-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ss5X1Dft/LEQerrKzq7yyVY5/7ZI4uBKJvtozu6E+HrB1vMgrprOywX8H3jMtruf cXzNPuzIrnfMuZ21CLrO2g== 0000909654-96-000025.txt : 19960401 0000909654-96-000025.hdr.sgml : 19960401 ACCESSION NUMBER: 0000909654-96-000025 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED FIRE & CASUALTY CO CENTRAL INDEX KEY: 0000101199 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 420644327 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 002-39621 FILM NUMBER: 96541877 BUSINESS ADDRESS: STREET 1: 118 SECOND AVE SE CITY: CEDAR RAPIDS STATE: IA ZIP: 52407 BUSINESS PHONE: 3193995700 MAIL ADDRESS: STREET 1: P O BOX 73909 CITY: CEDAR RAPIDS STATE: IA ZIP: 52407 10-K405 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange _ Act of 1934 for the fiscal year ended December 31, 1995 _ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to ________ Commission File Number 2-39621 UNITED FIRE & CASUALTY COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Iowa 42-0644327 ________________________________________ ___________________________________ (State of Incorporation) (IRS Employer Identification No.) 118 Second Avenue, S.E. Cedar Rapids, Iowa 52407-3909 ________________________________________ ____________________________________ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (319) 399-5700 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: None 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 the Form 10-K or any amendment to this Form 10-K. X ____ As of March 1, 1996, 10,829,461 shares of common stock were outstanding. The aggregate market value of voting stock held by non-affiliates of the registrant as of March 1, 1996, was approximately $131,847,000. 2 TABLE OF CONTENTS PAGE ____ PART I: Item 1. Business....................................1 Item 2. Properties..................................7 Item 3. Legal Proceedings...........................8 Item 4. Submission of Matters to a Vote of Security Holders............................8 PART II: Item 5. Market for Registrant's Common Stock and Related Security Holder Matters.............8 Item 6. Selected Financial Data.....................9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............................9 Item 8. Financial Statements and Supplementary Data........................ 15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................40 PART III: Item 10. Directors and Executive Officers of the Registrant.................................40 Item 11. Executive Compensation.....................44 Item 12. Security Ownership of Certain Beneficial Owners and Management......................46 Item 13. Certain Relationships and Related Transactions...............................46 PART IV: Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................47 3 PART I. ITEM 1. BUSINESS GENERAL United Fire & Casualty Company and its insurance subsidiaries (the "Company") are engaged in the business of property and casualty insurance and life insurance. The Company is an Iowa corporation incorporated in January, 1946. Its principal executive office is located at: 118 Second Avenue S.E. P.O. Box 73909 Cedar Rapids, Iowa 52407-3909 (319-399-5700). The Company's subsidiaries are: Lafayette Insurance Company, a wholly owned property and casualty insurer, with its wholly owned subsidiary, a general agency, Insurance Brokers & Managers, Inc.; Addison Farmers' Insurance Company, a wholly owned property and casualty insurer, with its wholly owned subsidiaries, a general agency, Addison Insurance Agency, and a premium finance company, Crabtree Premium Finance Company; and United Life Insurance Company, a wholly owned life insurance company. As of December 31, 1995, the Company and its subsidiaries employed 563 full-time employees. The Company and its property and casualty subsidiaries market most forms of property and casualty insurance products, including fidelity and surety bonds and reinsurance, through independent agencies and brokers. The Company and its property and casualty subsidiaries also underwrite and broker a limited amount of excess and surplus lines insurance. United Life Insurance Company underwrites and markets ordinary life (primarily universal life), annuities (primarily single premium) and credit life products to individuals and groups through independent agencies. A table reflecting premiums, operating results and assets attributable to the property and casualty and life segments is included in Note 10 of the Notes to Consolidated Financial Statements. The following table shows the consolidated net premiums written and annuity deposits during the last three years by major category.
_______________________________________________________________________________ Years Ended December 31, _______________________________________________________________________________ (Dollars in Thousands) _______________________________________________________________________________ 1995 1994 1993 _______________________________________________________________________________ Fire and allied lines $ 57,049 $ 51,997 $ 47,395 Automobile 44,457 39,003 38,785 Other liability 31,025 27,467 25,109 Workers' compensation 24,807 22,215 20,930 Fidelity and surety 16,215 15,113 12,029 Reinsurance 23,259 18,346 17,830 Other 734 1,500 933 Life and accident and health 25,181 30,088 30,166 Annuities 54,515 35,371 37,540 _______________________________________________________________________________ $277,242 $241,100 $230,717 =============================================================================== "Fire and allied lines" includes farmowners, homeowners, commercial multiple peril and inland marine.
PROPERTY AND CASUALTY INSURANCE The Company and its property and casualty subsidiaries underwrite both commercial and personal lines of insurance. Homeowners and automobile insurance comprise most of the personal lines of business. Business package policies, workers' compensation, other liability and fidelity and surety bonds represent a major part of the commercial business. Specialty policies written include the Commercial Uni-Saver, a commercial package policy with a simplified rating plan, blanket mortgage security, insurance on boats, outboard motors and recreational vehicles, umbrella liability and some forms of errors and omissions insurance. 1 4 The Company acts as a reinsurer assuming both property and casualty reinsurance from approximately 415 companies. The bulk of the business assumed is property reinsurance with the emphasis on catastrophe covers. The business originates through approximately 45 brokers with the largest producer accounting for approximately 15.5% of the reinsurance assumed. The combined ratios below, which relate to the non-life segments, are the sum of the following: the loss ratio, calculated by dividing net losses and net loss adjustment expenses incurred by net premiums earned; and the expense ratio, calculated by dividing underwriting expenses incurred by net premiums written. The ratios in the table have been prepared on the basis of statutory financial information and on a GAAP basis. Generally, if the combined ratio is below 100 percent, there is an underwriting profit; if it is above 100 percent, there is an underwriting loss. [A bar graph displaying statuatory combined ratios for the Company as compared with the Insurance Industry from 1991 to 1995 appears here.]
STATUTORY COMBINED RATIOS Company Industry 1991 100.3% 108% 1992 115.5 114 1993 102.5 109 1994 97.6 109 1995 95.8 107
____________________________________________________________________________________________________________________________ Years Ended December 31, ____________________________________________________________________________________________________________________________ (Dollars in Thousands) ____________________________________________________________________________________________________________________________ Statutory GAAP ____________________________________________________________________________________________________________________________ 1995 1994 1993 1995 1994 1993 ____________________________________________________________________________________________________________________________ Net premiums written $197,546 $175,641 $163,011 $197,546 $175,641 $163,011 Net premiums earned 185,994 166,852 158,336 185,994 166,852 158,336 ____________________________________________________________________________________________________________________________ Ratio of net losses and net loss adjustment expenses incurred to net premiums earned 63.8% 65.6% 70.7% 63.6% 65.2% 70.4% Ratio of underwriting expenses incurred to net premiums written 32.0 32.0 31.8 31.0 31.9 30.8 Combined ratios 95.8 97.6 102.5 94.6 97.1 101.2 ____________________________________________________________________________________________________________________________ Underwriting margin 4.2% 2.4% (2.5)% 5.4% 2.9% (1.2)% ============================================================================================================================
The following table sets forth the aggregate direct and assumed premiums written, ceded reinsurance and net premiums written for the three years ended December 31, 1995, 1994 and 1993.
_______________________________________________________________________________________________________ Years Ended December 31, _______________________________________________________________________________________________________ (Dollars in Thousands) PERCENT Percent Percent OF of of 1995 TOTAL 1994 Total 1993 Total _______________________________________________________________________________________________________ Fire and allied lines $ 74,254 38% $ 66,640 38% $ 58,323 36% Automobile 46,060 23 40,687 23 40,352 25 Other liability 34,101 17 30,116 17 27,360 17 Workers' compensation 25,246 13 22,836 13 21,614 13 Fidelity and surety 17,322 9 16,060 9 12,769 8 Reinsurance assumed 26,436 13 22,433 13 21,938 13 Other 1,011 1 3,692 2 2,250 1 _______________________________________________________________________________________________________ Aggregate direct and assumed premiums written $224,430 114% $202,464 115% $184,606 113% Reinsurance ceded 26,884 14 26,823 15 21,595 13 _______________________________________________________________________________________________________ Net premiums written $197,546 100% $175,641 100% $163,011 100% ======================================================================================================= "Fire and allied lines" includes farmowners, homeowners, commercial multiple peril and inland marine.
2 5 The following table sets forth property and casualty net premiums earned, net losses incurred (excluding net loss adjustment expenses) and the loss ratio (ratio of net losses incurred to net premiums earned), by lines of insurance written, for the three years ended December 31, 1995, 1994 and 1993.
___________________________________________________________________________________ Years Ended December 31, ___________________________________________________________________________________ (Dollars in Thousands) 1995 1994 1993 ___________________________________________________________________________________ Fire and allied lines Premiums earned $ 54,150 $ 48,784 $ 46,190 Losses incurred 30,551 24,826 20,993 Loss ratio 56.4% 50.9% 45.4% ___________________________________________________________________________________ Automobile Premiums earned $ 42,026 $ 38,369 $ 39,423 Losses incurred 30,682 28,833 26,261 Loss ratio 73.0% 75.1% 66.6% ___________________________________________________________________________________ Other liability Premiums earned $ 29,282 $ 26,404 $ 24,227 Losses incurred 10,304 11,679 9,912 Loss ratio 35.2% 44.2% 40.9% ___________________________________________________________________________________ Workers' compensation - involuntary Premiums earned $ 3,179 $ 3,735 $ 4,012 Losses incurred 1,357 1,732 2,983 Loss ratio 42.7% 46.4% 74.4% ___________________________________________________________________________________ Workers' compensation - voluntary Premiums earned $ 20,776 $ 17,898 $ 16,750 Losses incurred 5,458 3,035 8,616 Loss ratio 26.3% 17.0% 51.4% ___________________________________________________________________________________ Workers' compensation - total Premiums earned $ 23,955 $ 21,633 $ 20,762 Losses incurred 6,815 4,767 11,599 Loss ratio 28.4% 22.0% 55.9% ___________________________________________________________________________________ Fidelity and surety Premiums earned $ 14,592 $ 12,592 $ 9,786 Losses incurred 1,269 468 958 Loss ratio 8.7% 3.7% 9.8% ___________________________________________________________________________________ Reinsurance Premiums earned $ 21,117 $ 17,648 $ 17,193 Losses incurred 15,789 16,088 20,213 Loss ratio 74.8% 91.2% 117.6% ___________________________________________________________________________________ Other Premiums earned $ 872 $ 1,422 $ 755 Losses incurred 334 734 (38) Loss ratio 38.3% 51.6% (5.0)% ___________________________________________________________________________________ Total property and casualty Premiums earned $185,994 $166,852 $158,336 Losses incurred 95,744 87,395 89,898 Loss ratio 51.5% 52.4% 56.8% =================================================================================== "Fire and allied lines" includes farmowners, homeowners, commercial multiple peril and inland marine.
3 6 LIFE INSURANCE The principal life insurance product is universal life of which the Life subsidiary has six different plans. The universal plans represent about two-thirds of the total insurance in-force at December 31, 1995. The maximum retention is $200,000 per life policy. Long-term disability is provided only for the employees of the Company. The following table presents life insurance earned premium information for the last five years.
_____________________________________________________________________________________________________ Years Ended December 31, _____________________________________________________________________________________________________ (Dollars in Thousands) 1995 1994 1993 1992 1991 _____________________________________________________________________________________________________ Universal life $ 7,926 $ 6,386 $ 6,887 $ 5,529 $ 5,454 Ordinary life (other than universal) 9,647 8,431 5,120 3,620 2,903 Accident and health 1,822 1,515 3,194 2,515 2,052 Annuities 902 441 927 930 336 Credit life 1,217 993 954 1,035 822 Group accident and health 125 130 200 167 172 _____________________________________________________________________________________________________ Total premiums earned $21,639 $17,896 $17,282 $13,796 $11,739 =====================================================================================================
REINSURANCE CEDED The Company follows the industry practice of reinsuring a portion of their exposure and ceding to reinsurers a portion of the premium received on the policies reinsured. Reinsurance is purchased to reduce the net liability on individual risks to predetermined limits and to protect against catastrophic losses such as hurricanes and tornadoes. Such catastrophe protection is purchased on both direct and assumed business. The ceding of reinsurance does not legally discharge the Company from primary liability under its policies and the ceding company must pay the loss if the reinsurer fails to meet its obligation. The Company is not aware of any of its reinsurers experiencing financial difficulties that would result in a material impact on the Company's financial statements. The Company follows the industry practice of accounting for insurance written and losses incurred net of reinsurance ceded. The Company uses many reinsurers, both domestic and foreign. There are no concentrations of credit risk associated with reinsurance. Principal reinsurers include Swiss Re of America (formerly North American Reinsurance Corporation), Munich American Assurance Company, General Reinsurance Corporation, ERC Life Reinsurance Corporation, Transamerica Occidental Life and Employers Reinsurance Corporation. RESERVES Applicable insurance laws require the Company's property and casualty segment to maintain reserves for losses and loss adjustment expenses with respect to both reported and unreported losses. With respect to life reserves, the reserves are based upon applicable statutory Iowa insurance laws and actuarial analysis determined by independent consulting actuaries. The Company's property and casualty segment establishes reserves for reported losses based upon historical experience and upon a case-basis evaluation of the type of loss, knowledge of the circumstances surrounding each loss and the policy provisions relating to the type of loss. The amount of reserves for unreported losses is determined by estimating unreported losses on the basis of historical and statistical information for each line of insurance with respect to the probable number and nature of losses arising from occurrences which have not yet been reported. Established reserves are closely monitored and are adjusted as needed. Loss reserves are estimates at a given time of the ultimate amount expected to be paid on incurred losses based on facts and circumstances known when the estimates are made. Reserves are not discounted. The loss settlement period on insurance losses may be many years, and as additional facts regarding individual losses become known, it often becomes necessary to refine and adjust the estimates of liability on a loss. Inflation is implicitly provided for in the reserving function through review of cost trends and historical reserving results and projections of future economic conditions. 4 7 Reserves for loss adjustment expenses are intended to cover the actual cost of investigating losses and defending lawsuits arising from losses. These reserves are established periodically based on historical analysis and management's expectations. The limits on risks retained by the Company's property and casualty segment vary by line of business, and risks in excess of the retention limits are reinsured. For the property lines of business, the retention is $1,000,000. For the casualty lines of business, the Company has four retention levels which depend on the accident year of the claim. For losses with an accident year of 1983 or prior, the retention is $225,000. The retention level was raised to $300,000 on all losses in the casualty lines with accident dates of 1984 through 1986. Effective January 1, 1987, the retention was increased to $500,000 on all losses with accident dates of 1987 through 1991. Effective January 1, 1992, the retention was increased to $750,000 on all accident dates of 1992 through 1994. Effective January 1, 1995, the retention was increased to $1,000,000 on all losses in the casualty lines with accident dates of 1995 and later. The following table shows the calendar year development of the unpaid losses and loss adjustment expenses of the Company and its property and casualty segment for 1986 through 1995. The top line of the table shows the estimated liability for unpaid losses and loss adjustment expenses recorded at the balance sheet date for each of the indicated years. This liability represents the estimated amount of losses and loss adjustment expenses for losses arising in all prior years that are unpaid at the balance sheet date, including losses that had been incurred but not yet reported, net of applicable ceded reinsurance. The upper portion of the table shows the reestimated amount of the previously recorded liability based on experience as of the end of each succeeding year. The estimate is increased or decreased as more information becomes known.
Years Ended December 31, ____________________________________________________________________________________________________________________________________ (Dollars in thousands) 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 ____________________________________________________________________________________________________________________________________ Liability for unpaid losses and loss $ 60,779 $71,067 $85,012 $103,607 $113,572 $123,219 $158,825 $170,798 $180,653 $188,700 adjustment expenses Liability reestimated as of: One year later 58,011 69,417 79,869 96,487 111,804 128,042 154,572 153,691 160,776 Two years later 58,093 67,948 80,395 96,976 112,390 125,888 148,507 142,572 Three years later 57,685 68,357 76,698 97,295 111,276 124,428 144,159 Four years later 58,200 67,322 76,469 95,752 113,898 122,384 Five years later 57,518 66,735 75,368 96,345 113,703 Six years later 57,343 66,058 75,257 97,159 Seven years later 57,423 66,599 75,912 Eight years later 58,375 67,526 Nine years later 59,200 Redundancy (deficiency) $ 1,579 $ 3,541 $9,100 $ 6,448 $ (131) $ 835 $ 14,666 $ 28,226 $ 19,877 ____________________________________________________________________________________________________________________________________ Cumulative amount of liability paid through: One year late $ 22,589 $23,681 $27,277 $ 37,598 $ 39,497 $ 44,694 $ 54,291 $ 51,550 $ 54,862 Two years later 33,575 39,028 41,865 56,574 63,589 69,296 84,074 80,246 Three years later 41,310 46,139 52,551 69,767 77,141 87,052 102,637 Four years later 44,305 51,404 57,658 76,443 87,627 96,976 Five years later 46,989 54,061 61,795 82,013 95,059 Six years later 48,662 56,292 64,912 85,379 Seven years later 50,054 58,425 67,021 Eight years later 51,968 60,026 Nine years later 52,990
5 8 INVESTMENTS The management of the investment portfolio is handled internally. The Company primarily invests in fixed income securities. The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective January 1, 1994 and reassessed this position in December, 1995. The Company has classified a majority of its fixed income securities as held-to-maturity. See Notes 1 and 2 of the Notes to Consolidated Financial Statements for discussion of SFAS No. 115. Historically, the property and casualty segment has emphasized investments in tax-exempt fixed income securities, but attempts to maintain a balanced portfolio that reflects its changing tax situation, as well as changes in the tax law. Based on the Company's underwriting philosophy and goals, the emphasis toward tax-exempt securities will continue. The life insurance segment has emphasized investing in high quality, taxable, fixed income securities (primarily bonds issued by corporations, mortgage pass-through securities and collateralized mortgage obligations ("CMOs")). Investment results for the years indicated are summarized in the following table.
________________________________________________________________________________ Average Annualized Yield Years Ended Invested Net Investment on Average December 31, Assets Income Invested Assets ________________________________________________________________________________ (Dollars in Thousands) ________________________________________________________________________________ 1995 $733,608 $53,603 7.3% 1994 635,948 46,420 7.3 1993 560,442 40,233 7.2 ================================================================================ Average of amounts at beginning and end of year. Investment income after deduction of investment expenses, but before applicable income tax.
MARKETING The Company markets its products principally through independent agencies. The Company is licensed as a property and casualty insurer in 34 states, primarily in the Midwest and West. Approximately 1,700 independent agencies represent the Company's property and casualty segment. The life insurance subsidiary is licensed in 24 midwestern and western states and is represented by approximately 1,000 independent agencies. The Home Office and branch offices of the Company and the offices of the insurance subsidiaries are staffed with underwriting, claims and marketing representatives, and administrative technicians, all of whom provide support and assistance to the independent agencies. In addition, Home Office staff technicians and specialists provide support to the subsidiaries and branch offices as well as to independent agencies. The Company's Home Office also monitors subsidiary and branch offices for overall results and conformity to Company policy through the use of management reports. 6 9 In 1995, direct premium writings on a statutory basis by state were as follows.
_________________________________________________________________________________________________________________________ Property and Casualty Insurance Life, Accident and Health Insurance, Including Annuities _________________________________________________________________________________________________________________________ (Dollars in Thousands) _________________________________________________________________________________________________________________________ Percent Percent Amount of Total Amount of Total ========================================================================================================================= California $ 9,292 4.9% $ -- --% Colorado 10,335 5.4 4,323 5.3 Idaho 3,030 1.6 261 .3 Illinois 21,091 11.1 5,508 6.8 Iowa 40,235 21.2 35,178 43.2 Kansas 7,671 4.0 2,041 2.5 Louisiana 25,127 13.2 55 .1 Minnesota 13,273 7.0 13,857 17.0 Missouri 18,708 9.8 3,317 4.1 Nebraska 13,072 6.9 4,833 5.9 South Dakota 8,778 4.6 1,850 2.3 Wisconsin 6,971 3.7 7,409 9.1 Wyoming 2,974 1.6 346 .4 Other 9,475 5.0 2,495 3.0 _________________________________________________________________________________________________________________________ $190,032 100.0% $81,473 100.0% =========================================================================================================================
The insurance industry is highly competitive, and the Company competes not only with other stock insurance companies, but also with mutual companies, the underwriters at Lloyds of London and reinsurance reciprocals. Since the Company relies heavily on independent agencies, it utilizes a profit sharing contract with the agencies as an incentive to place high quality business with the Company. For 1995, 332 agencies will receive profit sharing commissions of an estimated $5,137,000. ITEM 2. PROPERTIES The Company owns two buildings in Cedar Rapids, Iowa, which it occupies as its Home Office. One building is a five-story building which is occupied entirely by the Company except for certain tenants on the second floor. The other is an eight-story office building in which the first floor is leased to tenants. The Company occupies the fourth through eighth floors of this building and rents the third floor and an office on the second floor to its subsidiary, United Life Insurance Company. The two buildings are connected with a skywalk. The Company owns a small parking lot adjacent to the eight-story building and a parking lot adjacent to the five-story building. Lafayette Insurance Company owns one building in New Orleans, Louisiana which serves as its Home Office. The building consists of two floors of office space and a floor of parking, as well as a parking lot located adjacent to the building. Management believes that the properties of the Company are adequate for conducting its business. 7 10 ITEM 3. LEGAL PROCEEDINGS The registrant has no pending legal proceedings other than ordinary routine litigation incidental to the business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's Common Stock is traded in the over-the-counter market under the NASDAQ symbol UFCS. On March 1, 1996, there were 948 holders of record of the Company's Common Stock. The following table sets forth, for the calendar periods indicated, the high and low bid quotations for the Common Stock and cash dividends declared. These quotations reflect inter-dealer prices without retail markups, markdowns or commissions and may not necessarily represent actual transactions. The Company's policy has been to pay quarterly cash dividends and the Company intends to continue that policy. Payments of any future dividends and the amounts of such dividends, however, will depend upon factors such as net income, financial condition, capital requirements and general business conditions. The Company has paid dividends every quarter since March, 1968. State law permits the payment of dividends only from statutory accumulated earned profits arising from business. The Company's subsidiaries are also subject to state law restrictions on dividends. See Note 7 in the Notes to Consolidated Financial Statements.
________________________________________________________________________________ Share Price Cash High Low Dividends Declared ________________________________________________________________________________ 1995 Quarter Ended March 31 $ 19 3/8 $ 18 1/8 $ .133 June 30 19 1/2 18 1/8 .133 September 30 24 5/8 22 1/8 .133 December 31 29 1/8 23 7/8 .150 1994 Quarter Ended March 31 $ 19 1/2 $16 $ .120 June 30 18 7/8 17 3/8 .120 September 30 18 1/4 17 1/2 .120 December 31 19 7/8 18 1/8 .133 ________________________________________________________________________________
Share prices and cash dividends declared per common share have been retroactively restated for additional shares issued as a result of a three for two stock split to stockholders of record as of December 18, 1995. 8 11 ITEM 6. SELECTED FINANCIAL DATA
_____________________________________________________________________________________________ Years Ended December 31, _____________________________________________________________________________________________ (Dollars in thousands except per share data) 1995 1994 1993 1992 1991 _____________________________________________________________________________________________ Total assets $943,106 $828,126 $733,020 $644,394 $510,624 Operating revenues Premiums earned 207,528 184,748 174,137 170,434 154,127 Investment income, net 53,603 46,420 40,233 36,312 28,811 Realized investment gains 1,698 796 1,860 3,133 1,208 Other income 1,761 1,881 1,713 1,387 1,257 Cumulative effect of change in accounting principles, net of applicable income taxes -- -- -- -- (656) Net income 28,803 22,521 18,645 1,702 15,040 Net income per common share Income before cumulative effect of change in accounting principles 2.66 2.08 1.72 .16 1.45 Cumulative effect of change in accounting principles, net of applicable income taxes -- -- -- -- (.06) _____________________________________________________________________________________________ Net income per common share 2.66 2.08 1.72 .16 1.39 Cash dividends declared per common share .55 .49 .45 .43 .39 =============================================================================================
Net income per common share and cash dividends declared per common share have been retroactively restated for additional shares issued as a result of a three for two stock split to stockholders of record as of December 18, 1995. The selected financial data herein has been derived from the financial statements of the Company and its subsidiaries. The data should be read in conjunction with "The Chairman's Report," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related Notes. [A bar graph displaying net income per common share and dividends for the five years ended December 31, 1995.]
NET INCOME PER COMMON SHARE Net Income Per Common Share Dividends 1991 1.39 .39 1992 .16 .43 1993 1.72 .45 1994 2.08 .49 1995 2.66 .55
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ASSETS The Company's fixed income portfolio grew by 14% in 1995, when compared to 1994. As it has in the past, the Company continues to invest primarily in investment grade securities, and it is the Company's intention to hold a majority of its fixed income securities to maturity. The portion of the portfolio that was investment grade (defined by the National Association of Insurance Commissioners - Securities Valuation Office and issued with NAIC code class 1 or class 2), as of December 31, 1995 and 1994, was 94% and 92%, respectively, for the property and casualty segment, and 92% in both years for the life segment. 9 12 In accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," ("SFAS No. 115"), the Company is required to classify its investments in debt and equity securities into one of three categories: 1) held-to-maturity 2) available-for-sale and 3) trading (the Company has no trading securities). In the fourth quarter of 1995, concurrent with its adoption of the implementation guide on SFAS No. 115, the Financial Accounting Standards Board allowed a one-time reassessment of the SFAS No. 115 classifications of all securities currently held. Any reclassifications would be accounted for at fair value in accordance with SFAS No. 115 and any reclassifications from the held-to-maturity portfolio that resulted from this one-time reassessment would not call into question the intent of the Company to hold other debt securities to maturity in the future. Though the Company primarily utilizes a buy and hold philosophy for all securities (we are long-term investors), we did use the opportunity under this one-time reassessment to reclassify $79,131,000 in securities from held-to-maturity to the available-for-sale category. In connection with this reclassification, gross unrealized gains of $5,145,000 and gross unrealized losses of $908,000 were recorded in available-for-sale securities and in stockholders' equity. Approximately 31% of the fixed income portfolio is collateralized mortgage obligations ("CMOs"), compared to 28% at December 31, 1994. The Company's ongoing review of the fixed income market has shown that for asset and credit quality, CMOs still offer the best yield available. The Company minimizes its prepayment risk by buying most issues priced at a slight discount. While buying at a discount does not prevent prepayment, the yield is not penalized as is the case when a premium is paid. In addition, although the stated maturity is longer than the average life of the issues, the Company is concentrating on buying issues with expected maturity in the seven- to- twelve- year range. The Company also monitors the FLUX ratios of the CMOs it is purchasing, looking to add less volatile positions to its portfolio. FLUX measures cashflow variability about a predefined set of interest rate scenarios. The Company also invests in readily marketable common and preferred stocks, all of which are classified as available-for-sale. Other long-term investments are primarily holdings in limited partnership funds investing in banks. Unrealized appreciation on available-for-sale fixed maturities, stocks and other long-term investments, net of applicable income taxes, increased between 1995 and 1994 by $15,273,000. The Company's short-term investments, comprised of money market accounts, overnight repurchase agreements and fixed maturities are utilized to meet anticipated short-term cash requirements. In addition, the Company also maintains a $5 million line of credit with a local bank. In 1995, short-term investments increased from $9,954,000 to $21,530,000, as the Company increased the liquidity of its life insurance subsidiary to meet an anticipated withdrawal of a block of single premium business. Most of the cash that the Company receives is generated from insurance premiums paid by policyholders. The premiums are invested in assets maturing at regular intervals in order to meet the Company's obligations to pay policy benefits, claims and claim adjusting expenses. Accounts receivable are balances due from property and casualty insurance agents and brokers for premiums written, net of commissions. In 1995, this asset grew by $4,756,000 or 14%. Increased premium writings and continued utilization by insureds of the Company's deferred billing plan contributed to this growth. Under generally accepted accounting principles ("GAAP"), the Company is allowed to establish an asset called deferred policy acquisition costs ("DAC") for expenses such as commissions, premium taxes and policy issue expenses associated with underwriting premiums. The asset is then amortized over the lives of the respective policy terms to attain a matching of expenses to revenue. As premium volume increases, the resulting deferrable expenses also increase, which was the case in 1995. Reinsurance receivables are loss and expense payments and ceded reserves that are due the Company from reinsurers. The balance in this asset decreased by $8,226,000 or 34% in 1995, when compared to 1994. In 1994, the Company had reinsurance receivables related to the Northridge earthquake and $4,413,000 in the reinsurance receivables related to a claim issued against the Company, which was settled favorably in March, 1995. The Company does not anticipate collection problems with regard to any of its reinsurance receivables. 10 13 LIABILITIES The property and casualty segment's gross reserves before ceded reinsurance for losses and settlement expenses decreased $209,000 between 1995 and 1994. While 1995 produced a record number of hurricanes, the Company did not have much exposure related to any of these storms. Gross reserves remaining on the Northridge earthquake were $3,733,000 as of December 31, 1995, compared to $8,341,000 at December 31, 1994. The Company is not aware of any significant contingent liabilities as far as environmental issues are concerned. Because of the type of business the Company writes, i.e. property coverage, there exists the potential for exposure for environmental pollution and asbestos claims. The Company's underwriters are aware of these exposures and use limited riders or endorsements to limit exposure. The one assumed reinsurance contract with a significant known environmental exposure was commuted with a complete release of further liability during 1994. The increase in the liability for future policy benefits and interest on policyholders' accounts grew in 1995 when compared to 1994 due to the addition of new premiums and growth in existing account balances. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994 PROPERTY AND CASUALTY OPERATIONS The Company's property and casualty segment reported record operating earnings of $30,718,000 in 1995, compared to $22,922,000 in 1994. Premiums earned increased 11%, or $19,142,000. Much of the growth was direct business concentrated in four midwestern states. In addition, the Company has had to pay less for its ceded protection due to a decrease in ceded premium rates. Loss and loss adjustment expenses increased 9% over 1994. An absence of significant exposure to 1995 catastrophes and a reduction in loss expenses have contributed to the Company's favorable results. Gross losses incurred related to the Northridge earthquake were $3,847,000 in 1995, compared to $10,342,000 in 1994. Ceded losses incurred related to this catastrophe were $3,005,000 in 1995, compared to $4,319,000 in 1994. Gross incurred on other catastrophe losses for the years ending 1995, 1994 and 1993 were $10,089,000, $5,784,000 and $13,876,000 respectively. Ceded incurred on all other catastrophes for the years ending 1995, 1994 and 1993 were $114,000, $(17,000) and $158,000, respectively. The increase in the property and casualty segments' other underwriting expenses, (including amortization of deferred acquisition costs) of $4,904,000 or 9% resulted primarily from an increase in commissions paid to our agents, due to the increase in premium writings. LIFE OPERATIONS The increase of $3,743,000 in premiums earned is comprised mainly of a $1,181,000 increase in collected traditional life premiums and a $1,479,000 increase in collected credit premiums. During 1995, we increased our anticipated future lapses and wrote off $1,300,000 of deferred acquisition costs due to the withdrawal of one block of universal life business totaling $15,559,000 in the first two months of 1996. Interest credited increased $3,468,000 due to an increase in total universal life and annuity balances from an average of $281,000,000 during 1994 to $322,000,000 during 1995. Note that the interest credited increased by around 20%, while total average assets increased by only 15%. The balance of the increase was due to higher rates credited during 1995. INVESTMENT RESULTS Investment income rose 15% in 1995, over 1994, which is largely attributable to a growing fixed income portfolio. The Company's investment yield was a consistent 7% for 1995, 1994 and 1993. Realized gains increased by $902,000, most of which was due to the sale of an available-for-sale preferred stock holding. 11 14 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1994, COMPARED TO YEAR ENDED DECEMBER 31, 1993 The Company's net premiums earned were increasing at a moderate rate. A soft market in the workers' compensation and personal auto lines presented challenges to the Company and the insurance industry as a whole. The Company believed that continued refinement in pricing, classification and exposure assessment would be the key to profitable results in these lines of business. Investment income rose 15.4% in 1994, over 1993, which was attributable to a larger fixed maturity portfolio. The Company's realized gains decreased by $1,064,000. Fixed maturity calls were prevalent in 1993, when interest rates were declining. Increasing interest rates in 1994 reduced the number of calls and resulting investment gains. The Company's major losses in 1994 included three large fire losses, two large commercial auto liability losses, and losses related to the Los Angeles Northridge earthquake. Gross losses related to Hurricane Andrew tapered off to $369,000 from $6,643,000 in 1993 and $23,522,000 in 1992. Gross losses related to the Northridge earthquake were $10,342,000 in 1994. Gross incurred on other catastrophe losses for the years ending 1994, 1993 and 1992 were $5,042,000, $7,233,000, and $8,520,000, respectively. Ceded incurred on Hurricane Andrew losses for the years ending 1994, 1993 and 1992 were $(4,000), $(30,000) and $8,644,000, respectively. Ceded incurred on the Northridge earthquake losses were $4,319,000 in 1994. Ceded incurred on all other catastrophes for the years ending 1994, 1993 and 1992 were $(13,000), $188,000 and $124,000, respectively. The increase in other underwriting expenses of $3,798,000 or 15.5% resulted primarily from an increase in commissions paid to our agents. In addition, prior to 1994, the Company purchased its health insurance from its subsidiary (United Life Insurance Company) and the applicable premium revenue and insurance expense was eliminated in the consolidation process. At December 31, 1993, $1,481,000 of other underwriting expenses were eliminated. In 1994, the Company began self-insuring its employee health insurance and no elimination was necessary. The increase in the liability for future policy benefits and interest on policyholders' accounts grew in 1994 when compared to 1993 due to the addition of new premiums and growth in existing account balances. INSURANCE REGULATION The Company is required by the National Association of Insurance Commissioners ("NAIC") and governing state insurance departments to calculate a risk-based capital formula. This calculation establishes minimum capital requirements based on an individual company's insurance risk. The results are used by the NAIC and state insurance departments to identify companies that merit regulatory attention or the initiation of regulatory action. At December 31, 1995 and 1994, the property and casualty segments and the life segment each had adjusted capital well in excess of the required capital levels. The Company is not aware of any current recommendations by the NAIC or other regulatory authorities in the states in which the Company conducts business which, if or when implemented, would have a material effect on the Company's liquidity, capital resources or operations. CHAIRMAN'S REPORT It has been said that good profits do not need much explanation, only losses and disappointing results require long-winded letters from the Chairman. By that criteria, this should be one of the shortest Chairman's Reports you receive this year, for your Company had a very good year earning a record $28,803,000 or $2.66 per share adjusted for the three for two stock split effective December 18, 1995. 1995 earnings exceeded 1994's, which was also a record year, by 28%. Stockholders' equity now exceeds two hundred million dollars and the book value of your shares as of December 31 was $19.28 per share. In 1996, your Company will celebrate its fiftieth anniversary and while in this report we do not intend to dwell on nostalgia or ancient history (there may be some old photographs but no baby pictures), we would like to tell you a little about what your Company and its people have been doing to prepare the United Fire Group for its second half century. 12 15 Organizationally, wherever it is appropriate, work units have been arranged into teams to improve service to our customers, accountability of the individuals and create more interesting and challenging jobs. As a result, we have been able to cultivate a good team spirit and morale has never been higher. We believe the staff is as professional and competent as it has ever been. Good progress continues to be made in upgrading our data processing systems for the twenty-first century. Early this year we introduced a new claims processing system that was developed in-house and is fully integrated into our other systems. Our commercial lines policy processing is now nearly completely automated and a contract has been let and work is progressing on completely revising our personal lines systems which are antiquated and lack flexibility. A pilot project in which selected agencies are "on-line" to our main-frame computer is under way. Ultimately, our goal is to have the capability to upload from and download to the agent's computer in his office and process most normal routine transactions paperlessly. 1995's earnings were driven by the outstanding underwriting results of our property and casualty operations where our statutory combined ratio (i.e. losses incurred to premiums earned, plus expenses incurred to premiums written) improved nearly two points to 96% and premiums written increased 12% to $198,000,000 producing a return on equity of 18%. For the industry as a whole it is estimated that the combined ratio was 107% and written premiums increased only 4%. Even though there were a record number of named hurricanes in 1995 the insured losses were not substantial and your Company survived relatively unscathed. Loss experience improved for a number of lines with surety, workers' compensation, other liability and reinsurance producing outstanding results. The commercial property lines continue to be profitable. The development gain on prior year's loss reserves increased 16% to $20,000,000. Life insurance earnings increased 26% to $7,332,000, producing a return on equity of 8%. Statutory premiums increased 22% to $80,000,000, of which $55,000,000 were annuities. Primarily because of the growth in its annuity business, United Life Insurance Company's assets increased $73,000,000 to $484,000,000. To maintain its leverage at an acceptable level United Fire & Casualty Company contributed an additional $10,000,000 to its surplus. A substantial portion of our life insurance assets are invested in collateralized mortgage obligations ("CMOs") and other mortgage-backed securities. In purchasing these types of securities particular attention is paid to the characteristics of the underlying mortgages, their age, maturity, coupon, geographical location, etc. Generally speaking less can go wrong with a 15- year mortgage than a 30-year one and a 10-year mortgage is better still. As we have tracked the performance of these securities we have found they have performed about as we anticipated and provided a return sufficient for us to provide our policyholders a reasonable return on their money. Yet because of the controversy these securities have generated and pressure from some of the rating agencies, several life insurance companies have over the past year sold or substantially reduced their holdings of them even when it meant selling into a weak market. We have never understood this lemming-like approach to investing; selling on bad news rarely makes good sense. During the year the Lafayette had an opportunity to substantially expand its business in Mississippi and Arkansas transforming it into the regional insurer we had always envisioned. The business we are picking up is principally personal lines, seasoned and with good experience. With our commercial lines underwriting capabilities we believe it offers a good base for future growth. No, we are not going to insure the Madison Guaranty Savings & Loan and, yes, we realize that there may be an abundance of unemployed attorneys in Little Rock next year. Some of them may even decide to go straight and take up selling insurance. Last year when we reported on the Lafayette's 125th anniversary we mentioned a fine old southern gentleman, George Wegmann. Mr. George died on January 26, 1996. With the Addison Farmers' hiring of a field underwriter located in Franklin, Indiana we are also expanding into that state. Indiana should be a good state for your Company and some of the domestic companies no longer seem as invincible as they once did. 13 16 Direct and assumed fidelity and surety premiums increased 8% to $17,000,000 solidifying your Company's position as a major writer of contract bonds in our territory. Mike Hansen and his staff continue to strive to give excellent service and the results speak for themselves. On December 1 our Lincoln regional office moved into newly remodeled quarters at 1314 "O" Street with all new furniture. Since acquiring the Protective Fire & Casualty Co. in 1981 our Lincoln offices have been in their old building which was a converted night club. Finally, old age and the ADA made a move a necessity. If you are in the vicinity we invite you to stop in and see our new quarters. We know "Spike" Hulit and his staff would be pleased to meet you and show off their new offices. Oh, incidentally, we sold the old building at a profit within a week after moving out. Readers of previous reports will be aware of the importance we attach to the success of your Company in Iowa, our back yard. Last year business was good for your Company in Iowa with total statutory premiums, property, casualty, life, accident and health including annuities increasing 20% to $75,000,000. $2,700,000 of the increase in stockholders' equity is an accounting trick. Two years ago the powers that be in the accounting world decreed an intellectual mish-mash called SFAS No. 115. It proclaimed that henceforth all debt securities, like Gaul, would be divided into three parts, held-to-maturity, available-for-sale and trading. Your Company, taking what we assumed was the most conservative approach at the time, classified nearly all of its bonds as held-to-maturity. Last fall Caesar came to the conclusion it wasn't working (it wasn't, it was a mess), called "olly, olly, oxen free!" and let everyone go back to square one and start all over again. That gave every one a chance to rearrange their hands, we did, reclassifying about $80,000,000 as available-for-sale, and hence the gain; it increased book value by $.25 per share. One of our problems with the whole affair is that the underlying decision was a subjective one that most readers of financial statements are not aware of nor appreciate the importance. Another troubling aspect of many of these recent "Accounting Principles" is that their effect is the introduction of more and more "soft numbers" into the financial statements that can easily be manipulated if management is so inclined. For the third consecutive year, your Company was named one of the 50 outstanding property and casualty companies by Ward Financial Group, a firm of financial consultants specializing in the insurance business. One of the reasons we prize this recognition so highly is the other companies on the list. We are pleased to be able to count among our peers organizations like the Cincinnati and the St. Paul. At its meeting on February 16, 1996, your Board of Directors appointed Jack Evans, President of the Hall Foundation of Cedar Rapids, Iowa. Prior to joining the Hall Foundation, Mr. Evans had been President of Securities Corporation of Iowa. One of my goals has been the transformation of your Board into an "outside board" and while we still have two retired officers of the Company on its Board, your chairman is now the only active company officer on the Board. On December 8, 1995, your Board of Directors voted to pay a 50% stock dividend in the form of a three for two stock split for the second time in two years (please don't assume this will become an annual affair) and at the same time voted to increase the cash dividend 12.5 % to 15 cents on the new shares. Both were payable January 5, 1996. This is the eighth time since 1971 that your Company has split its shares and all but one of these was a three for two stock split. Your Company's policy has been to pay between one-fourth and one-third of our earnings to our stockholders in dividends which we feel is being very prudent, even though we have been criticized by one of the rating agencies for paying out too much in dividends. Over the past six years the actual payout has ranged between 21 and 31 percent of the preceding year's earnings except in 1993 when the preceding year's earnings had been devastated by Hurricane Andrew. While we, of course, have no idea as to whether or not 1996 will be another record year for earnings it appears that your Company has achieved a new earnings plateau on which to build and that probably by the close of 1996 the assets of the Company my father mortgaged his home fifty years ago to help to finance will exceed one billion dollars. More importantly, you have one of the best teams working for you any insurance investor has. 14 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF UNITED FIRE & CASUALTY COMPANY: We have audited the accompanying consolidated balance sheets of United Fire & Casualty Company (an Iowa corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These consolidated financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and 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 financial position of United Fire & Casualty Company and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary data (Schedule III - Supplementary insurance information, Schedule IV - Reinsurance, and VI - Supplemental information concerning property and casualty insurance operations) are presented for purposes of additional analysis and are not a required part of the basic financial statements. This information has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Arthur Andersen LLP Chicago, Illinois February 22, 1996 15 18
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1994 _______________________________________________________________________________________________________ (Dollars in Thousands) _______________________________________________________________________________________________________ ASSETS 1995 1994 _______________________________________________________________________________________________________ INVESTMENTS (Notes 2 and 3) Fixed maturities Held-to-maturity, at amortized cost (market value $617,915 in 1995 and $569,380 in 1994) $589,687 $591,712 Available-for-sale, at market (cost $80,464 in 1995 and $1,794 in 1994) 84,707 1,926 Equity securities (cost $25,558 in 1995 and $24,914 in 1994 75,678 56,197 Mortgage loans 3,041 3,120 Policy loans 7,163 6,802 Other long-term investments (cost $7,563 in 1995 and $6,557 in 1994) 8,627 7,072 Short-term investments 21,530 9,954 _______________________________________________________________________________________________________ 790,433 676,783 CASH AND CASH EQUIVALENTS 6,998 10,255 ACCRUED INVESTMENT INCOME (Note 3) 11,517 10,411 ACCOUNTS RECEIVABLE (net of allowance for doubtful accounts of $282, in 1995 and $183 in 1994) 38,620 33,864 DEFERRED POLICY ACQUISITION COSTS 52,670 47,545 PROPERTY AND EQUIPMENT, primarily land and buildings, at cost, less accumulated depreciation of $13,253 in 1995 and $12,181 in 1994) 13,252 12,738 REINSURANCE RECEIVABLES (Note 5) 15,996 24,222 PREPAID REINSURANCE PREMIUMS 3,865 3,034 INTANGIBLES 1,589 1,882 INCOME TAXES RECEIVABLE (Note 8) 1,005 -- OTHER ASSETS 7,161 7,392 _______________________________________________________________________________________________________ TOTAL ASSETS $943,106 $828,126 ======================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY _______________________________________________________________________________________________________ LIABILITIES Future policy benefits and losses, claims and settlement expenses (Notes 5 and 6) Property and casualty insurance $203,702 $203,911 Life insurance (Note 3) 393,603 344,096 Unearned premiums 97,025 83,450 Accrued expenses and other liabilities 23,376 19,805 Employee benefit obligations (Note 9) 5,693 4,886 Income taxes payable (Note 8) -- 826 Deferred income taxes (Note 8) 10,954 499 _______________________________________________________________________________________________________ TOTAL LIABILITIES $734,353 $657,473 _______________________________________________________________________________________________________ STOCKHOLDERS' EQUITY Common stock, $3.33 1/3 par value; authorized 20,000,000 shares; (Note 12) 10,829,461 shares issued and outstanding in 1995 10,829,706 shares issued and outstanding in 1994 $ 36,098 $ 24,066 Additional paid-in capital 12,031 12,049 Retained earnings (Note 7) 124,430 113,617 Net unrealized appreciation, net of applicable income taxes of $19,232 in 1995 and $11,009 in 1994 (Note 2) 36,194 20,921 _______________________________________________________________________________________________________ TOTAL STOCKHOLDERS' EQUITY $208,753 $170,653 _______________________________________________________________________________________________________ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $943,106 $828,126 ======================================================================================================= The Notes to Consolidated Financial Statements are an integral part of these statements.
16 19
CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 ________________________________________________________________________________________________ (Dollars in Thousands) ________________________________________________________________________________________________ 1995 1994 1993 ________________________________________________________________________________________________ Revenues Premiums earned (Note 5) $207,528 $184,748 $174,137 Investment income, net (Note 2) 53,603 46,420 40,233 Realized investment gains (Note 2) 1,698 796 1,860 Commission and policy fee income 1,761 1,881 1,713 ________________________________________________________________________________________________ 264,590 233,845 217,943 ________________________________________________________________________________________________ Benefits, Losses and Expenses Losses and settlement expenses 125,548 115,558 118,625 Increase in liability for future policy benefits 7,695 6,804 4,242 Amortization of deferred policy acquisition costs 47,163 37,364 33,405 Other underwriting expenses 25,606 28,310 24,513 Interest on policyholders' accounts 20,528 17,060 15,006 ________________________________________________________________________________________________ 226,540 205,096 195,791 ________________________________________________________________________________________________ Income before income taxes 38,050 28,749 22,152 Federal income taxes (Note 8) 9,247 6,228 3,507 ________________________________________________________________________________________________ Net Income $28,803 $22,521 $18,645 ================================================================================================ Net Income per common share (Note 12) $ 2.66 $ 2.08 $ 1.72 ================================================================================================ Weighted average common shares outstanding (Note 12) 10,829,606 10,829,706 10,829,706 ================================================================================================ Cash dividends declared per common share (Note 12) $ .55 $ .49 $ .45 ================================================================================================ The Notes to Consolidated Financial Statements are an integral part of these statements.
17 20
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 _______________________________________________________________________________________________________________ (Dollars in Thousands) _______________________________________________________________________________________________________________ Additional Net Common Paid-In Retained Unrealized Stock Capital Earnings Appreciation Total _______________________________________________________________________________________________________________ Balance, December 31, 1992 $16,045 $12,049 $ 90,725 $20,574 $139,393 Net income -- -- 18,645 -- 18,645 Cash dividend declared on common stock, $.45 per share -- -- (4,910) -- (4,910) Change in net unrealized appreciation, net of applicable income taxes -- -- -- 1,464 1,464 _______________________________________________________________________________________________________________ Balance, December 31, 1993 $16,045 $12,049 $104,460 $22,038 $154,592 Net income -- -- 22,521 -- 22,521 Cash dividend declared on common stock, $.49 per share -- -- (5,343) -- (5,343) Change in net unrealized appreciation, net of applicable income taxes -- -- -- (1,117) (1,117) Three for two stock split (Note 12) 8,021 -- (8,021) -- -- _______________________________________________________________________________________________________________ Balance, December 31, 1994 $24,066 $12,049 $113,617 $20,921 $170,653 Net income -- -- 28,803 -- 28,803 Cash dividend declared on common stock, $.55 per share -- -- (5,957) -- (5,957) Change in net unrealized appreciation, net of applicable income taxes -- -- -- 15,273 15,273 Three for two stock split (Note 12) 12,033 -- (12,033) -- -- Purchase and retirement of 372 shares of common stock (1) (18) -- -- (19) _______________________________________________________________________________________________________________ Balance, December 31, 1995 $36,098 $12,031 $124,430 $36,194 $208,753 =============================================================================================================== The Notes to Consolidated Financial Statements are an integral part of these statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 _________________________________________________________________________________________________________________ (Dollars in Thousands) _________________________________________________________________________________________________________________ 1995 1994 1993 _________________________________________________________________________________________________________________ Cash Flows From Operating Activities Net income $ 28,803 $ 22,521 $ 18,645 _________________________________________________________________________________________________________________ Adjustments to reconcile net income to net cash provided by operating activities Net bond discount accretion (1,244) (357) (553) Depreciation and amortization 1,229 2,115 899 Realized investment gains (1,698) (796) (1,860) Changes in: Accrued investment income (1,106) (243) (546) Accounts receivable (4,756) (3,001) (2,580) Deferred policy acquisition costs (5,125) (4,894) (4,572) Reinsurance receivables 8,226 (8,773) 815 Prepaid reinsurance premiums (831) (567) 1,553 Income taxes receivable/payable (1,831) 1,047 485 Other assets 231 258 (1,043) Future policy benefits and losses, claims and settlement expenses 7,430 26,425 16,950 Unearned premiums 13,575 9,538 3,367 Accrued expenses and other liabilities 3,391 1,517 1,821 Employee benefit obligations 807 1,199 811 Deferred income taxes 2,232 (70) (961) _________________________________________________________________________________________________________________ Total adjustments $ 20,530 $ 23,398 $ 14,586 _________________________________________________________________________________________________________________ Net cash provided by operating activities $ 49,333 $ 45,919 $ 33,231 _________________________________________________________________________________________________________________ Cash Flows From Investing Activities Proceeds from sale of available-for-sale investments $ 1,344 $ 246 $ -- Proceeds from call and maturity of held-to-maturity investments 33,154 51,054 116,807 Proceeds from call and maturity of available-for-sale investments 3,313 1,956 -- Proceeds from sale of other investments 2,593 18,296 20,490 Purchase of investments held-to-maturity (108,582) (124,050) (196,123) Purchase of investments available-for-sale (3,793) (957) -- Purchase of other investments (15,456) (28,524) (7,356) Proceeds from sale of property and equipment 2,133 381 2,158 Purchase of property and equipment (3,368) (2,382) (2,036) _________________________________________________________________________________________________________________ Net cash used in investing activities $(88,662) $(83,980) $(66,060) _________________________________________________________________________________________________________________ Cash Flows From Financing Activities Policyholders' account balances Deposits to investment and universal life type contracts $ 87,041 $ 72,680 $ 73,616 Withdrawals from investment and universal life type contracts (45,173) (32,869) (23,028) Purchase and retirement of common stock (19) -- -- Payment of cash dividends (5,777) (5,198) (4,813) _________________________________________________________________________________________________________________ Net cash provided by financing activities $ 36,072 $ 34,613 $ 45,775 _________________________________________________________________________________________________________________ Increase (Decrease) in Cash and Cash Equivalents (3,257) $ (3,448) $ 12,946 Cash and Cash Equivalents at Beginning of Year 10,255 13,703 757 _________________________________________________________________________________________________________________ Cash and Cash Equivalents at End of Year $ 6,998 $ 10,255 $ 13,703 ================================================================================================================= The Notes to Consolidated Financial Statements are an integral part of these statements.
19 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS, PRINCIPLES OF CONSOLIDATION AND BASIS OF REPORTING United Fire & Casualty Company and its insurance subsidiaries (the "Company") are engaged in the business of property and casualty insurance and life insurance. The Company and its property and casualty subsidiaries market most forms of commercial and personal property and casualty insurance products, including fidelity and surety bonds and reinsurance. The business is generated through approximately 1,700 independent agencies and brokers in 34 states, with 64% of the Company's direct premiums originating in seven Midwestern states in 1995. United Life Insurance Company underwrites and markets ordinary life (primarily universal life), annuities (primarily single premium) and credit life products to individuals and groups through independent agencies. The accompanying consolidated financial statements include United Fire & Casualty Company and its wholly owned subsidiaries, United Life Insurance Company, Lafayette Insurance Company, Insurance Brokers & Managers, Inc., Addison Farmers' Insurance Company, Addison Insurance Agency and Crabtree Premium Finance Company. All material intercompany items have been eliminated in consolidation. The Consolidated Financial Statements have been prepared on the basis of generally accepted accounting principles ("GAAP") which differ in some respects from those followed in reports to insurance regulatory authorities. The preparation of financial statements in conformity with GAAP 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 the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain amounts included in the Consolidated Financial Statements for prior years have been reclassified to conform with the 1995 financial statement presentation. PROPERTY AND CASUALTY OPERATIONS Premiums are reflected in income on a daily pro rata basis over the terms of the respective policies. Unearned premium reserves are established for the portion of premiums written applicable to the unexpired term of policies in force. Certain costs of underwriting new business, principally commissions, premium taxes and variable underwriting and policy issue expenses, have been deferred. Such costs are being amortized as premium revenue is recognized. The method followed in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable value, which gives effect to the premium to be earned, losses and expenses, and certain other costs expected to be incurred as the premium is earned. Unpaid losses and settlement expenses are based on estimates of reported and unreported claims and related settlement expenses. While management believes the reserve for claims and settlement expenses is adequate, the reserve is continually reviewed and as adjustments become necessary, they are reflected in current operations. LIFE OPERATIONS On traditional business, premiums are reported as earned when due, and benefits and expenses are associated with premium income so as to result in the recognition of profits over the lives of the related contracts. On universal life and annuity (nontraditional) business, income and expenses are reported as charged and credited to policyholder account balances through the use of the retrospective deposit method. This method results in the recognition of profits over the lives of the related contracts. These associations are accomplished by means of the provision for future policy benefits and the deferral and subsequent amortization of life policy acquisition costs. 20 23 The costs of acquiring new life business, principally commissions and certain variable underwriting, agency and policy issue expenses, have been deferred and are being amortized to income over the premium paying period of the related traditional policies in proportion to the ratio of the expected annual premium revenue to the expected total premium revenue and over the anticipated lives of nontraditional policies in proportion to the ratio of the expected annual gross margins to the expected total gross margins. The expected premium revenue and gross margins are based upon the same mortality and withdrawal assumptions used in determining future policy benefits. Liabilities for future policy benefits are computed by the net level premium method using interest assumptions ranging from 4.5% to 8.0% and withdrawal, mortality and morbidity assumptions appropriate at the time the policies were issued. Health reserves are stated at amounts determined by estimates on individual cases and estimates of unreported claims based on past experience. Liabilities for universal life-type and investment contracts are stated at policyholder account values before surrender charges. Liabilities for traditional immediate annuities are based primarily upon statutory reserves. Policy claim liabilities are determined using actuarial estimates. These estimates are based on historical information along with certain assumptions about future events. Changes in assumptions for such things as medical costs, environmental hazards, and legal actions, as well as changes in actual experience could cause these estimates to change in the near term. The Company expects to realize a spread of approximately 1.5% between interest earned and interest credited on its Universal Life Plans and deferred annuities, for which the liability is equal to total policy account values plus deferred front-end loads. INVESTMENTS Investments in held-to-maturity fixed maturities are recorded at amortized cost. The Company has the ability and intent to hold these investments until maturity. If, however, a permanent impairment occurs in a security, the Company writes the security down to the new value. Available-for-sale fixed maturities, equity securities and other long-term investments are recorded at fair value. Mortgage loans are recorded at the unpaid balance amount. Policy loans and short-term investments are recorded at cost. Included in investments at December 31, 1995 and 1994 are securities on deposit with various regulatory authorities as required by law with carrying values of $434,605,000 and $373,432,000, respectively. Realized gains or losses on disposition of investments are included in the computation of net income. Cost of investments sold is determined by the specific identification method. Changes in unrealized appreciation and depreciation resulting from available-for-sale fixed maturities, equity securities and other long-term investments, are reported as direct increases or decreases in stockholders' equity, less applicable income taxes. CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents include cash and non-negotiable certificates of deposit with original maturities of three months or less. Income taxes paid during 1995, 1994 and 1993 were $8,801,000, $5,784,000, and $3,503,000, respectively. The Company paid $532,000 in interest on Federal income taxes in 1994. There were no other significant payments of interest other than interest credited on policyholders' accounts in 1995, 1994 or 1993. PROPERTY, EQUIPMENT AND DEPRECIATION Property and equipment is carried at cost less accumulated depreciation. Depreciation is computed primarily by the straight-line method over the estimated useful lives of the underlying assets. AMORTIZATION OF INTANGIBLES Intangibles, including goodwill and agency relationships, are being amortized by the straight-line method over periods of up to twenty-eight years. 21 24 INCOME TAXES The Company accounts for income taxes under Statement of financial Accounting Standard ("SFAS") No. 109. The Company files a consolidated Federal income tax return. BENEFIT PLANS The Company has a defined benefit pension plan covering substantially all employees. Under the plan, retirement benefits are primarily a function of the number of years of service and the level of compensation. It is the Company's policy to fund the plan on a current basis to the extent deductible under existing tax regulations. The Company has a defined benefit postretirement health care plan that covers substantially all full-time employees. The plan pays stated percentages of most necessary medical and dental expenses incurred by retirees, after subtracting payments by Medicare or other providers and after a stated deductible has been met. Participants become eligible for the benefits if they retire from the Company after reaching age 59 1/2 with ten or more years of service and were a member of the group medical plan for ten consecutive years. The plan is contributory, with retiree contributions adjusted annually. ACCOUNTING CHANGES Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. The statement requires that those investments be classified into the following three categories: 1) debt securities that the enterprise has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost; 2) debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings; and 3) debt securities and marketable equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders' equity. Pursuant to the adoption of an implementation guide on SFAS No. 115, the Company has reclassed a portion of its held-to-maturity securities to the available-for-sale portfolio. Gross unrealized gains and losses were recorded in available-for-sale securities. See Note 2 for discussion of the reclassification. Effective December 31, 1994, the Company adopted SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments". SFAS No. 119 expands disclosure requirements concerning derivative investments, including whether investments are held for trading or other purposes, such as hedging. The Company does not own any derivative investments as defined by SFAS No. 119, and therefore is not subject to the expanded disclosure requirements. NOTE 2. SUMMARY OF INVESTMENTS In the fourth quarter of 1995, concurrent with the adoption of its implementation guide on SFAS No. 115, the Financial Accounting Standards Board allowed a one-time reassessment of the SFAS No. 115 classifications of all securities currently held. Any reclassifications would be accounted for at fair value in accordance with SFAS No. 115 and any reclassifications from the held-to-maturity portfolio that resulted from this one-time reassessment would not call into question the intent of the Company to hold other debt securities to maturity in the future. The Company used the opportunity under this one-time reassessment to reclassify $79,131,000 in securities from held-to-maturity to the available-for-sale portfolio. In connection with this reclassification, gross unrealized gains of $5,145,000 and gross unrealized losses of $908,000 were recorded in available-for-sale securities and in stockholders' equity. 22 25 Approximately 31% of the fixed maturity portfolio is collateralized mortgage obligations ("CMOs"), compared to 28% at December 31, 1994. The Company's ongoing review of the fixed income market has shown that for asset and credit quality, CMOs still offer the best yield available. The Company minimizes its prepayment risk by buying most issues priced at a slight discount. While buying at a discount does not prevent prepayment, the yield is not penalized as is the case when a premium is paid. In addition, although the stated maturity is longer than the average life of the issues, the Company is concentrating on buying issues with expected maturity in the seven- to- twelve- year range. A reconciliation of the amortized cost to fair values of investments in held-to-maturity and available-for-sale fixed maturities, marketable equity securities and other long-term investments as of December 31, 1995 and 1994 is as follows.
_________________________________________________________________________________________________________________ (Dollars in thousands) _________________________________________________________________________________________________________________ YEAR ENDED DECEMBER 31, 1995 Gross Gross Amortized Unrealized Unrealized Fair TYPE OF INVESTMENT Cost Appreciation Depreciation Value _________________________________________________________________________________________________________________ HELD-TO-MATURITY Fixed Maturities Bonds United States Government, government agencies and authorities Collateralized mortgage obligations ("CMOs") $ 27,751 463 $ 183 $28,031 Mortgage-backed securities 28,141 2,394 -- 30,535 All others 4,075 451 2 4,524 States, municipalities and political subdivisions 183,924 11,355 312 194,967 Foreign 6,856 535 -- 7,391 Public utilities 52,178 653 509 52,322 Corporate bonds Collateralized mortgage obligations ("CMOs") 98,900 2,580 847 100,633 All other corporate bonds 187,862 12,124 474 199,512 _________________________________________________________________________________________________________________ Total held-to-maturity $589,687 $30,555 $2,327 $617,915 ================================================================================================================= AVAILABLE-FOR-SALE Fixed Maturities Bonds United States Government, government agencies and authorities Collateralized mortgage obligations ("CMOs") 67,976 $ 4,626 $ 85 $ 72,517 Mortgage-backed securities 70 5 -- 75 All others 331 8 1 338 Public utilities 206 -- 7 199 Corporate bonds Collateralized mortgage obligations ("CMOs") 11,173 500 822 10,851 All other corporate bonds 708 23 4 727 ________________________________________________________________________________________________________________ Total available-for-sale fixed maturities $ 80,464 $ 5,162 $ 919 $ 84,707 ________________________________________________________________________________________________________________ Equity securities Common stocks Public utilities $ 3,561 $ 5,093 $ -- $ 8,654 Banks, trust and insurance companies 11,964 30,142 102 42,004 All other common stocks 9,183 15,328 304 24,207 Nonredeemable preferred stocks 850 1 38 813 ________________________________________________________________________________________________________________ Total equity securities $ 25,558 $50,564 $ 444 $ 75,678 ________________________________________________________________________________________________________________ Total available-for-sale $106,022 $55,726 $1,363 $160,385 ================================================================================================================ Other long-term investments $ 7,563 $ 1,215 $ 151 $ 8,627 ================================================================================================================
23 26
________________________________________________________________________________________________________________ (Dollars in thousands) ________________________________________________________________________________________________________________ YEAR ENDED DECEMBER 31, 1994 Gross Gross Amortized Unrealized Unrealized Fair TYPE OF INVESTMENT Cost Appreciation Depreciation Value ________________________________________________________________________________________________________________ HELD-TO-MATURITY Fixed Maturities Bonds United States Government, government agencies and authorities Collateralized mortgage obligations ("CMOs") $ 77,496 $ 72 $ 9,159 $ 68,409 Mortgage-backed securities 32,998 1,051 292 33,757 All others 5,238 174 297 5,115 States, municipalities and political1 subdivisions 73,546 5,540 2,873 176,213 Foreign 4,528 -- 224 4,304 Public utilities 38,598 73 4,385 34,286 Corporate bonds Collateralized mortgage obligations ("CMOs") 88,932 294 5,915 83,311 All other corporate bonds 170,376 1,877 8,268 163,985 ________________________________________________________________________________________________________________ Total held-to-maturity $591,712 $ 9,081 $31,413 $569,380 ================================================================================================================ AVAILABLE-FOR-SALE Fixed Maturities Bonds United States Government, government agencies and authorities Mortgage-backed securities $ 205 $ 2 $ -- $ 207 All others 313 -- 37 276 Public utilities 206 -- 10 196 Corporate bonds 1,070 212 35 1,247 ________________________________________________________________________________________________________________ Total available-for-sale fixed maturities $ 1,794 $ 214 $ 82 $ 1,926 ________________________________________________________________________________________________________________ Equity securities Common stocks Public utilities $ 3,561 $ 3,192 $ -- $ 6,753 Banks, trust and insurance companies 11,965 18,009 177 29,797 All other common stocks 8,234 10,609 317 18,526 Nonredeemable preferred stocks 1,154 66 99 1,121 ________________________________________________________________________________________________________________ Total equity securities $ 24,914 $31,876 $ 593 $ 56,197 ________________________________________________________________________________________________________________ Total available-for-sale $ 26,708 $32,090 $ 675 $ 58,123 ================================================================================================================ Other long-term investments $ 6,557 $ 661 $ 146 $ 7,072 ================================================================================================================
24 27 The amortized cost and fair value of held-to-maturity and available-for-sale fixed maturities at December 31, 1995, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
___________________________________________________________________________________________ (Dollars in thousands) ___________________________________________________________________________________________ DECEMBER 31, 1995 Held-to-maturity Available-for-sale ___________________________________________________________________________________________ Amortized Amortized Cost Fair Value Cost Fair Value ___________________________________________________________________________________________ Due in one year or less $ 8,108 $ 8,163 $ 100 $ 102 Due after one year through five years 65,770 69,271 490 495 Due after five year through ten years 166,380 177,676 655 667 Due after ten years 194,637 203,606 -- -- Mortgage-backed securities 28,141 30,535 70 75 Collateralized mortgage obligations (CMOs") 126,651 128,664 79,149 83,368 ___________________________________________________________________________________________ $589,687 $617,915 $80,464 $84,707 ===========================================================================================
Proceeds from sales of available-for-sale investments during 1995, 1994 and 1993 were $1,344,000, $246,000, and $78,000, respectively. Gross gains of $790,000, $10,000, and $4,000, respectively, were realized on those sales. No losses were realized on those sales. A summary of realized investment gains (losses) resulting from sales, calls and maturities and net changes in unrealized investment appreciation (depreciation), less applicable income taxes, is as follows.
______________________________________________________________________________________ (Dollars in thousands) ______________________________________________________________________________________ Years Ended December 31, 1995 1994 1993 ______________________________________________________________________________________ Realized investment gains (losses) Fixed maturities $ 692 $ 1,055 $ 1,999 Equity securities 791 (82) 50 Other investments 215 (177) (189) ______________________________________________________________________________________ $ 1,698 $ 796 $ 1,860 ______________________________________________________________________________________ Net changes in unrealized investment appreciation Available-for-sale fixed maturities, equity securities and other long-term investments $23,496 $ (1,462) $ 2,219 Income taxes (8,223) 345 (755) ______________________________________________________________________________________ $15,273 $ (1,117) $ 1,464 ====================================================================================== Net changes in unrealized investment appreciation (depreciation), fixed maturities $54,671 $(52,761) $ 9,550 ======================================================================================
25 28 The net investment income for the years ended December 31, 1995, 1994 and 1993 is composed of the following:
________________________________________________________________________________ (Dollars in thousands) ________________________________________________________________________________ Years Ended December 31, 1995 1994 1993 ________________________________________________________________________________ Investment income Interest on fixed maturities $50,913 $43,833 $38,639 Dividends on equity securities 2,276 1,986 1,727 Interest on other long-term investments 1,075 1,696 712 Interest on mortgage loans 239 260 483 Interest on policy loans 530 497 460 Other 1,734 1,088 646 ________________________________________________________________________________ Total investment income $56,767 $49,360 $42,667 Less investment expenses 3,164 2,940 2,434 ________________________________________________________________________________ Net investment income $53,603 $46,420 $40,233 ================================================================================
NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company estimated the fair value of its financial instruments, based on relevant market information or by discounting estimated future cash flows at estimated current market discount rates appropriate to the particular asset or liability shown. In most cases, quoted market prices were used in determining the fair value of fixed maturities, equity securities and short-term investments. Where quoted market prices were unavailable, the estimate was based on recent trading. Market values for collateralized mortgage obligations were provided by a custodian. Other long-term investments, consisting primarily of holdings in limited partnership funds, are valued by the Fund Manager based on quoted market prices for the underlying equity securities. In management's opinion, these values reflect fair value at December 31, 1995 and 1994. The estimated fair value of mortgage loans was based on the estimated discounted future cash flows using 7.0% at December 31, 1995 and 7.5% at December 31, 1994. The book value of policy loans is considered to be fair value as the interest rate is fixed and in management's opinion the interest rates in the existing portfolio are comparable to current policy loan interest rates. Accrued investment income is from a short-term financial instrument and considering credit risk, carrying value approximates fair value. The fair value of the liabilities for annuity products which are in a benefit payment phase, guaranteed investment contracts and structured settlements are based on a discount rate of 6.5% at December 31, 1995 and 7.5% at December 31, 1994. The fair value of annuities currently in an accumulation phase is based on the net cash surrender value. 26 29 A summary of the carrying value and estimated fair value of assets and liabilities meeting the definition of financial instruments at December 31, 1995 and 1994 is as follows.
____________________________________________________________________________________ (Dollars in thousands) ____________________________________________________________________________________ AT DECEMBER 31, 1995 At December 31, 1994 ____________________________________________________________________________________ FAIR CARRYING Fair Carrying Assets VALUE VALUE Value Value ____________________________________________________________________________________ Investments Held-to-maturity fixed maturities $617,915 $589,687 $569,380 $591,712 Available-for-sale fixed maturities 84,707 84,707 1,926 1,926 Equity securities 75,678 75,678 56,197 56,197 Mortgage loans 3,683 3,041 3,902 3,120 Policy loans 7,163 7,163 6,802 6,802 Other long-term investments 8,627 8,627 7,072 7,072 Short-term investments 21,530 21,530 9,954 9,954 Other Assets Accrued investment income 11,517 11,517 10,411 10,411 ____________________________________________________________________________________ $830,820 $801,950 $665,644 $687,194 ==================================================================================== Liabilities ____________________________________________________________________________________ Policy Reserves Annuity (Accumulations) $226,154 $232,718 $176,929 $182,515 Annuity (On-Benefits) 2,609 2,621 2,743 2,727 Structured settlements 359 325 312 295 Guaranteed investment contracts 1,287 1,617 986 1,009 ____________________________________________________________________________________ $230,409 $237,281 $180,970 $186,546 ====================================================================================
NOTE 4. SHORT-TERM BORROWINGS The Company maintains a $5 million line of credit with a local bank. Under the terms of the agreement, interest on outstanding notes would be payable at the lender's then prevailing prime rate. The following is a summary of the Company's short-term borrowings that were payable to a bank for the years ended December 31, 1995, 1994 and 1993.
________________________________________________________________________________ (Dollars in thousands) ________________________________________________________________________________ Years Ended December 31, 1995 1994 1993 ________________________________________________________________________________ Balance at end of year $ -- $ 25 $50 Maximum outstanding during the year 35 925 60 Average amount outstanding during the year 28 63 59 ________________________________________________________________________________ Weighted average interest rate 8.50% 7.46% 6.00% Weighted average interest rate during the year 8.50 7.46 6.00 ================================================================================
27 30 NOTE 5. REINSURANCE PROPERTY AND CASUALTY OPERATIONS The property and casualty insurance companies cede portions of their insurance business to other insurance companies on both a pro rata and excess of loss basis. Insurance ceded by the property and casualty insurance companies does not relieve their primary liability as the originating insurers. Earned premiums ceded were $26,053,000, $26,256,000 and $23,148,000 for the years ended December 31, 1995, 1994 and 1993, respectively. The Company believes all amounts are collectible with regard to reinsurance receivables. There are no concentrations of credit risk associated with reinsurance. The property and casualty insurance companies also assume portions of their insurance business from other insurance companies. Assumed premiums earned for the years ended December 31, 1995, 1994 and 1993 were $33,014,000, $31,152,000 and $30,741,000, respectively. LIFE OPERATIONS United Life Insurance Company follows the policy of reinsuring that portion of the risk in excess of $200,000 on the life of any individual. Policy benefit reserves and claims are stated after deduction of reserves and claims applicable to reinsurance ceded to other companies; however, United Life Insurance Company is contingently liable for these amounts in the event such companies are unable to pay their portion of the claims. The Company is contingently liable for ceded insurance in force of $455,422,000 and $531,558,000 at December 31, 1995 and 1994, respectively. The Company believes all amounts are collectible with regard to reinsurance receivables. NOTE 6. LIABILITY FOR PROPERTY AND CASUALTY LOSSES AND SETTLEMENT EXPENSES The following table provides an analysis of losses and loss adjustment expenses ("LAE"), including a reconciliation of beginning and ending liability balances for 1995 and 1994.
___________________________________________________________________________________________________ (Dollars in thousands) ___________________________________________________________________________________________________ At December 31, 1995 1994 ___________________________________________________________________________________________________ Gross liability for losses and LAE at beginning of year $203,911 $184,755 Less reinsurance receivables 23,258 13,957 ___________________________________________________________________________________________________ Net liability for losses and LAE at beginning of year $180,653 $170,798 Provision for losses and LAE for claims occurring in the current year 138,109 125,918 Decrease in estimated losses and LAE for claims occurring in prior years (19,877) (17,107) ___________________________________________________________________________________________________ $298,885 $279,609 ___________________________________________________________________________________________________ Losses and LAE payments for claims occurring during Current year $ 55,323 $ 47,406 Prior years 54,862 51,550 ___________________________________________________________________________________________________ $110,185 $ 98,956 ___________________________________________________________________________________________________ Net liability for losses and LAE at end of year $188,700 $180,653 Plus reinsurance receivables 15,002 23,258 ___________________________________________________________________________________________________ Gross liability for losses and LAE at end of year $203,702 $203,911 ===================================================================================================
The Consolidated Financial Statements include the estimated liability for unpaid losses and LAE of the property and casualty lines of business. The liabilities for losses and LAE are determined using case-basis evaluations and represent estimates of the ultimate net cost of all unpaid losses and LAE incurred (both reported and not reported) through December 31 of each year. These estimates are continually reviewed and, as experience develops and new information becomes known, the liability is adjusted as necessary. Such adjustments, if any, are reflected in current operations. 28 31 The decrease of $19,877,000 in estimated losses and LAE for claims occurring in prior years resulted from both the Company's direct and assumed business. Favorable claims settlements on the Company's direct business contributed to the decrease for prior accident years in the workers' compensation, commercial liability and other liability lines. The Company establishes assumed loss reserves based on reporting by insurance intermediaries. In addition, the Company establishes reserves for those assumed losses that have occurred, but have not yet been reported. When assumed anticipated losses and settlement expenses are lower than anticipated, a redundancy results, as was the case in 1995. The Company is not aware of any significant contingent liabilities as far as environmental issues are concerned. Because of the type of business the Company writes, i.e. property coverage, there exists the potential for exposure for environmental pollution and asbestos claims. The Company's underwriters are aware of these exposures and use limited riders or endorsements to limit exposure. The one assumed reinsurance contract with a significant known environmental exposure was commuted with a complete release of further liability during 1994. NOTE 7. STATUTORY REPORTING, CAPITAL REQUIREMENTS AND DIVIDEND AND RETAINED EARNINGS RESTRICTIONS Statutory stockholders' surplus and net income at December 31, 1995, 1994 and 1993 and for the years then ended are as follows.
______________________________________________________________________________ Statutory Statutory Stockholders' Net Surplus Income ______________________________________________________________________________ (Dollars in thousands) ______________________________________________________________________________ 1995 PROPERTY AND CASUALTY $158,055 $23,213 LIFE, ACCIDENT AND HEALTH 45,911 2,224 ______________________________________________________________________________ 1994 Property and casualty $125,317 $19,621 Life, accident and health 34,450 2,042 ______________________________________________________________________________ 1993 Property and casualty $111,284 $ 8,608 Life, accident and health 32,811 3,143 ==============================================================================
The Company and its insurance subsidiaries prepare their statutory financial statements in conformity with practices prescribed or permitted by their state of domicile. 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 are used when prescribed statutory practices do not address the accounting for transactions. The Company does not use permitted practices that individually or in the aggregate materially affect statutory surplus or risk-based capital. The State of Iowa Insurance Department imposes certain capital requirements on insurance companies on a statutory basis. Under the applicable regulations, United Fire & Casualty Company is required to maintain minimum capital stock of $2,500,000 and minimum additional paid-in capital and retained earnings in the aggregate amount of $2,500,000. At December 31, 1995, United Fire & Casualty Company's capital stock was $36,098,000 and total statutory paid-in capital and retained earnings were $121,956,000. The amount of dividends that may be paid to stockholders without prior approval by the State of Iowa Insurance Department is limited to the excess of statutory retained earnings over contributed surplus. Contributed surplus as of December 31, 1995, was $10,766,000. Based upon this restriction, the Company could make a maximum of $100,423,000 in dividend distributions to stockholders in 1996. Dividend payments by the insurance subsidiaries to the Company are subject to similar restrictions in the states in which they are domiciled. The Company received no dividends from its subsidiaries in 1995, and $500,000 in dividends in 1994. 29 32 In addition, the insurance departments governing the Company and its subsidiaries have imposed risk-based capital ("RBC") requirements. The regulation is based on a model adopted by the NAIC. An RBC formula establishes capital requirements for insurance companies based on an individual company's major areas of risk, including assets, credit, underwriting and off-balance sheet risk. The results are used by the NAIC and state insurance departments to identify companies that merit regulatory attention or the initiation of regulatory action. At December 31, 1995 and 1994, the life and property and casualty segments had adjusted capital well in excess of the required capital levels. NOTE 8. FEDERAL INCOME TAXES Federal income tax expense is composed of the following.
________________________________________________________________________________ (Dollars in thousands) ________________________________________________________________________________ Years Ended December 31, 1995 1994 1993 ________________________________________________________________________________ Current $7,015 $6,298 $4,468 Deferred 2,232 (70) (961) ________________________________________________________________________________ Total $9,247 $6,228 $3,507 ================================================================================
A reconciliation of income tax expense computed at the applicable Federal tax rate of 35% in 1995 and 1994 and 34% in 1993 to the amount recorded in the Consolidated Financial Statements is as follows.
________________________________________________________________________________________ (Dollars in thousands) ________________________________________________________________________________________ Years Ended December 31, 1995 1994 1993 ________________________________________________________________________________________ Computed expected rate $13,318 $10,062 $ 7,532 Reduction for tax-exempt municipal bond interest income (4,057) (4,015) (4,208) Reduction for nontaxable dividend income (520) (458) (381) Other, net 506 639 564 ________________________________________________________________________________________ Federal income taxes, as provided $ 9,247 $ 6,228 $ 3,507 ========================================================================================
30 33 The significant components of the net deferred tax liability at December 31, 1995 and 1994 are as follows.
______________________________________________________________________________________ (Dollars in thousands) ______________________________________________________________________________________ Years Ended December 31, 1995 1994 ______________________________________________________________________________________ Deferred tax assets Financial statement reserves in excess of income tax reserves $15,848 $16,890 Unearned premium adjustment 6,240 5,351 Alternative minimum tax (AMT) credit carryforwards -- 2,140 Postretirement benefits other than pensions 1,024 816 Salvage and subrogation 536 428 Net operating loss carryforwards (NOL) -- 39 Pension 969 869 Other 3,827 1,816 ______________________________________________________________________________________ Gross deferred tax assets 28,444 28,349 Valuation allowance -- 39 ______________________________________________________________________________________ Gross deferred tax assets, net of valuation allowance $28,444 $28,310 ______________________________________________________________________________________ Deferred tax liabilities Deferred acquisition costs $16,370 $14,651 Net unrealized appreciation 19,232 11,009 Depreciation on assets 1,191 1,182 Net bond discount accretion and premium amortization 1,613 1,136 Other 992 831 ______________________________________________________________________________________ Gross deferred tax liability $39,398 $28,809 ______________________________________________________________________________________ Net deferred tax liability $10,954 $ 499 ======================================================================================
The Company had tax net operating loss ("NOL") carryforwards totaling $115,000 as of December 31, 1994. These NOL carryforwards were purchased by the Company when it acquired Addison Farmers' Insurance Company in 1990. The Company also had alternative minimum tax credit ("AMT") carryforwards for Federal income tax purposes as of December 31, 1994. Such AMT credit carryforward were recorded as a deferred tax benefit for financial reporting purposes. The Company did not have any NOL or AMT carryforwards at December 31, 1995. The valuation allowance for deferred tax assets in 1994 related to the purchased NOL's. The net change in the total valuation allowance for the years ended December 31, 1995 and 1994, was a decrease of $39,000 and $106,000, respectively due to the utilization and expiration of NOL carryforwards. NOTE 9. EMPLOYEE BENEFIT OBLIGATIONS As permitted by SFAS No. 87, "Employers' Accounting for Pensions", the Company uses September 30 as the date for measuring plan assets and liabilities in order to obtain information necessary for the preparation of the financial statements on a timely basis. 31 34 The following table sets forth the funded status of the Company's qualified pension plan and amounts recognized in the Consolidated Financial Statements.
______________________________________________________________________________________________ Years Ended December 31, ______________________________________________________________________________________________ (Dollars in thousands) ______________________________________________________________________________________________ Years Ended December 31, 1995 1994 1993 ______________________________________________________________________________________________ Actuarial present value of accumulated obligation at September 30, 1995, 1994 and 1993 Vested benefit obligation $(10,697) $ (7,955) $(10,409) ============================================================================================== Accumulated benefit obligation $(11,122) $ (8,466) $(10,601) ============================================================================================== Projected benefit obligation $(14,307) $(10,264) $(13,417) Plan assets at fair value at September 30, 1995, 1994 and 1993 13,318 11,520 10,550 ______________________________________________________________________________________________ Plan assets in excess of (less than) projected benefit obligation at September 30, 1995, 1994 and 1993 $ (989) $ 1,256 $ (2,867) Unrecognized net asset (established January 1, 1987) (185) (232) (280) Unrecognized prior service cost 4 4 135 Unrecognized net gain (loss) (1,598) (3,548) 1,255 ______________________________________________________________________________________________ Pension liability $ (2,768) $ (2,520) $ (1,757) ============================================================================================== Net pension cost includes the following components Service cost - benefits earned during the period $ 505 $ 958 $ 554 Interest cost on projected benefit obligations 806 817 675 Actual return on plan assets (2,165) (980) (429) Net amortization and deferral 1,102 331 (218) ______________________________________________________________________________________________ Net periodic pension cost $ 248 $ 1,126 $ 582 ==============================================================================================
The weighted average discount rate used in determining the actuarial present value of projected benefit obligation was 7.0% at September 30, 1995, 8.25% at September 30, 1994, and 6.0% at September 30, 1993. The rate of increase in future compensation levels was 4.0% at September 30, 1995, 1994 and 1993. The expected long-term rate of return on plan assets was 7.5% at September 30, 1995 and 1994 and 6.0% at September 30, 1993. The Company has a profit sharing plan in which employees who meet age and service requirements are eligible to participate. The amount of the Company's contribution is discretionary and is determined annually but cannot exceed the amount deductible for Federal income tax purposes. The Company's contribution to the plan for the years ended December 31, 1995, 1994 and 1993 was $1,561,000, $649,000 and $626,000, respectively. The Company also has an Employee Stock Ownership Plan for the benefit of eligible employees and their beneficiaries. All employees are eligible to participate in the plan upon completion of one year of service and attaining age twenty-one. Contributions to this plan are made at the discretion of the Board of Directors. These contributions are based upon a percentage of total payroll and are allocated to participants on the basis of compensation. Contributions are made in cash which is used by the Trustee to acquire shares of the Company stock to allocate to participants' accounts. As of December 31, 1995, 1994 and 1993, the Trustee owned 86,712, 86,306 and 65,421 shares of Company stock, respectively. The Company's incurred contribution to the Plan was zero for the years ended December 31, 1995 and 1994 and $403,000 for the year ended December 31, 1993. 32 35 The following table reconciles the accrued postretirement benefit liability and amounts recognized in the Consolidated Financial Statements.
________________________________________________________________________________________ (Dollars in thousands) ________________________________________________________________________________________ Years Ended December 31, 1995 1994 1993 ________________________________________________________________________________________ Accumulated Postretirement Benefit Obligation Retirees $(1,411) $(1,064) $(1,348) Other fully eligible participants (901) (523) (649) Other active participants (2,578) (1,374) (2,324) ________________________________________________________________________________________ (4,890) (2,961) (4,321) Unrecognized prior service cost 247 287 337 Unrecognized actuarial loss 1,718 308 2,054 ________________________________________________________________________________________ Accrued postretirement benefit liability $(2,925) $(2,366) $(1,930) ======================================================================================== ________________________________________________________________________________________ Service cost - benefits attributed to service during the year $239 $201 $227 Interest cost on accumulated postretirement benefit obligation 286 222 267 Amortization of prior service cost 40 40 23 Amortization of actuarial loss 45 79 65 ________________________________________________________________________________________ Net postretirement benefit expense $610 $542 $582 ========================================================================================
The unrecognized prior service cost and actuarial loss are being amortized on a straight-line basis over an average period of eight years. This period represents the average remaining employee service period until the date of full eligibility. For measurement purposes, the following table displays the annual rate of increase in the per capita cost of covered medical and dental claims assumed.
____________________________________________ Medical Dental ____________________________________________ 1995 9.50% 1995 7.00% 1996 9.00 1996 6.50 1997 8.50 1997 6.25 1998 8.00 1998 6.00 1999 7.50 1999 5.75 2000 7.00 2000 5.50 2001 6.50 2001 5.25 2002 6.00 2002+ 5.00 2003+ 5.50
The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995 by $1,089,000 and the aggregate of the service and interest cost components of net postretirement benefit expense for the year then ended by $122,000. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.00% and 8.25% as of December 31, 1995 and 1994, respectively. 33 36 NOTE 10. OPERATIONS IN DIFFERENT INDUSTRIES The Company conducts its operations principally in two industries, property and casualty insurance and life insurance. Total revenue by industry includes sales to both outside customers and intersegment sales which are eliminated to arrive at the total revenues as reported in the Company's Consolidated Statements of Operations. Intersegment sales are accounted for on the same basis as sales to outside customers. The following table sets forth certain data for each of the Company's business segments.
________________________________________________________________________________________ (Dollars in thousands) ________________________________________________________________________________________ Years Ended December 31, 1995 1994 1993 ________________________________________________________________________________________ Property and casualty insurance Premiums earned $185,994 $166,852 $158,336 Loss and loss adjustment expenses 118,231 108,810 111,532 Underwriting and acquisition expenses 61,091 56,187 51,763 ________________________________________________________________________________________ Underwriting income (loss) $ 6,672 $ 1,855 $ (4,959) Net investment income 21,009 19,006 15,452 Realized investment gains 1,174 172 452 Other income 1,863 1,889 1,769 ________________________________________________________________________________________ Operating earnings $ 30,718 $ 22,922 $ 12,714 ======================================================================================== Assets $459,366 $417,546 $374,595 ======================================================================================== Life insurance Premiums earned $ 21,639 $ 17,896 $ 17,282 Net investment income 32,609 27,659 24,895 Realized investment gains 524 624 1,408 ________________________________________________________________________________________ Total revenues $ 54,772 $ 46,179 $ 43,585 Benefits, underwriting and acquisition expenses 47,440 40,352 34,147 ________________________________________________________________________________________ Operating earnings $ 7,332 $ 5,827 $ 9,438 ======================================================================================== Assets $483,740 $410,580 $358,424 ======================================================================================== Premium revenue between segments $ 105 $ 100 $ 1,481 ========================================================================================
Depreciation expense and property and equipment acquisitions for the years ended December 31, 1995, 1994 and 1993, are reflected in the property and casualty insurance segment. 34 37 NOTE 11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following table sets forth selected quarterly financial information of the Company.
_____________________________________________________________________________________________ (Dollars in thousands except per share data) _____________________________________________________________________________________________ Quarters First Second Third Fourth Total _____________________________________________________________________________________________ FISCAL YEAR ENDED DECEMBER 31, 1995 TOTAL REVENUES $64,593 $64,362 $66,902 $68,733 $264,590 ============================================================================================= NET INCOME $6,248 $7,243 $6,561 $8,751 $28,803 ============================================================================================= NET INCOME PER COMMON SHARE $ .58 $ .67 $ .60 $ .81 $ 2.66 ============================================================================================= Fiscal year ended December 31, 1994 Total revenues $54,076 $56,083 $60,769 $62,917 $233,845 ============================================================================================= Net income $4,119 $5,339 $3,483 $9,580 $22,521 ============================================================================================= Net income per common share $ .38 $ .50 $ .32 $ .88 $ 2.08 =============================================================================================
Net income per common share has been retroactively restated for additional shares issued as a result of a three for two stock split to stockholders of record as of December 18, 1995. NOTE 12. NET INCOME AND DIVIDENDS PER COMMON SHARE The Company declared a three for two stock split in the form of a 50% stock dividend to stockholders of record as of December 15, 1994 and again, as of December 18, 1995. Cash dividends per common share of $.55 and $.49 were declared in 1995 and 1994, respectively. Net income per common share, weighted average common shares outstanding and cash dividends declared per common share have been retroactively restated for all periods presented. INDEX TO SUPPLEMENTARY SCHEDULES Consolidated Schedules III -- Supplementary insurance information. 37 IV -- Reinsurance. 38 VI -- Supplemental information concerning property and casualty insurance operations. 39 All other schedules have been omitted as not required, not applicable, not deemed material or because the information is included in the Consolidated Financial Statements. 35 38
SCHEDULE III. SUPPLEMENTARY INSURANCE INFORMATION (Dollars in thousands) Future Policy Deffered Benefits Benefits Amortization Interest Policy Losses, Realized Net Claims, of Deffered Other on Year Ended Acquisi- Claims Earned Invest- Invest- Losses and Policy Under- Policy- December 31, tion and Loss Unearned Premium ment ment Settlement Acquisition writing holders' Premiums 1995 Costs Expenses Premiums Revenue Gains Income Expenses Costs Expenses Accounts Written ____________ ________ ________ ________ ________ ________ _______ __________ ____________ ________ _________ _________ Property and casualty $19,266 $203,702 $93,011 $185,994 $1,174 $20,994 $118,231 $41,814 $19,169 $ -- $197,546 Life, accident and health 33,404 393,603 4,014 21,534 524 32,609 15,012 5,349 6,437 20,528 22,072 ________ ________ _______ ________ ________ _______ __________ ____________ ________ _________ _________ Total $52,670 $597,305 97,025 $207,528 $1,698 $53,603 $133,243 $47,163 $25,606 $ 20,528 $219,618 ======== ======== ======= ======== ======== ======= ========== ============ ======== ========= ========= Accident and health insurance premiums written. Year Ended December 31, 1994 ____________ Property and casualty $15,870 $203,911 $80,629 $166,852 $172 $18,761 $108,810 $33,950 $22,099 $ -- $175,641 Life, accident and health 31,675 344,096 2,821 17,896 624 27,659 13,552 3,414 6,211 17,060 18,338 ________ ________ _______ ________ ________ _______ __________ ____________ ________ _________ _________ Total $47,545 $548,007 $83,450 $184,748 $796 $46,420 $122,362 $37,364 $28,310 $ 17,060 $193,979 ======== ======== ======= ======== ======== ======= ========== ============ ======== ========= ========= Accident and health insurance premiums written. Year Ended December 31, 1993 ____________ Property and casualty $13,080 $184,755 $71,273 $158,336 $ 452 $15,338 $111,532 $31,337 $18,873 $ -- $163,011 Life, accident and health 29,571 297,016 2,640 15,801 1,408 $24,895 11,335 2,068 5,640 15,006 1,913 ________ ________ _______ ________ ________ _______ __________ ____________ ________ _________ _________ Total $42,651 $481,771 $73,913 $174,137 $1,860 $40,233 $122,867 $33,405 $24,513 $ 15,006 $164,924 ======== ======== ======= ======== ======== ======= ========== ============ ======== ========= ========= Accident and health insurance premiums written. Certain amounts included in this schedule for earlier years have been reclassified to conform with the 1995 financial statement presentation.
36 39
SCHEDULE IV. REINSURANCE (Dollars in thousands) Percentage of Ceded to Assumed Amount Gross Amount Other From Other Net Amount Assumed to Year Ended Decmeber 31,1995 Earned Companies Companies Earned Net Earned ___________________________ ____________ _________ __________ __________ _____________ Life insurance in force $3,133,052 $455,422 $ -- $2,677,630 --% ============ ========= ========== ========== ============= Premiums: ________ Property and casualty $ 179,033 $ 26,053 $ 33,014 $ 185,994 17.75% Life insurance 20,881 1,066 -- 19,815 -- Accident and health insurance 1,915 196 -- 1,719 -- ____________ _________ __________ __________ ____________ Total $ 201,829 $ 27,315 $ 33,014 $ 207,528 15.91% ============ ========= ========== ========== ============ Year Ended Decmeber 31,1994 ___________________________ Life insurance in force $3,222,695 $531,558 $ -- $2,691,137 --% ============ ======== ========== ========== ============ Premiums: ________ Property and casualty $ 161,956 $ 26,256 $ 31,152 $ 166,852 18.67% Life insurance 18,218 1,837 -- 16,381 -- Accident and health insurance 1,692 177 -- 1,515 -- ____________ ________ __________ __________ ____________ Total $ 181,866 $ 28,270 $ 31,152 $ 184,748 16.86% ============ ======== ========== ========== ============ Year Ended Decmeber 31,1993 ___________________________ Life insurance in force $3,116,538 $524,326 $ -- $2,592,212 --% ============ ======== ========== ========== ============ Premiums: ________ Property and casualty $ 150,743 $ 23,148 $ 30,741 $ 158,336 19.41% Life insurance 15,528 1,559 -- 13,969 -- Accident and health insurance 2,050 218 -- 1,832 -- ____________ ________ __________ __________ ____________ Total $ 168,321 $ 24,925 $ 30,741 $ 174,137 17.65% ============ ======== ========== ========== ============
37 40
SCHEDULE VI. SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS (Dollars in thousands) Reserves for Unpaid Deferred Claims and Policy Claim Realized Net Acquisition Adjustment Unearned Earned Investment Investment Affiliation With Registrant Costs Expenses Premiums Premiums Gains Income ___________________________ ___________ ____________ ________ ________ __________ __________ Company and consolidated property and casualty subsidiaries Year Ended December 31, 1995 $19,266 $203,702 $93,011 $185,994 $1,174 $20,994 =========== ============ ======== ======== ========== ========== Year Ended December 31, 1994 $15,870 $203,911 $80,629 $166,852 $ 172 $18,761 =========== ============ ======== ======== ========== ========== Year Ended December 31, 1993 $13,080 $184,755 $71,273 $158,336 $ 452 $15,338 =========== ============ ======== ======== ========== ========== Certain amounts included in this schedule for earlier years have been reclassified to conform with the 1995 financial statement presentation.
SCHEDULE VI. SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS (continued) (Dollars in thousands) Claims and Claim Amoritization Adjustment Expenses of Deferred Paid Claims Incurred Related to Policy and Claim (1) (2) Acquisition Adjustment Premiums Affiliation With Registrant Current Year Prior Years Costs Expenses Written ___________________________ ____________ ____________ ___________ ___________ ________ Company and consolidated property and casualty subsidiaries Year Ended December 31, 1995 $138,109 $(19,877) $41,814 $110,185 $197,546 ============ ============ =========== =========== ========= Year Ended December 31, 1994 $125,918 $(17,107) $33,950 $ 98,956 $175,641 ============ ============ =========== =========== ========= Year Ended December 31, 1993 $115,785 $ (4,253) $31,337 $ 99,559 $163,011 ============ ============ =========== =========== ========= Certain amounts included in this schedule for earlier years have been reclassified to conform with the 1995 financial statement presentation.
38 41 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 DIRECTORS OF THE COMPANY: NAME (AGE) PRESENT POSITION, NAME AND PRINCIPAL BUSINESS OF DIRECTOR Scott McIntyre Jr. (62) Chairman of the Board and Chief Executive Officer, United Fire & Casualty Company James T. Brophy (68) Vice Chairman of the Board Robert J. Bevenour (67) Retired Roy L. Ewen (73) Retired Harold A. Hagen (69) Retired Casey D. Mahon (44) Vice President and General Counsel, McLeod, Inc., Cedar Rapids, Iowa Leonard J. Marshall (66) Retired Thomas K. Marshall (62) Retired Byron G. Riley (65) Attorney, Firm of Bradley & Riley, P.C. EXECUTIVE OFFICERS OF THE COMPANY: NAME (AGE) OFFICE HELD (TENURE IN YEARS) Scott McIntyre Jr. (62) Chairman of the Board and Chief Executive Officer, General Manager (29) and Director (39) Gary L. Huber (53) President and Chief Operating Officer (7) Kent G. Baker (52) Vice President and Chief Financial Officer (11) John R. Cruise (54) Vice President, Reinsurance (9) E. Dean Fick (51) Vice President, Claims (4), employed by Grinnell Mutual Reinsurance Company 24 years prior, serving as Senior Vice President, Claims (1987-1991) Marianna D. Hall (44) Vice President, Human Resources (3), employed by the Company for the past 4 years, employed by AMEX Life Assurance Company from September 1991 to April 1992; Training Director of Brenton Banks from July 1991 to September 1991; and Vice President, Human Resources and Training, American Federal Savings Association for the 4 years prior Maynard L. Hansen (64) Vice President, Fidelity and Surety (7) E. Addison Hulit (56) Vice President, Lincoln Branch Office (2), employed by the Company for the past 3 years, employed by Transamerica Insurance from 1991 to 1993; and Traveler's Insurance for the 21 years prior David L. Hellen (43) Vice President, Denver Branch Office (8) Robert B. Kenward (53) Vice President, Data Processing (3), employed by the Company for the past 17 years Stanely A. Wiebold (51) Vice President, Underwriting (10) Mary D. Schoop (64) Corporate Secretary (8) Gerald D. Seidl (62) General Counsel (27) Galen E. Underwood (55) Treasurer (17) 39 42 DIRECTORS OF SUBSIDIARY COMPANIES: UNITED LIFE INSURANCE ADDISON FARMERS' INSURANCE BROKERS & COMPANY INSURANCE COMPANY MANAGERS, INC. C. Richard Ekstrand James T. Brophy Maurice F. Eagan Scott McIntyre Jr. Gary L. Huber Gary L. Huber John A. Rife Jack M. LiCausi Scott McIntyre Jr. Byron G. Riley Scott McIntyre Jr. Gerald D. Seidl Gerald D. Seidl Randall J. Scheive George J. Wegmann LAFAYETTE INSURANCE COMPANY CRABTREE PREMIUM FINANCE COMPANY Gary L. Huber Gary L. Huber Scott McIntyre Jr. Jack M. LiCausi Gerald D. Seidl Scott McIntyre Jr. George J. Wegmann Randall J. Scheive Leo F. Wegmann Jr. OFFICERS OF THE COMPANY: UNITED FIRE & CASUALTY COMPANY Chairman and Chief Executive Officer Scott McIntyre Jr. President and Chief Operating Officer Gary L. Huber General Counsel Secretary Gerald D. Seidl Mary D. Schoop Vice Presidents Assistant Secretaries Kent G. Baker Lucretia L. Canning John R. Cruise Donna M. Fugate E. Dean Fick Marianna D. Hall Treasurer Maynard L. Hansen Galen E. Underwood David L. Hellen E. Addison Hulit Assistant Vice Presidents Robert B. Kenward John T. Anderson Jr. Stanley A. Wiebold Robert J. DeCamp Dayton E. Roberts 40 43 OFFICERS OF SUBSIDIARY COMPANIES: UNITED LIFE INSURANCE COMPANY CRABTREE PREMIUM FINANCE COMPANY Chairman Chairman Scott McIntyre Jr. Scott McIntyre Jr. President President John A. Rife Jack M. LiCausi Vice Presidents Vice President Ronald D. Brandt Randall J. Scheive Rickey L. Pettyjohn Secretary Secretary Christine Prete Jean N. Newlin Schnake Treasurer Treasurer Kent G. Baker Samuel E. Hague LAFAYETTE INSURANCE COMPANY INSURANCE BROKERS & MANAGERS, INC. Chairman President Scott McIntyre Jr. Gary L. Huber Vice Chairman Vice President George J. Wegmann P. Eric Croussilac President Secretary Carlyn K. Lewis Betty S. Castro Secretary Treasurer Leo F. Wegmann Jr. Kent G. Baker ADDISON FARMERS' INSURANCE COMPANY Chairman Scott McIntyre Jr. President Randall J. Scheive Vice Presidents Robert A. Andretich Jack M. LiCausi Russell P. Shulfer Secretary Linda J. Pearson Treasurer Kent G. Baker 41 44 ITEM 11. EXECUTIVE COMPENSATION Executive Compensation includes the amount expensed for financial reporting purposes under the Company's qualified profit sharing (401(k)) plan. All employees of the Company are eligible to participate after they have completed one year of service, attained twenty-one years of age and have met hourly requirements with the Company. The plan is not integrated with social security, and provides for employer contributions in such amounts as the Board of Directors may annually determine. The benefit payable under the plan is equal to the vested account balance. Executive Compensation includes the amounts expensed for financial reporting purposes as contributions to the Company's pension plan for the named individuals. The pension plan is a noncontributory plan which is not integrated with social security. All employees of the Company are eligible to participate after they have completed one year of service, attained twenty-one years of age and have met hourly requirements with the Company. The normal retirement pension payable under the plan is based on the employee's highest average monthly earnings for five (5) consecutive years of employment, and is equal to one and one-quarter of one percent (1 1/4 of 1%) of the employee's highest average monthly earnings multiplied by the number of years of continuous service. The maximum normal retirement benefit shall not exceed forty percent (40%) of the employee's highest average monthly earnings, and in no event shall an employee's annual benefit exceed the lesser of: 1) Ninety Thousand Dollars ($90,000.00); or 2) one hundred percent of the employee's average compensation for the highest consecutive three (3) calendar years during which the employee was an active participant in the plan. The pension plan owned 101,029 shares of the Company common stock as of December 31, 1995, and has made deposits with United Life Insurance Company to be used by the plan to purchase retirement annuities from that company. The annuity fund maintained by United Life Insurance Company is credited with compound interest on the average fund balance for the year. The interest rate will be equivalent to the ratio of net investment income to mean assets of United Life Insurance Company. In 1983, the Company adopted the United Lafayette Employee Stock Ownership Plan. Effective January 1, 1988, the Plan was amended to convert the Tax Credit Employee Stock Ownership Plan to an Employee Stock Ownership Plan. The Plan is for the benefit of eligible employees and their beneficiaries. All employees are eligible to participate in the Plan upon completion of one year of service, attaining age twenty-one and have met hourly requirements with the Company. Contributions to this plan are made at the discretion of the Board of Directors. These contributions are based upon a percentage of total payroll and are allocated to participants on the basis of compensation. Contributions are made in cash which is used by the Trustee to acquire shares of the Company stock to allocate to participants' accounts. As of December 31, 1995, 1994 and 1993, the Trustee owned 86,712, 86,306 and 65,421 shares of Company common stock, respectively. The Company's incurred contribution to the Plan was zero for the years ended December 31, 1995 abd 1994 and $403,000 for the year ended December 31, 1993. 42 45
SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION (a) (b) (c) (d) (e) All Other Name and Principal Position Year Salary Bonus Compensation ___________________________ ____ ______ _____ ____________ Scott McIntyre, Jr. Chairman and CEO 1996 $270,000.00 $75,000.00 $ -- 1995 250,000.00 57,500.00 11,806.22 1994 230,000.00 -- 11,145.19 Gary L. Huber President and COO 1996 160,000.00 -- -- 1995 150,000.00 21,150.00 7,980.20 1994 141,000.00 -- 8,018.80 E. Dean Fick Vice President - Claims 1996 120,000.00 -- -- 1995 109,500.00 7,799.99 4,767.59 1994 103,999.93 -- 4,547.14 Determined by Compensation Committee in February of each year. Present salary was determined at February, 1996 meeting. Bonus, if any, determined at the regular meeting of the Directors in February of each year based on prior year's performance. Present bonus determined at February, 1996 meeting. Contributions on behalf of named executive to Company 401K Plan, ESOP, and Benefit Credits. Determined by Chairman and CEO. Present salary was determined in December, 1995 and will be reviewed in December, 1996. Determined at the meeting of the Board of Directors in February, 1995, and based on the performance for the preceding year. Determined by the bonus plan in effect for all salaried employees based on the performance for the preceding year.
43 46 PERFORMANCE GRAPH Following is a comparison of five year cumulative total return amount United Fire & Casualty Company, S&P 500 Index and S&P Property/Casualty Index. [Performance graph appears here]
Indexed Returns Years Ending Company/Index Dec90 Dec91 Dec92 Dec93 Dec94 Dec95 ___________________________________________________________________________________________ UNITED FIRE & CAS CO 100 134.44 183.89 184.17 201.50 313.86 S&P 500 Index 100 130.47 140.41 154.56 156.60 215.45 S&P Property-Casualty Insurance 100 125.19 146.61 144.02 151.07 204.54
44 47 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table sets forth information as of March 1, 1996, with respect to ownership of the Company's $3.33 1/3 par value Common Stock by principal security holders. Except as otherwise indicated, each of the persons named below has sole voting and investment powers with respect to the shares indicated.
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP CLASS ___________________ ____________________________ __________ Scott McIntyre Jr. 1,550,083 14.31% Cedar Rapids, Iowa Mildred R. McIntyre 1,183,021 10.92% Cedar Rapids, Iowa General Accident 2,650,680 24.48% Corporation of America Philadelphia, Pennsylvania Susan M. Carlton 366,236 3.38% Orchard Park, New York Margaret Pless 337,477 3.11% Durham, North Carolina Scott McIntyre Jr., Mildred McIntyre, Susan M. Carlton and Margaret Pless are all members of the same family. Included in the number of shares owned by Scott McIntyre, Jr. are 371,812 shares which he owns in his capacity as trustee of three trusts, one of which his children are the beneficiaries, one of which his wife is the beneficiary, and the other of which all of Mildred R. McIntyre's grandchildren are the beneficiaries. Included in the number of shares owned by Mildred R. McIntyre are 533,245 shares which she owns in her capacity as trustee of a trust in which she also has a life interest. Scott McIntyre Jr., Susan M. Carlton and Margaret Pless each have an equal interest in the remainder interest of the trust.
(B) SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth information as of March 1, 1996, with respect to ownership of the Company's $3.33 1/3 par value Common Stock by management. Except as otherwise indicated, each of the persons named below has sole voting and investment powers with respect to the shares indicated.
NAME OF AMOUNT AND NATURE PERCENT OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP CLASS ________________ _______________________ __________ Scott McIntyre Jr. 1,550,083 14.31% Roy L. Ewen 87,601 .81% Harold A. Hagen 4,282 .04% Robert J. Bevenour 3,000 .03% Byron G. Riley, Jr. 2,706 .02% James T. Brophy 11,500 .11% Thomas K. Marshall 2,192 .02% Leonard J. Marshall 900 .01% Casey D. Mahon 1,500 .01% Jack B. Evans 3,134 .03% 27 Officers and Directors as a group 1,706,236 15.76% _________________________ Included in the number of shares owned by Scott McIntyre Jr., are 121,500 shares held in the name of J. Scott McIntyre, Trustee of the Mildred Reynolds McIntyre Trust, and 225,000 shares held in the name of Scott McIntyre Jr., or successor, Dee Ann McIntyre Trust.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 45 48 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Page ____ (a) 1. and 2. Financial statements and supplementary data.................. 15 (b) No reports on Form 8-K were filed during the last quarter of the period covered by this report (c) Exhibit 11, Computation of earnings per common share Exhibit 22, Subsidiaries of the registrant Exhibit 27, Financial Data Schedule Exhibit 29, Information from reports furnished to State Insurance Regulatory Authorities 1995 Consolidated Schedule P of Annual Statements provided to the state regulatory authorities (Filed by Paper) SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT (1) Four copies of the annual stockholders report for the year ended December 31, 1995 will be furnished to the Securities Exchange Commission by April 1, 1996. (2) Proxy statements will be furnished to security holders subsequent to the filing of the 10-K. Four copies of the proxy statement will be furnished to the Securities Exchange Commission when they are mailed to security holders. 46 49 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. UNITED FIRE & CASUALTY COMPANY By /s/ Scott McIntyre, Jr. ______________________________________________________________ Scott McIntyre Jr., Chairman and Chief Executive Officer Date March 29, 1996 By /s/ Kent G. Baker ______________________________________________________________ Kent G. Baker, Vice-President,Principal Accounting Officer and Chief Financial Officer Date March 29, 1996 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. By /s/ Scott McIntyre, Jr. ______________________________________________________________ Scott McIntyre, Jr., Chairman and Director Date March 29, 1996 By /s/ Harold A. Hagen ______________________________________________________________ Harold A. Hagen, Director Date March 29, 1996 By /s/ Roy L. Ewen ______________________________________________________________ Roy L. Ewen, Director Date March 29, 1996 By /s/ Thomas K. Marshall ______________________________________________________________ Thomas K. Marshall, Director Date March 29, 1996 By /s/ Robert J. Bevenour ______________________________________________________________ Robert J. Bevenour, Director Date March 29, 1996 47
EX-11 2 1 EXHIBIT 11. COMPUTATION OF EARNINGS PER COMMON SHARE
Column A Column B Column C ___________ ________ _________ Weighted Earnings Average Per Number Common Of Shares Net Share Outstanding Income B/A ___________ ________ _________ Years Ended December 31 1995...............................10,829,606 $ 28,803 $ 2.66 1994...............................10,829,706 22,521 2.08 1993...............................10,829,706 18,645 1.72
Years Ended December 31, __________________________________ 1995 1994 1993 ____________ ____________ ____________ Computation of weighted average number of common and common equivalent shares Common shares outstanding beginning of the period 10,829,706 10,829,706 10,829,706 Weighted average of the common shares purchased and retired or reissued (100) -- -- ____________ ____________ ____________ Weighted average number of common shares 10,829,606 10,829,706 10,829,706 ============ ============ ============
Earnings per common share, common shares outstanding and weighted average common shares outstanding have been retroactively restated for additional shares issued as a result of a three for two stock split to stockholders of record as of December 18, 1995.
EX-22 3 1 EXHIBIT 22. SUBSIDIARIES OF THE REGISTRANT United Life Insurance Company is an Iowa Corporation. Lafayette Insurance Company is a Louisiana Corporation. Addison Farmers' Insurance Company is an Illinois Corporation. The Registrant owns 100% of the voting common stock of United Life Insurance Company, Lafayette Insurance Company and Addison Farmers' Insurance Company. EX-27 4
7 This legend contains summary information extracted from the Form 10-Q and is qualified in its entirety by reference to such financial statements. 0000101199 UNITED FIRE & CASUALTY COMPANY 1,000 YEAR DEC-31-1995 DEC-31-1995 84,707 589,687 617,915 75,678 3,041 0 790,433 6,998 15,996 52,670 943,106 597,305 97,025 0 0 0 0 0 36,098 172,655 943,106 207,528 53,603 1,698 1,761 133,243 47,163 46,134 38,050 9,247 28,803 0 0 0 28,803 2.66 2.66 180,653 138,109 (19,877) 55,323 54,862 188,700 (19,877)
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