10-Q 1 0001.txt ============================================================================== 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 June 30, 2000. [ ] 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.) 9450 Seward Road, Fairfield, 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 August 1, 2000 of the voting stock held by non-affiliates of the registrant was $483,283,677. On August 1, 2000 there were 60,074,679 shares outstanding. Page 1 of 17 ============================================================================== PART I ITEM 1. FINANCIAL STATEMENTS Ohio Casualty Corporation & Subsidiaries CONSOLIDATED BALANCE SHEET
June 30, December 31, (In thousands, except per share data) (Unaudited) 2000 1999 ---------------------------------------------------------------------------------- Assets Investments: Fixed maturities: Available for sale, at fair value (cost: $2,420,376 and $2,408,201) $ 2,394,865 $ 2,376,973 Equity securities, at fair value (cost: $191,345 and $161,498) 660,479 698,129 Short-term investments, at fair value (cost: $67,152 and $104,446) 67,152 104,398 ---------------------------------------------------------------------------------- Total investments 3,122,496 3,179,500 Cash 47,228 45,559 Premiums and other receivables, net of allowance for bad debts of $9,030 and $9,338, respectively 406,913 366,202 Deferred policy acquisition costs 180,983 177,745 Property and equipment, net of accumulated depreciation of $116,998 and $113,541, respectively 94,882 94,670 Reinsurance recoverable 149,723 139,021 Agent relationships, net of accumulated amortization of $19,185 and $13,298, respectively 273,011 293,565 Other assets 98,655 180,182 ---------------------------------------------------------------------------------- Total assets $ 4,373,891 $ 4,476,444 ================================================================================== Liabilities Insurance reserves: Unearned premiums $ 750,808 $ 725,399 Losses 1,586,335 1,544,967 Loss adjustment expenses 368,433 363,488 Notes payable 221,121 241,446 California Proposition 103 reserve 51,707 50,486 Deferred income taxes 18,660 62,843 Other liabilities 359,484 336,828 ---------------------------------------------------------------------------------- Total liabilities 3,356,548 3,325,457 Shareholders' Equity Common stock, $.0625 par value 5,901 5,901 Authorized: 150,000 shares Issued: 94,418 Additional paid-in capital 4,204 4,286 Common stock purchase warrants 21,138 21,138 Accumulated other comprehensive income: Unrealized gain on investments, net of applicable income taxes 300,136 329,354 Retained earnings 1,139,224 1,243,463 Treasury stock, at cost: (Shares: 34,343; 34,335) (453,260) (453,155) ---------------------------------------------------------------------------------- Total shareholders' equity 1,017,343 1,150,987 ---------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 4,373,891 $ 4,476,444 ==================================================================================
Accompanying notes are an integral part of these financial statements. For complete disclosures see Notes to Consolidated Financial Statements on pages 45-58 of the Corporation's 1999 Form 10-K, Item 14. 2 Ohio Casualty Corporation & Subsidiaries STATEMENT OF CONSOLIDATED INCOME
Three Months Ended June 30, (in thousands, except per share data) (Unaudited) 2000 1999 ----------------------------------------------------------------------------------- Premiums and finance charges earned $ 369,874 $ 374,309 Investment income less expenses 49,275 41,013 Investment gains (losses) realized, net (2,387) 167,340 ----------------------------------------------------------------------------------- Total revenues 416,762 582,662 Losses and benefits for policyholders 276,618 257,724 Loss adjustment expenses 40,579 44,861 General operating expenses 38,242 42,303 Amortization of agent relationships 2,818 3,094 Amortization of deferred policy acquisition costs 98,590 100,074 Restructuring charge 0 2 California Proposition 103 reserve, including interest 611 611 ----------------------------------------------------------------------------------- Total expenses 457,458 448,669 ----------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes (40,696) 133,993 Income tax (benefit) expense: Current (12,098) 34,981 Deferred (20,400) 2,339 ----------------------------------------------------------------------------------- Total income tax (benefit) expense (32,498) 37,320 ----------------------------------------------------------------------------------- Income (loss) before discontinued operations (8,198) 96,673 Income from discontinued operations, net of taxes of $0 and $150, respectively 0 104 ----------------------------------------------------------------------------------- Net income (loss) $ (8,198) $ 96,777 =================================================================================== Other comprehensive income (loss), net of taxes: Net decrease in unrealized gains, net decrease in tax expense of $(5,458) and $(60,684), respectively (10,138) (112,696) ----------------------------------------------------------------------------------- Comprehensive income (loss) $ (18,336) $ (15,919) =================================================================================== Average shares outstanding - basic* 60,075 61,376 =================================================================================== Earnings per share - basic:* Income (loss) from continuing operations, per share $ (0.14) $ 1.58 Income from discontinued operations, per share 0.00 0.00 ----------------------------------------------------------------------------------- Net income (loss), per share $ (0.14) $ 1.58 Average shares outstanding - diluted* 60,075 61,400 =================================================================================== Earnings per share - diluted:* Income (loss) from continuing operations, per share $ (0.14) $ 1.58 Income from discontinued operations, per share 0.00 0.00 ----------------------------------------------------------------------------------- Net income (loss), per share $ (0.14) $ 1.58 Cash dividends, per share $ 0.12 $ 0.23 ===================================================================================
Accompanying notes are an integral part of these financial statements. For complete disclosures see Notes to Consolidated Financial Statements on pages 45-58 of the Corporation's 1999 Form 10-K, Item 14. *1999 adjusted for 2 for 1 stock split effective July 22, 1999 3 Ohio Casualty Corporation & Subsidiaries STATEMENT OF CONSOLIDATED INCOME
Six Months Ended June 30, (in thousands, except per share data) (Unaudited) 2000 1999 ----------------------------------------------------------------------------------- Premiums and finance charges earned $ 757,062 $ 758,854 Investment income less expenses 101,068 82,822 Investment gains (losses) realized, net (8,695) 168,243 ----------------------------------------------------------------------------------- Total revenues 849,435 1,009,919 Losses and benefits for policyholders 571,255 489,477 Loss adjustment expenses 87,729 78,922 General operating expenses 80,449 85,092 Amortization of agent relationships 5,886 6,188 Write-down of agent relationships 42,169 0 Amortization of deferred policy acquisition costs 197,449 200,043 Restructuring charge 22 200 California Proposition 103 reserve, including interest 1,222 1,222 ----------------------------------------------------------------------------------- Total expenses 986,181 861,144 ----------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes (136,746) 148,775 Income tax (benefit) expense: Current (25,084) 37,218 Deferred (28,451) 3,167 ----------------------------------------------------------------------------------- Total income tax (benefit) expense (53,535) 40,385 ----------------------------------------------------------------------------------- Income (loss) before discontinued operations (83,211) 108,390 Income from discontinued operations, net of taxes of $0 and $(352), respectively 0 1,899 Cumulative effect of accounting change, net of taxes 0 (2,255) ----------------------------------------------------------------------------------- Net income (loss) $ (83,211) $ 108,034 =================================================================================== Other comprehensive income (loss), net of taxes: Net decrease in unrealized gains, net decrease in tax expense of $(15,732) and $(75,528), respectively (29,218) (140,265) ----------------------------------------------------------------------------------- Comprehensive income (loss) $ (112,429) $ (32,231) =================================================================================== Average shares outstanding - basic* 60,077 61,830 =================================================================================== Earnings per share - basic:* Income (loss) from continuing operations, per share $ (1.39) $ 1.75 Income from discontinued operations, per share 0.00 0.03 Effect of change in accounting principle (net of taxes) 0.00 (0.03) ----------------------------------------------------------------------------------- Net income (loss), per share $ (1.39) $ 1.75 Average shares outstanding - diluted* 60,077 61,860 =================================================================================== Earnings per share - diluted:* Income (loss) from continuing operations, per share $ (1.39) $ 1.75 Income from discontinued operations, per share 0.00 0.03 Effect of change in accounting principle (net of taxes) 0.00 (0.03) ----------------------------------------------------------------------------------- Net income (loss), per share $ (1.39) $ 1.75 Cash dividends, per share $ 0.35 $ 0.46 ===================================================================================
Accompanying notes are an integral part of these financial statements. For complete disclosures see Notes to Consolidated Financial Statements on pages 45-58 of the Corporation's 1999 Form 10-K, Item 14. *1999 adjusted for 2 for 1 stock split effective July 22, 1999 4 Ohio Casualty Corporation and Subsidiaries STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
Accumulated Additional Common other Total (in thousands, except per Common paid-in stock purchase comprehensive Retained Treasury shareholders' share data) (Unaudited) Stock capital warrants income earnings stock equity -------------------------------------------------------------------------------------------------------------------------------- Balance January 1, 1999 $ 5,850 $ 4,186 $ 21,138 $ 511,816 $ 1,185,349 $ (407,358) $ 1,320,981 Unrealized loss (215,793) (215,793) Deferred income tax benefit on net unrealized loss 75,528 75,528 Net issuance of treasury stock under stock option plan (18 shares)* 126 212 338 Repurchase of treasury stock (1,478 shares)* (29,389) (29,389) Net income 108,034 108,034 Cash dividends paid ($.46 per share)* (28,466) (28,466) -------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 1999 $ 5,850 $ 4,312 $ 21,138 $ 371,551 $ 1,264,917 $ (436,535) $ 1,231,233 ================================================================================================================================ Balance January 1, 2000 $ 5,901 $ 4,286 $ 21,138 $ 329,354 $ 1,243,463 $ (453,155) $ 1,150,987 Unrealized loss (44,950) (44,950) Deferred income tax benefit on net unrealized loss 15,732 15,732 Net forfeiture of stock under stock award plan (8 shares) (82) (105) (187) Net loss (83,211) (83,211) Cash dividends paid ($.35 per share) (21,028) (21,028) -------------------------------------------------------------------------------------------------------------------------------- Balance, June 30, 2000 $ 5,901 $ 4,204 $ 21,138 $ 300,136 $ 1,139,224 $ (453,260) $ 1,017,343 ================================================================================================================================
Accompanying notes are an integral part of these financial statements. For complete disclosures see Notes to Consolidated Financial Statements on pages 45-58 of the Corporation's 1999 Form 10-K, Item 14. *Adjusted for 2 for 1 stock split effective July 22, 1999 5 Ohio Casualty Corporation and Subsidiaries STATEMENT OF CONSOLIDATED CASH FLOWS
Six Months Ended June 30, (in thousands) (Unaudited) 2000 1999 ------------------------------------------------------------------------------------- Cash flows from: Operations Net income (loss) $ (83,211) $ 108,034 Adjustments to reconcile net income to cash from operations: Changes in: Insurance reserves 71,722 21,350 Income taxes (39,524) 36,820 Premiums and other receivables (40,711) (66,528) Deferred policy acquisition costs (3,238) (1,414) Reinsurance recoverable (20,141) 14,217 Other assets 74,345 (17,204) Other liabilities 19,396 (31,747) California Proposition 103 reserves 1,222 1,222 Amortization and write-down of agent relationships 48,055 6,188 Depreciation and amortization 7,840 15,896 Investment (gains) losses 8,695 (169,443) Cumulative effect of an accounting change 0 2,255 ------------------------------------------------------------------------------------- Net cash generated (used) by operating activities 44,450 (80,354) ------------------------------------------------------------------------------------- Investments Purchase of investments: Fixed income securities - available for sale (527,636) (701,362) Equity securities (30,119) (7,881) Proceeds from sales: Fixed income securities - available for sale 451,693 502,982 Equity securities 17,186 262,836 Proceeds from maturities and calls: Fixed income securities - available for sale 43,604 61,857 Equity securities 10,200 3,000 Property and equipment Purchases (5,381) (21,232) Sales 1,712 257 ------------------------------------------------------------------------------------- Net cash generated (used) from investing activities (38,741) 100,457 ------------------------------------------------------------------------------------- Financing Notes payable: Repayments (20,325) (10,000) Proceeds from exercise of stock options 67 106 Purchase of treasury stock 0 (29,389) Dividends paid to shareholders (21,028) (28,466) ------------------------------------------------------------------------------------- Net cash used in financing activities (41,286) (67,749) ------------------------------------------------------------------------------------- Net change in cash and cash equivalents (35,577) (47,646) Cash and cash equivalents, beginning of period 149,957 305,002 ------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 114,380 $ 257,356 =====================================================================================
Accompanying notes are an integral part of these financial statements. For complete disclosures see Notes to Consolidated Financial Statements on pages 45-85 of the Corporation's 1999 Form 10-K, Item 14. All per share amounts adjusted for July 22, 1999 2 for 1 stock dividend. 6 Ohio Casualty Corporation & Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Ohio Casualty Corporation (the Corporation) is the holding company of The Ohio Casualty Insurance Company (the Company), which is one of six property- casualty companies that make up the Ohio Casualty Group (the Group). NOTE I - INTERIM ADJUSTMENTS It is believed that all material adjustments necessary to present a fair statement of the results of the interim period covered are reflected in this report. The operating results for the interim periods are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the financial statements and notes thereto in the Corporation's 1999 Form 10-K, Item 14. NOTE II - RECENTLY ISSUED ACCOUNTING STANDARDS During the first quarter of 1999, the Corporation adopted Statement of Position 97-3 "Accounting by Insurance and Other Enterprises for Insurance- Related Assessments". This statement provides guidance on accounting for insurance related assessments and required disclosure information. In accordance with SOP 97-3, the Corporation accrued a liability for insurance assessments of $2.3 million net of tax, as of January 1, 1999. This was recorded as a change in accounting method. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) 133 "Accounting for Derivative Instruments and Hedging Activities." This statement standardizes the accounting for derivative instruments by requiring those items to be recognized as assets or liabilities with changes in fair value reported in earnings or other comprehensive income in the current period. Based on current estimates, the Corporation expects the adoption of SFAS 133 to have an immaterial impact on financial results. In June 1999, the FASB issued SFAS 137 which deferred the effective date of adoption of SFAS 133 for fiscal quarters of fiscal years beginning after June 15, 2000 (January 1, 2001 for the Corporation). NOTE III - EARNINGS PER SHARE Basic and diluted earnings per share are summarized as follows (in thousands, except per share data):
Three months ended Six months ended June 30 June 30 2000 1999 2000 1999 ---- ---- ---- ---- Income (loss) from continuing operations $ (8,198) $96,673 $(83,211) $108,390 Weighted average common shares outstanding - basic 60,075 61,376 60,077 61,830 Basic income (loss) from continuing operations - per average share $ (0.14) $ 1.58 $ (1.39) $ 1.75 =================================================================================== Weighted average common shares outstanding 60,075 61,376 60,077 61,830 Effect of dilutive securities 0 24 0 30 ----------------------------------------------------------------------------------- Weighted average common shares outstanding - diluted 60,075 61,400 60,077 61,860 Diluted income (loss) from continuing operations - per average share $ (0.14) $ 1.58 $ (1.39) $ 1.75 =================================================================================== 1999 adjusted for July 22, 1999 2 for 1 stock split
7 NOTE IV -- SEGMENT INFORMATION The Corporation has determined its reportable segments based upon its method of internal reporting which is organized by product line. The property and casualty segments are private passenger auto - agency, private passenger auto - direct, CMP, fire, inland marine, general liability, umbrella, workers' compensation, commercial auto, homeowners, fidelity and surety. These segments generate revenues by selling a wide variety of personal, commercial and surety insurance products. The Corporation also has an all other segment which derives its revenues from premium financing, investment income, royalty income and discontinued life insurance operations. Each segment of the Corporation is managed separately. The property and casualty segments are managed by assessing the performance and profitability of the segments through analysis of industry financial measurements including loss and loss adjustment expense ratios, combined ratio, premiums written, underwriting gain/loss and the effect of catastrophe losses on the segment. The following tables present this information by segment as it is reported internally to management. In 1999, the Group began managing the private passenger auto - direct segment separately from private passenger auto - agency and umbrella segment separately from general liability. As a result, prior year results for general liability and private passenger auto - agency have been restated to reflect this change. Asset information by reportable segment is not reported, since the Corporation does not produce such information internally. Six months ended June 30 (in thousands)
Private Passenger Auto - Agency 2000 1999 ----------------------------------------------------------------------- Net premiums written $232,584 $285,496 % Increase (decrease) (18.5)% 12.2% Net premiums earned 230,840 259,541 % Increase (decrease) (11.1)% 4.8% Underwriting gain/(loss) (before tax) (40,586) (9,935) Loss ratio 79.4% 65.9% Loss expense ratio 13.0% 11.1% Underwriting expense ratio 25.0% 24.4% Combined ratio 117.4% 101.4% Impact of catastrophe losses on combined ratio 1.3% 0.9%
Private Passenger Auto - Direct 2000 1999 ------------------------------------------------------------------------ Net premiums written $5,936 $9,559 % Increase (decrease) (37.9)% N/A Net premiums earned 7,484 5,404 % Increase (decrease) 38.5% N/A Underwriting gain (loss) (before tax) (9,262) (6,729) Loss ratio 133.9% 129.0% Loss expense ratio 19.2% 16.3% Underwriting expense ratio 89.0% 44.8% Combined ratio 242.1% 190.1% Impact of catastrophe losses on combined ratio 1.0% N/A
CMP, Fire, Inland Marine 2000 1999 ------------------------------------------------------------------------ Net premiums written $163,227 $150,896 % Increase (decrease) 8.2% 38.7% Net premiums earned 155,623 148,306 % Increase (decrease) 4.9% 42.6% Underwriting gain (loss) (before tax) (30,561) (43,887) Loss ratio 66.0% 76.1% Loss expense ratio 11.5% 10.6% Underwriting expense ratio 40.2% 42.2% Combined ratio 117.7% 128.9% Impact of catastrophe losses on combined ratio 6.0% 9.7%
General Liability 2000 1999 ------------------------------------------------------------------------ Net premiums written $41,836 $45,785 % Increase (decrease) (8.6)% 13.3% Net premiums earned 39,591 34,966 % Increase (decrease) 13.2% (8.5)% Underwriting gain (loss) (before tax) (15,852) (13,856) Loss ratio 64.4% 57.2% Loss expense ratio 24.1% 16.8% Underwriting expense ratio 48.8% 50.1% Combined ratio 137.3% 124.1%
Umbrella 2000 1999 ------------------------------------------------------------------------ Net premiums written $33,868 $26,645 % Increase (decrease) 27.1% 174.9% Net premiums earned 31,941 27,209 % Increase (decrease) 17.4% 196.8% Underwriting gain (loss) (before tax) 4,216 20,420 Loss ratio 45.9% (2.9)% Loss expense ratio 4.0% (8.3)% Underwriting expense ratio 34.8% 36.9% Combined ratio 84.7% 25.7%
Workers' Compensation 2000 1999 ------------------------------------------------------------------------ Net premiums written $101,390 $84,601 % Increase (decrease) 19.8% 70.8% Net premiums earned 96,366 87,755 % Increase (decrease) 9.8% 83.1% Underwriting gain (loss) (before tax) (41,345) (8,911) Loss ratio 97.6% 59.8% Loss expense ratio 11.7% 11.9% Underwriting expense ratio 31.9% 39.9% Combined ratio 141.2% 111.6%
8
Commercial Auto 2000 1999 ------------------------------------------------------------------------ Net premiums written $94,748 $89,852 % Increase (decrease) 5.4% 24.6% Net premiums earned 86,919 85,436 % Increase (decrease) 1.7% 25.0% Underwriting gain (loss) (before tax) (23,614) (13,055) Loss ratio 76.9% 66.2% Loss expense ratio 10.3% 11.4% Underwriting expense ratio 36.7% 35.8% Combined ratio 123.9% 113.4% Impact of catastrophe losses on combined ratio 0.4% 1.1%
Homeowners 2000 1999 ------------------------------------------------------------------------ Net premiums written $83,405 $88,600 % Increase(decrease) (5.9)% 1.0% Net premiums earned 89,040 91,528 % Increase (decrease) (2.7)% 4.3% Underwriting gain (loss) (before tax) (22,756) (28,175) Loss ratio 81.4% 87.7% Loss expense ratio 7.7% 9.6% Underwriting expense ratio 38.9% 34.6% Combined ratio 128.0% 131.9% Impact of catastrophe losses on combined ratio 14.3% 14.9%
Fidelity & Surety 2000 1999 ------------------------------------------------------------------------ Net premiums written $19,860 $19,387 % Increase (decrease) 2.4% 4.1% Net premiums earned 18,658 18,488 % Increase (decrease) 0.9% 4.3% Underwriting gain (loss) (before tax) 4,124 4,741 Loss ratio 8.4% 3.4% Loss expense ratio 2.9% 4.7% Underwriting expense ratio 62.6% 63.2% Combined ratio 73.9% 71.3%
Total Property & Casualty 2000 1999 ------------------------------------------------------------------------ Net premiums written $776,854 $800,821 % Increase (decrease) (3.0)% 24.9% Net premiums earned 756,462 758,633 % Increase (decrease) (0.3)% 22.2% Underwriting gain (loss) (before tax) (175,636) (99,387) Loss ratio 75.5% 65.9% Loss expense ratio 11.6% 10.4% Underwriting expense ratio 35.2% 34.9% Combined ratio 122.3% 111.2% Impact of catastrophe losses on combined ratio 3.4% 4.1%
All other 2000 1999 ------------------------------------------------------------------------ Revenues $ 2,423 $7,985 Expenses 8,155 8,649 ------------------------------------------------------------------------ Net income (loss) $(5,732) $ (664)
Reconciliation of Revenues 2000 1999 ------------------------------------------------------------------------ Net premiums earned for reportable segments $756,462 $758,633 Investment income 99,112 84,730 Realized gains (losses) (469) 158,010 Miscellaneous income 341 93 ------------------------------------------------------------------------ Total property and casualty revenues (Statutory basis) 855,446 1,001,466 Property and casualty statutory to GAAP adjustment (8,434) 468 ------------------------------------------------------------------------ Total revenues property and casualty (GAAP basis) 847,012 1,001,934 Other segment revenues 2,423 7,985 ------------------------------------------------------------------------ Total revenues $849,435 $1,009,919 ========================================================================
Reconciliation of Underwriting gain (loss) (before tax) 2000 1999 ------------------------------------------------------------------------ Property and casualty under- writing gain (loss) (before tax) (Statutory basis) $(175,636) $(99,387) Statutory to GAAP adjustment (42,438) 5,734 ------------------------------------------------------------------------ Property and casualty under- writing gain (loss) (before tax) (GAAP basis) (218,074) (93,653) Net investment income 101,068 82,822 Realized gains (losses) (8,695) 168,243 Other income (losses) (11,045) (8,637) ------------------------------------------------------------------------ Income (loss) from continuing operations before income taxes $(136,746) $148,775 ========================================================================
9 Three months ended June 30 (in thousands)
Private Passenger Auto - Agency 2000 1999 ------------------------------------------------------------------------ Net premiums written $111,834 $137,585 % Increase (decrease) (18.7)% 6.8% Net premiums earned 109,744 129,640 % Increase (decrease) (15.3)% 2.9% Underwriting gain (loss) (before tax) (16,892) (9,807) Loss ratio 77.5% 69.2% Loss expense ratio 11.5% 11.6% Underwriting expense ratio 25.9% 25.2% Combined ratio 114.9% 106.0% Impact of catastrophe losses on combined ratio 2.4% 1.6%
Private Passenger Auto - Direct 2000 1999 ------------------------------------------------------------------------ Net premiums written $1,812 $4,322 % Increase (decrease) (58.1)% N/A Net premiums earned 3,596 3,316 % Increase (decrease) 8.4% N/A Underwriting gain (loss) (before tax) (4,220) (2,551) Loss ratio 128.0% 106.3% Loss expense ratio 26.2% 13.1% Underwriting expense ratio 125.2% 44.1% Combined ratio 279.4% 163.5% Impact of catastrophe losses on combined ratio 2.0% N/A
CMP, Fire, Inland Marine 2000 1999 ------------------------------------------------------------------------ Net premiums written $82,683 $75,971 % Increase (decrease) 8.8% 35.2% Net premiums earned 78,349 74,513 % Increase (decrease) 5.1% 42.4% Underwriting gain (loss) (before tax) (16,798) (29,144) Loss ratio 68.5% 82.4% Loss expense ratio 10.7% 13.2% Underwriting expense ratio 40.0% 42.7% Combined ratio 119.2% 138.3% Impact of catastrophe losses on combined ratio 9.8% 15.0%
General Liability 2000 1999 ------------------------------------------------------------------------ Net premiums written $21,139 $25,881 % Increase (decrease) (18.3)% 22.7% Net premiums earned 18,474 13,114 % Increase (decrease) 40.9% (30.1)% Underwriting gain (loss) (before tax) (10,257) (16,231) Loss ratio 78.1% 89.3% Loss expense ratio 21.4% 40.7% Underwriting expense ratio 49.0% 47.5% Combined ratio 148.5% 177.5%
Umbrella 2000 1999 ------------------------------------------------------------------------ Net premiums written $17,200 $14,387 % Increase (decrease) 19.6% 193.0% Net premiums earned 16,703 18,178 % Increase (decrease) (8.1)% 290.3% Underwriting gain (loss) (before tax) 2,491 16,917 Loss ratio 40.1% (10.7)% Loss expense ratio 6.4% (9.4)% Underwriting expense ratio 37.5% 34.1% Combined ratio 84.0% 14.0%
Workers' Compensation 2000 1999 ------------------------------------------------------------------------ Net premiums written $44,555 $37,475 % Increase (decrease) 18.9% 54.0% Net premiums earned 46,761 37,327 % Increase (decrease) 25.3% 60.5% Underwriting gain (loss) (before tax) (15,996) (12,922) Loss ratio 89.3% 75.2% Loss expense ratio 13.5% 16.4% Underwriting expense ratio 33.0% 42.8% Combined ratio 135.8% 134.4%
Commercial Auto 2000 1999 ------------------------------------------------------------------------ Net premiums written $46,920 $46,728 % Increase (decrease) 0.4% 27.9% Net premiums earned 43,149 42,934 % Increase (decrease) 0.5% 26.6% Underwriting gain (loss) (before tax) (14,468) (6,006) Loss ratio 83.5% 65.3% Loss expense ratio 9.9% 10.5% Underwriting expense ratio 36.8% 35.1% Combined ratio 130.2% 110.9% Impact of catastrophe losses on combined ratio 0.6% 1.5%
Homeowners 2000 1999 ------------------------------------------------------------------------ Net premiums written $45,306 $51,122 % Increase (decrease) (11.4)% 7.2% Net premiums earned 43,531 45,874 % Increase (decrease) (5.1)% 5.2% Underwriting gain (loss) (before tax) (11,386) (18,472) Loss ratio 79.6% 92.7% Loss expense ratio 7.0% 10.5% Underwriting expense ratio 37.9% 33.3% Combined ratio 124.5% 136.5% Impact of catastrophe losses on combined ratio 18.2% 21.9%
Fidelity & Surety 2000 1999 ------------------------------------------------------------------------ Net premiums written $10,762 $9,986 % Increase (decrease) 7.8% 1.3% Net premiums earned 9,439 9,214 % Increase (decrease) 2.4% 3.8% Underwriting gain (loss) (before tax) 3,217 2,269 Loss ratio (3.4)% 4.0% Loss expense ratio (0.5)% 4.8% Underwriting expense ratio 61.2% 61.4% Combined ratio 57.3% 70.2%
Total Property & Casualty 2000 1999 ------------------------------------------------------------------------ Net premiums written $382,211 $403,457 % Increase (decrease) (5.3)% 22.5% Net premiums earned 369,746 374,110 % Increase (decrease) (1.2)% 20.1% Underwriting gain (loss) (before tax) (84,309) (75,947) Loss ratio 74.8% 70.4% Loss expense ratio 11.0% 12.0% Underwriting expense ratio 35.8% 35.2% Combined ratio 121.6% 117.6% Impact of catastrophe losses on combined ratio 5.0% 6.3%
10
All other 2000 1999 ------------------------------------------------------------------------ Revenues $ 1,264 $8,361 Expenses 3,532 3,676 ------------------------------------------------------------------------ Net income (loss) $(2,268) $4,685
Reconciliation of Revenues 2000 1999 ------------------------------------------------------------------------ Net premiums earned for reportable segments $369,746 $374,110 Investment income 48,339 42,263 Realized gains (losses) (701) 156,932 Miscellaneous income (3) 50 ------------------------------------------------------------------------ Total property and casualty revenues (Statutory basis) 417,381 573,355 Property and casualty statutory to GAAP adjustment (1,883) 946 ------------------------------------------------------------------------ Total revenues property and casualty (GAAP basis) 415,498 574,301 Other segment revenues 1,264 8,361 ------------------------------------------------------------------------ Total revenues $416,762 $582,662 ========================================================================
Reconciliation of Underwriting gain (loss) (before tax) 2000 1999 ------------------------------------------------------------------------ Property and casualty under- writing gain (loss) (before tax) (Statutory basis) $(84,309) $(75,947) Statutory to GAAP adjustment 1,381 5,657 ------------------------------------------------------------------------ Property and casualty under- writing gain (loss) (before tax) (GAAP basis) (82,928) (70,290) Net investment income 49,275 41,013 Realized gains (losses) (2,387) 167,340 Other income (4,656) (4,070) ------------------------------------------------------------------------ Income (loss) from continuing operations before income taxes $(40,696) $133,993 ========================================================================
NOTE V - AGENT RELATIONSHIPS During the first quarter of 2000, the Group made the strategic decision to discontinue its relationship with Managing General Agents. The result was a write-down of the agent relationships asset by $42.2 million, with an after- tax impact of $.55 per share. The agent relationship is the identified intangible asset acquired in connection with the Great American Insurance Company commercial lines acquisition. The Managing General Agents accounted for $48.0 million in commercial lines premium written, of which $29.0 million was workers' compensation. This business is being non-renewed as permitted by law and contractual agreements. The Group believes this termination of the Managing General Agents will give it better control of its underwriting and pricing practices. The remaining portion of the agent relationships will be amortized on a straight line basis over the balance of the twenty-five year period. In the second quarter of 2000, the Corporation announced the final payment to American Financial Group for the December 1, 1998 acquisition of the Commercial Lines Division of Great American Insurance Company to be approximately $27.5 million. The purchase agreement called for an additional payment of up to $40.0 million if annualized revenue production of the transferred agents equaled or exceeded production for the twelve months prior to the acquisition. This amount will be added to the agent relationships asset for the acquisition and amortized over the remaining 23.5 years. Additional information related to agent relationships is included in Item 14, Note 1G, Accounting Policies on page 45 of the Corporation's 1999 Form 10-K. NOTE VI - RESTRUCTURING CHARGE During December 1998, the Group adopted a plan to restructure its branch operations. To continue in the Corporation's efforts to reduce expenses, personal lines business centers were reduced from five to three locations. Underwriting branch locations were reduced from seventeen to eight locations and claims branches were reduced from thirty-eight to six locations in 1999. As part of this plan, the Corporation established a $10.0 million liability for future expenses related to its branch office consolidation plan, resulting in a one-time charge of $10.0 million being reflected in its 1998 income statement. These expenses consisted solely of future contractual lease payments related to abandoned facilities. During 1999, the Corporation reduced $5.3 million of the liability, of which $2.9 million was due to payments under leases and $2.4 million was due to changes in assumptions used to establish the initial reserve. The activities under the plan were completed in 1999, but due to leases still in effect, the balance in the restructuring reserve, $4.7 million at December 31, 1999, will continue to remain as leases expire in 2000. Through the second quarter of 2000, the Corporation further reduced $1.6 million of the liability. Of the $1.6 million, $.02 million related to changes in assumptions used to establish the initial reserve. The balance in the restructuring reserve was $3.1 million at June 30, 2000. 11 ITEM 2. Management's Discussion and Analysis of Financial Condition ------ and Results of Operations ------------------------------------------------------------------ Ohio Casualty Corporation (the Corporation) is the holding company of The Ohio Casualty Insurance Company (the Company), which is one of six property- casualty companies that make up the Ohio Casualty Group (the Group). Property and casualty pre-tax underwriting losses for the six months ended June 30, 2000 were $218.1 million, $3.63 per share, compared with $93.7 million, $1.51 per share for the same period in 1999. The June 30, 2000 results include the effects of the agent relationships write-down taken in the first quarter. The agent relationships write-down amounted to $42.2 million before tax. Additional ceded premiums on experience rated reinsurance covering losses casualty exceeding $1.0 million adversely impacted the underwriting loss by $17.0 million during the period ending June 30, 2000. Gross premiums for the first six months of 2000 decreased 2.8% for all lines of business compared with 1999. Commercial lines increased 10.6% compared to the same period 1999. This increase was a result of a 5.7% increase in the average renewal price and more opportunity for new business in the commercial lines market. Personal lines decreased 16.1% from the same period last year. This decrease can be attributed to extremely competitive pricing and a decline in New Jersey personal auto premiums written. Property and casualty net premiums dropped 5.3% for second quarter 2000 and 3.0% year to date compared to 1999. Year-to-date 1999 premiums were higher due to the effects of the New Jersey private passenger automobile annual policy conversion and a New Jersey private passenger automobile rate rollback mandated in mid 1999. Also contributing significantly to the decrease in net premiums written was additional ceded premium on experience rated reinsurance of $17.0 million. Excluding these effects, second quarter 2000 net premiums increased approximately 0.9% against 1999. Premium from Key Agents grew 4.9% over the same period of 1999. Key Agents work closely with the Group to establish goals to increase profitability, growth and retention. Premiums from non-key active agents fell 2.2% from 1999. Together with new appointments, the year-to-date growth rate for all active agencies was 4.9%. New Jersey is the Group's largest state with 15.4% of total net premiums written during the year. Legislation passed in 1992 requires automobile insurers operating in the state to accept all risks that meet underwriting guidelines regardless of risk concentration. This leads to a greater risk concentration in the state than the Group would otherwise accept. New Jersey also requires assessments to be paid for the New Jersey Unsatisfied Claim and Judgment Fund (UCJF). This assessment is based upon estimated future direct premium written in that state. The Group has paid $3.3 million in 2000 for fiscal year 2001 assessments and paid $3.4 million in 1999 for fiscal year 2000 assessments. The Corporation anticipates future assessments will not materially effect the Corporation's results of operations, financial position or liquidity. The New Jersey State Senate passed an auto insurance reform bill effective March 22, 1999, that mandated a 15% rate reduction for personal auto policies based on a reduction in medical expense benefits, limitations on lawsuits and enhanced fraud prevention provisions. All new policies written on or after that date and all renewal policies written on or after April 27, 1999 reflect the 15% rate reduction. The anticipated impact on the Group is a tradeoff of lower premium rates on personal auto policies for presumably lower losses, but the degree of offset, if any, is uncertain at present. As of June 30, 2000, the Group had personal auto net premium written of $51.7 million, or 43.1% of total premium that the Group writes in New Jersey, compared with $124.4 million or 49.5% at year-end 1999. In 1999, the state of New Jersey began to require insurance companies to write a portion of their premiums in Urban Enterprise Zones (UEZ). These zones are urban areas frequently having high loss ratios. The Group is assigned premiums if it does not write the required amount on its own. As of June 30, 2000, the Group has written $3.2 million year to date in UEZ premiums, with $3.9 million in additional assigned premiums. As of June 30, 2000, the loss ratio on the UEZ premiums is 157.2% and the loss ratio on the assigned business is 199.3%. 12 The combined ratio for the first six months increased 11.1 points to 122.3% from 111.2% from the same period last year. The poor combined ratio is a result of continued price inadequacy, frequent storms, and additional premium cessions on experience rated contracts. The additional premium cessions added 2.7 points to the overall combined ratio. The year-to-date June 30, 2000 accident year loss ratio is 70.2%. Adverse loss development on prior accident years accounted for the difference between the current accident year-to-date loss ratio and the calendar year-to-date loss ratio of 75.5%. The underwriting expense ratio through June 30, 2000 was 35.2%, compared with 34.9% in the same period in 1999. Excluding the effects of the additional reinsurance premiums ceded, the expense ratio was 34.4%. This decrease is directly related to the expense reduction efforts. The most significant category of expense improvement is salary expense. Improvement is evident in the second quarter, where salary expense decreased by $4.4 million, or 10.3%, compared to the same quarter of 1999. The employee count as of June 30, 2000 was 3,499, a decrease of 390 employees from the December 31, 1999 employee count of 3,889. The year-to-date 2000 loss adjustment expense ratio increased to 11.6% from 10.4% 1999. The six-month combined ratio for homeowners decreased 3.9 points to 128.0% from 131.9% in the same period last year. The Group continues to review its exposure to underinsured homeowner properties to maintain adequate replacement cost values on its homeowners book of business. Selected homeowners policies are reviewed upon renewal for a replacement cost valuation and any necessary premium increases are implemented at that time. Private passenger automobile-agency, the Group's largest line, recorded a 2000 six-month combined ratio of 117.4% increasing from 101.4% in 1999. Private passenger automobile-agency combined ratio rose in part to the effects of the the New Jersey rate rollback and annual policy conversion. The private passenger automobile-agency loss ratio increased 13.5 points to 79.4% from 65.9% in 1999. Commercial automobile reported a year-to-date combined ratio of 123.9%, an increase of 10.5 points over the year-to-date 1999 combined ratio of 113.4%. Inadequate pricing contributed to this increase. For this line, as well as other commercial lines, price increases are being implemented. However, since price increases apply to policies as they renew over time, the full effect will be realized over the next several quarters in earned premiums. Workers' compensation combined ratio for the first six months of 2000 increased 29.6 points to 141.2% from 111.6% during the same period last year. The increase in the workers' compensation ratio is due to adverse loss reserve development, especially in prior year loss reserves, which has caused incurred losses to increase significantly. Workers' compensation loss ratio increased 37.8 points to 97.6% from 59.8% in the same period last year. The general liability combined ratio increased during the year 2000 to 137.3% from 124.1% in 1999. Umbrella combined ratio for the first six months of 2000 increased to 84.7% from 25.7% in 1999. These increases are largely due to adverse development in the first half of 2000. The combined ratio for CMP, fire and inland marine decreased 11.2 points to 117.7% from 128.9% during the first six months of 2000. The second quarter catastrophe losses were $18.6 million and accounted for 5.0 points on the combined ratio. This compares with $23.8 million and 6.3 points for the same period in 1999. Year-to-date catastrophe losses decreased $5.7 million from $31.3 million in 1999 to $25.6 million in 2000. The effect of future catastrophes on the Corporation's results cannot be accurately predicted. Severe weather patterns can have a material adverse impact on the Corporation's results. During the second quarter of 2000 there were 10 catastrophes compared with 13 catastrophes in the second quarter of 1999. The largest catastrophe in each quarter was $4.2 million and $9.6 million, respectively, in incurred losses. For additional disclosure of catastrophe losses, refer to Item 14, Note 9, Losses and Loss Reserves in the Notes to the Consolidated Financial Statements on pages 51 and 52 of the Corporation's 1999 Form 10-K. 13 For the quarter, property and casualty before-tax investment income was $48.3 million, $.80 per share, increasing from $42.3 million, $.70 per share, for the same period last year. The effective tax rate on investment income for the second quarter of 2000 was 31.0% compared with 24.4% for the comparable period in 1999. The increase in effective tax rate reflects a decreasing tax exempt municipal bond portfolio. For the second quarter, property and casualty after-tax realized losses were $1.7 million, compared with an after-tax realized gain of $103.9 million for the same period of 1999. The 1999 gain reflects the asset reallocation completed by the Corporation in the second quarter. Net cash generated by operations was $44.5 million for the first six months of the year compared with net cash used of $80.4 million for the same period in 1999. This change is due to payment received in 2000 as part of the commutation of a reinsurance treaty in the fourth quarter of 1999. Also, 1999 cash used reflected a large payment for the purchase price of the Great American Insurance Company commercial lines division. Shareholder dividend payments were $21.0 million in the first six months of 2000 compared with $28.5 million for the same period in 1999. This decrease was a result of the Corporation's decision to reduce second quarter dividend payments by 47.8%, to $.12 per share, in order to strengthen the financial position of the Corporation. Ohio Casualty Corporation did not repurchase any of its shares during the second quarter. The Corporation has remaining authorization to repurchase 1,649,824 additional shares. As of June 30, 2000, the Corporation had $221.1 million of outstanding notes payable. Of the $221.1 million, $215.0 related to the 1997 credit facility that made a $300.0 million revolving line of credit available to the Corporation. The credit agreement contains financial covenants and provisions customary for such arrangements. The most restrictive covenants include a maximum permissible consolidated funded debt that cannot exceed 30% of consolidated tangible net worth and a minimum statutory surplus that must exceed $750.0 million. The Corporation continues to review its financial covenants in the credit agreement in light of its operating losses. As of June 30, 2000, the Corporation is in compliance with these covenants. However, further deterioration of operating results, reductions in the equity portfolio valuation, or other changes in surplus, including the effects of Codification, might lead to violations which could ultimately result in default. Additional information related to bank notes payable is included in Item 14, Note 17 Bank Note Payable on page 56 of the Corporation's 1999 Form 10-K. Investments in below investment grade securities (Standard and Poor's rating below BBB-) and unrated securities are summarized as follows:
June 30, December 31, 2000 1999 ---------------------------------------------------------------------------- Below investment grade securities: Carrying value $147.9 $175.2 Amortized cost 167.6 187.1 Unrated securities: Carrying value $266.3 $303.2 Amortized cost 271.2 310.0
Utilizing ratings provided by other agencies, such as the NAIC, the Corporation categorizes additional unrated securities into below investment grade ratings. The following summarizes the additional unrated securities that are rated in the below investment grade category by other rating agencies:
June 30, December 31, 2000 1999 ---------------------------------------------------------------------------- Below investment grade securities at carrying value $147.9 $175.2 Other rating agencies categorizing unrated securities as below investment grade 39.0 8.7 ------ ------ Below investment grade securities at carrying value $186.9 $213.9
14 The securities in the Corporation's below investment grade portfolio have been issued by 76 corporate borrowers in approximately 49 industries. Investments in below investment grade securities have greater risks than investments in investment grade securities. The risk of default by borrowers which issue securities rated below investment grade is significantly greater because these securities are generally unsecured and often subordinated to other debt and these borrowers are often highly leveraged and are more sensitive to adverse economic conditions such as a recession or a sharp increase in interest rates. Current liquidity needs are expected to be met by scheduled bond maturities, dividend payments, interest payments, and cash balances. Investment grade securities are also subject to significant adverse risks including the risks of re-leveraging and changes in control of the issuer. In most instances, investors are unprotected with respect to such risks, the effects of which can be substantial. For further discussion of the Corporation's investments, see Item 1 pages 6 through 9 of the Corporation's 1999 Form 10-K for the year ended December 31, 1999. Regularly the Group's financial strength is reviewed by independent rating agencies. These agencies may upgrade, downgrade, or affirm their previous rating of the Group. During the second quarter of 2000, A. M. Best and Standard and Poor's (S&P) Rating Services downgraded the Group's financial strength ratings. The Group's A.M. Best rating moved from "A+" (superior) to "A" (excellent) and the S&P rating moved from "A" to "BBB+". S&P also downgraded the Group in the first quarter from "A+" to "A". A. M. Best cited earnings deterioration, increased operating leverage, and significant management changes as reasons for the rating change. S&P focused on poor underwriting results, earnings volatility due to catastrophe losses, and an aggressive investment strategy. A. M. Best and S&P both recognized the Group's strong capitalization and expense reduction efforts as positive attributes. Moody's Investors Service affirmed the Group's "A2" rating based on capitalization and expense reduction measures, in addition to sound investment, liquidity, reserves, and risk management. All three rating agencies recognized the shift in management focus to improve underwriting. Proposition 103 was passed in the state of California in 1988 in an attempt to legislate premium rates for that state. As construed by the California Supreme Court, the proposition requires premium rate rollbacks for 1989 California policyholders while allowing for a "fair" return for insurance companies. Even after considering investment income, total returns in California have been less than what would be considered "fair" by any reasonable standard. During the fourth quarter of 1994, the state of California assessed the Group $59.9 million for Proposition 103. In February 1995, California revised this billing to $47.3 million. The assessment was revised again in August 1995 to $42.1 million plus interest. In December 1997, during Administrative Law hearings, the California Department of Insurance filed two revised rollback calculations. These calculations indicated rollback liabilities of either $35.9 million or $39.9 million plus interest. In 1998, the Administrative Law Judge finally issued a proposed ruling with a rollback liability of $24.4 million plus interest. Her ruling was sent to the California Commissioner of Insurance to be accepted, rejected or modified. The Group expected the commissioner to rule sometime after the election in November 1998. To date, there has been no ruling. The asserted rollbacks to date have ranged from $24.4 million to $61.2 million. The Administrative Law Judge indicates clearly in her ruling that by her calculation the Group would have lost approximately $1.0 million on 1989 operations if a rollback of $24.4 million were imposed. Given that conclusion, it is clear that any assessment greater than $24.4 million would strengthen the Group's Constitutional argument that this rollback is confiscatory. The Group does not believe it is possible to pinpoint a specific rollback that may be required that is the most probable. The Group has established a contingent liability for Proposition 103 rollback at $24.4 million plus simple interest at 10% from May 8, 1989. This brings the total reserve to $51.7 million at June 30, 2000. In December 1992, the Group stopped writing business in California due to a lack of profitability and a difficult regulatory environment. In April 1995, the California Department of Insurance gave final approval for withdrawal. Currently, subsidiary American Fire and Casualty remains in the state to wind down the affairs of the Group. 15 During the second quarter of 2000, the Corporation restructured its Avomark Insurance Company operations with an internet-only strategy. As part of this restructuring, the Company completed an asset purchase agreement for the sale of the Avomark Call Center. Under this agreement, the buyer purchased certain assets used in the call operation and entered into a new lease on the Call Center property, thereby canceling the Company's obligations with its former lease. This restructuring also eliminated 114 budgeted positions. The total annual savings is approximately $7.5 million. In 1995, the Company reinsured substantially all of its life insurance and related businesses to Employer's Reassurance Corporation and entered into an administrative and marketing agreement with Great Southern Life Insurance Company. During 1999, Great Southern Life Insurance Company replaced Employers' Reassurance Corporation on the 100% coinsurance treaty. On December 31, 1999, the Company completed the sale of the Ohio Life shell, thereby transferring all remaining assets and liabilities, as well as reinsurance treaty obligations, to the Buyer. Additional information related to the discontinued life insurance operations is included in Item 14, Note 20 Discontinued Operations on page 57 of the Corporation's 1999 Form 10-K. The Corporation successfully moved into the Year 2000 without impact or interruption to the business as a result of Year 2000 computer problems. Though no Year 2000 problems have occurred or are anticipated, the Corporation continues to monitor the situation in order to be able to address any future issues in a timely fashion. The total related cost of the Year 2000 project was $2.8 million through June 30, 2000. The Corporation expects that Year 2000 project costs incurred in 2000, if any, will be immaterial. From time to time, the Company may publish forward looking statements relating to such matters as anticipated financial performance, business prospects and plans, regulatory developments and similar matters. The statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations that are not historical information, are forward looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of 1933 and The Securities Exchange Act of 1934 for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward- looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include the following: changes in property and casualty reserves; catastrophe losses; premium and investment growth; product pricing environment; availability of credit; changes in government regulation; performance of financial markets; fluctuations in interest rates; availability and pricing of reinsurance; litigation and administrative proceedings; Year 2000 issues; ability of Ohio Casualty to integrate and to retain the business acquired from the Great American Insurance Company; and general economic and market conditions. 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 16 Item 6. Exhibits and reports on Form 8-K - (a) Exhibits: 27 Financial Data Schedule SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OHIO CASUALTY CORPORATION ---------------------------------------- (Registrant) August 14, 2000 /s/ Elizabeth M. Riczko ------------------------------------------ Elizabeth M. Riczko, Senior Vice President (on behalf of Registrant and as Principal Accounting Officer) 17