legal
costs related to the withdrawal, Proposition 103 and Fair Plan assessments.
11
12
ITEM 1. CONTINUED
The State of New Jersey has historically been a profitable state for the
Corporation. In recent years, however, the legislative environment in that state
has deteriorated. Due to legislative rules and regulations designed to make
insurance less expensive and more easily obtainable for New Jersey residents,
our results have been adversely impacted. In order to meet our state imposed
assessment obligations under the Fair Automobile Insurance Reform Act, the
Unsatisfied Claim and Judgment fund and the Market Transition Facility, the
Corporation has incurred expenses of $3.6 million in 1996, $3.7 million in 1995
and $6.4 million in 1994. These assessments have negatively affected our
combined ratios by .3, .3 and .5 points in the three years, respectively.
NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS. The National Association of
Insurance Commissioners (the "NAIC") annually calculates a number of financial
ratios to assist state insurance regulators in monitoring the financial
condition of insurance companies. A "usual range" of results for each ratio is
used as a benchmark. Departure from the usual range on four or more of the
ratios could lead to inquiries from individual state insurance commissioners as
to certain aspects of a company's business. None of the property and casualty
companies of the Ohio Casualty Group had more than two NAIC financial ratios
that were outside the usual range in the last five calendar years.
Beginning in 1994, the NAIC requires inclusion of a risk-based capital
calculation in the Annual Statements. The risk-based capital model is used to
establish standards which relate insurance company statutory surplus to risks of
operations and assist regulators in determining solvency requirements. The model
is based on four risk factors in two categories: asset risk, consisting of
investment risk and credit risk; and underwriting risk, composed of loss
reserves and premiums written risks. Based on current calculations, all of the
Ohio Casualty Group companies have at least four times the necessary capital to
conform with the risk-based capital model.
The States of Ohio and Indiana have adopted the NAIC model law limiting dividend
payments by insurance companies. This law allows dividends to equal the greater
of 10% of policyholders surplus or net income determined as of the preceding
year end without prior approval of the Insurance Department. For 1996, $123.4
million of policyholder surplus are not subject to restrictions or prior
dividend approval.
EMPLOYEES
At December 31, 1996, the Ohio Casualty Group had approximately 3,390 employees
of which approximately 1,288 were located in Hamilton, Ohio.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Recently the FASB issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share, which supersedes APB Opinion No. 15, Earnings Per Share.
This standard replaces the primary EPS requirements with a basic EPS computation
and requires a dual presentation of basic and diluted EPS for those companies
with complex capital structures. The Corporation intends to adopt the standards
of Statement No. 128 for financial statements issued after December 15, 1997.
The impact of this statement is expected to be immaterial on the Corporation's
EPS calculation.
12
13
ITEM 2. PROPERTIES
The Ohio Casualty Group owns and leases office space in various parts of the
country. The principal office building consists of an owned facility in
Hamilton, Ohio.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Corporation or its
subsidiaries other than litigation arising in connection with settlement of
insurance claims as described on page 9 and Proposition 103 hearings described
on page 12.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
There were no matters submitted during the fourth quarter of the fiscal year
covered by this report to a vote of Shareholders through the solicitation of
proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is related to executive officers who are not
separately reported in the Corporation's Proxy Statement:
Position with Company and/or
Principal Occupation or Employment
Name Age (1) During Last Five Years
---- ------- ----------------------
Barry S. Porter 60 Chief Financial Officer and Treasurer of The Ohio Casualty
Corporation, The Ohio Casualty Insurance Company, American Fire and
Casualty Company, Ocasco Budget, Inc., The Ohio Life Insurance
Company, The Ohio Security Insurance Company and West American
Insurance Company since August 1993.
Andrew T. Fogarty 65 Senior Vice President of The Ohio Casualty Insurance Company, American
Fire and Casualty Company, Ocasco Budget, Inc., The Ohio Security
Insurance Company and West American Insurance Company since May 1990.
Michael L.. Evans 53 Vice President of The Ohio Casualty Corporation and Executive Vice
President of The Ohio Casualty Insurance Company, American Fire and
Casualty Company, Ocasco Budget, Inc., The Ohio Life Insurance
Company, The Ohio Security Insurance Company and West American
Insurance Company since April 1995; prior thereto, Vice President of
The Ohio Casualty Insurance Company, American Fire and Casualty
Company, Ocasco Budget, Inc., The Ohio Life Insurance Company and West
American Insurance Company.
John S. Busby 51 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ohio Security Insurance Company and West
American Insurance Company since May 1991.
13
14
ITEM 4. CONTINUED
Position with Company and/or
Principal Occupation or Employment
Name Age (1) During Last Five Years
---- ------- ----------------------
Donald J. Dehne 46 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance
Company and West American Insurance Company since May 1996; prior
thereto, Assistant Secretary of The Ohio Casualty Insurance Company,
American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security
Insurance Company and West American Insurance Company.
Steven J. Adams 42 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance
Company and West American Insurance Company since May 1996; prior
thereto, Assistant Secretary of The Ohio Casualty Insurance Company,
American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security
Insurance Company and West American Insurance Company; prior thereto,
Commercial Lines Customer Strategist; prior thereto, Imaging
Technology Expert.
Thomas P. Prentice 44 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance
Company and West American Insurance Company since May 1996; prior
thereto, Assistant Secretary of The Ohio Casualty Insurance Company,
American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security
Insurance Company and West American Insurance Company; prior thereto,
Personal Lines Customer Specialist; prior thereto, Claims Manager.
Coy Leonard, Jr. 52 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance
Company and West American Insurance Company since May 1996; prior
thereto, Assistant Vice President of The Ohio Casualty Insurance
Company, American Fire and Casualty Company, Ocasco Budget, Inc., Ohio
Security Insurance Company and West American Insurance Company; prior
thereto, Manager of Strategic Planning and Technology.
Frederick W. Wendt 56 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ohio Security Insurance Company and West
American Insurance Company since January 1991.
14
15
ITEM 4. CONTINUED
Position with Company and/or
Principal Occupation or Employment
Name Age (1) During Last Five Years
---- ------- ----------------------
Elizabeth M. Riczko 30 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance
Company and West American Insurance Company since May 1996; prior
thereto, Assistant Secretary of The Ohio Casualty Insurance Company,
American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security
Insurance Company and West American Insurance Company; prior thereto,
Corporate Actuarial Manager.
William E. Minor 42 Vice President of The Ohio Casualty Insurance Company, American Fire
and Casualty Company, Ohio Security Insurance Company and West
American Insurance Company since September 1996; prior thereto,
Account Director for Sire/Young and Rubicam.
Susan D. Dillon 41 Assistant Vice President of The Ohio Casualty Insurance Company,
American Fire and Casualty Company, Ohio Security Insurance Company
and West American Insurance Company since May 1995; prior thereto,
Branch Manager; prior thereto, Field Representative.
- ---------------------------------------
(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 page 36 of the Annual Report to Shareholders for the
fiscal year ended December 31, 1996.
ITEM 6. SELECTED FINANCIAL DATA
See pages 14 and 15 of the Annual Report to Shareholders for the fiscal year
ended December 31, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See pages 16 through 21 of the Annual Report to Shareholders for the fiscal year
ended December 31, 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and Schedules.
(See Index to Financial Statements attached hereto.)
15
16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See pages 4 and 5 of the Proxy Statement of the Board of Directors for the
fiscal year ended December 31, 1996 and Executive Officers of the Registrant
separately captioned under Part I of this annual report.
ITEM 11. EXECUTIVE COMPENSATION
See pages 7 through 13 of the Proxy Statement of the Board of Directors for the
fiscal year ended December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See pages 1 through 4 of the Proxy Statement of the Board of Directors for the
fiscal year ended December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See page 6 of the Proxy Statement of the Board of Directors for the fiscal year
ended December 31, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial statements and financial statement schedules required to be filed
by Item 8 of this Form and Regulation S-X
(b) Exhibits. (See index to exhibits attached hereto.)
16
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OHIO CASUALTY CORPORATION
(Registrant)
March 27, 1997 By: /s/ Lauren N. Patch
-------------------------------
Lauren N. Patch, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
March 27, 1997 /s/ Joseph L. Marcum
-------------------------------------------------------
Joseph L. Marcum, Chairman of the Board
March 27, 1997 /s/ William L. Woodall
-------------------------------------------------------
William L. Woodall, Vice Chairman of the Board
March 27, 1997 /s/ Lauren N. Patch
-------------------------------------------------------
Lauren N. Patch, President and Chief Executive Officer
March 27, 1997 /s/ Arthur J. Bennert
-------------------------------------------------------
Arthur J. Bennert, Director
March 27, 1997 /s/ Jack E. Brown
-------------------------------------------------------
Jack E. Brown, Director
March 27, 1997 /s/ Catherine E. Dolan
-------------------------------------------------------
Catherine E. Dolan, Director
March 27, 1997 /s/ Wayne R. Embry
-------------------------------------------------------
Wayne R. Embry, Director
March 27, 1997 /s/ Vaden Fitton
-------------------------------------------------------
Vaden Fitton, Director
March 27, 1997 /s/ Jeffery D. Lowe
-------------------------------------------------------
Jeffery D. Lowe, Director
March 27, 1997 /s/ Stephen S. Marcum
-------------------------------------------------------
Stephen S. Marcum, Director
March 27, 1997 /s/ Stanley N. Pontius
-------------------------------------------------------
Stanley N. Pontius, Director
March 27, 1997 /s/ Howard L. Sloneker III
-------------------------------------------------------
Howard L. Sloneker III, Director
March 27, 1997 /s/ Barry S. Porter
-------------------------------------------------------
Barry S. Porter, Chief Financial Officer and Treasurer
March 27, 1997 /s/ Michael L. Evans
-------------------------------------------------------
Michael L. Evans, Vice President
17
18
FORM 10-K, ITEM 14
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
OHIO CASUALTY CORPORATION
The following statements are incorporated by reference to the Annual Report to
Shareholders for registrant's fiscal year ended December 31, 1996:
Page Number
in Annual Report
----------------
Consolidated Balance Sheet at December 31, 1996, 1995, 1994 22
Statement of Consolidated Income for the years ended
December 31, 1996, 1995 and 1994 23
Statement of Consolidated Shareholders' Equity for the years
ended December 31, 1996, 1995 and 1994 24
Statement of Consolidated Cash Flow for the years ended
December 31, 1996, 1995 and 1994 25
Notes to Consolidated Financial Statements 26-35
Page Number
in this Report
--------------
Report of Independent Accountants 19
The following financial statement schedules are included herein:
Schedule I - Consolidated Summary of Investments Other Than
Investments in Related Parties at December 31, 1996 20
Schedule II - Condensed Financial Information of Registrant for
the years ended December 31, 1996, 1995 and 1994 21
Schedule III - Consolidated Supplementary Insurance Information
for the years ended December 31, 1996, 1995 and 1994 22-24
Schedule IV - Consolidated Reinsurance for the years ended
December 31, 1996, 1995 and 1994 25
Schedule V - Valuation and Qualifying Accounts for the years
ended December 31, 1996, 1995 and 1994 26
Schedule VI - Consolidated Supplemental Information Concerning
Property and Casualty Insurance Operations for the
years ended December 31, 1996, 1995 and 1994 27
18
19
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Ohio Casualty Corporation
We have audited the consolidated financial statements of Ohio Casualty
Corporation and subsidiaries as of December 31, 1996, 1995 and 1994 and for the
years then ended, which financial statements are included on pages 22 through 35
of the 1996 Annual Report to Shareholders of Ohio Casualty Corporation and
incorporated by reference herein. We have also audited the financial statement
schedules listed in the index on page 18 of this Form 10-K. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ohio Casualty
Corporation and subsidiaries as of December 31, 1996, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
As discussed in Notes 1 and 6 to the consolidated financial statements, the
Corporation changed its method of accounting for debt and equity securities and
post-employment benefits in 1994.
/s/ Coopers & Lybrand L..L.P.
Coopers & Lybrand L.L.P.
Cincinnati, Ohio
January 30, 1997
19
20
Schedule I
Ohio Casualty Corporation and Subsidiaries
Consolidated Summary of Investments
Other than Investments in Related Parties
(In thousands)
December 31, 1996
Amount shown
Type of investment Cost Value in balance sheet
- ------------------ ---- ----- ----------------
Fixed maturities
Bonds:
United States govt. and
govt. agencies with auth. $ 80,822 $ 82,541 $ 82,541
States, municipalities and
political subdivisions 760,602 794,539 794,539
Debt securities issued by
foreign governments 3,000 3,296 3,296
Corporate securities 940,540 983,658 983,658
Mortgage-backed securities:
U.S. government guaranteed 171,291 176,906 176,906
Other 269,262 269,998 269,998
---------- ---------- ----------
Total fixed maturities 2,225,517 2,310,938 2,310,938
Equity securities:
Common stocks:
Banks, trust and insurance
companies 65,391 196,886 196,886
Industrial, miscellaneous and
all other 234,618 516,443 516,443
Preferred stocks:
Non-redeemable 1,010 1,005 1,005
Convertible 5,846 6,818 6,818
---------- ---------- ----------
Total equity securities 306,865 721,152 721,152
Short-term investments 41,546 41,546 41,546
---------- ---------- ----------
Total investments $2,573,928 $3,073,636 $3,073,636
========== ========== ==========
20
21
Schedule II
Ohio Casualty Corporation
Condensed Financial Information of Registrant
(In thousands)
1996 1995 1994
---- ---- ----
Condensed Balance Sheet:
Investment in wholly-owned
subsidiaries, at equity $ 1,167,237 $ 1,156,718 $ 905,250
Investment in bonds/stocks 57,233 20,165 22,618
Cash and other assets 5,706 2,468 4,725
----------- ----------- ---------
Total assets 1,230,176 1,179,351 932,593
Bank note payable 50,000 60,000 70,000
Other liabilities 5,076 8,337 11,803
----------- ----------- ---------
Total liabilities 55,076 68,337 81,803
Shareholders' equity $ 1,175,100 $ 1,111,014 $ 850,790
=========== =========== =========
Condensed Statement of Income:
Dividends from subsidiaries $ 100,000 $ 80,018 $ 91,098
Equity in undistributed net
income of subsidiaries 3,957 21,431 8,727
Operating (expenses) (1,500) (1,714) (2,934)
----------- ----------- ---------
Net income $ 102,457 $ 99,735 $ 96,891
=========== =========== =========
Condensed Statement of Cash Flows:
Cash flows from operations
Net distributed income $ 98,500 $ 78,304 $ 88,174
Other 4,879 4,358 6,751
----------- ----------- ---------
Net cash from operations 103,379 82,662 94,925
Investing
Purchase of bonds/stocks (34,458) (4,555) (14,452)
Sales of bonds/stocks 7,190 7,723 6,441
----------- ----------- ---------
Net cash from investing (27,268) 3,168 (8,011)
Financing
Note payable (10,000) (10,000) (33,000)
Exercise of stock options 135 578 244
Purchase of treasury stock (9,168) (21,193) (1,412)
Dividends paid to shareholders (56,380) (54,335) (52,597)
----------- ----------- ---------
Net cash from financing (75,413) (84,950) (86,765)
Net change in cash 698 880 149
Cash, beginning of year 2,677 1,797 1,648
----------- ----------- ---------
Cash, end of year $ 3,375 $ 2,677 $ 1,797
=========== =========== =========
21
22
Schedule III
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplementary Insurance Information
(In thousands)
December 31, 1996
Deferred Future policy Benefits,
policy benefits Net losses and
acquisition losses and Unearned Premium investment loss
costs loss expenses premiums revenue income expenses
------------ ------------- ------------- ------------- ------------- ------------
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
============ ============= ============= ============= ============= ============
Amortization
of deferred General
acquisition operating Premiums
costs expenses written
------------ ------------- -------------
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
============ ============= ==============
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.
22
23
Schedule III
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplementary Insurance Information
(In thousands)
December 31, 1995
Deferred Future policy Benefits,
policy benefits Net losses and
acquisition losses and Unearned Premium investment loss
costs loss expenses premiums revenue income expenses
------------- ------------- ------------ ------------- ----------- ------------
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
============= ============= ============ ============= =========== ============
Amortization
of deferred General
acquisition operating Premiums
costs expenses written
------------ ----------- --------------
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
============ =========== ==============
1. Net investment income has been allocated to principal business segments on
the basis of separately identifiable assets.
2. The principal portion of general operating expenses has been directly
attributed to business segment classifications incurring such expenses
with the remainder allocated based on premium volume.
23
24
Schedule III
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplementary Insurance Information
(In thousands)
December 31, 1994
Deferred Future policy Benefits,
policy benefits Net losses and
acquisition losses and Unearned Premium investment loss
costs loss expenses premiums revenue income expenses
------------- ------------- ------------ ------------- ------------ -------------
Segment
Property and
casualty insurance:
Underwriting
Automobile $ 40,416 $ 617,871 $ 195,096 $ 639,604 $ $ 495,209
Workers' compensation 12,385 421,422 57,175 151,257 89,992
Gen. liability, A&H 16,577 304,028 49,923 113,684 53,577
Homeowners 26,686 77,043 90,696 158,077 157,347
CMP, fire and allied lines,
inland marine 34,003 227,735 100,119 200,937 131,267
Fidelity, surety, burglary 10,817 22,763 24,425 32,579 2,003
Miscellaneous Income 0
Investment 183,811
------------- ------------- ------------ ------------- ------------ -------------
Total property and
casualty insurance 140,884 1,670,862 517,434 1,296,138 183,811 929,395
Life ins. (discontinued operations) 24,749 353,360 22,775 28,082 29,509
Premium finance 641 2,607 332
Corporation 115 1,565
------------- ------------- ------------ ------------- ------------ -------------
Total $ 165,633 $ 2,024,222 $ 518,075 $ 1,321,635 $ 213,790 $ 958,904
============= ============= ============ ============= ============ =============
Amortization
of deferred General
acquisition operating Premiums
costs expenses written
------------ ------------ --------------
Segment
Property and
casualty insurance:
Underwriting
Automobile $ 131,815 $ 20,493 $ 632,036
Workers' compensation 35,089 9,173 145,641
Gen. liability, A&H 38,992 9,906 114,656
Homeowners 46,173 11,829 160,089
CMP, fire and allied lines,
inland marine 69,765 18,164 199,350
Fidelity, surety, burglary 16,212 4,802 33,209
Miscellaneous Income
Investment
------------ ------------ --------------
Total property and
casualty insurance 338,046 74,367 1,284,981
Life ins. (discontinued operations) 3,630 11,516 22,775
Premium finance 1,912 2,528
Corporation 6,139
------------ ------------ --------------
Total $ 341,676 $ 93,934 $ 1,310,284
============ ============ ==============
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.
24
25
Schedule IV
Ohio Casualty Corporation and Subsidiaries
Consolidated Reinsurance
(In thousands)
December, 1996, 1995 and 1994
Percent of
amount
Ceded to Assumed assumed
Gross other from other Net to net
amount companies companies amount amount
---------- ---------- ---------- ---------- -------
Year Ended December 31, 1996
Life insurance in force $4,623,435 $4,623,435 $ 0 $ 0 0.0%
Premiums
Property and casualty insurance $1,211,695 $ 29,039 $ 25,416 $1,208,072 2.1%
Life insurance (Discontinued operations) 29,822 29,822 0 0 0.0%
Accident and health insurance 2,204 3,502 1,513 215 703.7%
---------- ---------- ---------- ---------
Total premiums 1,243,721 62,363 26,929 1,208,287 2.2%
Premium finance charges 1,981
Life insurance - FAS 97 adjustment 0
----------
Total premiums and finance charges written 1,210,268
Change in unearned premiums and finance charges 14,182
----------
Total premiums and finance charges earned 1,224,450
Miscellaneous income 2,416
Discontinued operations - life insurance (215)
----------
Total premiums & finance charges earned - continuing operations $1,226,651
==========
Year Ended December 31, 1995
Life insurance in force $5,207,297 $5,298,297 $ 91,000 $ 0 0.0%
========== ========== ========== ==========
Premiums
Property and casualty insurance $1,251,079 $ 41,252 $ 39,692 $1,249,519 3.2%
Life insurance (Discontinued operations) 38,456 384,974 136 (346,382) 0.0%
Accident and health insurance 1,456 1,780 1,521 1,197 127.1%
---------- ---------- ---------- ----------
Total premiums 1,290,991 428,006 41,349 904,334 4.6%
Premium finance charges 2,314
Life insurance - FAS 97 adjustment (1,533)
----------
Total premiums and finance charges written 905,115
Change in unearned premiums and finance charges 14,263
----------
Total premiums and finance charges earned 919,378
Miscellaneous income 3,810
Discontinued operations - life insurance 345,081
----------
Total premiums & finance charges earned - continuing operations $1,268,269
==========
Year Ended December 31, 1994
Life insurance in force $5,254,705 $1,534,389 $ 91,000 $3,811,316 2.4%
========== ========== ========== ==========
Premiums
Property and casualty insurance $1,284,511 $ 44,592 $ 43,473 $1,283,392 3.4%
Life insurance (Discontinued operations) 53,910 5,436 231 48,705 0.5%
Accident and health insurance 1,766 177 243 1,832 13.3%
---------- ---------- ---------- ----------
Total premiums 1,340,187 50,205 43,947 1,333,929 3.3%
Premium finance charges 2,528
Life insurance - FAS 97 adjustment (26,173)
----------
Total premiums and finance charges written 1,310,284
Change in unearned premiums and finance charges 11,351
----------
Total premiums and finance charges earned 1,321,635
Discontinued operations - life insurance (22,774)
----------
Total premiums & finance charges earned - continuing operations $1,298,861
==========
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Schedule V
Ohio Casualty Corporation and Subsidiaries
Valuation and Qualifying Accounts
(In thousands)
Balance at Balance at
beginning Charged to end of
of period expenses Deductions period
Year ended December 31, 1996
Reserve for bad debt 3,500 200 0 3,700
Year ended December 31, 1995
Reserve for bad debt 4,500 (1,000) 0 3,500
Year ended December 31, 1994
Reserve for bad debt 6,300 (1,800) 0 4,500
26
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Schedule VI
Ohio Casualty Corporation and Subsidiaries
Consolidated Supplemental Information Concerning Property
and Casualty Insurance Operations
(In thousands)
Reserves for
Deferred unpaid claims
policy and claim Discount Net
Affiliation with acquisition adjustment of Unearned Earned investment
registrant costs expenses reserves premiums premiums income
---------------- ------------------- ----------------- --------------- ------------------ ---------------
Property and casualty
subsidiaries
Year ended December 31,
1996 $ 128,170 $ 1,547,587 $ 0 $491,388 $1,224,536 $179,407
================ =================== ================= =============== ================== ===============
Year ended December 31,
1995 $ 133,330 $ 1,664,197 $ 0 $505,771 $1,265,703 $184,585
================ =================== ================= =============== ================== ===============
Year ended December 31,
1994 $ 140,884 $ 1,670,862 $ 0 $517,434 $1,296,138 $183,811
================ =================== ================= =============== ================== ===============
Claims and claim
adjustment expenses Amortization Paid
incurred related to of deferred claims
----------------------------------- policy and claim
Affiliation with Current Prior acquisition adjustment Premiums
registrant year years costs expenses written
------------------ ---------------- ------------------ ------------------ ------------------
Property and casualty
subsidiaries
Year ended December 31,
1996 $1,008,395 $ (76,920) $ 308,856 $1,001,706 $1,208,072
================== ================ ================== ================== ==================
Year ended December 31,
1995 $1,007,380 $(104,998) $ 327,055 $ 954,777 $1,249,195
================== ================ ================== ================== ==================
Year ended December 31,
1994 $1,083,112 $(153,717) $ 338,046 $1,016,763 $1,284,981
================== ================ ================== ================== ==================
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FORM 10-K
OHIO CASUALTY CORPORATION
INDEX TO EXHIBITS
Page
Number
------
Exhibit 3a Amendment to Amended Articles of Incorporation increasing
authorized number of shares to 150,000,000 common shares
and authorized 2,000,000 preferred shares, dated April 17, 1996 29-30
Exhibit 11 Computation of Earnings Per Share on Primary and Fully Diluted
Basis for the years ended December 31, 1996, 1995 and 1994 31
Exhibit 13 Annual Report to Shareholders for the Registrant's fiscal year
ended December 31, 1996 32-71
Exhibit 21 Subsidiaries of Registrant 72
Exhibit 22 Proxy Statement of the Board of Directors for the fiscal year
ended December 31, 1996 73-110
Exhibit 23 Consent of Independent Accountants to incorporation of their
opinion by reference in Registration Statement on Form S-8 111
Exhibit 27 Financial Data Schedule 112
Exhibit 28 Information from Reports Furnished to State Insurance
Regulation Authorities 113-127
Exhibits incorporated by reference to previous filings:
Exhibit 3 Articles of Incorporation and By Laws amended 1986 and filed
with Form 8-K on January 15, 1987
Exhibit 4a Rights Agreement amended as of April 1, 1994 between Ohio
Casualty Corporation and Mellon Bank, N.A. as rights agent filed
with Form 8-K on April 1, 1994
Exhibit 4b First Supplement to Rights Agreement filed with Form 8-K
on November 6, 1990
Exhibit 4c Second Supplement to Rights Agreement filed with
Form 8-K on November 6, 1990
Exhibit 4d Rights Agreement amended as of September 5, 1995 between Ohio
Casualty Corporation and First Chicago Trust Company of New York
as rights agent filed with Form 8-K on September 5, 1995
Exhibit 10 Credit Agreement dated as of October 25, 1994 between Ohio
Casualty Corporation and Chase Manhattan Bank, N.A., as agent,
filed with Form 10-Q on November 1, 1994
Exhibit 10a Ohio Casualty Corporation 1993 Stock Incentive Program filed
with Form 10-Q as Exhibit 10d on May 31, 1993
Exhibit 10b Coinsurance Life, Annuity and Disability Income Reinsurance
Agreement between Employer's Reassurance Corporation and
The Ohio Life Insurance Company dated as of October 2, 1995
28