-----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, BJJsH9GNbEXEeE8mbHGqMwxTsiPIlLx1aPE3sAt2f0SJlXVsNjudP73sSzrdEAJd gcblPeh7G1g/6cTdZpPmSg== 0000073952-95-000014.txt : 19951119 0000073952-95-000014.hdr.sgml : 19951119 ACCESSION NUMBER: 0000073952-95-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OHIO CASUALTY CORP CENTRAL INDEX KEY: 0000073952 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 310783294 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05544 FILM NUMBER: 95589233 BUSINESS ADDRESS: STREET 1: 136 N THIRD ST CITY: HAMILTON STATE: OH ZIP: 45025 BUSINESS PHONE: 5138673000 MAIL ADDRESS: STREET 1: 136 N THIRD ST CITY: HAMILTON STATE: OH ZIP: 45025 10-Q 1 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [x] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarter ended September 30, 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 0-5544 OHIO CASUALTY CORPORATION (Exact name of registrant as specified in its charter) OHIO (State or other jurisdiction of incorporation or organization) 31-0783294 (I.R.S. Employer Identification No.) 136 North Third Street, Hamilton, Ohio (Address of principal executive offices) 45025 (Zip Code) (513) 867-3000 (Registrant's telephone number) Securities registered pursuant to Section 12(g) of the Act: Common Shares, Par Value $.125 Each (Title of Class) Common Share Purchase Rights (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The aggregate market value as of November 1, 1995 of the voting stock held by non-affiliates of the registrant was $1,109,193,173. On November 1, 1995 there were 35,589,781 shares outstanding. Page 1 of 10 2 PART I ITEM 1. FINANCIAL STATEMENTS OHIO CASUALTY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In thousands) (Unaudited)
September 30, December 31, 1995 1994 Assets Investments: Fixed maturities - available for sale (Amortized cost: $2,532,333 and $2,585,927) $ 2,623,485 $ 2,509,961 Equity securities (Cost: $335,829 and $337,814) 645,474 520,025 Short-term investments 48,243 13,550 ------------ ------------ Total investments 3,317,202 3,043,536 Cash 34,414 15,106 Premiums and other receivables 207,939 199,167 Deferred policy acquisition costs 161,677 165,633 Property and equipment 39,730 35,404 Deferred income taxes 24,271 118,370 Other assets 163,314 161,740 ------------ ------------ Total assets $ 3,948,547 $ 3,738,956 ============ ============ Liabilities Insurance reserves: Unearned premiums $ 523,807 $ 518,075 Losses 1,288,040 1,304,514 Loss adjustment expenses 365,157 367,309 Future policy benefits 360,115 352,400 Note payable 65,000 70,000 California Proposition 103 reserve 70,328 47,278 Other liabilities 232,239 228,590 ------------ ------------ Total liabilities 2,904,686 2,888,166 ------------ ------------ Shareholders' equity Common stock, $.125 par value Authorized: 70,000,000 shares Issued: 46,803,872 5,850 5,850 Additional paid-in capital 3,347 3,271 Unrealized gain on investments 263,239 69,610 Retained earnings 997,719 985,068 Treasury stock, at cost: 11,214 shares and 10,811 shares (226,294) (213,009) ------------ ----------- Total shareholders' equity 1,043,861 850,790 ------------ ------------ Total liabilities and shareholders' equity $ 3,948,547 $ 3,738,956 ============ ============
2 3 OHIO CASUALTY CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME (In thousands) (Unaudited)
Three months Ended September 30, 1995 1994 Premiums and finance charges earned $ 317,165 $ 329,421 Investment income less expenses 47,004 46,743 Investment gains realized (430) 7,361 ------------ ----------- Total income 363,739 383,525 Losses and benefits for policyholders 191,266 193,466 Loss adjustment expenses 33,730 35,193 General operating expenses 22,513 22,759 Amortization of deferred policy acquisition costs 81,515 84,974 California Proposition 103 21,514 0 ------------ ----------- Total expenses 350,538 336,392 Income before income taxes 13,201 47,133 Income taxes Current 10,324 11,314 Deferred (7,398) 1,869 ------------ ----------- Total income taxes 2,926 13,183 ------------ ----------- Income before discontinued operations $ 10,275 $ 33,950 Income from discontinued operations 2,942 70 ------------ ----------- Net income $ 13,217 $ 34,020 ============ =========== Average shares outstanding 35,705 36,038 Net income per share $ 0.37 $ 0.94 Cash dividends per share $ 0.38 $ 0.365
3 4 OHIO CASUALTY CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME (In thousands) (Unaudited)
Nine Months Ended September 30, 1995 1994 Premiums and finance charges earned $ 957,164 $ 972,854 Investment income less expenses 141,494 139,794 Investment gains (losses) realized (1,441) 24,943 ------------ ----------- Total income 1,097,217 1,137,591 Losses and benefits for policyholders 597,557 616,673 Loss adjustment expenses 104,378 102,779 General operating expenses 65,871 59,490 Amortization of deferred policy acquisition costs 247,244 253,593 California Proposition 103 23,050 0 ------------ ----------- Total expenses 1,038,100 1,032,535 Income before income taxes 59,117 105,056 Income taxes Current 16,529 18,667 Deferred (7,636) 5,399 ------------ ----------- Total income taxes 8,893 24,066 ------------ ----------- Income before discontinued operations and accounting changes 50,224 80,990 Income from discontinued operations 4,014 3,354 Cumulative effect of accounting changes 0 (319) ------------ ----------- Net income $ 54,238 $ 84,025 ============ =========== Average shares outstanding 35,825 36,038 Cumulative effect of accounting changes per share $ 0.00 $ (0.01) Net income per share $ 1.51 $ 2.33 Cash dividends per share $ 1.14 $ 1.095
4 5 OHIO CASUALTY CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (In thousands) (Unaudited)
Additional Unrealized Total Common paid-in gain (loss) Retained Treasury shareholders' stock capital on investments earnings stock equity Balance, January 1, 1994 $2,925 $ 6,185 $ 124,284 $ 940,774 $(211,830) $ 862,338 Unrealized gain (189,855) (13,857) (203,712) Deferred income tax on net unrealized gain 66,375 66,375 Cumulative effect of accounting changes 116,144 116,144 Net issuance of treasury stock under stock option plan (8,292 shares) 18 (30) 136 124 Net income 84,025 84,025 Cash dividends paid ($1.095 per share) (39,461) (39,461) Stock split 2,925 (2,925) 0 - --------------------------------------------------------------------------------------------------------------- BALANCE, SEPT 30, 1994 $5,850 $ 3,278 $ 116,948 $ 971,451 $(211,694) $ 885,833 =============================================================================================================== Balance, January 1, 1995 $5,850 $ 3,271 $ 69,610 $ 985,068 $(213,009) $ 850,790 Unrealized gain 296,604 296,604 Deferred income tax on net unrealized gain (102,975) (102,975) Net issuance of treasury stock under stock option plan (11,525 shares) 76 179 255 Repurchase of treasury stock (415,100 shares) (761) (13,464) (14,225) Net income 54,238 54,238 Cash dividends paid ($1.14 per share) (40,826) (40,826) - --------------------------------------------------------------------------------------------------------------- BALANCE, SEPT 30, 1995 $5,850 $ 3,347 $ 263,239 $ 997,719 $(226,294) $1,043,861 ===============================================================================================================
5 6 OHIO CASUALTY CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (In thousands) (Unaudited)
Nine Months Ended September 30, 1995 1994 Cash flows from: Operations Net income $ 54,238 $ 84,025 Adjustments to reconcile net income to cash from operations: Changes in: Insurance reserves (5,179) (15,388) Income taxes (16,842) 13,078 Premiums and other receivables (8,770) (12,189) Deferred policy acquisition costs 3,956 (4,620) Other assets (8,850) (8,188) Other liabilities (3,770) (6,862) Depreciation and amortization 9,346 8,242 Investment gains and losses (312) (26,495) California Proposition 103 21,514 0 ------------ ----------- Net cash generated by operations 45,331 31,603 Investments Purchase of investments: Fixed income securities (723,733) (642,180) Equity securities (63,895) (83,619) Proceeds from sales: Fixed income securities 691,899 571,411 Equity securities 29,073 44,594 Proceeds from maturities and calls: Fixed income securities 97,856 141,930 Equity securities 36,529 28,454 ------------ ----------- Net cash from investments 67,729 60,590 Financing Note payable (5,000) (34,000) Proceeds from exercise of stock options 230 124 Purchase of treasury stock (13,464) 0 Dividends paid to shareholders (40,825) (39,461) ------------ ----------- Net cash used in financing activity (59,059) (73,337) Net change in cash and cash equivalents 54,001 18,856 Cash and cash equivalents, beginning of period 28,656 30,426 ------------ ----------- Cash and cash equivalents, end of period $ 82,657 $ 49,282 ============ =========== Footnotes: For complete disclosures see Notes to Consolidated Financial Statements on pages 26-30 of Annual Report. Note 1 - It is believed that all material adjustments necessary to present a fair statement of the results of the interim period covered are reflected in this report. Note 2 - Share, per share, and shareholders' equity amounts on statements presented are adjusted to reflect the April 22, 1994 2-for-1 stock split.
6 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Property and casualty pre-tax underwriting losses for the nine months ended September 30, 1995 were $77.2 million, $2.15 per share, compared with $56.0 million, $1.55 per share for the same period in 1994. Underwriting losses for the third quarter of 1995 amounted to $32.1 million, $.90 per share, compared with $5.7 million, $.16 per share for the third quarter of 1994. Gross premiums for the first nine months of 1995 decreased 3.1% for all lines of business. Commercial lines decreased 4.0% and personal lines decreased 2.2% from the same period last year. Property and casualty net premiums decreased 2.2% in the first nine months and decreased 4.0% for the third quarter of 1995. The Corporation continues to reduce voluntary premium writings in those states with unprofitable environments, such as Pennsylvania and Florida. New Jersey is now our largest state with 18.0% of total premiums written during the year. Legislation passed in 1992 requires automobile insurers operating in the state to accept all risks that meet underwriting guidelines regardless of risk concentration. New Jersey also requires assessments to be paid for the New Jersey Unsatisfied Claim and Judgment Fund (UCJF). The assessment for 1995 is approximately $1.0 million compared with $6.1 million in 1994. COMBINED RATIO THIRD QUARTER 9 MONTHS ENDED SEPTEMBER 30 1995 1994 1995 1994 Automobile- Personal 96.9% 106.7% 100.5% 99.1% - Commercial 105.9% 119.0% 113.0% 109.7% ------ ------ ------ ------ Automobile 98.9% 109.7% 103.5% 101.8% Homeowners 122.4% 108.2% 118.8% 150.7% Workers' Compensation 93.3% 76.7% 94.9% 83.3% General Liability 110.0% 103.7% 111.2% 89.1% Fidelity and Surety 73.0% 81.9% 85.9% 71.1% CMP, Fire, Inland Marine 110.1% 98.0% 109.6% 118.2% ------ ------ ------ ------ Total 103.3% 102.9% 105.8% 106.2% At September 30, 1995 the combined ratio remained stable relative to 1994, increasing only .4 points for the quarter to 103.3%, and decreasing .4 points for the first nine months to 105.8%. The combined ratio for homeowners was negatively impacted 18.0 points during the first nine months of 1994 due primarily to first quarter winter storm-related losses. The combined ratio declined over 30 points year-to-date due to significantly smaller catastrophe losses during 1995. The quarterly and year-to-date combined ratios for the workers' compensation line show increases due to adverse claim developments in states that have been de-emphasized and due to increases in National Council claims which represent involuntary business. General liability combined ratios also increased primarily due to adverse development in California. Although Ohio Casualty has withdrawn from the state of California, the Statute of Limitations has not yet expired for general liability claims, and the Corporation continues to incur approximately 20 construction defect claims per week. 7 8 The third quarter catastrophe losses were $5.7 million and accounted for 1.8 points on the combined ratio. This compares with $5.4 million and 1.6 points for the same period in 1994. Catastrophes for the first nine months are $22.5 million or 2.3 points on the combined ratio compared with $34.3 million 3.5 points on the combined ratio representing a 34.5% decrease over the same period last year. The Corporation's reserves for environmental liability claims have not changed materially since December 31, 1994, and continued to total just over $10.6 million. For a more complete discussion of this exposure see pages 21 and 29 of the Corporation's Annual Report to Shareholders. Property and casualty investment income per share before tax increased .8% to $3.87 for the first nine months of 1995 from $3.84 reported in the same period in 1994. Third quarter investment income before income tax was $1.29 per share for 1995 and $1.28 per share for 1994. Investment income after tax per share remained unchanged in the first nine months and the third quarter compared with the corresponding periods in 1994. With the continuation of low interest rates and the cash outflows from weather related losses, investment income is likely to show no growth over the balance of the year. The effective tax rate on investment income for the first nine months of 1995 was 26.1% compared with 25.6% for the same period in 1994. Net cash generated by operations was $45.3 million in the first nine months of the year compared with $31.6 million for the same period in 1994 due to improved underwriting results. Shareholder dividend payments were $40.8 million in the first nine months of 1995 and $39.5 million in 1994. Consolidated investments at September 30, 1995 included taxable high yield and unrated securities with an aggregate market value of $303.0 million and an aggregate amortized value of $297.3 million. Comparable December 31, 1994 investments in taxable high yield and unrated securities had a market value of $306.6 million and an amortized value of $322.7 million. At September 30, 1995, the fixed maturity portfolio relating to property and casualty operations totaled $2.2 billion which consisted of 87.1% investment grade securities, 10.6% high yield securities, and 2.3% unrated securities. Fixed maturity portfolio relating to discontinued life insurance operations totaled $375.5 million which consisted of 96.1% investment grade securities, 1.7% high yield securities and 2.2% unrated securities. During the first nine months of 1995, $108.3 million of taxable high yield and unrated securities were acquired and $120.5 million were disposed of through sales, calls, or maturities resulting in net realized losses after tax of $2.6 million. In addition, security values were written down by $8.6 million after tax due to non-performance of the issuers of the securities. At September 30, 1995, the securities in the Corporation's high yield and unrated portfolio were issued by more than 117 corporate borrowers in approximately 42 industries. At that time, approximately 93.8% of such investments (based on amortized value) were performing in accordance with contractual terms and were making principal and interest payments as required. For further discussion of the Corporation's investments, see Item 1 of the Corporation's Form 10-K for the year ended December 31, 1994. In 1994, the National Association of Insurance Commissioners developed a risk- based capital model to establish standards which will compare insurance company statutory surplus to required minimum capital based on risks of 8 9 operations and assist regulators in determining solvency requirements. The model is based on four risk factors in two categories: asset risk consisting of investment risk and credit risk; and underwriting risk composed of loss reserve and premiums written risks. Based on current calculations, all of the Ohio Casualty Group companies have at least twice the necessary capital to conform with the risk-based capital model. In 1994, Ohio Casualty adopted FAS 112 "Employers' Accounting for Post- Employment Benefits". This standard requires accrual of liabilities for benefits provided to former or inactive employees after employment, but before retirement. The cumulative effect of this accounting change adopted as of January 1, 1994 was a $.6 million after tax reduction of net income and shareholders' equity. In the first quarter of 1994, Ohio Casualty also adopted FAS 115 "Accounting for Certain Investments in Debt and Equity Securities", which required the investment portfolio to be divided into three categories: held to maturity, available for sale or trading account. The Corporation placed all of its holdings in the available for sale category. This necessitated them being marked to market value for balance sheet purposes. The cumulative effect of adoption of this accounting change as of January 1, 1994, was a $116.1 million increase to shareholders' equity and a $.3 million after tax increase of net income. The adoption of this accounting standard will lead to additional volatility in shareholders' equity as the market price of bonds fluctuates. Shareholders' equity increased $193.1 million from $850.8 million to $1,043.9 million since December 31, 1994 due in part to the market prices of bonds. Ohio Casualty does not own any "derivative financial instruments" as defined in FAS 119. The Corporation maintains a laddered maturity structure in our fixed income portfolios. Though not a formal "hedge", such a strategy does mitigate some interest rate swings. In 1994, the Corporation closed on a renegotiation of its long term debt. The terms of the loan are substantially similar to the previous loan with the exception of the loan repayment schedule. Formerly, payments of $17.0 million were made semi-annually with a final payment of $18.0 million due in July 1996. The new loan has scheduled principal payments of $5.0 million semi- annually. The final payment is due October 25, 2001. Interest on the loan is adjustable and is based on a spread from several indices including the Federal Funds Rate, the Prime Rate, and the Eurodollar Rate. Interest is payable quarterly beginning January 25, 1995. The interest rate is 6.58% and is guaranteed through April 25, 1996. The Corporation refinanced and extended this loan in order to maximize its capital flexibility and permit the growth of its insurance subsidiaries without the strain of the previous repayment schedule. In December 1992, the Ohio Casualty Group of Property and Casualty Companies stopped writing business in California and filed a withdrawal plan with the California Department of Insurance. Effective April 12, 1995, the California Department of Insurance approved our withdrawal applications for The Ohio Casualty Insurance Company, West American Insurance Company and Ohio Security Insurance Company. American Fire and Casualty Company will remain licensed acting as reinsurer for the outstanding liabilities as they run off. Current outstanding reserves total $87.2 million. 9 10 Proposition 103 was passed in the State of California in 1988 in an attempt to legislate premium rates for that state. Based on previous statements by the California Department of Insurance and the Corporation's lack of profitability in the state, it was concluded that no significant liability for premium rollbacks existed. However, the corporation has received a bill from the state of California. The Corporation continues to challenge the validity of any rollback and a tentative administrative hearing is scheduled for late November. The current accrued liability is $70.3 million. On October 2, 1995, Ohio Life closed on its administrative agreement with Great Southern Life Insurance Company. Ohio Life transferred the servicing of its existing life insurance business to Great Southern, which will process existing business, issue new business, and assume administrative functions. As part of this transaction, Ohio Life will receive a ceding commission of $48.2 million. Based on accounting rules (SFAS 113), this ceding commission and the corresponding deferred acquisition costs will be amortized over the contract period of 15 months. The net income impact will be approximately $4.5 million per quarter. 10 11 PART II Item 1. Legal Proceedings - None Item 2. Changes in Securities - None Item 3. Defaults Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information - None Item 6. Exhibits and reports on Form 8-K A report on Form 8-K was filed September 15, 1995. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OHIO CASUALTY CORPORATION ------------------------- (Registrant) November 10, 1995 /s/ Barry S. Porter ------------------------------ Barry S. Porter, CFO/Treasurer (on behalf of Registrant and as Principal Accounting Officer) 11
EX-27 2 ARTICLE 7 FDS FOR 10-Q
7 9-MOS DEC-31-1995 SEP-30-1995 2671728403 2580575717 2671728403 645473630 0 22799605 3340001638 34414280 86588464 161676705 3948546694 1653197276 523806567 0 360114506 65000000 0 0 0 46142390 3948546694 957164202 141493345 (1440957) 0 701935193 247243410 88921040 59116947 8892513 0 4013706 0 0 54238137 1.51 1.51 1605526365 454197524 1132265387 307226206 413775324 1586462911 (59485654)
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