-----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, S9nN3Kx/dFm1ryV2w4MKN3eIGzsvtwrCYhYlwyxYRxT90pqyZexAGQBqBcHK7Bi8 xscrmXVqfRHloFywMKtRLA== 0000950152-97-002358.txt : 19970329 0000950152-97-002358.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950152-97-002358 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OHIO CASUALTY CORP CENTRAL INDEX KEY: 0000073952 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 310783294 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-05544 FILM NUMBER: 97566857 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-K 1 OHIO CASUALITY 10-K 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, 1996 ------------------ [ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from _________________ to _____________________ Commission File Number 0-5544 OHIO CASUALTY CORPORATION (Exact name of registrant as specified in its charter) OHIO 31-0783294 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 136 NORTH THIRD STREET, HAMILTON, OHIO 45025 (Address of principal executive offices) (Zip Code)
(513) 867-3000 (Registrant's telephone number) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Shares, Par Value $.125 Each (Title of Class) Common Share Purchase Rights (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ---------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. The aggregate market value as of March 1, 1997 of the voting stock held by non-affiliates of the registrant was $1,251,573,458. On March 1, 1997 there were 35,110,231 shares outstanding. Page 1 of 127 INDEX TO EXHIBITS ON PAGE 28 ================================================================================ 2 DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Shareholders for the registrant's fiscal year ended December 31, 1996 is incorporated herein by reference for the following items: PART I Item 1. Business. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. Item 6. Selected Financial Data. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 8. Financial Statements and Supplementary Data. The Proxy Statement of the Board of Directors for the fiscal year ended December 31, 1996 for the Annual Shareholders meeting to be held April 16, 1997 is incorporated herein by reference for the following items: PART III Item 10. Directors and Executive Officers of the Registrant. Item 11. Executive Compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management. Item 13. Certain Relationships and Related Transactions. 2 3 PART I ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS Ohio Casualty Corporation (the Corporation) was incorporated under the laws of Ohio in August, 1969. The Corporation operates primarily as a holding company and is principally engaged, through its direct and indirect subsidiaries, in the business of property and casualty insurance and insurance premium finance. The Corporation has two industry segments: property and casualty insurance and insurance premium finance. The Corporation conducts its property and casualty insurance business through The Ohio Casualty Insurance Company ("Ohio Casualty"), an Ohio corporation organized in 1919, the Ohio Casualty's three operating property and casualty insurance subsidiaries: West American Insurance Company ("West American"), an Indiana corporation (originally incorporated under the laws of the State of California) acquired in 1945; Ohio Security Insurance Company ("Ohio Security"), an Ohio corporation acquired in 1962; and American Fire and Casualty Company ("American Fire"), an Ohio corporation (originally incorporated under the laws of the State of Florida) acquired in 1969. This group of companies presently underwrites most forms of property and casualty insurance. The Corporation conducts its premium finance business through Ocasco Budget, Inc. ("Ocasco"), an Ohio corporation (originally incorporated under the laws of the State of California) organized in 1960. Ocasco is a direct subsidiary of Ohio Casualty. On May 31, 1995 the states of domicile of West American and Ocasco changed to Indiana and Ohio, respectively, in connection with the withdrawal from property and casualty insurance operations in California as previously announced and as discussed elsewhere herein. During 1995, the Corporation's third industry segment, life operations, was discontinued. We found it increasingly difficult to achieve our targeted 16% rate of return in this segment of our business. After extensive analysis, it was determined that a 16% return could not be achieved without substantial capital contributions and a dramatic overhaul of the life operations. Since this was a small segment of our overall business, it was decided that this would not be a prudent use of our capital. Therefore, on October 2, 1995, the Corporation signed the final documents to reinsure the existing blocks of business and enter a marketing agreement with Great Southern Life Insurance Company. The existing blocks of business were reinsured through a 100% coinsurance arrangement with Employer's Reassurance Corporation. As of December 31, 1996, $12.9 million of the net ceding commission from the transaction remains unamortized. This will be amortized into income over the remaining expected life of the underlying reinsured policies, in this case, 14 years. It is anticipated that Great Southern will replace Ohio Life as the primary carrier of these policies in the second quarter of 1997 through an assumption. Upon assumption, the remaining unamortized gain will be recognized. Net income from discontinued operations amounted to $5.3 million or $.15 per share in 1996 compared with $4.4 million or $.12 per share in 1995 and $5.9 million or $.16 per share in 1994. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The revenues, operating profit and identifiable assets of each industry segment for the three years ended December 31, 1996 are set forth in Note 11, Industry Segment Information, in the Notes to the Consolidated Financial Statements on page 33 of the Annual Report to Shareholders for the fiscal year ended December 31, 1996. 3 4 ITEM 1. CONTINUED PREMIUMS The following table shows the total net premiums written (gross premiums less premiums ceded pursuant to reinsurance treaties) by line of business by Ohio Casualty, West American, American Fire, Ohio Security and Ohio Life as a group (collectively, the "Ohio Casualty Group") for the periods indicated.
Ohio Casualty Group Net Premiums Written By Line of Business (in thousands) 1996 1995 1994 1993 1992 -------------------------------------------------------------------------------------- Auto liability $ 386,121 $ 403,781 $ 420,031 $ 430,852 $ 493,214 Auto physical damage 208,541 207,534 212,005 210,987 240,913 Homeowners multiple peril 166,457 160,444 160,089 156,797 185,518 Workers' compensation 115,398 140,558 145,641 165,577 199,402 Commercial multiple peril 132,808 131,553 135,595 136,559 147,894 Other liability 101,688 108,483 112,906 107,983 122,277 All other lines 97,059 96,842 98,714 95,562 116,450 ---------- ---------- ---------- ---------- ---------- Property and casualty premiums $1,208,072 $1,249,195 $1,284,981 $1,304,317 $1,505,668 ========== ========== ========== ========== ========== Premium finance revenues $ 1,981 $ 2,314 $ 2,528 $ 2,887 $ 4,313 ========== ========== ========== ========== ========== Discontinued operations- Statutory premiums: Individual life $ 0 $ (126,979) $ 22,238 $ 38,409 $ 36,698 Annuity 0 (195,870) 18,104 19,530 16,983 Other 215 (22,012) 8,606 6,716 7,113 ---------- ---------- ---------- ---------- ---------- Total 215 (344,861) 48,948 64,655 60,794 FAS 97 adjustments 0 (1,533) (26,173) (44,748) (41,582) ---------- ---------- ---------- ---------- ---------- Discontinued operations revenues $ 215 $ (346,394) $ 22,775 $ 19,907 $ 19,212 ========== ========== ========== ========== ==========
Property and casualty net premiums written decreased 3.3% in 1996. New Jersey net premiums written decreased 2.2%, however, private passenger automobile line of business increased .4% due to continuing legislation requiring insurers to accept all automobile risks meeting broad underwriting guidelines regardless of risk concentration. Pennsylvania net premiums written decreased 9.5% principally due to a 23% reduction in workers' compensation, as a result of management's decision to limit writing due to poor underwriting experience. 4 5 ITEM 1. CONTINUED (c) NARRATIVE DESCRIPTION OF BUSINESS The Ohio Casualty Group is represented on a commission basis by approximately 4,306 independent insurance agents. In most cases, these agencies also represent other unaffiliated companies which may compete with the Ohio Casualty Group. The 37 claim and 29 underwriting and service offices operated by the Ohio Casualty Group assist these independent agencies in the producing and servicing of the Group's business. The following table shows consolidated direct premiums written for the Ohio Casualty Group's ten largest states:
Ohio Casualty Group Ten Largest States Direct Premiums Written From Continuing Operations (in thousands) Percent Percent Percent 1996 of Total 1995 of Total 1994 of Total ---- -------- ---- -------- ---- -------- New Jersey $218,553 18.0 New Jersey $220,373 17.6 New Jersey $211,233 16.4 Ohio 125,675 10.3 Pennsylvania 128,603 10.3 Pennsylvania 145,687 11.3 Pennsylvania 114,998 9.5 Ohio 126,622 10.1 Ohio 129,303 10.0 Kentucky 87,002 7.2 Kentucky 80,498 6.4 Kentucky 79,710 6.2 Illinois 60,311 5.0 Illinois 64,352 5.1 Illinois 63,682 4.9 Maryland 52,204 4.3 Maryland 56,741 4.5 Florida 56,846 4.4 Indiana 50,560 4.2 Indiana 49,353 3.9 Maryland 56,637 4.4 Texas 37,678 3.1 Texas 43,036 3.4 Indiana 47,817 3.7 Florida 36,995 3.0 Florida 42,061 3.4 Texas 45,171 3.5 North Carolina 34,108 2.8 North Carolina 33,955 2.7 Michigan 32,846 2.6 -------- ---- -------- ---- -------- ---- $818,084 67.4 $845,594 67.4 $868,932 67.5 ======== ==== ======== ==== ======== ====
INVESTMENT OPERATIONS Each of the companies in the Ohio Casualty Group must comply with the insurance laws of its domiciliary state and of the other states in which it is licensed for business. Among other things, these laws prescribe the kind, quality and concentration of investments which may be made by insurance companies. In general, these laws permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, preferred and common stocks, real estate mortgages and real estate. The distribution of invested assets of the Ohio Casualty Group is determined by a number of factors, including insurance law requirements, the Corporation's liquidity needs, tax position, and general market conditions. In addition, our business mix and liability payout patterns are considered. Adjustments are made to the asset allocation from time to time. The Corporation has no real estate investments. Assets relating to property and casualty operations are invested to maximize after-tax returns with appropriate diversification of risk. The following table sets forth the carrying values and other data of the consolidated invested assets of the Ohio Casualty Group as of the end of the years indicated: 5 6 ITEM 1. CONTINUED
Ohio Casualty Group Distribution of Invested Assets (in millions) 1996 Average % of % of % of Rating 1996 Total 1995 Total 1994 Total ------ ---- ----- ---- ----- ---- ----- U.S. government AAA $ 82.5 2.7 $ 116.5 3.8 $ 88.0 2.9 Tax exempt bonds and notes AA+ 794.5 25.8 898.5 29.1 694.3 22.8 Debt securities issued by foreign governments A+ 3.3 0.1 3.4 0.1 38.1 1.3 Corporate securities BBB+ 983.7 32.0 986.4 32.0 1,091.9 35.9 Mortgage backed securities U.S. government AAA 176.9 5.8 170.2 5.5 371.9 12.2 Other AA 270.0 8.8 232.9 7.6 225.7 7.4 -------- ----- -------- ----- -------- ----- Total bonds A+ 2,310.9 75.2 2,407.9 78.1 2,509.9 82.5 Common stocks 713.4 23.2 627.4 20.3 459.5 15.1 Preferred stocks 7.8 0.2 33.7 1.1 60.5 2.0 -------- ----- -------- ----- -------- ----- Total stocks 721.2 23.4 661.1 21.4 520.0 17.1 Short-term 41.5 1.4 14.4 0.5 13.6 0.4 -------- ----- -------- ----- -------- ----- Total investments $3,073.6 100.0 $3,083.4 100.0 $3,043.5 100.0 ======== ===== ======== ===== ======== ===== Total market value of investments $3,073.6 $3,083.4 $3,043.5 ======== ======== ======== Total amortized cost of investments $2,573.9 $2,617.5 $2,938.1 ======== ======== ========
The consolidated fixed income portfolio (identified as "Total Bonds" in the foregoing table) of the Ohio Casualty Group had a weighted average rating of "A+" and an average stated maturity of twelve years as of December 31, 1996. Investments in below investment grade securities (Standard and Poor's rating below BBB-) had an aggregate carrying value of $184.6 million and an aggregate amortized cost of $180.0 million at year-end 1996. Unrated securities had an aggregate carrying value of $315.4 million and an aggregate amortized cost of $308.3 million. At year-end 1995 and 1994, respectively, aggregate carrying values for below investment grade securities were $203.9 million and $266.0 million and aggregate amortized costs were $203.7 million and $282.3 million. At year-end 1995 and 1994, respectively, aggregate carrying values for unrated securities were $286.3 million and $257.9 million and aggregate amortized costs were $271.2 million and $262.8 million. Utilizing ratings provided by other agencies such as the NAIC, categorizes $27.3 million of $315.4 million in unrated securities as non-investment grade. This brings the aggregate market value of non-investment grade securities to $211.9 million at December 31, 1996, compared with $232.8 million and $302.2 million at year-end 1995 and 1994, respectively. 6 7 ITEM 1. CONTINUED All of the Corporation's below investment grade investments (based on carrying value) are performing in accordance with contractual terms and are making principal and interest payments as required. The securities in the Corporation's below investment grade portfolio have been issued by 78 corporate borrowers in approximately 35 industries. At December 31, 1996, the Corporation's five largest investments in securities totaled $54.8 million, and had an approximate amortized cost of $51.6 million. None of these holdings individually exceeded $21.6 million. At December 31, 1996, the fixed income portfolio relating to property and casualty operations totaled $2.2 billion which consisted of 90.6% investment grade securities and 9.4% below investment grade and/or unrated securities. At December 31, 1996, the fixed income portfolio relating to discontinued operations totaled $41.0 million which consisted of 96.4% investment grade securities and 3.6% high yield securities. Investments in below investment grade securities have greater risks than investments in investment grade securities. The risk of default by borrowers which issue securities rated below investment grade is significantly greater because these securities are generally unsecured and often subordinated to other debt and these borrowers are often highly leveraged and are more sensitive to adverse economic conditions such as a recession or a sharp increase in interest rates. Investment grade securities are also subject to significant adverse risks including the risks of re-leveraging and changes in control of the issuer. In most instances, investors are unprotected with respect to such risks, the effects of which can be substantial. Yield (based on cost of investments) for the taxable fixed income portfolio was 8.4% and 8.7% at December 31, 1996 and 1995, respectively. Below investment grade securities were yielding 9.5% and 10.1% at December 31, 1996 and 1995, respectively, while investment grade securities were yielding 8.7% in 1996 and 7.5% in 1995. Yield for tax exempt securities was 6.4% at December 31, 1996 and 6.3% at December 31, 1995; however, this yield is not directly comparable to taxable yield due to the complexity of federal taxation of insurance companies. The Corporation remains committed to a diversified common stock portfolio. As of December 31, 1996, the portfolio consisted of 65 separate issues, diversified across 36 different industries; and the largest single position was 8.1% of the portfolio. The portfolio strategy with respect to common stocks has been to invest in companies whose stocks have below average valuations, yet above average growth prospects. Investment income is affected by the amount of new investable funds and investable funds arising from maturities, prepayments, calls and exchanges as well as the timing of receipt of such funds. In addition, other factors such as interest rates at time of investment and the maturity, income tax status, credit status and other risks associated with new investments are reflected in investment income. Future changes in the distribution of investments and the factors described above could affect overall investment income in the future; however, the amount of any increase or decrease cannot be predicted. Further details regarding investment distribution and investment income are described in Note 2, Investments, in the Notes to Consolidated Financial Statements on pages 27 and 28 of the 1996 Annual Report to Shareholders. Purchases of taxable fixed income securities in 1996 were as follows: $312.9 million of investment grade securities, $113.4 million of high yield securities and $36.3 million of unrated securities. Purchases of tax-exempt and equity securities in 1996 totaled $76.6 million and $74.4 million, respectively. 7 8 ITEM 1. CONTINUED Disposals (including maturities, calls, exchanges and scheduled prepayments) of taxable fixed income securities in 1996 were as follows: $266.1 million of investment grade securities, $160.3 million of high yield securities and $13.4 million of unrated securities. Dispositions of tax-exempt and equity securities in 1996 totaled $163.8 million and $129.7 million, respectively. During 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 115, "Accounting for Certain Investments in Debt and Equity Securities". This statement was adopted on January 1, 1994, and required the Corporation to classify equity securities and debt securities into the following categories: 1) held to maturity; 2) trading; 3) available for sale. The Corporation continues to have no exposure to futures, forwards, caps, floors, or similar derivative instruments as defined by Statement of Financial Accounting Standards No. 119. However, as noted in footnote number 13 on page 34 of the Annual Report to Shareholders, we have an interest rate swap with Chase Manhattan Bank covering our term loan. This swap is not classified as an investment but rather as a hedge against a portion of the variable rate loan. All holdings were placed in the "available for sale" category. This accounting change increased shareholders' equity by $116.1 million in 1994. Consolidated net realized investment gains (before taxes) in 1996 totaled $49.7 million, $1.41 per share. Included in this amount are approximately $6.5 million in writedowns of the carrying values of certain securities the Corporation determined had an other than temporary decline in value. SHARE REPURCHASES During 1990 the Board of Directors of Ohio Casualty Corporation authorized the additional purchase of as many as 3,000,000 (as adjusted for 1994 stock split) shares of its common stock through open market or privately negotiated transactions. 264,600 shares were repurchased during 1996 for $9.2 million. 613,900 shares were repurchased during 1995 for $20.9 million and 50,000 shares were repurchased during 1994 for $1.4 million. The remaining repurchase authorization is 2,071,500 shares as of December 31, 1996. LIABILITIES FOR UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES Liabilities for loss and loss adjustment expenses are established for the estimated ultimate costs of settling claims for insured events, both reported claims and incurred but not reported claims, based on information known as of the evaluation date. As more information becomes available and claims are settled, the estimated liabilities are adjusted upward or downward with the effect of increasing or decreasing net income at the time of adjustments. Such estimated liabilities include direct costs of the loss under terms of insurance policies as well as legal fees and general expenses of administering the claims adjustment process. The liabilities for claims incurred in accident years 1995, 1994 and 1993 were reduced in the subsequent year as shown below:
Accident Year Loss and Loss Adjustment Expense Liabilities Subsequent Year Adjustment (in millions) 1995 1994 1993 ---- ---- ---- Property $27 $11 $ 31 Auto 14 30 26 Workers' compensation and other liability 37 35 51 --- --- ---- Total reduction $78 $76 $108 === === ====
8 9 ITEM 1. CONTINUED In the normal course of business, the Ohio Casualty Group is involved in disputes and litigation regarding terms of insurance contracts and the amount of liability under such contracts arising from insured events. The liabilities for loss and loss adjustment expenses include estimates of the amounts for which the Ohio Casualty Group may be liable upon settlement or other conclusion of such litigation. Because of the inherent future uncertainties in estimating ultimate costs of settling claims, actual loss and loss adjustment expenses may deviate substantially from the amounts recorded in the Corporation's consolidated financial statements. Furthermore, the timing, frequency and extent of adjustments to the estimated liabilities cannot be accurately predicted since conditions and events which established historical loss and loss adjustment expense development and which serve as the basis for estimating ultimate claims cost may not occur in the future in exactly the same manner, if at all. The anticipated effect of inflation is implicitly considered when estimating the liability for losses and loss adjustment expenses based on historical loss development trends adjusted for anticipated changes in underwriting standards, policy provisions and general economic trends. The following table presents an analysis of losses and loss adjustment expenses and related liabilities for the periods indicated. The accounting policies used to estimate liabilities for losses and loss adjustment expenses are described in Note 9, Losses and Loss Reserves, in the Notes to Consolidated Financial Statements on page 32 of the 1996 Annual Report to Shareholders.
Reconciliation of Liabilities for Losses and Loss Adjustment Expense (in thousands) 1996 1995 1994 ---- ---- ---- Net liabilities, beginning of year $1,557,065 $1,606,487 $1,693,551 Provision for current accident year claims 1,009,086 1,008,321 1,084,072 Increase (decrease)in provisions for prior accident year claims (76,920) (104,998) (153,717) ---------- ---------- ---------- 932,166 903,323 930,355 Payments for claims occurring during: Current accident year 515,025 444,558 483,129 Prior accident years 487,584 508,187 534,290 ---------- ---------- ---------- 1,002,609 952,745 1,017,419 Net liabilities, end of year 1,486,622 1,557,065 1,606,487 Reinsurance recoverable 70,048 74,119 65,336 ---------- ---------- ---------- Gross liabilities, end of year $1,556,670 $1,631,184 $1,671,823 ========== ========== ==========
9 10 ITEM 1. CONTINUED Property and Casualty Insurance Operations Analysis of Development of Loss and Loss Adjustment Expense Liabilities (In thousands)
Year Ended December 31 1986 1987 1988 1989 1990 1991 - ---------------------- ---- ---- ---- ---- ---- ---- Liability as originally estimated: $ 981,335 $1,171,392 $1,252,404 $1,370,054 $1,483,985 $1,566,139 Cumulative payments as of: One year later 380,290 438,195 440,173 489,562 506,246 526,973 Two years later 598,478 667,894 695,364 745,766 783,948 822,634 Three years later 730,106 828,325 845,472 902,081 955,666 1,007,189 Four years later 828,365 922,744 937,034 1,000,299 1,063,507 1,123,591 Five years later 884,606 977,575 996,353 1,061,173 1,131,012 1,201,317 Six years later 919,026 1,015,889 1,033,508 1,100,683 1,182,110 Seven years later 942,572 1,041,563 1,055,972 1,134,145 Eight years later 959,174 1,057,509 1,078,561 Nine years later 968,586 1,076,321 Ten years later 980,782 Liability reestimated as of: One year later 989,512 1,131,539 1,179,052 1,285,233 1,403,172 1,515,129 Two years later 1,029,086 1,139,684 1,175,861 1,299,428 1,407,197 1,500,890 Three years later 1,032,435 1,139,584 1,193,127 1,296,215 1,388,381 1,467,256 Four years later 1,028,893 1,156,930 1,195,712 1,281,246 1,368,530 1,449,789 Five years later 1,048,419 1,160,997 1,186,680 1,268,193 1,366,676 1,498,881 Six years later 1,054,589 1,159,372 1,178,126 1,270,734 1,423,277 Seven years later 1,049,447 1,154,169 1,184,233 1,327,228 Eight years later 1,046,494 1,162,837 1,233,809 Nine years later 1,049,464 1,208,920 Ten years later 1,091,480 Decrease (increase) in original estimates: $(110,145) $ (37,528) $ 18,595 $ 42,826 $ 60,708 $ 67,258 Year Ended December 31 1992 1993 1994 1995 1996 - ---------------------- ---- ---- ---- ---- ---- Liability as originally estimated: $1,673,205 $1,692,895 $1,605,526 $1,553,131 $1,482,900 Cumulative payments as of: One year later 561,133 533,634 510,219 486,168 Two years later 869,620 833,399 803,273 Three years later 1,060,433 1,017,893 Four years later 1,176,831 Five years later Six years later Seven years later Eight years later Nine years later Ten years later Liability reestimated as of: One year later 1,601,406 1,539,178 1,500,528 1,474,795 Two years later 1,555,452 1,510,943 1,501,530 Three years later 1,524,054 1,515,114 Four years later 1,559,492 Five years later Six years later Seven years later Eight years later Nine years later Ten years later Decrease (increase) in original estimates: $ 113,713 $ 177,781 $ 103,996 $ 78,336
This table presents the current period effects of changes in estimated loss and loss adjustment expense liabilities of the most recent and all prior accident years. Since conditions and trends that have affected loss and loss adjustment expense development in the past may not occur in the future in exactly the same manner, if at all, future results may not be reliably predicted by extrapolation of the data presented.
1994 1995 1996 ---- ---- ---- Gross liability - end of year $1,670,862 $1,624,197 $1,547,595 Reinsurance recoverable 65,336 71,066 64,695 Net liability - end of year 1,605,526 1,553,131 1,482,900 Gross re-estimated liability - latest 1,556,914 1,532,567 Re-estimated recoverable - latest 55,383 57,772 Net re-estimated liability - latest 1,501,530 1,474,795 Gross cumulative deficiency 113,949 91,630
10 11 ITEM 1. CONTINUED COMPETITION More than 3,200 property and casualty insurance companies compete in the United States and no one company or company group has a market share greater than approximately 12%. The Ohio Casualty Group ranked as the forty-second largest property and casualty insurance groups in the United States based on net insurance premiums written in 1995, the latest year for which statistics are available. The Ohio Casualty Group competes with other companies on the basis of service, price and coverage. STATE INSURANCE REGULATION General. The Corporation and the Ohio Casualty Group are subject to regulation under the insurance statutes, including the holding company statutes, of various states. Ohio Casualty, American Fire and Ohio Security are all domiciled in Ohio. West American is domiciled in Indiana. Collectively, the Ohio Casualty Group is authorized to transact the business of insurance in the District of Columbia and all states except Maine. The Ohio Casualty Group is subject to examination of their affairs by the insurance departments of the jurisdictions in which they are licensed. State laws also require prior notice or regulatory agency approval of changes in control of an insurer or its holding company and of certain material intercorporate transfers of assets within the holding company structure. Under applicable provisions of the Indiana insurance statutes ("Indiana Insurance Law") and the Ohio insurance statutes (the "Ohio Insurance Law"), a person would not be permitted to acquire direct or indirect control of the Corporation or any of the Ohio Casualty Group companies domiciled in such state, unless such person had obtained prior approval of the Indiana Insurance Commissioner and the Ohio Superintendent of Insurance, respectively, for such acquisition. For the purposes of the Indiana Insurance Law and the Ohio Insurance Law, any person acquiring more than 10% of the voting securities of a company is presumed to have acquired "control" of such company. Proposition 103 was passed in the State of California in 1988 in an attempt to legislate premium rates for that state. Even after considering investment income, total returns in California have been less than what would be considered "fair" by any reasonable standard. During the fourth quarter of 1994, the State of California billed the Corporation $59.9 million for Proposition 103 assessment. In February 1995, California revised this billing to $47.3 million due to California Senate Bill 905 which permits reduction of the rollback due to commissions and premium taxes paid. The billing was revised again in August of 1995 and at present the State has indicated the Corporation should not be required to pay in excess of $42.1 million plus interest as a Proposition 103 assessment. As a result, the Corporation's reserve for this alleged liability is $74.4 million at December 31, 1996. The Corporation is currently involved in hearings with the State of California. The final arguments are expected to conclude in the first quarter of 1997. A ruling from the Administrative Law Judge is expected in the second quarter of 1997. At that time, the Insurance Commissioner will have 60 days to take the ruling under advisement and return with a final ruling. The Corporation will continue to challenge the validity of any rollback and plans to continue negotiations with Department officials. It is uncertain when this will be resolved. To date, the Corporation has paid $2.9 million in legal costs related to the withdrawal, Proposition 103 and Fair Plan assessments. 11 12 ITEM 1. CONTINUED The State of New Jersey has historically been a profitable state for the Corporation. In recent years, however, the legislative environment in that state has deteriorated. Due to legislative rules and regulations designed to make insurance less expensive and more easily obtainable for New Jersey residents, our results have been adversely impacted. In order to meet our state imposed assessment obligations under the Fair Automobile Insurance Reform Act, the Unsatisfied Claim and Judgment fund and the Market Transition Facility, the Corporation has incurred expenses of $3.6 million in 1996, $3.7 million in 1995 and $6.4 million in 1994. These assessments have negatively affected our combined ratios by .3, .3 and .5 points in the three years, respectively. NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS. The National Association of Insurance Commissioners (the "NAIC") annually calculates a number of financial ratios to assist state insurance regulators in monitoring the financial condition of insurance companies. A "usual range" of results for each ratio is used as a benchmark. Departure from the usual range on four or more of the ratios could lead to inquiries from individual state insurance commissioners as to certain aspects of a company's business. None of the property and casualty companies of the Ohio Casualty Group had more than two NAIC financial ratios that were outside the usual range in the last five calendar years. Beginning in 1994, the NAIC requires inclusion of a risk-based capital calculation in the Annual Statements. The risk-based capital model is used to establish standards which relate insurance company statutory surplus to risks of operations and assist regulators in determining solvency requirements. The model is based on four risk factors in two categories: asset risk, consisting of investment risk and credit risk; and underwriting risk, composed of loss reserves and premiums written risks. Based on current calculations, all of the Ohio Casualty Group companies have at least four times the necessary capital to conform with the risk-based capital model. The States of Ohio and Indiana have adopted the NAIC model law limiting dividend payments by insurance companies. This law allows dividends to equal the greater of 10% of policyholders surplus or net income determined as of the preceding year end without prior approval of the Insurance Department. For 1996, $123.4 million of policyholder surplus are not subject to restrictions or prior dividend approval. EMPLOYEES At December 31, 1996, the Ohio Casualty Group had approximately 3,390 employees of which approximately 1,288 were located in Hamilton, Ohio. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS Recently the FASB issued Statement of Financial Accounting Standards No. 128, Earnings Per Share, which supersedes APB Opinion No. 15, Earnings Per Share. This standard replaces the primary EPS requirements with a basic EPS computation and requires a dual presentation of basic and diluted EPS for those companies with complex capital structures. The Corporation intends to adopt the standards of Statement No. 128 for financial statements issued after December 15, 1997. The impact of this statement is expected to be immaterial on the Corporation's EPS calculation. 12 13 ITEM 2. PROPERTIES The Ohio Casualty Group owns and leases office space in various parts of the country. The principal office building consists of an owned facility in Hamilton, Ohio. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings against the Corporation or its subsidiaries other than litigation arising in connection with settlement of insurance claims as described on page 9 and Proposition 103 hearings described on page 12. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS There were no matters submitted during the fourth quarter of the fiscal year covered by this report to a vote of Shareholders through the solicitation of proxies or otherwise. EXECUTIVE OFFICERS OF THE REGISTRANT The following information is related to executive officers who are not separately reported in the Corporation's Proxy Statement:
Position with Company and/or Principal Occupation or Employment Name Age (1) During Last Five Years ---- ------- ---------------------- Barry S. Porter 60 Chief Financial Officer and Treasurer of The Ohio Casualty Corporation, The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ocasco Budget, Inc., The Ohio Life Insurance Company, The Ohio Security Insurance Company and West American Insurance Company since August 1993. Andrew T. Fogarty 65 Senior Vice President of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ocasco Budget, Inc., The Ohio Security Insurance Company and West American Insurance Company since May 1990. Michael L.. Evans 53 Vice President of The Ohio Casualty Corporation and Executive Vice President of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ocasco Budget, Inc., The Ohio Life Insurance Company, The Ohio Security Insurance Company and West American Insurance Company since April 1995; prior thereto, Vice President of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ocasco Budget, Inc., The Ohio Life Insurance Company and West American Insurance Company. John S. Busby 51 Vice President of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ohio Security Insurance Company and West American Insurance Company since May 1991.
13 14 ITEM 4. CONTINUED
Position with Company and/or Principal Occupation or Employment Name Age (1) During Last Five Years ---- ------- ---------------------- Donald J. Dehne 46 Vice President of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance Company and West American Insurance Company since May 1996; prior thereto, Assistant Secretary of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance Company and West American Insurance Company. Steven J. Adams 42 Vice President of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance Company and West American Insurance Company since May 1996; prior thereto, Assistant Secretary of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance Company and West American Insurance Company; prior thereto, Commercial Lines Customer Strategist; prior thereto, Imaging Technology Expert. Thomas P. Prentice 44 Vice President of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance Company and West American Insurance Company since May 1996; prior thereto, Assistant Secretary of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance Company and West American Insurance Company; prior thereto, Personal Lines Customer Specialist; prior thereto, Claims Manager. Coy Leonard, Jr. 52 Vice President of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance Company and West American Insurance Company since May 1996; prior thereto, Assistant Vice President of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance Company and West American Insurance Company; prior thereto, Manager of Strategic Planning and Technology. Frederick W. Wendt 56 Vice President of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ohio Security Insurance Company and West American Insurance Company since January 1991.
14 15 ITEM 4. CONTINUED
Position with Company and/or Principal Occupation or Employment Name Age (1) During Last Five Years ---- ------- ---------------------- Elizabeth M. Riczko 30 Vice President of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance Company and West American Insurance Company since May 1996; prior thereto, Assistant Secretary of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ocasco Budget, Inc., Ohio Security Insurance Company and West American Insurance Company; prior thereto, Corporate Actuarial Manager. William E. Minor 42 Vice President of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ohio Security Insurance Company and West American Insurance Company since September 1996; prior thereto, Account Director for Sire/Young and Rubicam. Susan D. Dillon 41 Assistant Vice President of The Ohio Casualty Insurance Company, American Fire and Casualty Company, Ohio Security Insurance Company and West American Insurance Company since May 1995; prior thereto, Branch Manager; prior thereto, Field Representative. - --------------------------------------- (1) Ages listed are as of the annual meeting.
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS See inside front cover and page 36 of the Annual Report to Shareholders for the fiscal year ended December 31, 1996. ITEM 6. SELECTED FINANCIAL DATA See pages 14 and 15 of the Annual Report to Shareholders for the fiscal year ended December 31, 1996. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See pages 16 through 21 of the Annual Report to Shareholders for the fiscal year ended December 31, 1996. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements and Schedules. (See Index to Financial Statements attached hereto.) 15 16 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See pages 4 and 5 of the Proxy Statement of the Board of Directors for the fiscal year ended December 31, 1996 and Executive Officers of the Registrant separately captioned under Part I of this annual report. ITEM 11. EXECUTIVE COMPENSATION See pages 7 through 13 of the Proxy Statement of the Board of Directors for the fiscal year ended December 31, 1996. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See pages 1 through 4 of the Proxy Statement of the Board of Directors for the fiscal year ended December 31, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See page 6 of the Proxy Statement of the Board of Directors for the fiscal year ended December 31, 1996. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial statements and financial statement schedules required to be filed by Item 8 of this Form and Regulation S-X (b) Exhibits. (See index to exhibits attached hereto.) 16 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OHIO CASUALTY CORPORATION (Registrant) March 27, 1997 By: /s/ Lauren N. Patch ------------------------------- Lauren N. Patch, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 27, 1997 /s/ Joseph L. Marcum ------------------------------------------------------- Joseph L. Marcum, Chairman of the Board March 27, 1997 /s/ William L. Woodall ------------------------------------------------------- William L. Woodall, Vice Chairman of the Board March 27, 1997 /s/ Lauren N. Patch ------------------------------------------------------- Lauren N. Patch, President and Chief Executive Officer March 27, 1997 /s/ Arthur J. Bennert ------------------------------------------------------- Arthur J. Bennert, Director March 27, 1997 /s/ Jack E. Brown ------------------------------------------------------- Jack E. Brown, Director March 27, 1997 /s/ Catherine E. Dolan ------------------------------------------------------- Catherine E. Dolan, Director March 27, 1997 /s/ Wayne R. Embry ------------------------------------------------------- Wayne R. Embry, Director March 27, 1997 /s/ Vaden Fitton ------------------------------------------------------- Vaden Fitton, Director March 27, 1997 /s/ Jeffery D. Lowe ------------------------------------------------------- Jeffery D. Lowe, Director March 27, 1997 /s/ Stephen S. Marcum ------------------------------------------------------- Stephen S. Marcum, Director March 27, 1997 /s/ Stanley N. Pontius ------------------------------------------------------- Stanley N. Pontius, Director March 27, 1997 /s/ Howard L. Sloneker III ------------------------------------------------------- Howard L. Sloneker III, Director March 27, 1997 /s/ Barry S. Porter ------------------------------------------------------- Barry S. Porter, Chief Financial Officer and Treasurer March 27, 1997 /s/ Michael L. Evans ------------------------------------------------------- Michael L. Evans, Vice President
17 18 FORM 10-K, ITEM 14 INDEX TO FINANCIAL STATEMENTS AND SCHEDULES OHIO CASUALTY CORPORATION The following statements are incorporated by reference to the Annual Report to Shareholders for registrant's fiscal year ended December 31, 1996:
Page Number in Annual Report ---------------- Consolidated Balance Sheet at December 31, 1996, 1995, 1994 22 Statement of Consolidated Income for the years ended December 31, 1996, 1995 and 1994 23 Statement of Consolidated Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 24 Statement of Consolidated Cash Flow for the years ended December 31, 1996, 1995 and 1994 25 Notes to Consolidated Financial Statements 26-35 Page Number in this Report -------------- Report of Independent Accountants 19 The following financial statement schedules are included herein: Schedule I - Consolidated Summary of Investments Other Than Investments in Related Parties at December 31, 1996 20 Schedule II - Condensed Financial Information of Registrant for the years ended December 31, 1996, 1995 and 1994 21 Schedule III - Consolidated Supplementary Insurance Information for the years ended December 31, 1996, 1995 and 1994 22-24 Schedule IV - Consolidated Reinsurance for the years ended December 31, 1996, 1995 and 1994 25 Schedule V - Valuation and Qualifying Accounts for the years ended December 31, 1996, 1995 and 1994 26 Schedule VI - Consolidated Supplemental Information Concerning Property and Casualty Insurance Operations for the years ended December 31, 1996, 1995 and 1994 27
18 19 [COOPERS & LYBRAND LETTERHEAD] REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Shareholders Ohio Casualty Corporation We have audited the consolidated financial statements of Ohio Casualty Corporation and subsidiaries as of December 31, 1996, 1995 and 1994 and for the years then ended, which financial statements are included on pages 22 through 35 of the 1996 Annual Report to Shareholders of Ohio Casualty Corporation and incorporated by reference herein. We have also audited the financial statement schedules listed in the index on page 18 of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ohio Casualty Corporation and subsidiaries as of December 31, 1996, 1995 and 1994, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. As discussed in Notes 1 and 6 to the consolidated financial statements, the Corporation changed its method of accounting for debt and equity securities and post-employment benefits in 1994. /s/ Coopers & Lybrand L..L.P. Coopers & Lybrand L.L.P. Cincinnati, Ohio January 30, 1997 19 20 Schedule I Ohio Casualty Corporation and Subsidiaries Consolidated Summary of Investments Other than Investments in Related Parties (In thousands) December 31, 1996
Amount shown Type of investment Cost Value in balance sheet - ------------------ ---- ----- ---------------- Fixed maturities Bonds: United States govt. and govt. agencies with auth. $ 80,822 $ 82,541 $ 82,541 States, municipalities and political subdivisions 760,602 794,539 794,539 Debt securities issued by foreign governments 3,000 3,296 3,296 Corporate securities 940,540 983,658 983,658 Mortgage-backed securities: U.S. government guaranteed 171,291 176,906 176,906 Other 269,262 269,998 269,998 ---------- ---------- ---------- Total fixed maturities 2,225,517 2,310,938 2,310,938 Equity securities: Common stocks: Banks, trust and insurance companies 65,391 196,886 196,886 Industrial, miscellaneous and all other 234,618 516,443 516,443 Preferred stocks: Non-redeemable 1,010 1,005 1,005 Convertible 5,846 6,818 6,818 ---------- ---------- ---------- Total equity securities 306,865 721,152 721,152 Short-term investments 41,546 41,546 41,546 ---------- ---------- ---------- Total investments $2,573,928 $3,073,636 $3,073,636 ========== ========== ==========
20 21 Schedule II Ohio Casualty Corporation Condensed Financial Information of Registrant (In thousands)
1996 1995 1994 ---- ---- ---- Condensed Balance Sheet: Investment in wholly-owned subsidiaries, at equity $ 1,167,237 $ 1,156,718 $ 905,250 Investment in bonds/stocks 57,233 20,165 22,618 Cash and other assets 5,706 2,468 4,725 ----------- ----------- --------- Total assets 1,230,176 1,179,351 932,593 Bank note payable 50,000 60,000 70,000 Other liabilities 5,076 8,337 11,803 ----------- ----------- --------- Total liabilities 55,076 68,337 81,803 Shareholders' equity $ 1,175,100 $ 1,111,014 $ 850,790 =========== =========== ========= Condensed Statement of Income: Dividends from subsidiaries $ 100,000 $ 80,018 $ 91,098 Equity in undistributed net income of subsidiaries 3,957 21,431 8,727 Operating (expenses) (1,500) (1,714) (2,934) ----------- ----------- --------- Net income $ 102,457 $ 99,735 $ 96,891 =========== =========== ========= Condensed Statement of Cash Flows: Cash flows from operations Net distributed income $ 98,500 $ 78,304 $ 88,174 Other 4,879 4,358 6,751 ----------- ----------- --------- Net cash from operations 103,379 82,662 94,925 Investing Purchase of bonds/stocks (34,458) (4,555) (14,452) Sales of bonds/stocks 7,190 7,723 6,441 ----------- ----------- --------- Net cash from investing (27,268) 3,168 (8,011) Financing Note payable (10,000) (10,000) (33,000) Exercise of stock options 135 578 244 Purchase of treasury stock (9,168) (21,193) (1,412) Dividends paid to shareholders (56,380) (54,335) (52,597) ----------- ----------- --------- Net cash from financing (75,413) (84,950) (86,765) Net change in cash 698 880 149 Cash, beginning of year 2,677 1,797 1,648 ----------- ----------- --------- Cash, end of year $ 3,375 $ 2,677 $ 1,797 =========== =========== =========
21 22 Schedule III Ohio Casualty Corporation and Subsidiaries Consolidated Supplementary Insurance Information (In thousands) December 31, 1996
Deferred Future policy Benefits, policy benefits Net losses and acquisition losses and Unearned Premium investment loss costs loss expenses premiums revenue income expenses ------------ ------------- ------------- ------------- ------------- ------------ Segment Property and casualty insurance: Underwriting Automobile $ 36,325 $ 596,131 $ 181,834 $ 598,339 $ $ 495,278 Workers' compensation 7,990 387,951 47,012 124,157 80,975 Gen. liability, A&H 13,833 265,399 45,337 104,428 43,799 Homeowners 26,553 70,969 92,950 165,630 167,302 CMP, fire and allied lines, inland marine 32,634 213,270 97,943 195,437 141,331 Fidelity, surety, burglary 10,835 13,867 26,312 34,135 1,904 Miscellaneous Income 2,410 Investment 179,407 ------------ ------------- ------------- ------------- ------------- ------------ Total property and casualty insurance 128,170 1,547,587 491,388 1,224,536 179,407 930,589 Life ins. (discontinued operations) (11,486) 289,086 4,582 4,812 693 Premium finance 225 2,115 293 Corporation 3,608 ------------ ------------- ------------- ------------- ------------- ------------ Total $ 116,684 $ 1,836,673 $ 491,613 $ 1,231,233 $ 188,120 $ 931,282 ============ ============= ============= ============= ============= ============ Amortization of deferred General acquisition operating Premiums costs expenses written ------------ ------------- ------------- Segment Property and casualty insurance: Underwriting Automobile $ 120,874 $ 34,268 $ 594,661 Workers' compensation 26,221 10,124 115,398 Gen. liability, A&H 34,829 14,081 101,793 Homeowners 46,149 12,641 166,457 CMP, fire and allied lines, inland marine 62,688 20,364 195,290 Fidelity, surety, burglary 18,095 5,794 34,473 Miscellaneous Income Investment ------------ ------------- -------------- Total property and casualty insurance 308,856 97,272 1,208,072 Life ins. (discontinued operations) 2,004 (193) 215 Premium finance 1,969 1,981 Corporation 5,907 ------------ ------------- -------------- Total $ 310,860 $ 104,955 $ 1,210,268 ============ ============= ============== 1. Net investment income has been allocated to principal business segments on the basis of separately identifiable assets. 2. The principal portion of general operating expenses has been directly attributed to business segment classifications incurring such expenses with the remainder allocated based on policy counts.
22 23 Schedule III Ohio Casualty Corporation and Subsidiaries Consolidated Supplementary Insurance Information (In thousands) December 31, 1995
Deferred Future policy Benefits, policy benefits Net losses and acquisition losses and Unearned Premium investment loss costs loss expenses premiums revenue income expenses ------------- ------------- ------------ ------------- ----------- ------------ Segment Property and casualty insurance: Underwriting Automobile $ 36,990 $ 608,689 $ 185,735 $ 620,866 $ $ 490,036 Workers' compensation 10,767 403,440 55,861 142,004 93,272 Gen. liability, A&H 14,736 335,428 48,042 110,487 67,201 Homeowners 27,209 74,599 92,099 161,116 123,140 CMP, fire and allied lines, inland marine 32,270 225,004 98,098 195,014 123,179 Fidelity, surety, burglary 11,358 17,037 25,936 33,719 5,554 Miscellaneous Income 2,497 Investment 184,585 ------------- ------------- ------------ ------------- ----------- ------------ Total property and casualty insurance 133,330 1,664,197 505,771 1,265,703 184,585 902,382 Life ins. (discontinued operations) (13,535) 367,061 7 (345,080) 4,143 (350,121) Premium finance 257 2,370 522 Corporation 196 3,000 ------------- ------------- ------------ ------------- ----------- ------------ Total $ 119,795 $ 2,031,258 $ 506,035 $ 923,189 $ 192,250 $ 552,261 ============= ============= ============ ============= =========== ============ Amortization of deferred General acquisition operating Premiums costs expenses written ------------ ----------- -------------- Segment Property and casualty insurance: Underwriting Automobile $ 129,058 $ 23,246 $ 611,315 Workers' compensation 30,196 10,806 140,558 Gen. liability, A&H 37,785 12,236 108,283 Homeowners 46,523 12,747 160,444 CMP, fire and allied lines, inland marine 65,875 18,237 193,477 Fidelity, surety, burglary 17,618 4,904 35,118 Miscellaneous Income Investment ------------ ----------- -------------- Total property and casualty insurance 327,055 82,176 1,249,195 Life ins. (discontinued operations) 4,097 1,471 (346,394) Premium finance 1,819 2,314 Corporation 5,975 ------------ ----------- -------------- Total $ 331,152 $ 91,441 $ 905,115 ============ =========== ============== 1. Net investment income has been allocated to principal business segments on the basis of separately identifiable assets. 2. The principal portion of general operating expenses has been directly attributed to business segment classifications incurring such expenses with the remainder allocated based on premium volume.
23 24 Schedule III Ohio Casualty Corporation and Subsidiaries Consolidated Supplementary Insurance Information (In thousands) December 31, 1994
Deferred Future policy Benefits, policy benefits Net losses and acquisition losses and Unearned Premium investment loss costs loss expenses premiums revenue income expenses ------------- ------------- ------------ ------------- ------------ ------------- Segment Property and casualty insurance: Underwriting Automobile $ 40,416 $ 617,871 $ 195,096 $ 639,604 $ $ 495,209 Workers' compensation 12,385 421,422 57,175 151,257 89,992 Gen. liability, A&H 16,577 304,028 49,923 113,684 53,577 Homeowners 26,686 77,043 90,696 158,077 157,347 CMP, fire and allied lines, inland marine 34,003 227,735 100,119 200,937 131,267 Fidelity, surety, burglary 10,817 22,763 24,425 32,579 2,003 Miscellaneous Income 0 Investment 183,811 ------------- ------------- ------------ ------------- ------------ ------------- Total property and casualty insurance 140,884 1,670,862 517,434 1,296,138 183,811 929,395 Life ins. (discontinued operations) 24,749 353,360 22,775 28,082 29,509 Premium finance 641 2,607 332 Corporation 115 1,565 ------------- ------------- ------------ ------------- ------------ ------------- Total $ 165,633 $ 2,024,222 $ 518,075 $ 1,321,635 $ 213,790 $ 958,904 ============= ============= ============ ============= ============ ============= Amortization of deferred General acquisition operating Premiums costs expenses written ------------ ------------ -------------- Segment Property and casualty insurance: Underwriting Automobile $ 131,815 $ 20,493 $ 632,036 Workers' compensation 35,089 9,173 145,641 Gen. liability, A&H 38,992 9,906 114,656 Homeowners 46,173 11,829 160,089 CMP, fire and allied lines, inland marine 69,765 18,164 199,350 Fidelity, surety, burglary 16,212 4,802 33,209 Miscellaneous Income Investment ------------ ------------ -------------- Total property and casualty insurance 338,046 74,367 1,284,981 Life ins. (discontinued operations) 3,630 11,516 22,775 Premium finance 1,912 2,528 Corporation 6,139 ------------ ------------ -------------- Total $ 341,676 $ 93,934 $ 1,310,284 ============ ============ ============== 1. Net investment income has been allocated to principal business segments on the basis of separately identifiable assets. 2. The principal portion of general operating expenses has been directly attributed to business segment classifications incurring such expenses with the remainder allocated based on premium volume.
24 25 Schedule IV Ohio Casualty Corporation and Subsidiaries Consolidated Reinsurance (In thousands) December, 1996, 1995 and 1994
Percent of amount Ceded to Assumed assumed Gross other from other Net to net amount companies companies amount amount ---------- ---------- ---------- ---------- ------- Year Ended December 31, 1996 Life insurance in force $4,623,435 $4,623,435 $ 0 $ 0 0.0% Premiums Property and casualty insurance $1,211,695 $ 29,039 $ 25,416 $1,208,072 2.1% Life insurance (Discontinued operations) 29,822 29,822 0 0 0.0% Accident and health insurance 2,204 3,502 1,513 215 703.7% ---------- ---------- ---------- --------- Total premiums 1,243,721 62,363 26,929 1,208,287 2.2% Premium finance charges 1,981 Life insurance - FAS 97 adjustment 0 ---------- Total premiums and finance charges written 1,210,268 Change in unearned premiums and finance charges 14,182 ---------- Total premiums and finance charges earned 1,224,450 Miscellaneous income 2,416 Discontinued operations - life insurance (215) ---------- Total premiums & finance charges earned - continuing operations $1,226,651 ========== Year Ended December 31, 1995 Life insurance in force $5,207,297 $5,298,297 $ 91,000 $ 0 0.0% ========== ========== ========== ========== Premiums Property and casualty insurance $1,251,079 $ 41,252 $ 39,692 $1,249,519 3.2% Life insurance (Discontinued operations) 38,456 384,974 136 (346,382) 0.0% Accident and health insurance 1,456 1,780 1,521 1,197 127.1% ---------- ---------- ---------- ---------- Total premiums 1,290,991 428,006 41,349 904,334 4.6% Premium finance charges 2,314 Life insurance - FAS 97 adjustment (1,533) ---------- Total premiums and finance charges written 905,115 Change in unearned premiums and finance charges 14,263 ---------- Total premiums and finance charges earned 919,378 Miscellaneous income 3,810 Discontinued operations - life insurance 345,081 ---------- Total premiums & finance charges earned - continuing operations $1,268,269 ========== Year Ended December 31, 1994 Life insurance in force $5,254,705 $1,534,389 $ 91,000 $3,811,316 2.4% ========== ========== ========== ========== Premiums Property and casualty insurance $1,284,511 $ 44,592 $ 43,473 $1,283,392 3.4% Life insurance (Discontinued operations) 53,910 5,436 231 48,705 0.5% Accident and health insurance 1,766 177 243 1,832 13.3% ---------- ---------- ---------- ---------- Total premiums 1,340,187 50,205 43,947 1,333,929 3.3% Premium finance charges 2,528 Life insurance - FAS 97 adjustment (26,173) ---------- Total premiums and finance charges written 1,310,284 Change in unearned premiums and finance charges 11,351 ---------- Total premiums and finance charges earned 1,321,635 Discontinued operations - life insurance (22,774) ---------- Total premiums & finance charges earned - continuing operations $1,298,861 ==========
25 26 Schedule V Ohio Casualty Corporation and Subsidiaries Valuation and Qualifying Accounts (In thousands)
Balance at Balance at beginning Charged to end of of period expenses Deductions period Year ended December 31, 1996 Reserve for bad debt 3,500 200 0 3,700 Year ended December 31, 1995 Reserve for bad debt 4,500 (1,000) 0 3,500 Year ended December 31, 1994 Reserve for bad debt 6,300 (1,800) 0 4,500
26 27 Schedule VI Ohio Casualty Corporation and Subsidiaries Consolidated Supplemental Information Concerning Property and Casualty Insurance Operations (In thousands)
Reserves for Deferred unpaid claims policy and claim Discount Net Affiliation with acquisition adjustment of Unearned Earned investment registrant costs expenses reserves premiums premiums income ---------------- ------------------- ----------------- --------------- ------------------ --------------- Property and casualty subsidiaries Year ended December 31, 1996 $ 128,170 $ 1,547,587 $ 0 $491,388 $1,224,536 $179,407 ================ =================== ================= =============== ================== =============== Year ended December 31, 1995 $ 133,330 $ 1,664,197 $ 0 $505,771 $1,265,703 $184,585 ================ =================== ================= =============== ================== =============== Year ended December 31, 1994 $ 140,884 $ 1,670,862 $ 0 $517,434 $1,296,138 $183,811 ================ =================== ================= =============== ================== =============== Claims and claim adjustment expenses Amortization Paid incurred related to of deferred claims ----------------------------------- policy and claim Affiliation with Current Prior acquisition adjustment Premiums registrant year years costs expenses written ------------------ ---------------- ------------------ ------------------ ------------------ Property and casualty subsidiaries Year ended December 31, 1996 $1,008,395 $ (76,920) $ 308,856 $1,001,706 $1,208,072 ================== ================ ================== ================== ================== Year ended December 31, 1995 $1,007,380 $(104,998) $ 327,055 $ 954,777 $1,249,195 ================== ================ ================== ================== ================== Year ended December 31, 1994 $1,083,112 $(153,717) $ 338,046 $1,016,763 $1,284,981 ================== ================ ================== ================== ==================
27 28 FORM 10-K OHIO CASUALTY CORPORATION INDEX TO EXHIBITS
Page Number ------ Exhibit 3a Amendment to Amended Articles of Incorporation increasing authorized number of shares to 150,000,000 common shares and authorized 2,000,000 preferred shares, dated April 17, 1996 29-30 Exhibit 11 Computation of Earnings Per Share on Primary and Fully Diluted Basis for the years ended December 31, 1996, 1995 and 1994 31 Exhibit 13 Annual Report to Shareholders for the Registrant's fiscal year ended December 31, 1996 32-71 Exhibit 21 Subsidiaries of Registrant 72 Exhibit 22 Proxy Statement of the Board of Directors for the fiscal year ended December 31, 1996 73-110 Exhibit 23 Consent of Independent Accountants to incorporation of their opinion by reference in Registration Statement on Form S-8 111 Exhibit 27 Financial Data Schedule 112 Exhibit 28 Information from Reports Furnished to State Insurance Regulation Authorities 113-127 Exhibits incorporated by reference to previous filings: Exhibit 3 Articles of Incorporation and By Laws amended 1986 and filed with Form 8-K on January 15, 1987 Exhibit 4a Rights Agreement amended as of April 1, 1994 between Ohio Casualty Corporation and Mellon Bank, N.A. as rights agent filed with Form 8-K on April 1, 1994 Exhibit 4b First Supplement to Rights Agreement filed with Form 8-K on November 6, 1990 Exhibit 4c Second Supplement to Rights Agreement filed with Form 8-K on November 6, 1990 Exhibit 4d Rights Agreement amended as of September 5, 1995 between Ohio Casualty Corporation and First Chicago Trust Company of New York as rights agent filed with Form 8-K on September 5, 1995 Exhibit 10 Credit Agreement dated as of October 25, 1994 between Ohio Casualty Corporation and Chase Manhattan Bank, N.A., as agent, filed with Form 10-Q on November 1, 1994 Exhibit 10a Ohio Casualty Corporation 1993 Stock Incentive Program filed with Form 10-Q as Exhibit 10d on May 31, 1993 Exhibit 10b Coinsurance Life, Annuity and Disability Income Reinsurance Agreement between Employer's Reassurance Corporation and The Ohio Life Insurance Company dated as of October 2, 1995
28 EX-3.1 2 EXHIBIT 3.1 1 Exhibit 3a CERTIFICATE OF AMENDMENT TO AMENDED ARTICLES OF INCORPORATION OF OHIO CASUALTY CORPORATION -------------------------------------------------------- The undersigned hereby certify that: (a) they are the duly elected, qualified and acting President and Secretary, respectively, of Ohio Casualty Corporation, an Ohio corporation (the "Company"); (b) the amendment to Article FOURTH of the Amended Articles of Incorporation of the Company included in the resolution attached hereto and incorporated herein by reference was approved and recommended by the affirmative vote of, and in writings signed by, all of the directors of the Company; (c) a meeting of the shareholders of the Company was duly called and held on April 17, 1996, at which meeting a quorum of stockholders was at all times present in person or by proxy; and (d) the resolution attached hereto and incorporated herein by reference was duly adopted at said meeting of shareholders by the affirmative vote of the holders of shares entitled to exercise more than a majority of the voting power of the Company on such resolution. IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of this 17th day of April, 1996. /s/ Lauren N. Patch ----------------------------------- Lauren N. Patch, President /s/ Howard L. Sloneker III ----------------------------------- Howard L. Sloneker III, Secretary 29 2 RESOLVED, that the first sentence of Article FOURTH of the Company's Amended Articles of Incorporation be, and it hereby is, amended to be as follows, with all other provisions of said Article FOURTH to remain unchanged: FOURTH: The authorized number of shares of the corporation is 150,000,000 common shares, each with a par value of twelve and one-half cents ($.125) (designated as "common shares") and 2,000,000 preferred shares, without par value (designated as "Preferred Shares"). 30 EX-11 3 EXHIBIT 11 1 Exhibit 11 Ohio Casualty Corporation and Subsidiaries Computation of Earnings Per Share on Primary and Fully Diluted Basis for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994 ---- ---- ---- Net income applicable to common stock (in thousands) $102,457 $99,735 $96,891 ======== ======= ======= Average common shares outstanding (shares in thousands) 35,247 35,750 36,033 Average number of common shares issuable upon exercise of stock options, less common shares assumed to have been repurchased with the proceeds from the assumed exercise of outstanding stock options. Number of shares repurchased is based on the average market price during year. 3 17 0 -------- ------- ------- 35,250 35,767 36,033 ======== ======= ======= Net income per average share on a primary basis $ 2.91 $ 2.79 $ 2.69 ======== ======= ======= Average common shares outstanding (shares in thousands) 35,247 35,750 36,033 Average number of common shares issuable upon exercise of stock options, less common shares assumed to have been repurchased with the proceeds from the assumed exercise of outstanding stock options. Number of shares repurchased is based on higher of average market price during the year, or market price at end of year. 8 17 5 -------- ------- ------- 35,255 35,767 36,038 ======== ======= ======= Net income per average share on a fully diluted basis $ 2.91 $ 2.79 $ 2.69 ======== ======= =======
31 EX-13 4 EXHIBIT 13 1 EXHIBIT 13 OHIO CASUALTY CORPORATION & SUBSIDIARIES FINANCIAL HIGHLIGHTS
(in thousands) 1996 1995 1994 ======================================================================================== Gross premiums and finance charges $1,240,354 $1,294,541 $1,332,279 Investment income, less expenses 183,308 188,107 185,708 Income before investment gains 64,941 91,400 77,083 Realized investment gains, after taxes 32,287 3,963 14,231 Income from discontinued operations 5,229 4,372 5,896 Cumulative effect of accounting changes 0 0 (319) Net income 102,457 99,735 96,891 Property and casualty combined ratio 109.5% 104.0% 103.8% PER COMMON SHARE Income before investment gains $ 1.85 $ 2.56 $ 2.14 Realized investment gains, after taxes 0.91 0.11 0.40 Income from discontinued operations 0.15 0.12 0.16 Cumulative effect of accounting changes 0.00 0.00 (0.01) Net income 2.91 2.79 2.69 Book value 33.44 31.39 23.64 Dividends 1.60 1.52 1.46 FINANCIAL CONDITION Assets $3,889,981 $3,980,142 $3,738,956 Shareholders' equity 1,175,100 1,111,014 850,790 Average shares outstanding 35,247 35,750 36,033 Shares outstanding on December 31 35,141 35,396 35,993 Number of shareholders 6,500 6,100 6,100
2 OHIO CASUALTY CORPORATION & SUBSIDIARIES TEN-YEAR SUMMARY OF OPERATIONS
(in millions) 1996 1995 1994 1993 =================================================================================================== CONSOLIDATED OPERATIONS Income after taxes Property and casualty $66.1 $92.5 $79.3 $53.5 Premium finance 0.3 0.7 0.7 0.8 Corporate expenses (1.5) (1.8) (2.9) (2.8) - --------------------------------------------------------------------------------------------------- Operating income 64.9 91.4 77.1 51.5 Realized investment gains (losses) 32.3 4.0 14.2 28.7 - --------------------------------------------------------------------------------------------------- Income from continuing operations 97.2 95.4 91.3 80.2 Discontinued operations 5.3 4.3 5.9 6.8 Cumulative effect of accounting changes 0.0 0.0 (0.3) 0.0 - --------------------------------------------------------------------------------------------------- Net income 102.5 99.7 96.9 87.0 =================================================================================================== Income after taxes per average share outstanding Property and casualty 1.88 2.59 2.20 1.49 Premium finance 0.01 0.02 0.02 0.02 Corporate expenses (0.04) (0.05) (0.08) (0.08) - --------------------------------------------------------------------------------------------------- Operating income 1.85 2.56 2.14 1.43 Realized investment gains (losses) 0.91 0.11 0.40 0.80 Discontinued operations 0.15 0.12 0.16 0.19 Cumulative effect of accounting changes 0.00 0.00 (0.01) 0.00 - --------------------------------------------------------------------------------------------------- Net income 2.91 2.79 2.69 2.42 =================================================================================================== Average shares outstanding 35.2 35.8 36.0 36.0 Total assets 3,890.0 3,980.1 3,739.0 3,816.8 Shareholders' equity 1,175.1 1,111.0 850.8 862.3 Book value per share 33.44 31.39 23.64 23.93 Dividends paid per share 1.60 1.52 1.46 1.42 Percent increase over previous year 5.3% 4.1% 2.8% 6.0% PROPERTY AND CASUALTY OPERATIONS Gross premiums written 1,239.5 1,293.6 1,331.2 1,349.7 Net premiums written 1,209.0 1,250.6 1,286.4 1,306.0 Premiums earned 1,223.4 1,264.6 1,297.7 1,379.4 GAAP underwriting gain (loss) before taxes (112.2) (68.8) (92.9) (147.3) Loss ratio 66.5% 61.2% 61.6% 64.9% Loss expense ratio 9.7% 10.2% 10.0% 11.8% Underwriting expense ratio 33.3% 32.6% 32.2% 33.6% Combined ratio 109.5% 104.0% 103.8% 110.3% Investment income before taxes 179.4 184.6 183.8 190.4 Per average share outstanding 5.09 5.16 5.10 5.29 Percent increase over previous year (1.4)% 1.2% (3.6)% (2.2)% Property and casualty reserves Unearned premiums 491.4 505.8 517.8 529.6 Losses 1,215.8 1,268.1 1,303.6 1,378.0 Loss adjustment expense 331.8 356.1 367.3 390.6 Statutory policyholders' surplus 984.9 876.9 660.0 713.6 Percent increase (decrease) over previous year 12.3% 32.9% (7.5)% 5.8%
3
10-Year Compound 1992 1991 1990 1989 1988 1987 Annual Growth ============================================================================================== $61.2 $103.2 $93.4 $108.1 $133.4 $90.2 0.7% 1.5 2.1 2.2 2.3 2.5 2.1 -16.4% (4.9) (6.2) (1.0) (1.1) (0.7) (0.3) 22.3% - ---------------------------------------------------------------------------------------------- 57.8 99.1 94.6 109.3 135.2 92.0 0.2% 35.1 9.8 (8.7) (10.5) (14.2) (17.9) 0.4% - ---------------------------------------------------------------------------------------------- 92.9 108.9 85.9 98.8 121.0 74.1 0.3% 4.1 (1.0) (1.8) 2.7 7.0 4.5 -4.5% 1.5 0.0 0.0 0.0 0.0 0.0 0.0% - ---------------------------------------------------------------------------------------------- 98.5 107.9 84.1 101.5 128.0 78.6 0.0% ============================================================================================== 1.70 2.88 2.43 2.53 3.06 2.00 3.2% 0.04 0.06 0.06 0.05 0.06 0.05 -12.9% (0.14) (0.17) (0.02) (0.02) (0.02) 0 0.0% - ---------------------------------------------------------------------------------------------- 1.60 2.77 2.47 2.56 3.10 2.05 2.8% 0.98 0.27 (0.23) (0.25) (0.32) (0.41) 2.8% 0.12 (0.03) (0.05) 0.06 0.16 0.10 4.1% 0.04 0.00 0.00 0.00 0.00 0.00 0.0% - ---------------------------------------------------------------------------------------------- 2.74 3.01 2.19 2.37 2.94 1.74 2.5% ============================================================================================== 36.0 35.8 38.4 42.8 43.6 45.0 -2.3% 3,760.7 3,531.3 3,252.9 3,145.7 2,922.0 2,682.4 4.6% 825.2 774.5 651.2 775.0 718.5 615.7 6.8% 23.43 21.58 18.19 18.46 16.65 13.93 9.6% 1.34 1.24 1.16 1.04 0.94 0.84 7.9% 8.1% 6.9% 11.5% 10.6% 11.9% 12.0% 0.0% 1,541.5 1,519.3 1,492.1 1,404.5 1,383.6 1,398.2 -0.8% 1,508.5 1,492.3 1,468.4 1,377.6 1,353.2 1,359.6 -0.7% 1,517.6 1,469.1 1,438.0 1,364.2 1,339.6 1,356.6 0.0% (130.8) (74.5) (79.4) (62.6) (16.3) (39.6) 63.7% 60.4% 61.4% 58.4% 55.2% 56.8% 0.0% 10.8% 10.6% 10.9% 12.1% 11.8% 12.7% 0.0% 33.5% 33.9% 33.0% 33.2% 33.8% 33.4% 0.0% 108.0% 104.9% 105.3% 103.7% 100.8% 102.9% 0.0% 194.6 191.6 176.7 187.7 169.8 156.9 2.5% 5.41 5.34 4.59 4.38 3.89 3.48 5.1% 1.3% 16.3% 4.8% 12.6% 11.8% 12.3% 0.0% 596.1 605.2 582.0 551.6 538.2 524.5 -0.6% 1,309.2 1,216.1 1,148.9 1,061.5 979.3 929.4 4.4% 364.0 350.0 335.1 308.5 273.1 242.0 5.7% 674.2 643.4 465.8 531.6 452.1 442.4 8.1% 4.8% 38.1% (12.4)% 17.6% 2.2% (2.2)% 0.0%
4 MANAGEMENT'S DISCUSSION & ANALYSIS RESULTS OF OPERATIONS Net income increased 2.8% for 1996 to $102.5 million or $2.91 per share while the combined ratio increased by 5.5 points to 109.5%. Losses were negatively impacted by catastrophes with $62.2 million of catastrophe losses in 1996 versus only $27.3 million in 1995. The underwriting expense ratio was up slightly due to a decline in premiums written; however, underwriting expenses actually declined over $3.8 million versus 1995. Net premiums written declined for the fourth straight year to $1.2 billion. The premium decline is attributable to the Corporation's continued repositioning strategy where coastal exposures are reduced, agents with insufficient premium volume are canceled, and states with poor regulatory or legal environments are avoided. During 1996, 254 agents were canceled accounting for more than $27.1 million in written premium. The largest decline in premium occurred in the workers' comp line of business with a 17.9% decline. The largest premium decline in individual states came in Pennsylvania with a $11.9 million decline. With our repositioning completed, it is believed that our efforts will be rewarded with overall premium growth in 1997. As a leading indicator, our key agents showed positive growth for 1996. Net cash used by operations was $20.3 million compared with cash used of $74.7 million in 1995 and cash generated of $45.7 million in 1994. Investing activities produced net cash of $119.1 million in 1996, compared with $169.2 million in 1995 and $39.3 million in 1994. Dividend payments were $56.4 million in 1996 compared with $54.3 million in 1995 and $52.6 million in 1994. Total cash used for financing activities was $75.4 million in 1996 compared with $85.0 million in 1995 and $86.8 million in 1994. Overall, total cash generated in 1996 was $23.3 million, compared with $9.6 million in 1995 versus net cash used of $1.8 million in 1994. The fourth quarter of 1996 yielded a combined ratio of 98.6%, the same result as the fourth quarter of 1995. The fourth quarter results were especially encouraging after the heavy catastrophe losses suffered in the first three quarters of the year. Branch consolidation continued in 1996 with the number of branches decreasing from 36 in 1995 to 29 in 1996. The efficiencies that are produced through these consolidations can be seen in our declining underwriting expenses. The Corporation expects to close an additional 15 branches in 1997. In order to evaluate corporate performance relative to shareholders' expectations, the Corporation calculates a five-year average return on equity. Net income and unrealized gains and losses on investments are included in the calculation to derive a total return. A five-year average is used to correspond to our planning horizon and emphasize consistent long term returns, not intermediate fluctuations. At December 31, 1996, our five-year average return on equity was 13.9% down from the 16% calculated at December 31, 1995. PROPERTY AND CASUALTY In a continuing effort to maximize the use of technology in our industry, we expanded our internet applications in 1996. We now quote auto insurance through the internet in 27 states and have begun to log sales from this endeavor. In addition to the direct benefits of our internet presence, we receive collateral sales through increased name recognition. This is just another part of our continuing efforts at becoming more customer focused. A significant part of this focus is maximizing the ease and convenience of buying our product. In addition to identifying new marketing opportunities, we continue working to improve customer retention through improved service and better products thus leading to increased premium income and profitability. This focus on our policyholders has yielded a policyholder retention of 84.1% in 1996 and 83.1% in 1995. Our goal is to achieve a minimum 85% retention ratio. By retaining valued customers, the Corporation is able to improve premium volume while limiting the higher expense associated with new business underwriting. 5 Property and casualty operating income was $66.1 million, $1.88 per share, in 1996 compared with $92.5 million, $2.59 per share, in 1995 and $79.3 million, $2.20 per share in 1994. Catastrophe losses in 1996 totaled $62.2 million compared with $27.3 million in 1995 and $36.6 million in 1994. The losses in 1996 came from 39 separate catastrophes, primarily winter and spring storms in the Midwest. Catastrophe losses added 5.1 points to the combined ratio in 1996 compared with 2.2 points in 1995 and 2.8 points in 1994. Statutory surplus, a traditional insurance industry measure of strength and underwriting capacity, was $984.9 million at December 31, 1996 compared with $876.9 million at December 31, 1995 and $660.0 million at December 31, 1994. The increases in 1996 and 1995 were due primarily to the unrealized gains in our investment portfolio. The ratio of premiums written to statutory surplus has not exceeded 1.7 to 1 for any property and casualty company in The Ohio Casualty Group in any of the last three years. This ratio is one of the measures used by insurance regulators to gauge the financial strength of an insurance company and indicates the ability of the Corporation to grow by writing additional business. Currently, the Corporation's ratio is 1.2 to 1. Ratios below 3 to 1 generally indicate additional capacity and financial strength. The National Association of Insurance Commissioners has developed a "Risk Based Capital" formula for property and casualty insurers and life insurers. The formulas are intended to measure the adequacy of an insurer's capital given the asset structure and product mix of the company. Under the current formulas, all insurance companies in The Ohio Casualty Group have at least twice the necessary capital.
PREMIUM DISTRIBUTIONS BY TOP STATES 1996 1995 1994 New Jersey 18.3% 18.1% 16.3% Ohio 10.2% 9.6% 9.7% Pennsylvania 9.4% 10.0% 11.0% Kentucky 7.2% 6.5% 6.4% Illinois 5.0% 5.1% 4.9%
The premium growth in New Jersey is being driven primarily by the private passenger auto line of business which grew 11.1% in 1995 and an additional .4% in 1996. New Jersey requires insurers to write all auto business that meets underwriting guidelines regardless of risk concentration. Net written premiums for this state were $221.2 million for 1996. PREMIUM FINANCE Premium finance operating income decreased to $.3 million in 1996 compared with $.7 million in 1995 and 1994. Revenues were again down due to repositioning and the movement away from premium financing to our commercial lines direct billing system.
COMBINED RATIOS 1996 1995 1994 1993 1992 ================================================================================================= Automobile 109.1% 103.9% 101.9% 103.5% 101.0% Commercial Multiple Peril, Fire and Inland Marine 115.0% 105.7% 108.6% 124.2% 118.2% General Liability 89.1% 105.3% 90.3% 120.6% 83.3% Workers' Compensation 94.3% 93.7% 87.8% 111.3% 130.0% Homeowners 135.9% 113.7% 135.7% 118.0% 118.9% Fidelity and Surety 73.4% 84.5% 72.8% 79.1% 99.0% - ------------------------------------------------------------------------------------------------- Total 109.5% 104.0% 103.8% 110.3% 108.0% =================================================================================================
6 DISCONTINUED OPERATIONS During 1995, the Corporation's life operations were discontinued. We found it increasingly difficult to achieve our targeted 16% rate of return in this segment of our business. After extensive analysis, it was determined that a 16% return could not be achieved without substantial capital contributions and a dramatic overhaul of the life operations. Since this was a small segment of our overall business, it was decided that this would not be a prudent use of our capital. Therefore, on October 2, 1995, the Corporation signed the final documents to reinsure the existing blocks of business and enter a marketing agreement with Great Southern Life Insurance Company. This will provide our agents and policyholders access to quality life insurance products to meet their financial needs. The existing blocks of business were reinsured through a 100% coinsurance arrangement. As of December 31, 1996, $12.9 million of the net ceding commission from the transaction remains unamortized, compared with $16.7 million unamortized at December 31, 1995. This will be amortized into income over the expected remaining life of the underlying reinsured policies, in this case, 14 years. An assumption is scheduled for the second quarter of 1997 whereby Great Southern will legally replace Ohio Life as the primary carrier on these policies at which time the remaining unamortized gain will be recognized. Until the assumption takes place, investments are retained in the Ohio Life Insurance Company to support its primary liability on the reinsured business. These investments generate ongoing investment income. Once the assumption occurs, these investments will be freed to support continuing operations. Net income from discontinued operations amounted to $5.2 million or $.15 per share in 1996 compared with $4.4 million or $.12 per share in 1995 and $5.9 million or $.16 per share in 1994. REINSURANCE In order to preserve capital and shareholder value, Ohio Casualty Corporation purchases reinsurance to protect the Corporation against large or catastrophic losses. Three separate reinsurance programs have been established to protect the Corporation. The Property Per Risk contract covers Ohio Casualty in the event that an insured sustains a property loss in excess of $1.0 million in a single insured event. The Casualty Per Occurrence contract covers the Corporation in the event that an insured sustains a liability loss in excess of $1.0 million in a single insured event. On both of these contracts, Ohio Casualty pays the first $1.0 million in losses. Property reinsurance covers $15.0 million in excess of the retention. Casualty reinsurance covers $11.0 million in excess of the retention; and workers' compensation reinsurance covers $74.0 million in excess of the retention. In 1997, the Corporation added two layers of Workers' Compensation Catastrophe Excess of Loss protection. These layers provide $51.0 million in additional coverage over the 1996 program. The Catastrophe Reinsurance contract protects the Corporation against an accumulation of losses arising from one defined catastrophic occurrence or series of events. The 1996 program provided $125.0 million coverage in excess of the Corporation's $25.0 million retention. An additional layer provided $50.0 million in excess of $150.0 million coverage for New Jersey only. The 1997 Catastrophe Program provides $150.0 million coverage in excess of the Corporation's $25.0 million retention. Total reinsurance protection increased 20% in 1997 due to a larger participation by reinsurers. The New Jersey-only layer was non-renewed for the 1997 program. Over the last twenty years, there were two events that triggered coverage under our catastrophe contract. Losses and loss adjustment expenses from the Oakland Fires in 1991 and Hurricane Andrew in 1992 totaled $31.4 million and $28.9 million, respectively. Both of these losses exceeded our prior retention amount of $13.0 million. The Corporation recovered $29.5 million from reinsurers as a result of these events. Our reinsurance limits are designed to cover our exposure to an event expected to occur once every 300 years. Since the Corporation's reinsurance protection is an important component in our financial plan, we closely monitor the financial health of each of our reinsurers. Annually, financial statements are reviewed and various ratios calculated to identify reinsurers who have ceased to meet our 7 high standards of financial strength. If any reinsurers fail these tests, they are removed from the program at renewal. LOSS AND LOSS ADJUSTMENT EXPENSES The Corporation's largest liabilities are the reserves for losses and loss adjustment expenses. Loss and loss adjustment expense reserves are established for all incurred claims and are carried on an undiscounted basis before any credits for reinsurance recoverable. These reserves amounted to $1.6 billion at December 31, 1996 and 1995 compared with $1.7 billion at December 31, 1994. As claims are paid, the related reserves are closed and any under- or over-estimation of the claim reserve is closed to net income at that time. In 1996, the Corporation continued the use of an 800 number for direct reporting of claims. The percentage of all claims handled by direct reporting was approximately 50% in 1996. This was almost two-thirds more than was handled by direct reporting in 1995. The Corporation routinely receives positive feedback on this option from our policyholders. In recent years, environmental liability claims have expanded greatly in the insurance industry. Fortunately, Ohio Casualty has a substantially different mix of business than the industry. We have historically written small commercial accounts, and have not attracted significant manufacturing liability coverage. As a result, our environmental liability claims are substantially below the industry average. Our liability business reflected our current mix of approximately 67% contractors, 14% building/premises, 14% mercantile and only 5% manufacturers. Within the manufacturing category, we have concentrated on the light manufacturers which further limits our exposure to environmental claims. In 1996 the Corporation analyzed incurred but not reported reserves for general liability and commercial multiple peril to segregate between asbestos and environmental losses and all other losses. As a result of this analysis, an additional $27.4 million in reserves was identified as asbestos and environmental related. Based on this examination, an estimated liability of $41.0 million was carried at year end 1996. Of this, reserves on known claims totaled $13.6 million at year end 1996 compared with $14.4 million and $10.4 million at year end 1995 and 1994, respectively. Approximately $5.2 million in reserves are for asbestos claims. The remainder are primarily for pre-1985 pollution claims. These loss estimates are based on the currently available information. However, given the expansion of coverage and liability by the courts and legislatures, there is some uncertainty as to the ultimate liability. The Corporation's insurance subsidiaries changed their pollution exclusion policy language between 1985 and 1987 to effectively eliminate these coverages. CALIFORNIA WITHDRAWAL On June 15, 1992, the Corporation announced its intention to withdraw its business operations from California due to the lack of profitability and the difficult regulatory environment. In December 1992, the Corporation stopped writing business in California and filed a withdrawal plan with the California Department of Insurance. Under the terms of the plan, The Ohio Casualty Insurance Company, Ohio Security Insurance Company, and West American Insurance Company would withdraw from California, leaving American Fire and Casualty Company licensed to wind down the affairs of the Group. Also, the plan required the withdrawing companies to transfer their California liabilities to American Fire and Casualty Company along with assets to secure those liabilities. In April 1995, the California Department of Insurance gave final approval for withdrawal and the Corporation implemented the withdrawal plan. Proposition 103 was passed in the State of California in 1988 in an attempt to legislate premium rates for that state. Based on previous statements by the California Department of Insurance and the Corporation's lack of profitability in the state, it was concluded that no significant liability for premium rollbacks existed. However, at the end of 1994, and again in 1995, the State of California billed the Corporation for varying amounts. To date, the Corporation has received three billings and one set of written testimony from the State, each asserting a different liability. 8 The most current indication of the State's position is the filed written testimony of the State's expert witness indicating the Corporation should not be required to pay in excess of $42.1 million plus interest as a Proposition 103 assessment. Our current reserve of $74.4 million is based on this testimony. We made no additions to reserves for principal amounts in 1996; however, we continue to accrue interest on the assessed liability. Reserving for this alleged liability negatively impacted net income by $2.7 million or $.08 per share in 1996, $14.9 million or $.42 per share in 1995 and $30.7 million or $.85 per share in 1994. The Corporation is currently involved in Proposition 103 hearings with the State of California. The final arguments are expected to conclude in the first quarter of 1997. A ruling from the Administrative Law Judge is expected in the second quarter of 1997. At that time the Insurance Commissioner will have 60 days to take the ruling under advisement and return with his ruling. The Corporation will continue to challenge the validity of any rollback and plans to continue negotiations with Department officials. It is uncertain when this will ultimately be resolved. INVESTMENTS Consolidated pre-tax investment income from continuing operations decreased 2.5% to $183.3 million in 1996 compared with $188.1 million in 1995 and $185.7 million in 1994. Of greater importance, after-tax investment income totaled $138.6 million in 1996 compared with $138.4 million in 1995 and $142.5 million in 1994. Pre-tax and after-tax investment income comparisons versus 1995 are impacted by an increased exposure to municipal bonds in 1996. Investment income growth over the past few years has been impacted by negative cash flow from underwriting activities, a decline in average portfolio yields and the sale of our life insurance subsidiary. The negative cash flow from underwriting activities has been precipitated by our strategic repositioning. Cash flow also continues to be impacted by our share repurchase program. At year end 1996, consolidated investments had a carrying value of $3.1 billion. The excess of market value over cost was $499.7 million, compared with a $465.9 million excess at year end 1995 and $105.4 million at year end 1994. The increase in the excess of market value over cost in 1996 was attributable to the strong performance of our equity portfolio, offset somewhat by a decline in the value of our fixed income portfolios. After-tax realized investment gains from continuing operations amounted to $32.3 million in 1996 compared with $4.0 million in 1995 and $14.2 million in 1994. We continue to have no exposure to futures, forwards, caps, floors, or similar derivative instruments as defined by Statement of Financial Accounting Standards No. 119. However, as noted in footnote number 13, we have an interest rate swap with Chase Manhattan Bank covering our term loan. This swap is not classified as an investment but rather as a hedge against a portion of the variable rate loan. As of December 31, 1996, Ohio Casualty maintained a $446.9 million mortgage-backed securities portfolio compared with $403.1 million at December 31, 1995. The majority of our mortgage-backed securities holdings are less volatile planned amortization class, sequential structures and agency pass-through securities. $27.0 million of this portfolio is invested in more volatile bond classes (e.g. interest-only, super-floaters, inverses). Ohio Casualty's fixed income strategy has been to maintain a portfolio with a laddered maturity structure and an intermediate duration. We believe that our portfolio composition and duration continue to be appropriate for our insurance business. Further, we do not try to time the financial markets. Instead, we believe it prudent to remain fully invested at all times, subject only to our liquidity needs. Tax exempt bonds were 34.4% of the fixed income portfolio at year end 1996 versus 37.3% at December 31, 1995. Although the year over year comparison reflects a decreased exposure to municipals, our average exposure throughout the year was substantially higher than it was in 1995. This higher average exposure reflects our internal tax planning strategy as well as our belief that, coming into 1996, municipals were attractive relative to taxable bond alternatives. As 9 1996 unfolded and underwriting results were factored into our tax planning strategy, the municipal portfolio was reduced accordingly. Our commitment to a diversified, growth-oriented equity portfolio remains unchanged. Equity investments have increased as a percentage of our consolidated portfolio from 21.4% in 1995 to 23.5% at year end 1996. This increase is entirely attributable to market appreciation of existing investments as opposed to commitment of new funds. In fact, no new funds have been allocated to equities in the last two years. In 1994, the Corporation implemented SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities." This statement requires the classification of security investments into three categories: held to maturity, trading and available for sale. In order to maintain the ability to actively manage our fixed income portfolios, the Corporation has elected to place all of our fixed income holdings in the available-for-sale category. Therefore, all of our bond investments are now valued at market for balance sheet purposes. During 1996, Ohio Casualty Corporation purchased 264,600 shares of its common stock at a cost of $9.2 million compared with 613,900 shares for $20.9 million in 1995. The Corporation is currently authorized to repurchase 2.1 million additional shares of its common stock to be held as treasury shares for stock options or other general corporate purposes. Since the beginning of 1987, we have repurchased 10.7 million shares at an average cost of $22 per share. We believe that when the market value of our stock fails to reflect the prospects of our operations, repurchasing shares is a prudent use of our capital. In the future, we intend to continue repurchasing shares when doing so makes economic sense for the Corporation and its shareholders. YEAR 2000 Recently, the "Year 2000 Problem" has received extensive press in the insurance industry. Apparently, many of our competitors are making large expenditures in order to convert their computer systems to recognize the year 2000. Most computer systems were originally written with two digit date fields. Therefore, the computer believes that the difference between `99 and `00 is a negative 99 years instead of one year. Since the late 1980's, Ohio Casualty has been converting our computer systems to be year 2000 compliant as we modified and adjusted the programs for other purposes. As such, the Corporation has not had to make such a dedicated and expensive effort to fix the problem. Currently, over 60% of our systems are already compliant, with the remainder expected over the next two years. To date, we have spent approximately $.3 million and expect to spend an additional $.2 million to complete our efforts. 10 OHIO CASUALTY CORPORATION & SUBSIDIARIES CONSOLIDATED BALANCE SHEET
December 31 (in thousands) 1996 1995 1994 ======================================================================================================== ASSETS Investments: Fixed maturities - available for sale, at fair value $2,310,938 $2,407,853 $2,509,961 (Cost: $2,225,517; $2,276,150; $2,586,687) Equity securities, at fair value 721,152 661,154 520,025 (Cost: $306,865; $326,999; $337,814) Short-term investments at cost 41,546 14,399 13,550 - -------------------------------------------------------------------------------------------------------- Total investments 3,073,636 3,083,406 3,043,536 Cash 20,078 23,883 15,106 Premiums and other receivables 186,676 196,175 199,167 Deferred policy acquisition costs 116,684 119,795 165,633 Property and equipment 42,239 43,846 35,404 Reinsurance recoverable 362,683 446,167 87,748 Deferred income taxes 0 0 118,370 Other assets 87,985 66,870 73,992 - -------------------------------------------------------------------------------------------------------- Total assets $3,889,981 $3,980,142 $3,738,956 ======================================================================================================== LIABILITIES Insurance reserves: Unearned premiums $491,613 $506,035 $518,075 Losses 1,224,873 1,275,077 1,304,514 Loss adjustment expenses 331,797 356,107 367,309 Future policy benefits 280,002 360,074 352,400 Note payable 50,000 60,000 70,000 California Proposition 103 reserve 74,376 70,167 47,278 Deferred income taxes 27,993 2,112 0 Other liabilities 234,227 239,556 228,590 - -------------------------------------------------------------------------------------------------------- Total liabilities 2,714,881 2,869,128 2,888,166 - -------------------------------------------------------------------------------------------------------- Commitments and contingent liabilities (see Notes 1 and 8) SHAREHOLDERS' EQUITY Common stock, $.125 par value 5,850 5,850 5,850 Authorized: 150,000,000 shares Issued shares: 46,803,872 (See Note 16) Additional paid-in capital 3,603 3,422 3,271 Unrealized gain on investments, net of applicable income taxes 332,042 305,049 69,610 Retained earnings 1,076,545 1,030,468 985,068 Treasury stock, at cost (Shares: 11,662,559; 11,407,745; 10,810,616) (242,940) (233,775) (213,009) - -------------------------------------------------------------------------------------------------------- Total shareholders' equity 1,175,100 1,111,014 850,790 - -------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $3,889,981 $3,980,142 $3,738,956 ======================================================================================================== See notes to consolidated financial statements
11 OHIO CASUALTY CORPORATION & SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME
Year ended December 31 (in thousands) 1996 1995 1994 ================================================================================================================= Premiums and finance charges earned $1,226,651 $1,268,269 $1,298,861 Investment income less expenses 183,308 188,107 185,708 Investment gains realized, net 49,672 6,096 21,894 - ----------------------------------------------------------------------------------------------------------------- Total income 1,459,631 1,462,472 1,506,463 - ----------------------------------------------------------------------------------------------------------------- Losses and benefits for policyholders 812,234 774,282 799,295 Loss adjustment expenses 118,354 128,099 130,100 General operating expenses 100,939 89,970 82,418 Amortization of deferred policy acquisition costs 308,856 327,055 338,046 California Proposition 103 reserve, including interest 4,210 22,889 47,278 - ----------------------------------------------------------------------------------------------------------------- Total expenses 1,344,593 1,342,295 1,397,137 - ----------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 115,038 120,177 109,326 Income taxes Current 10,173 23,514 26,948 Deferred 7,637 1,300 (8,936) - ----------------------------------------------------------------------------------------------------------------- Total income taxes 17,810 24,814 18,012 - ----------------------------------------------------------------------------------------------------------------- Income before cumulative effect of accounting changes & discontinued operations 97,228 95,363 91,314 Income from discontinued operations net of taxes of $2,663, $4,345 and $1,636 (see Note 17) 5,229 4,372 5,896 Cumulative effect of accounting changes (see Notes 1B and 6) 0 0 (319) - ----------------------------------------------------------------------------------------------------------------- Net income $102,457 $99,735 $96,891 ================================================================================================================= Average shares outstanding 35,247 35,750 36,033 Earnings per share: Income before effect of accounting changes & discontinued operations $2.76 $2.67 $2.54 Income from discontinued operations 0.15 0.12 0.16 Cumulative effect of accounting changes 0.00 0.00 (0.01) - ----------------------------------------------------------------------------------------------------------------- Net income per share $2.91 $2.79 $2.69 ================================================================================================================= See notes to consolidated financial statements
12 OHIO CASUALTY CORPORATION & SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
Additional Unrealized Total Common paid-in gain (loss) Retained Treasury shareholders' stock capital on investments earnings stock equity ========================================================================================================================= (in thousands) Balance, January 1, 1994 $2,925 $6,185 $124,284 $940,774 ($211,830) $862,338 Cumulative effect of accounting change, net of applicable taxes 116,144 116,144 Unrealized loss (262,117) (262,117) Deferred income tax on net unrealized loss 91,299 91,299 Net issuance of treasury stock under stock option plan and by charitable donation (13,232 shares) 11 233 244 Repurchase of treasury stock (50,000 shares) (1,412) (1,412) Net income 96,891 96,891 Cash dividends paid ($1.46 per share) (52,597) (52,597) Stock split (April 22, 1994) 2,925 (2,925) 0 - ------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 $5,850 $3,271 $69,610 $985,068 ($213,009) $850,790 Unrealized gain 360,372 360,372 Deferred income tax on net unrealized gain (124,933) (124,933) Net issuance of treasury stock under stock option plan and by charitable donation (16,771 shares) 151 427 578 Repurchase of treasury stock (613,900 shares) (21,193) (21,193) Net income 99,735 99,735 Cash dividends paid ($1.52 per share) (54,335) (54,335) - ------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 $5,850 $3,422 $305,049 $1,030,468 ($233,775) $1,111,014 Unrealized gain 40,297 40,297 Deferred income tax on net unrealized gain (13,304) (13,304) Net issuance of treasury stock under stock option plan and by charitable donation (9,786 shares) 181 3 184 Repurchase of treasury stock (264,600 shares) (9,168) (9,168) Net income 102,457 102,457 Cash dividends paid ($1.60 per share) (56,380) (56,380) - ------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 $5,850 $3,603 $332,042 $1,076,545 ($242,940) $1,175,100 ========================================================================================================================= See notes to consolidated financial statements
13 OHIO CASUALTY CORPORATION & SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS
Year ended December 31 (in thousands) 1996 1995 1994 ================================================================================================================================ Cash flows from: Operations Net income $102,457 $99,735 $96,891 Adjustments to reconcile net income to cash from operations: Changes in: Insurance reserves (169,006) 116,397 (75,586) Income taxes 8,238 (7,157) 557 Premiums and other receivables 9,500 2,993 1,519 Deferred policy acquisition costs 3,111 45,838 3,201 Reinsurance recoverable 83,484 (358,418) 6,326 Other assets (5,613) (11,387) (12,408) Other liabilities (18,442) 14,577 (10,257) California Proposition 103 reserves 4,209 21,353 47,278 Depreciation and amortization 12,388 12,600 11,123 Investment (gains) losses (50,674) (11,199) (23,225) Cumulative effect of accounting changes 0 0 319 - -------------------------------------------------------------------------------------------------------------------------------- Net cash from operations (20,348) (74,668) 45,738 - -------------------------------------------------------------------------------------------------------------------------------- Investing Purchase of securities: Fixed income securities - available for sale (539,690) (944,077) (821,413) Equity securities (74,243) (86,517) (116,852) Proceeds from sales: Fixed income securities - available for sale 501,394 929,890 699,383 Equity securities 122,970 89,771 83,226 Proceeds from maturities and calls: Fixed income securities - available for sale 101,970 132,572 165,835 Equity securities 6,702 47,605 29,078 - -------------------------------------------------------------------------------------------------------------------------------- Net cash from investments 119,103 169,244 39,257 - -------------------------------------------------------------------------------------------------------------------------------- Financing Note payable repayment (10,000) (10,000) (33,000) Proceeds from exercise of stock options 135 578 244 Purchase of treasury stock (9,168) (21,193) (1,412) Dividends paid to shareholders (56,380) (54,335) (52,597) - -------------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activity (75,413) (84,950) (86,765) - -------------------------------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents 23,342 9,626 (1,770) Cash and cash equivalents, beginning of year 38,282 28,656 30,426 - -------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $61,624 $38,282 $28,656 ================================================================================================================================ See notes to consolidated financial statements
14 OHIO CASUALTY CORPORATION & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- ACCOUNTING POLICIES A. The consolidated financial statements have been prepared on the basis of generally accepted accounting principles and include the accounts of Ohio Casualty Corporation and its subsidiaries. All significant inter-company transactions have been eliminated. All dollar amounts except share and per share data are in thousands of dollars. B. Effective January 1, 1994, the Corporation adopted Statement of Financial Accounting Standards 115, "Accounting for Certain Investments in Debt and Equity Securities". Under the provisions of SFAS No. 115 investment securities should be classified upon acquisition into one of the following categories: (1) held to maturity securities (2) trading securities (3) available for sale securities Available for sale securities are those securities that would be available to be sold in the future in response to liquidity needs, changes in market interest rates, and asset-liability management strategies, among others. Available for sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity, net of deferred tax. Equity securities are carried at quoted market values and include non-redeemable preferred stocks and common stocks. Fair values of fixed maturities and equity securities are determined on the basis of dealer or market quotations or comparable securities on which quotations are available. Prior to adoption of SFAS No. 115, securities purchased, where the Corporation had both the intent and ability to hold to maturity, were recorded at cost adjusted for accumulated amortization of premium and accretion of discount. Securities purchased for trading purposes are immaterial and are not presented separately in the Income Statement and the Balance Sheet. As of January 1, 1994, the majority of fixed maturity investments, including bonds, notes and redeemable preferred stock, were reclassified as "available for sale". This necessitated them being marked to market. This accounting change resulted in an increase to shareholders' equity of $116,100 net of tax as of January 1, 1994 and had an immaterial effect on net income. Short-term investments include commercial paper and notes with original maturities of 90 days or less and are stated at cost or amortized cost which approximates market. Short-term investments are deemed to be cash equivalents. Realized gains or losses on disposition of investments are determined on the basis of specific cost of investments. C. Property and casualty insurance premiums are earned principally on a monthly pro rata basis over the term of the policy; the premiums applicable to the unexpired terms of the policies are included in unearned premium reserve. D. Acquisition costs incurred at policy issuance net of applicable ceding commissions are deferred and amortized over the term of the policy for property and casualty insurance, over the estimated life in proportion to future profits of universal life type contracts and over the estimated premium paying period for other life insurance contracts. Deferred policy acquisition costs are reviewed to determine that they do not exceed recoverable amounts, including anticipated investment income. E. Liabilities for future policy benefits are computed based on contract terms and issue date using interest rates ranging from 4% to 8 3/4%, select and ultimate mortality experience and industry withdrawal experience. Interest rates on $230,843 of such liabilities in 1996, $293,732 in 1995 and $287,190 in 1994 are periodically adjusted based on market conditions. Fair value is determined by discounting cash flows at current market interest rates. F. Deferred income taxes result from temporary differences between financial and taxable income. G. Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed principally on the straight-line method over the estimated lives of the assets. H. The Corporation's primary products consist of insurance for: personal auto, commercial property, homeowners, workers' compensation and other miscellaneous lines. Ohio Casualty operates through the independent agency system in 38 states. Of net premiums written, approximately 18.3% was generated in the State of New Jersey, 10.2% in Ohio and 9.4% in Pennsylvania. The insurance industry is subject to heavy regulation that differs by state. A dramatic change in regulation in a given state may have a material adverse impact on the Corporation. I. Net income per share of common stock is based on the weighted average number of shares outstanding during the period. Dilution arising from stock options is insignificant. J. The Corporation is dependent on dividend payments from its insurance subsidiaries in order to meet operating expenses and to pay dividends. Insurance regulatory authorities impose various restrictions and prior approval requirements on the payment of dividends by insurance companies and holding companies. At December 31, 1996, approximately $123,360 of retained earnings are not subject to restriction or prior dividend approval requirements. K. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 -- INVESTMENTS Investment income is summarized as follows: 15
1996 1995 1994 -------- -------- -------- Investment income from: Fixed maturities $176,160 $177,621 $176,975 Equity securities 14,135 14,721 13,868 Short-term securities 2,129 3,096 1,852 -------- -------- -------- Total investment income 192,424 195,438 192,695 Investment expenses 9,116 7,331 6,987 -------- -------- -------- Net investment income $183,308 $188,107 $185,708 ======== ======== ========
Realized and unrealized gains (losses) on investments in securities are summarized as follows:
1996 1995 1994 -------- --------- --------- Realized gains (losses): Fixed maturities $ 4,567 $ (8,104) $ 8,406 Equity securities 41,278 16,913 9,268 Other investments 3,827 (2,713) 4,220 ------- --------- -------- $49,672 $ 6,096 $ 21,894 ======= ========= ======== Unrealized gains (losses): Securities $ 40,297 $ 360,372 $(262,117) Deferred tax (13,304) (124,933) 91,299 Cumulative effect of accounting changes 0 0 116,144 -------- --------- --------- $ 26,993 $ 235,439 $ (54,674) ======== ========= =========
The amortized cost and estimated market values of investments in debt and equity securities are as follows:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value 1996 - ---------------------------------------- ---------- ---------- --------- Securities available for sale: U.S. Government $ 80,822 $ 2,101 $ (382) $ 82,541 States, municipalities and political subdivisions 760,602 34,966 (1,029) 794,539 Debt securities issued by foreign governments 3,000 296 0 3,296 Corporate securities 940,540 50,126 (7,008) 983,658 Mortgage-backed securities: U.S. Government Agency 171,291 12,992 (7,377) 176,906 Other 269,262 14,274 (13,538) 269,998 ---------- ---------- ---------- ---------- Total fixed maturities 2,225,517 114,755 (29,334) 2,310,938 Equity securities 306,865 425,022 (10,735) 721,152 Short-term investments 41,546 0 0 41,546 ---------- ---------- ---------- ---------- Total securities, available for sale $2,573,928 $ 539,777 $ (40,069) $3,073,636 ========== ========== ========== ==========
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value 1995 - ----------------------------------------- ---------- ---------- --------- Securities available for sale: U.S. Government $ 110,628 $ 5,864 $ (5) $ 116,487 States, municipalities and political subdivisions 845,729 52,796 (59) 898,466 Debt securities issued by foreign governments 3,000 423 0 3,423 Corporate securities 927,375 66,309 (7,285) 986,398 Mortgage-backed securities: U.S. Government Agency 168,219 7,556 (5,581) 170,193 Other 221,199 18,281 (6,594) 232,886 ---------- ---------- ---------- ---------- Total fixed maturities 2,276,150 151,229 (19,524) 2,407,853 Equity securities 326,999 336,130 (1,974) 661,154 Short-term investments 14,399 0 0 14,399 ---------- ---------- ---------- ---------- Total securities, available for sale $2,617,548 $ 487,359 $ (21,498) $3,083,406 ========== ========== ========== ==========
Gross Gross Estimated Amortized Unrealized Unrealized Fair 1994 Cost Gains Losses Value - ----------------------------------------- ---------- ---------- ---------- Securities available for sale: U.S. Government $ 89,565 $ 313 $ (1,838) $ 88,040 States, municipalities and political subdivisions 678,915 23,366 (7,961) 694,320 Debt securities issued by foreign governments 39,379 188 (1,502) 38,065 Corporate securities 1,140,432 6,904 (55,398) 1,091,938 Mortgage-backed securities: U.S. Government Agency 397,486 1,540 (27,135) 371,891 Other 240,910 59 (15,262) 225,707 ---------- ---------- --------- ---------- Total fixed maturities 2,586,687 32,370 (109,096) 2,509,961 Equity securities 337,814 202,501 (20,290) 520,025 Short-term investments 13,550 0 0 13,550 ---------- ---------- --------- ---------- Total securities, available for sale $2,938,051 $ 234,871 $(129,386) $3,043,536 ========== ========== ========= ==========
The amortized cost and estimated fair value of debt securities at December 31, 1996, 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.
Estimated Amortized Fair Cost Value ----------- ------------ Due in one year or less $ 19,370 $ 19,740 Due after one year through five years 345,289 357,874 Due after five years through ten years 797,209 834,372 Due after ten years 623,096 652,048 Mortgage-backed securities: U.S. Government Agency 171,291 176,906 Other 269,262 269,998 ========== ========== Total fixed maturities $2,225,517 $2,310,938 ========== ==========
Certain securities were determined to have other than temporary declines in book value and were written down through realized investment losses. Total write-downs were $19,456, $26,290 and $19,030 as of 1996, 1995 and 1994, respectively, representing a reduction in value of $7,055, $9,696 and $6,910 on fixed maturities and $12,401, $16,595 and $12,120 on equity securities. Proceeds from maturities and sales of investments in debt securities during 1996, 1995 and 1994 were $603,364, $1,062,462 and $865,218, respectively. Gross gains of $14,257, $20,834 and $21,694 and gross losses of $10,388, $24,500 and $13,276 were realized on those maturities and sales in 1996, 1995 and 1994, respectively. Covered call options are written on stocks and bonds in the investment portfolio. As a writer of options, a premium is received at the outset with the risk of losing the appreciation if the price of the underlying financial instrument rises above the option strike price. There were no options on stock outstanding at December 31, 1996 or 1994. The outstanding stock options for 1995 were $1,125. There were no options on bonds outstanding at December 31, 1996, 1995 or 1994. Market values of securities can fluctuate greatly in the near term based on such factors as: interest rates, unemployment rates, inflation, monetary policy and general economic conditions. 16 NOTE 3 -- FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and fair values of the Corporation's financial instruments:
Carrying Fair 1996 Amount Value -------- ---------- Assets Cash And Cash Equivalents $ 61,624 $ 61,624 Securities - Available For Sale 3,032,090 3,032,090 Liabilities Future Policy Benefits $ 280,002 $ 280,002 Long-term Debt 50,000 50,000 Carrying Fair 1995 Amount Value ----------- ---------- Assets Cash and cash equivalents $ 38,282 $ 38,282 Securities - available for sale 3,069,007 3,069,007 Liabilities Future policy benefits $ 360,074 $ 360,074 Long-term debt 60,000 60,000
Carrying Fair 1994 Amount Value ----------- ---------- Assets Cash and cash equivalents $ 28,656 $ 28,656 Securities - available for sale 3,029,986 3,029,986 Liabilities Future policy benefits $ 352,400 $ 352,400 Long-term debt 70,000 70,000
See footnote 1 for disclosure related to fair value determination. NOTE 4 -- DEFERRED POLICY ACQUISITION COSTS Changes in deferred policy acquisition costs are summarized as follows:
1996 1995 1994 --------- --------- --------- Deferred, January 1 $ 119,795 $ 165,633 $ 168,835 --------- --------- --------- Additions: Commissions and brokerage 190,461 204,594 212,878 Salaries and employee benefits 47,092 43,867 49,937 Other 66,143 73,090 75,659 --------- --------- --------- Deferral of expense 303,696 321,551 338,474 --------- --------- --------- Amortization to expense Discontinued operations (2,050) 40,333 3,630 Continuing operations 308,856 327,055 338,046 --------- --------- --------- Deferred, December 31 $ 116,685 $ 119,795 $ 165,633 ========= ========= =========
The above schedule includes deferred policy acquisition costs (net of unamortized ceding commission) for discontinued life insurance operations of $(11,486), $(13,535) and $24,749 as of 1996, 1995 and 1994, respectively. See Note 17 for additional information regarding discontinued operations. NOTE 5 -- INCOME TAX The effective income tax rate is less than the statutory corporate tax rate of 35% for 1996, 1995 and 1994 for the following reasons:
1996 1995 1994 ---------- ---------- ---------- Tax at statutory rate $ 40,263 $42,062 $38,264 Tax exempt interest (18,367) (16,150) (17,282) Dividends received deduction (DRD) (4,056) (3,446) (3,472) Proration of DRD and tax exempt interest 3,017 3,319 9,544 Reduction in provision for audit issues (3,000) 0 (9,000) Miscellaneous (47) (971) (42) -------- ------- ------- Actual Tax $ 17,810 $24,814 $18,012 ======== ======= =======
Tax years 1990 through 1992 are being examined by The Internal Revenue Service. Management believes there will not be a significant impact on the financial position or results of operations of the Corporation as a result of this audit. The components of the net deferred tax asset (liability) were as follows:
1996 1995 1994 ---------- ---------- ---------- Unearned premium proration $ 33,833 $ 34,823 $ 35,805 Accrued expenses 59,217 64,658 54,667 Postretirement benefits 27,355 26,331 25,118 Discounted loss and loss expense reserves 81,350 88,589 95,295 --------- --------- ------- Total deferred tax assets 201,755 214,401 210,885 Deferred policy acquisition costs (51,129) (53,616) (55,363) Unrealized gains on investments (178,619) (162,897) (37,152) --------- --------- ------- Total deferred tax liabilities (229,748) (216,513) (92,515) --------- --------- ------- Net deferred tax asset (liability) $ (27,993) $ (2,112) $118,370 ========= ========= ========
Taxes paid amounted to $16,336 in 1996, $37,346 in 1995 and $17,886 in 1994. Although realization of deferred assets is not assured, estimates indicate that current levels of taxable income will comfortably support the realization of the net deferred tax asset in future years. As such, no valuation allowance has been recorded. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced. NOTE 6 -- EMPLOYEE BENEFITS The Corporation has a non-contributory defined benefit retirement plan and contributory health care, life and disability insurance and savings plans covering substantially all employees. Benefit expenses are as follows:
1996 1995 1994 ---------- ---------- ---------- Employee benefit costs: Retirement $ (136) $ (1,689) $ (731) Health care 14,415 13,339 15,517 Life and disability insurance 555 594 740 Savings plan 2,489 2,586 2,685 -------- ------- ------- $ 17,323 $14,830 $18,211 ======== ======= =======
The pension benefit is determined as follows: 17
1996 1995 1994 -------- -------- --------- Service cost/(benefit) earned during the year $ 6,256 $ 5,701 $ 6,077 Interest cost on projected benefit obligation 13,927 13,262 12,404 Actual return on plan assets (19,070) (34,448) (3,785) Amortization of unrecognized net asset existing at January 1 (1,249) 13,796 (15,427) -------- -------- -------- Net pension benefit $ (136) $ (1,689) $ (731) ======== ======== ========
Pension plan funding at December 31: 1996 1995 1994 ---------- ---------- ---------- Plan assets at fair value (primarily fixed income and equity securities) $ 225,681 $ 217,274 $ 193,010 --------- --------- --------- Plan benefit obligations: Vested benefits 160,667 157,371 141,353 Non-vested benefits 2,780 3,046 2,710 Future benefits due to salary increases 34,091 30,591 26,685 --------- --------- --------- Total 197,538 191,008 170,748 --------- --------- --------- Excess plan assets over obligations $ 28,143 $ 26,266 $ 22,262 ========= ========= ========= Unrecognized net gain (loss) $ 1,617 $ (3,082) $ (8,356) Unrecognized net assets 18,102 21,119 24,136 Unrecognized prior service cost (566) (624) (683) Expected long-term return on plan assets 8.75% 8.50% 9.00% Discount rate on plan benefit obligations 7.75% 7.50% 8.00% Expected future rate of salary increases 5.25% 5.25% 5.75%
Pension benefits are based on service years and average compensation using the five highest consecutive years of earnings in the last decade of employment. The pension plan measurement date is October 1 for 1996 and 1995 and December 31 for 1994. The measurement date was changed in 1995 to allow for more timely actuarial calculations. The maximum pension expense deductible for income tax purposes has been funded. Plan assets at December 31, 1996 include $29,899 of the Corporation's common stock at market value. Employee contributions to the health care plan have been established as a flat dollar amount with periodic adjustments as determined by the Corporation. The health care plan is unfunded.
Accrued postretirement benefit liability at December 31: 1996 1995 1994 ---------- ---------- ---------- Accumulated postretirement benefit obligation $(71,797) $(71,519) $(72,695) Unrecognized net loss(gain) (6,203) (2,481) 695 -------- -------- -------- Accrued postretirement benefit liability $(78,000) $(74,000) $(72,000) ======== ======== ======== Postretirement benefit cost at December 31: 1996 1995 1994 ---------- ---------- ---------- Service cost $1,967 $1,883 $2,423 Interest cost 5,412 5,144 5,368 Amortization of loss 0 0 45 ------ ------ ------ Net periodic postretirement benefit cost $7,379 $7,027 $7,836 ====== ====== ====== Postretirement benefit rate assumptions at December 31: 1996 1995 1994 ------ ------ ------- Medical trend rate 9% 10% 11% Dental trend rate 7% 8% 9% Ultimate health care trend rate 5% 5% 5% Discount rate 7.75% 8.0% 7.25%
The postretirement plan measurement date is October 1 for 1996 and 1995 and December 31 for 1994. The measurement date was changed in 1995 to allow for more timely actuarial calculations. Increasing the assumed health care cost trend by 1 percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1996 by approximately $9,491 and increase the postretirement benefit cost for 1996 by $1,685. In 1994 the Corporation's health care plan was changed from an indemnity plan to a predominately managed care plan. Retired employees continue to be eligible to participate in the health care and life insurance plans. Benefit costs are accrued based on actuarial projections of future payments. There are currently 3,156 active employees and 1,335 retired employees covered by these plans. Employees may contribute a percentage of their compensation to a savings plan. A portion of employee contributions is matched by the Corporation and invested in Corporation stock purchased on the open market by trustees of the plan. In the first quarter of 1994, the Corporation adopted the provisions of SFAS 112, "Employers Accounting for Post-Employment Benefits". The effect of this accounting change in 1994 was a $644 after-tax reduction in net income. NOTE 7 - STOCK OPTIONS The Corporation is authorized under provisions of the 1993 Stock Incentive Programs to grant options to purchase 1,293,500 shares of the Corporation's common stock to key executive employees and directors at a price not less than the fair market value of the shares on dates the options are granted. The options granted may be either "Incentive Stock Options" or "Nonqualified Stock Options" as defined by the Internal Revenue Code; the difference in the option plans affects treatment of the options for income tax purposes by the individual employee and the Corporation. The options are non-transferable and exercisable at any time after the vesting requirements are met. Option expiration dates are five and ten years from the grant date. Options vest at 100% six months from the grant date or at 33% per year for three consecutive years from the date of the grant. At December 31, 1996, 1,115,500 remaining options may be granted. In addition, the 1993 Stock Incentive Program provides for the grant of Stock Appreciation Rights in tandem with the stock options. Stock Appreciation Rights provide the recipient with the right to receive payment in cash or stock equal to appreciation in value of the optioned stock from the date of grant in lieu of exercise of the stock options held. The Corporation continues to elect APB 25 for recognition of stock-based compensation expense. However, under the provision of FAS 123 the Corporation is required to estimate on the date of grant the fair value of each option using an option-pricing model. Accordingly, the Black-Scholes option pricing model is used with the following weighted-average assumptions for 1996 and 1995, respectively: dividend yield of 4.5% for both years, expected volatility of 25.3% for both years, risk free interest rate of 6.34% and 6.20%, and 18 expected life of 8 years for both years. The following table summarizes information about the stock-based compensation plan as of December 31, 1996 and 1995, and changes that occurred during the year:
1996 1995 -------------------- ---------------------- Shares Weighted-Avg Shares Weighted-Avg (000) Exercise Price (000) Exercise Price Outstanding beginning of year 74 $30.02 91 $28.71 Granted 127 34.93 12 30.50 Exercised (28) 28.75 (29) 26.11 ---- --- Outstanding end of year 173 $33.84 74 $30.02 ==== === Options exercisable at year-end 52 74 Weighted-Avg fair value of options granted during the year $8.14 $7.02
At year end 1996, 172,500 options were outstanding with an average remaining contractual life of 8.49 years and at a weighted exercise price of $33.8409. Of the amount outstanding, 51,500 were exercisable with a weighted average exercise price of $31.2342. At year end 1995, 73,800 options were outstanding with an average remaining contractual life of 5.81 years and at a weighted exercise price of $30.0167. Of the amount outstanding, 73,800 were exercisable with a weighted average exercise price of $30.0167. Had the Corporation adopted FAS 123, the amount of compensation expense that would have been recognized in 1996 and 1995, respectively, would be $350 and $84. The Corporation's net income and earnings per share would have been reduced to the pro forma amounts disclosed below:
1996 1995 -------- ------- Net Income As Reported: $102,457 $99,735 Pro Forma: $102,229 $99,680 Primary Earnings per share As Reported: $2.91 $2.79 Pro Forma: $2.90 $2.79
NOTE 8 -- REINSURANCE AND OTHER CONTINGENCIES In the normal course of business, the Corporation seeks to reduce the loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk with other insurers or reinsurers. In the event that such reinsuring companies might be unable at some future date to meet their obligations under the reinsurance agreements in force, the Corporation would continue to have primary liability to policyholders for losses incurred. The following amounts are reflected in the financial statements as a result of reinsurance ceded:
1996 1995 1994 ---------- ---------- ---------- Premiums earned $30,534 $41,012 $45,133 Losses incurred 11,846 22,030 8,727 Reserve for unearned premiums 8,062 8,294 6,274 Reserve for losses 61,205 62,847 54,727 Reserve for future policy benefits 280,002 360,074 6,825 Reserve for loss adjustment expenses 8,833 11,272 10,609
Annuities are purchased from other insurers to pay certain claim settlements; should such insurers be unable to meet their obligations under the annuity contracts, the Corporation would be liable to claimants for the remaining amount of annuities. The total amount of unpaid annuities was $25,139, $24,300 and $24,300 at December 31, 1996, 1995 and 1994, respectively. On October 2, 1995, as part of the transaction involving the reinsurance of the Ohio Life business to Employers' Reassurance Corporation, Ohio Casualty Insurance Company agreed to manage a $163,615 fixed income portfolio for Employers' Reassurance. The term of the agreement is seven years, terminating on October 2, 2002. There is no separate fee to Ohio Casualty for this investment management service. The agreement requires that Ohio Casualty pay an annual rate of 7.25% interest to Employers' Reassurance and maintain the market value of the account at $163,615. In the event the market value falls below this amount, Ohio Casualty is required to make up any deficiency. At the termination of the contract, any excess over $163,615 is payable to Ohio Casualty. At December 31, 1996, the market value of the account exceeded the $163,615 required balance by $699 compared with $2,497 in 1995 . The annual interest obligation of 7.25% was also being adequately serviced by the portfolio assets. NOTE 9 -- LOSSES AND LOSS RESERVES The reserves for unpaid losses and loss adjustment expenses are based on estimates of ultimate claim costs, including claims incurred but not reported, salvage and subrogation and inflation without discounting. The methods of making such estimates are continually reviewed and updated, and any resulting adjustments are reflected in earnings currently.
1996 1995 1994 ---------- ---------- ----------- Balance as of January 1, net of reinsurance recoverables of $74,119, $65,336 and $75,738 $ 1,557,065 $ 1,606,487 $ 1,693,551 Incurred related to: Current year 1,009,086 1,008,321 1,084,072 Prior years (76,920) (104,998) (153,717) ----------- ----------- ----------- 932,166 903,323 930,355 Paid related to: Current year 515,025 444,558 483,129 Prior years 487,584 508,187 534,290 ----------- ----------- ----------- Total paid 1,002,609 952,745 1,017,419 Balance as of December 31, net of reinsurance recoverables of $70,048, $74,119 and $65,336 $ 1,486,622 $ 1,557,065 $ 1,606,487 =========== =========== ===========
As a result of favorable development in estimates for insured events of prior years, the incurred related to prior years shows a favorable development. The following table presents catastrophe losses incurred and the respective impact on the loss ratio:
1996 1995 1994 ---- ---- ---- Incurred losses $62,189 $27,277 $36,618 Loss ratio effect 5.1% 2.2% 2.8%
The effect of catastrophes on the Corporation's results cannot be accurately predicted. As such, severe weather patterns could have a material adverse impact on the Corporation's results. Inflation has historically affected operating costs, premium revenues and investment yields as business expenses have increased over time. The long term effects of inflation are considered when estimating the ultimate liability for losses and loss adjustment expenses. The liability is based on historical loss development trends which are 19 adjusted for anticipated changes in underwriting standards, policy provisions and general economic trends. It is not adjusted to reflect the effect of discounting. Reserves for asbestos-related illnesses and toxic waste cleanup claims cannot be estimated with traditional loss reserving techniques. In establishing liabilities for claims for asbestos-related illnesses and for toxic waste cleanup claims, management considers facts currently known and the current state of the law and coverage litigation. However, given the expansion of coverage and liability by the courts and the legislatures in the past and the possibilities of similar interpretations in the future, there is uncertainty regarding the extent of remediation. Accordingly, additional liability could develop. Estimated environmental case reserves of $13,579, $14,467 and $10,400 were included in loss and loss adjustment expense reserves for 1996, 1995 and 1994, respectively. In 1996, the Corporation analyzed incurred but not reported reserves for general liability and commercial multiple peril to segregate between asbestos and environmental losses and all other losses. As a result of this analysis, $27,377 in incurred but not reported reserves were segregated as asbestos and environmental related. This brings total asbestos and environmental reserves as of December 31, 1996 to $40,956. NOTE 10 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1996 First Second Third Fourth - -------------------------------------- ---------- ---------- ----------- Premiums and finance charges earned $310,217 $304,641 $301,054 $310,739 Net investment income 44,988 43,302 46,105 48,913 Investment gains (losses) realized 5,954 14,948 13,507 15,263 Income from continuing operations 2,835 12,652 27,333 54,408 Income from discontinued operations 713 2,181 1,056 1,279 Net income 3,548 14,833 28,389 55,687 Net income per share .10 .43 .81 1.58
1995 First Second Third Fourth - -------------------------------------- ---------- ---------- ----------- Premiums and finance charges earned $ 322,063 $ 317,936 $ 317,165 $ 311,105 Net investment income 47,384 47,106 47,003 46,614 Investment gains (losses) realized 893 (1,904) (430) 7,538 Income from continuing operations 14,406 25,543 10,275 45,139 Income from discontinued operations 706 366 2,942 358 Net income 15,112 25,909 13,217 45,497 Net income per share .42 .72 .37 1.28
A new investment accounting system was implemented in the fourth quarter of 1996. The new system more accurately accrues interest and calculates amortization for mortgage-backed securities. As a result, investment income was increased by $3,977. This adjustment represents a one-time positive impact on income. NOTE 11 -- INDUSTRY SEGMENT INFORMATION
1996 1995 1994 ------------ ------------ ------------ Property and Casualty Insurance Revenue $1,453,623 $1,456,242 $1,501,883 Income before taxes 116,906 121,741 112,796 Identifiable assets 3,437,622 3,457,750 3,250,625 Premium Finance and Other Revenue 6,008 6,230 4,580 Loss before taxes (1,868) (1,564) (3,470) Identifiable assets 65,039 26,939 69,392 Discontinued Operations (Life Insurance) Revenue 10,396 (335,835) 52,187 Income before taxes 7,892 8,717 7,532 Identifiable assets 347,477 511,818 418,939
NOTE 12 -- STATUTORY ACCOUNTING INFORMATION The following information has been prepared on the basis of statutory accounting principles which differ from generally accepted accounting principles. The principal differences relate to deferred acquisition costs, required statutory reserves, assets not admitted for statutory reporting, California Proposition 103 reserve and deferred federal income taxes.
1996 1995 1994 -------- ------- -------- Property and Casualty Insurance Statutory net income $104,137 $103,802 $126,419 Statutory policyholders' surplus 984,859 876,918 659,997 Life Insurance Statutory net income 4,885 38,981 2,780 Statutory policyholders' surplus 58,511 92,297 43,090
The Ohio Casualty Insurance Company, domiciled in Ohio, prepares its statutory financial statements in accordance with the accounting practices prescribed or permitted by the Ohio Insurance Department. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners (NAIC), as well as state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The Company received written approval from the Ohio Insurance Department to have the California Proposition 103 liability reported as a direct charge to surplus and not included as a charge in the 1995 or 1994 statutory statement of operations. NOTE 13 -- BANK NOTE PAYABLE In 1994, $70,000 was borrowed under a new credit facility to replace existing debt. The new term loan has a final maturity in 2001 with equal semi-annual installment payments of $5,000 beginning in April, 1995. On March 26, 1996, the Corporation entered into an interest rate swap. The effect of the swap agreement was to establish a fixed rate of 6.34% on one-half of the outstanding loan balance. The remaining loan balance bears interest at a periodically adjustable rate. The interest rate was 6.33% at December 31, 1996. The interest rate is determined on various bases including prime rates, certificate of deposit rates and the London Interbank Offered Rate. Interest incurred on borrowings amounted to $3,769, $4,474 and $4,102 in 1996, 1995 and 1994, respectively. 20 Under the loan agreement, statutory surplus is $484,859 in excess of the minimum amount required to be maintained at December 31, 1996. NOTE 14 -- CALIFORNIA WITHDRAWAL As a result of the lack of profitability and the difficult regulatory environment, the Corporation announced its intention to withdraw from business operation in California on June 15, 1992. In December 1992, the Corporation stopped writing business in California and filed a withdrawal plan with the California Department of Insurance. Under the terms of the plan, subsidiary American Fire and Casualty Company would wind down the affairs of the Group. In November 1994, the California Department of Insurance published the required notices of the withdrawal application. In April 1995, the California Department of Insurance gave final approval for withdrawal, and the Corporation implemented the withdrawal plan. Proposition 103 was passed in the State of California in 1988 in an attempt to legislate premium rates for that state. Even after considering investment income, total returns in California have been less than what would be considered "fair" by any reasonable standard. During the fourth quarter of 1994, the State of California billed the Corporation $59,867 for Proposition 103 assessment. In February 1995, California revised this billing to $47,278 due to California Senate Bill 905 which permits reduction of the rollback due to commissions and premium taxes paid. The billing was revised again in August of 1995, and at present, the State has indicated the Corporation should not be required to pay in excess of $42,100 plus interest as a Proposition 103 assessment. As a result, the Corporation's reserve for this alleged liability is $74,376. The Corporation is currently involved in hearings with the State of California. The final arguments are expected to conclude in the first quarter of 1997. A ruling from the Administrative Law Judge is expected in the second quarter of 1997. At that time the Insurance Commissioner will have 60 days to take the ruling under advisement and return with his ruling. The Corporation will continue to challenge the validity of any rollback and plans to continue negotiations with Department officials. It is uncertain when this will ultimately be resolved. To date, the Corporation has paid $2,889 in legal costs related to the withdrawal, Proposition 103, and Fair Plan assessments. NOTE 15 -- SHAREHOLDER RIGHTS PLAN On December 15, 1989, the Board of Directors adopted a Shareholder Rights Plan and declared a dividend of one Common Share Purchase Right expiring in 1999 for each outstanding share of common stock. Each right entitles the registered holder, under certain conditions, to purchase one share of common stock at a price of $75, subject to adjustment at the time rights become exercisable if a person or group acquires or announces its intention to acquire 20% or more of the common stock of the Corporation without the prior approval of the Board of Directors. The rights may be redeemed for one cent per right at any time prior to becoming exercisable. NOTE 16 -- STOCK SPLIT On February 17, 1994, the Board of Directors declared a stock split in which one share was distributed for each share outstanding. This 2 for 1 split pertained to shareholders of record on April 1, 1994. The result of the stock split increased issued shares from 23,401,936 to 46,803,872. All per share information presented reflects the stock split. NOTE 17 -- DISCONTINUED OPERATIONS (LIFE INSURANCE) Discontinued operations include the operations of Ohio Life, a subsidiary of the Ohio Casualty Insurance Company. On October 2, 1995, the Company transferred its life insurance and related businesses through a 100% coinsurance arrangement to Employers' Reassurance Corporation and entered into an administrative and marketing agreement with Great Southern Life Insurance Company. In connection with the reinsurance agreement, $144,469 in cash and $161,401 of securities were transferred to Employers' Reassurance to cover the liabilities of $348,479. Ohio Life received an adjusted ceding commission of $37,641 as payment. After deduction of deferred acquisition costs, the net ceding commission from the transaction was $17,284. As of December 31, 1996, $12,918 of that gain remains unamortized. This balance will be amortized over 14 years, the remaining expected life of the underlying reinsured policies. It is anticipated that Great Southern will replace Ohio Life as the primary carrier of these policies in the second quarter of 1997 through an assumption. At that time, the remaining unamortized gain will be recognized. Results of the discontinued life insurance operations for the years ended December 31 were as follows:
1996 1995 1994 -------- --------- -------- Gross premiums written $ 1,428 $ 38,580 $ 28,210 Net premiums earned 4,582 (345,080) 22,774 Net investment income 4,812 4,143 28,082 Realized investment gains 1,002 5,102 1,331 -------- ---------- --------- Total income 10,396 (335,835) 52,187 Income before income taxes 7,892 8,717 7,532 -------- ---------- --------- Provision for income -------- ---------- --------- taxes 2,663 4,345 1,636 -------- ---------- --------- Net income $ 5,229 $ 4,372 $ 5,896 ======== ========== =========
Assets and liabilities of the discontinued life insurance operations as of the years ended December 31 were as follows:
1996 1995 1994 --------- --------- -------- Cash $ 1,150 $ 9,793 $ 6,197 Investments 71,313 107,603 359,138 Receivables (4) 5,165 2,773 Deferred policy acquisition costs, net of unamortized ceding commission (11,486) (13,535) 24,749 Reinsurance receivable 285,354 363,127 6,925 Other assets 7,380 3,570 23,325 --------- --------- --------- Total assets $ 353,707 $ 475,723 $ 423,107 ========= ========= ========= Future policy benefits $ 280,002 $ 360,074 $ 352,400 Deferred income tax 1,728 11,172 3,710 Other liabilities 17,505 18,196 4,863 --------- --------- --------- Total liabilities $ 299,235 $ 389,442 $ 360,973 ========= ========= =========
21 OHIO CASUALTY CORPORATION & SUBSIDIARIES SHAREHOLDER INFORMATION STOCK PRICE AND DIVIDEND INFORMATION (NASDAQ: OCAS)
Quarter 1st 2nd 3rd 4th ================================================================================== 1996 High 39 1/4 36 1/2 35 1/4 36 5/8 Low 33 1/4 33 1/4 30 3/8 32 Dividend Declared $0.40 $0.40 $0.40 $0.40 1995 High 33 7/8 34 35 3/4 39 Low 28 1/4 29 1/4 31 1/2 32 7/8 Dividend Declared $0.38 $0.38 $0.38 $0.38
1997 ANTICIPATED DIVIDEND SCHEDULE DECLARATION DATE RECORD DATE PAYABLE DATE - -------------------------------------------------------------------- February 20, 1997 March 3, 1997 March 10, 1997 May 15, 1997 May 30, 1997 June 10, 1997 August 21, 1997 September 1, 1997 September 10, 1997 November 20, 1997 December 1, 1997 December 10, 1997
DIVIDEND REINVESTMENT/STOCK PURCHASE PLAN The Corporation maintains a dividend reinvestment/stock purchase plan for all holders of common stock. Under the Plan, shareholders may reinvest their dividends in additional shares of common stock, and may also make extra cash payments of up to $60,000 yearly toward the purchase of Ohio Casualty shares. Participation is entirely voluntary. More information on the Dividend Reinvestment and Stock Purchase Plan can be obtained by writing to the Transfer Agent listed below. FORM 10-K ANNUAL REPORT The Form 10-K annual report for 1996, as filed with the Securities and Exchange Commission, is available without charge upon written request from: Ohio Casualty Corporation Office of the Chief Financial Officer 136 N. Third St. Hamilton, OH 45025 TRANSFER AGENT AND REGISTRAR First Chicago Trust Co. of New York P.O. Box 2500 Jersey City, NJ 07303-2500 1-800-317-4445 ANNUAL MEETING The annual meeting of shareholders will be held at 10:30 a.m. on Wednesday, April 16, 1997, in the meeting rooms of The Hamiltonian Hotel, One Riverfront Plaza, Hamilton, OH 45011. VISIT OUR INTERNET WEB SITE http://www.ocas.com The site includes current financial data about Ohio Casualty as well as other corporate and product information. EX-21 5 EXHIBIT 21 1 Exhibit 21 Ohio Casualty Corporation Subsidiaries of Registrant December 31, 1996
Name of Subsidiary State of Incorporation The Ohio Casualty Insurance Company Ohio West American Insurance Company Indiana Ohio Security Insurance Company Ohio American Fire and Casualty Company Ohio The Ohio Life Insurance Company Ohio Ocasco Budget, Inc. Ohio
72 EX-22 6 EXHIBIT 22 1 OHIO CASUALTY CORPORATION 136 NORTH THIRD STREET HAMILTON, OHIO 45025 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 16, 1997 Hamilton, Ohio March 14, 1997 To the Shareholders: The Annual Meeting of Shareholders (the "Annual Meeting") of Ohio Casualty Corporation (the "Company") will be held in the meeting rooms of The Hamiltonian Hotel, One Riverfront Plaza, Hamilton, Ohio 45011, on Wednesday, April 16, 1997, at 10:30 a.m., local time, for the following purposes: (1) To elect the following four Directors for terms expiring in 2000 (Class I), as successors to the class of Directors whose terms expire in 1996: Jack E. Brown, Vaden Fitton, Joseph L. Marcum, and Howard L. Sloneker III. (2) To approve amendments to the Company's 1993 Stock Incentive Program. (3) To consider and act upon, in their discretion, such other matters as may properly come before the Annual Meeting or any adjournment thereof. Holders of record of common shares of the Company as of the close of business on March 3, 1997 are entitled to notice of and to vote at the Annual Meeting and at any adjournment thereof. As of March 3, 1997, there were 35,110,231 common shares outstanding. Each common share is entitled to one vote on all matters properly brought before the Annual Meeting. By Order of the Board of Directors, /s/ Howard L. Sloneker III Howard L. Sloneker III, Secretary EVERY SHAREHOLDER'S VOTE IS IMPORTANT. IF YOU ARE UNABLE TO BE PRESENT AT THE ANNUAL MEETING, YOU ARE REQUESTED TO COMPLETE AND RETURN PROMPTLY THE ENCLOSED PROXY SO THAT YOUR COMMON SHARES WILL BE REPRESENTED. A POSTAGE PAID, ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. 2 OHIO CASUALTY CORPORATION 136 NORTH THIRD STREET HAMILTON, OHIO 45025 PROXY STATEMENT --------------- ANNUAL MEETING OF SHAREHOLDERS APPROXIMATE DATE TO MAIL -- MARCH 14, 1997 On behalf of the Board of Directors of Ohio Casualty Corporation (the "Company"), a proxy is solicited from you to be used at the Company's 1997 Annual Meeting of Shareholders (the "Annual Meeting") scheduled for Wednesday, April 16, 1997 at 10:30 a.m., local time, in the meeting rooms of The Hamiltonian Hotel, One Riverfront Plaza, Hamilton, Ohio 45011, or at any adjournment thereof. Proxies in the form enclosed herewith are being solicited on behalf of the Company's Board of Directors. The common shares represented by proxies which are properly executed and returned will be voted at the Annual Meeting, or any adjournment thereof, as directed. Common shares represented by proxies properly executed and returned which indicate no direction will be voted in favor of the nominees of the Board of Directors identified in the Notice of Annual Meeting accompanying this Proxy Statement and for the adoption of the proposed amendments to the Company's 1993 Stock Incentive Program. Any shareholder giving the enclosed proxy has the power to revoke the same prior to its exercise by filing with the Secretary of the Company a written revocation or duly executed proxy bearing a later date, or by giving notice of revocation in open meeting. ATTENDANCE AT THE ANNUAL MEETING WILL NOT, IN AND OF ITSELF, CONSTITUTE REVOCATION OF A PROXY. VOTING AT ANNUAL MEETING As of March 3, 1997, the record date fixed for the determination of shareholders entitled to notice of and to vote at the Annual Meeting, there were outstanding 35,110,231 common shares, which is the only outstanding class of capital stock of the Company. Each such common share is entitled to one vote on all matters properly coming before the Annual Meeting. A quorum for the Annual Meeting is a majority of the outstanding common shares. Common shares represented by signed proxies that are returned to the Company will be counted toward the quorum in all matters even though they are marked "Abstain", "Against" or "Withhold Authority" on one or more or all matters or they are not marked at all. Broker non-votes are also counted for purposes of determining the presence or absence of a quorum. Broker non-votes occur when brokers, who hold their customers' shares in street name, sign and submit proxies for such shares on some matters, but not others. Typically, this would occur when brokers have not received any instructions from their customers, in which case the brokers, as the holders of record, are permitted to vote on "routine" matters, which typically include the election of directors, but not on non-routine matters. 1 3 PRINCIPAL SHAREHOLDERS The table below identifies the only persons known to the Company to own beneficially (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) more than 5% of the Company's outstanding common shares.
COMMON SHARES PERCENT NAME AND ADDRESS BENEFICIALLY OF COMMON OF BENEFICIAL OWNER OWNED SHARES DATE ------------------- ------------- --------- ---- FIRST NATIONAL BANK OF 3,411,430(1) 9.71% 12-31-96 SOUTHWESTERN OHIO Third and High Streets Hamilton, Ohio 45011 THE CHASE MANHATTAN BANK, 2,549,554(2) 7.25% 12-31-96 N.A., Trustee 1211 Avenue of the Americas New York, New York 10036 THE CAPITAL GROUP, INC 2,921,400(3) 7.23% 12-31-96 333 South Hope Street Los Angeles, California 90071 JOSEPH L. MARCUM 2,223,716(4) 6.35%(4) 03-03-97 136 North Third Street Hamilton, Ohio 45025
- --------------- (1) Based upon information provided to the Company by First National Bank of Southwestern Ohio (the "Bank"). The Bank holds the reported shares as trustee under various trust agreements and arrangements. The Bank has advised the Company that it has sole voting power for 3,039,017 shares, shared voting power for 0 shares, sole investment power for 1,387,171 shares, and shared investment power for 1,600,620 shares. 425,656 shares are held under trust arrangements for certain directors of the Company, and their respective spouses, which shares are also reported in the following table showing share ownership of directors and executive officers of the Company. (2) 1,707,322 shares are held as trustee for the Company's Employee Savings Plan and 842,232 shares are held as trustee for the Company's Employees Retirement Plan. Voting power with respect to shares held in the Employee Savings Plan is exercised by the plan participants; investment power with respect to these shares is held by plan participants subject to limitations in the Plan. Voting and investment power with respect to shares held in the Employees Retirement Plan is exercised by the committee which administers the Employees Retirement Plan (the "Retirement Committee"). The Retirement Committee consists of Joseph L. Marcum, Lauren N. Patch and Barry S. Porter. (3) Based upon information contained in a Schedule 13G dated February 12, 1997, as filed with the Securities and Exchange Commission by The Capital Group, Inc. The Capital Group, Inc. reported sole voting power for 0 shares, shared voting power for 0 shares and sole investment power for 2,921,400 shares as of December 31, 1996. (4) See share ownership information for Mr. Marcum in the following table. 2 4 SHAREHOLDINGS OF DIRECTORS, EXECUTIVE OFFICERS AND NOMINEES FOR ELECTION AS DIRECTOR As of March 3, 1997, the directors of the Company, including the four persons intended by the Board of Directors to be nominated for election as directors, the executive officers of the Company named in the Summary Compensation Table and all executive officers and directors of the Company as a group beneficially owned common shares of the Company as set forth below.
SHARED INVESTMENT NUMBER OF OPTIONS VOTING POWER COMMON SHARES EXERCISABLE OVER EMPLOYEES NAME OF BENEFICIALLY WITHIN RETIREMENT PERCENT INDIVIDUAL OR GROUP OWNED(1) 60 DAYS PLAN SHARES(2) TOTAL OF CLASS(3) - --------------------------- ------------- ----------- ----------------- --------- ------------- Arthur J. Bennert 19,178 6,000 25,178 Jack E. Brown 1,100 3,000 4,100 Catherine E. Dolan 100 6,000 6,100 Wayne Embry 200 6,000 6,200 Vaden Fitton 228,064(4) 3,000 231,064 Jeffery D. Lowe 157,978(4 (7)(8) 1,000 158,978 Joseph L. Marcum 1,378,484(5)(6) 3,000 842,232(2) 2,223,716 6.33% Stephen S. Marcum 295,050(4)(6) 6,000 301,050 Lauren N. Patch 206,278(4)(7) 10,000 842,232(2) 1,058,510 3.01% Stanley N. Pontius 1,120 6,000 7,120 Howard L. Sloneker III 192,611(7) 3,333 195,944 William L. Woodall 23,484 6,000 29,484 Andrew T. Fogarty 57,822(4 (7)(8) 1,429 59,251 Michael L. Evans 5,373(7) 3,333 8,706 Barry S. Porter 26,783(7) 3,333 842,232(2) 872,348 2.48% All Executive Officers, Directors and Nominees as a Group (30 Persons) 2,702,940 78,999 842,232(2) 3,624,171 10.31%
- --------------- (1) Unless otherwise indicated, each named person has voting and investment power over the listed shares and such voting and investment power is exercised solely by the named person or shared with a spouse. (2) Includes 842,232 shares held in the Company's Employees Retirement Plan as to which the named individual shares voting and investment power solely by reason of being a member of the Retirement Committee which administers such Plan. See Note (2) of the preceding table. Messrs. Marcum, Patch and Porter disclaim beneficial ownership of these shares. (3) Percentages are listed only for those individuals who own in excess of 1% of the outstanding shares. (4) Includes the following number of shares owned by family members as to which beneficial ownership is disclaimed: Mr. Fitton, 108,926 Mr. Fogarty, 5,468; Mr. Joseph L. Marcum, 617,304; Mr. Lowe, 136,900; Mr. Patch, 169,692; and Mr. Stephen S. Marcum, 84,090. (5) Includes 237,852 shares held by Mr. Marcum's wife in her capacity as a co-trustee of the estate of Howard Sloneker as to which shares Mr. Marcum has no voting or investment power. (6) Includes 85,306 shares held as co-trustee of the Joseph L. and Sarah S. Marcum Foundation as to which voting and investment power is shared by Joseph L. and Stephen S. Marcum. (7) The share ownership for Messrs. Evans, Lowe, Patch, Sloneker, Fogarty, and Porter includes 1,127, 4,952, 4,370, 2,187, 16,010 and 9,294 shares, respectively, held for the accounts of these individuals by the trustee of the Company's Employee Savings Plan. Such persons have sole voting power with respect to these shares and also hold investment power subject to limitations in the Plan. 3 5 (8) Andrew T. Fogarty retired from his position as executive officer of the Company on January 1, 1997. ELECTION OF DIRECTORS The Board of Directors intends that the four persons named under Class I in the following table (the "Nominees") will be nominated for election at the Annual Meeting for three-year terms expiring in 2000. The terms of the remaining directors in Classes II and III will continue as indicated below. It is intended that the common shares represented by the accompanying Proxy will be voted for the election as directors of the Nominees, unless otherwise instructed on the Proxy. In the event that any one or more of the Nominees unexpectedly becomes unavailable for election, the common shares represented by the accompanying Proxy will be voted in accordance with the best judgment of the proxy holders for the election of the remaining Nominees and for the election of any substitute nominee or nominees designated by the Board of Directors. Under Ohio law and the Company's Regulations, the nominees receiving the greatest number of votes will be elected as directors. Shares as to which the authority to vote is withheld will be counted for quorum purposes but will not be counted toward the election of the Nominees.
POSITION WITH COMPANY AND/OR PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR NAME AND AGE(1) DURING LAST FIVE YEARS(2) SINCE - ------------------------ -------------------------------------------------------- -------- NOMINEES: Nominees for Terms Expiring in 2000: Jack E. Brown, Chairman of Board, BBI Marketing Services, Inc., Cincin- 1994 53 nati, Ohio (professional marketing consulting firm). Vaden Fitton, Director and Retired First Vice President of First 1967 68 National Bank of Southwestern Ohio, Hamilton, Ohio. Joseph L. Marcum, Chairman of the Board and Director of the Company, The 1949 73 Ohio Casualty Insurance Company, West American Insur- ance Company, American Fire and Casualty Company, Ohio Security Insurance Company, OCASCO Budget, Inc. and The Ohio Life Insurance Company. Mr. Marcum served as Chief Executive Officer of the Company and its subsidiaries until December 31, 1993, and President of the Company and its subsidiaries until December 31, 1990. Howard L. Sloneker III, Vice President, Secretary and Director of the Company, 1983 40 The Ohio Casualty Insurance Company, West American Insurance Company, American Fire and Casualty Company, Ohio Security Insurance Company and OCASCO Budget, Inc.; Secretary and Director of The Ohio Life Insurance Company. DIRECTORS WHOSE TERMS CONTINUE BEYOND THE ANNUAL MEETING: Class II -- Terms Expiring in 1998: Wayne Embry, Executive Vice President and General Manager of the 1991 60 Cleveland Cavaliers (professional basketball franchise); Chairman of Michael Alan Lewis Company, Cleveland, Ohio (fabricators of materials for the automobile industry).
4 6
POSITION WITH COMPANY AND/OR PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR NAME AND AGE(1) DURING LAST FIVE YEARS(2) SINCE - ------------------------ -------------------------------------------------------- -------- Stephen S. Marcum, Member of the law firm of Parrish, Beimford, Fryman, 1989 39 Smith & Marcum Co., L.P.A., Hamilton, Ohio; such firm has provided legal services to the Company and its subsidiaries during the last fiscal year and continues to do so. Stanley N. Pontius, President and Chief Executive Officer of First Financial 1994 50 Bancorp and its principal subsidiary, First National Bank of Southwestern Ohio, Hamilton, Ohio. William L. Woodall, Director of the Company, The Ohio Casualty Insurance 1986 73 Company, West American Insurance Company, American Fire and Casualty Company, Ohio Security Insurance Company, OCASCO Budget, Inc. and The Ohio Life Insurance Company; retired as an executive officer of the Company and its subsidiaries on December 31, 1990. Class III -- Terms Expiring in 1999 Arthur J. Bennert, Director of the Company, The Ohio Casualty Insurance 1989 70 Company, West American Insurance Company, American Fire and Casualty Company, Ohio Security Insurance Company and The Ohio Life Insurance Company; retired as an executive officer of the Company and its subsidiaries on January 1, 1992. Catherine E. Dolan, Managing Director of the Financial Institutions Group, 1994 39 First Union National Bank, Charlotte, North Carolina, since February 26, 1993; prior thereto, Managing Director of the Insurance Division, Chase Manhattan Bank, New York. Jeffery D. Lowe, Vice President and Director of the Company, The Ohio 1983 51 Casualty Insurance Company, West American Insurance Company, American Fire and Casualty Company, Ohio Security Insurance Company and OCASCO Budget, Inc.; President and Director of Ohio Life Insurance Company. Lauren N. Patch, President, Chief Executive Officer and Director of the 1987 46 Company, The Ohio Casualty Insurance Company, West American Insurance Company, American Fire and Casualty Company, Ohio Security Insurance Company and OCASCO Budget, Inc.; Vice Chairman and Director of The Ohio Life Insurance Company. Mr. Patch became Chief Executive Officer of the Company on January 1, 1994, and President of the Company on January 1, 1991.
- --------------- (1) Ages are listed as of the date of the Annual Meeting. (2) The Ohio Casualty Insurance Company, Ohio Security Insurance Company, American Fire and Casualty Company, West American Insurance Company, OCASCO Budget, Inc. and The Ohio Life Insurance Company are subsidiaries of the Company. 5 7 OTHER DIRECTORSHIPS AND RELATED TRANSACTIONS AND RELATIONSHIPS Wayne Embry is also a director of M. A. Hanna Company and Society Corporation; Vaden Fitton, Joseph L. Marcum, Lauren N. Patch and Stanley N. Pontius are also directors of First Financial Bancorp. Joseph L. Marcum, the Chairman of the Board of the Company, retired as the Chief Executive Officer of the Company on December 31, 1993. Mr. Marcum receives annual benefits from the Company of $142,393 pursuant to the Company's Employees Retirement Plan. See "Pension Plans." Jeffery D. Lowe is the son-in-law of Joseph L. Marcum; Lauren N. Patch and Howard L. Sloneker III are brothers-in-law; and Stephen S. Marcum is the son of Joseph L. Marcum. MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD During 1996, the Board of Directors held five meetings. No director attended fewer than 75% of the aggregate number of meetings of the Board of Directors and the committees on which he or she served. The Board of Directors has standing Executive, Audit and Executive Compensation Committees, but does not have a Nominating Committee or committee performing similar functions. The Executive Committee held two meetings during 1996. The members of the Executive Committee are Joseph L. Marcum, Lauren N. Patch, and Howard L. Sloneker III. Each Executive Committee member attended both of the meetings in 1996. The Executive Committee is empowered to exercise all the powers of the Board of Directors in the management of the Company between meetings of the Board of Directors, other than filling vacancies on the Board or any other committee of the Board. The Audit Committee held two meetings during 1996. The members of the Audit Committee are Arthur J. Bennert, Jack E. Brown, Catherine E. Dolan, Wayne Embry, Vaden Fitton, Joseph L. Marcum, Stephen S. Marcum, Stanley N. Pontius and William L. Woodall. Each Audit Committee member attended both of the meetings in 1996. The Audit Committee's primary function is to meet with the independent auditors for the Company and to review the Company's internal and independent auditing and financial controls. The Executive Compensation Committee held two meeting during 1996. The current members of the Executive Compensation Committee are Jack E. Brown, Vaden Fitton, and Stanley N. Pontius. Each member of the Executive Compensation Committee attended both meetings of the committee. The Executive Compensation Committee administers the Company stock option plans and carries out the responsibilities described in the Executive Compensation Committee Report in this Proxy Statement. DIRECTORS FEES AND COMPENSATION Each director received $25,000 for services as a director of the Company during 1996. Each non-employee director of the Company received $1,500 per meeting for attending the regular meetings of the Board of Directors in 1996. Members of the Audit Committee also received $5,000 each for serving on that committee. In addition, members of the Executive Compensation Committee received $300 per meeting for each meeting attended. Joseph L. Marcum was paid an additional $65,000 during 1996 as compensation for serving as the Chairman of the Board. On May 21, 1996, Arthur J. Bennert and Catherine E. Dolan, each of whom is a non-employee director of the Company, were granted a non-qualified stock option (an "NQSO") to purchase 3,000 common shares of the Company at an exercise price of $34.50 per share, the 6 8 closing market price of the common shares on the date of grant. Any individual who becomes or is re-elected a non-employee director is automatically granted an NQSO to purchase 3,000 common shares effective on the third business day following the first meeting of the Board of Directors after his/her election or appointment to the Board. The exercise price of each NQSO granted to a non-employee director is equal to the fair market value of the common shares on the date of grant. NQSOs granted to non-employee directors have terms of ten years (subject to earlier termination in certain cases) and may not be exercised during the six months following their date of grant. EXECUTIVE COMPENSATION The following table presents information concerning compensation provided by the Company to its Chief Executive Officer and to each of the Company's four most highly compensated executive officers, other than the Chief Executive Officer, for services rendered in all capacities for each of the Company's last three completed fiscal years: SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION AWARDS ------------------------ ---------------------------------------------- OTHER SECURITIES ANNUAL RESTRICTED UNDERLYING DIVIDEND NAME AND SALARY COMPENSATION STOCK OPTIONS/ PAYMENT PRINCIPAL POSITION YEAR ($)(1) ($)(2)(3)(4) AWARDS($)(5) SARS(#) RIGHTS(#)(6) - ------------------------ ---- ------- ------------ ------------ ------------ ------------ Lauren N. Patch 1996 529,560 47,881 57,709 30,000 30,000 President and Chief 1995 474,231 13,477 0 0 0 Executive Officer 1994 374,616 10,489 0 0 0 Andrew T. Fogarty(7) 1996 296,749 47,058 0 10,000 0 Senior Vice 1995 231,300 6,939 0 0 0 President 1994 220,838 6,625 0 0 0 Barry S. Porter 1996 248,604 22,484 23,677 10,000 10,000 Chief Financial 1995 233,208 6,996 0 0 0 Officer and Treasurer 1994 211,285 6,339 0 0 0 Jeffery D. Lowe 1996 231,012 6,180 0 3,000 0 Vice 1995 231,012 3,090 0 0 0 President 1994 227,781 4,699 0 0 0 Michael L. Evans 1996 199,500 5,985 18,686 10,000 10,000 Executive Vice 1995 174,462 4,500 0 0 0 President 1994 134,262 4,028 0 0 0
- --------------- (1) Includes annual directors' fees for Messrs. Patch and Lowe. (2) Includes for Messrs. Patch, Fogarty, Porter, Lowe and Evans for 1996 the amounts of $4,500, $4,500, $4,500, $4,500 and $4,500, respectively, contributed by the Company under the Company's Employee Savings Plan. Also includes for Messrs. Patch, Fogarty, Porter, Lowe and Evans for 1996 the amounts of $10,637, $2,735, $2,958, $1,680 and $1,485, respectively, contributed by the Company under the Company's Supplemental Executive Savings Plan, a non-qualified plan. (3) Includes the following amounts paid in 1997 to the named executives to reimburse them for income taxes incurred as a result of the grant of the restricted shares described in note (5) below: Mr. Patch $32,744, Mr. Porter $15,026 and Mr. Evans $13,066. (4) Includes for Mr. Fogarty $25,905, the fair market value on February 20, 1997 of 628 common shares which were awarded to him on that date for services rendered in 1996. Also includes $13,918 paid by the Company to reimburse Mr. Fogarty for income later incurred as a result of the shares awarded. (5) Awards under the Company's Annual Incentive Plan are made in the form of restricted common shares (a description of the Plan is set forth in the Executive Compensation 7 9 Committee Report on Executive Compensation). Shares of restricted stock were granted on February 20, 1997 to certain of the named executive officers pursuant to the Plan for services rendered in 1996. Such restricted common shares vest on the third anniversary of the date of grant so long as the executive officer is an employee on such date (with earlier vesting occurring on retirement, death or disability or termination of employment following a change of control). Dividends are paid on restricted common shares at the same rate as paid on the Company's common shares. No restricted common shares were outstanding at the end of 1996. (6) Dividend payment rights were granted to the named executive officers in 1996. One third of these rights become effective on each anniversary of the grant date. These rights entitle to the holder on the April 15th following the fourth anniversary of the grant date to receive, for each dividend payment right, an amount in cash equal to the aggregate amount of dividends that the Company has paid on each common share from the date on which such right becomes effective through the payout date subject to certain restrictions. (7) Mr. Fogarty retired as executive officer of the Company effective January 1, 1997. The following table sets forth information concerning the grant of stock options and SARs during the last fiscal year to each of the executive officers of the Company named in the Summary Compensation Table. OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED % OF TOTAL ANNUAL RATES OF STOCK OPTIONS/SARS PRICE APPRECIATION NUMBER OF GRANTED FOR SECURITIES TO EXERCISE OPTION TERM(2) UNDERLYING EMPLOYEES OR BASE --------------------- OPTIONS/SARS IN FISCAL PRICE EXPIRATION ($) ($) NAME GRANTED #(1) YEAR# ($/SH) DATE 5% 10% - ------------------- ------------ ------------ -------- ---------- ------- --------- Lauren N.Patch 30,000 24.79 35.00 01/23/06 660,339 1,673,430 Andrew T. Fogarty 10,000 8.26 35.00 01/23/06 220,113 557,810 Barry S. Porter 10,000 8.26 35.00 01/23/06 220,113 557,810 Jeffery D. Lowe 3,000 2.47 35.00 01/23/06 66,034 167,343 Michael L. Evans 10,000 8.26 35.00 01/23/06 220,113 557,810
- --------------- (1) All of these stock options, which were granted pursuant to the Ohio Casualty Corporation 1993 Stock Incentive Program, were granted at market value on the date of grant, become exercisable as to one-third of the option shares on each of the first three anniversaries of the date of grant and have a term of ten years. In the event of a change in control of the Company, the stock options would become exercisable in full. Stock options reported consist of incentive stock options and non-qualified stock options. (2) The dollar amounts under these columns are the result of calculations at the 5% and 10% annual appreciation rates set by the Securities Exchange Commission for illustrative purposes, and, therefore, are not intended to forecast future financial performance or possible future appreciation in the price of the Company's common shares. Shareholders are therefore cautioned against drawing any conclusions from the appreciation data shown, aside from the fact that optionees will only realize value from the option grants shown when the price of the Company's common shares appreciates, which benefits all shareholders commensurately. 8 10 OPTION/SAR EXERCISES IN LAST FISCAL YEAR The following table sets forth information concerning the exercise of stock options and SARs during the last fiscal year by each of the executive officers of the Company named in the Summary Compensation Table and the fiscal year-end value of unexercised stock options and SARs held by such executive officers: AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES --------------------------------------------------
VALUE OF NUMBER OF SHARES UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY NUMBER OF OPTIONS/SARS OPTIONS/SAR SHARES AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1) ACQUIRED ON VALUE ----------------------------- ----------------------------- NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------ ----------- ----------- ----------- ------------- ----------- ------------- Lauren N. Patch 3,500 29,750 30,000 15,000 Barry S. Porter 3,500 21,562 10,000 5,000 Andrew T. Fogarty 3,300 19,111 10,000 5,000 Jeffery D. Lowe 0 0 3,000 1,500 Michael L. Evans 3,500 29,874 10,000 5,000
- --------------- (1) "Value of Unexercised In-the-Money Options/SARs at Fiscal Year-End" is based upon the fair market of the Company's common shares on December 31, 1996 ($35.50), less the exercise price of in-the-money options and SARs at the end of the last fiscal year. PENSION PLANS The following table sets forth the estimated annual benefits payable under the Employees Retirement Plan and the Ohio Casualty Insurance Company Benefit Equalization Plan (the "Benefit Equalization Plan") to participants in such plans, including the executive officers named in the Summary Compensation Table, upon retirement in specified compensation and years of service classifications: PENSION PLANS TABLE
15 20 25 30 35 40 45 ANNUAL EARNINGS YEARS YEARS YEARS YEARS YEARS YEARS YEARS - --------------- -------- -------- -------- -------- -------- -------- -------- $ 125,000 $ 28,056 $ 37,408 $ 46,760 $ 56,112 $ 65,464 $ 74,816 $ 84,168 175,000 40,056 53,408 66,760 80,112 93,464 106,816 120,168 225,000 52,056 69,408 86,760 104,112 121,464 138,816 156,168 275,000 64,056 85,408 106,760 128,112 149,464 170,816 192,168 325,000 76,056 101,408 126,760 152,112 177,464 202,816 228,168 375,000 88,056 117,408 146,760 176,112 205,464 234,816 264,168 400,000 94,056 125,408 156,760 188,112 219,464 250,816 282,168 425,000 100,056 133,408 166,760 200,112 233,464 266,816 300,168 450,000 106,056 141,408 176,760 212,112 247,464 282,816 318,168 475,000 112,056 149,408 186,760 224,112 261,464 298,816 336,168 500,000 118,056 157,408 196,760 236,112 275,464 314,816 354,168 525,000 124,056 165,408 206,760 248,112 289,464 330,816 372,168 550,000 130,056 173,408 216,760 260,112 303,464 346,816 390,168 600,000 142,056 189,408 236,760 284,112 331,464 378,816 426,168
9 11 Retirement benefits under the Company's Employees Retirement Plan, a defined benefit plan qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), are generally payable to full-time and regular part-time salaried employees whose participation in the plan has vested (currently requiring the completion of five years of service) upon retirement at age 65 or in reduced amounts upon retirement prior to age 65 if the participant has ten years of vested service. A retiree's benefit amount is based upon his or her credited years of service and average annual compensation (salary) for the five consecutive years of highest salary during the last ten years of service immediately prior to age 65 or, if greater, the average annual compensation paid during the 60 consecutive month period immediately preceding retirement or other termination of employment. Such retirement benefits are reduced by a portion of the retiree's Social Security-covered compensation. Benefits figures shown in the table above are computed on the assumption that participants retire at age 65 and are entitled to a single life annuity. Section 401(a)(17) of the Code prohibits compensation in excess of $150,000 ($160,000 for 1997) from being taken into account in determining benefits payable under a qualified pension plan. As a result, the Benefit Equalization Plan was adopted for those employees who are adversely affected by these provisions of the Code. The Benefit Equalization Plan provides for payment of benefits that would have been payable under the Employees Retirement Plan but for the limitation on compensation imposed by the Code. Upon retirement, participants receive the actuarial equivalent present value of the benefit payable under the Benefit Equalization Plan in a lump sum. At December 31, 1996, credited years of service and average annual earnings under the Employees Retirement Plan and the Benefit Equalization Plan for the executive officers named in the Summary Compensation Table were: Lauren N. Patch, 20.5 years ($372,046); Barry S. Porter, 22.5 years ($210,852); Andrew T. Fogarty, 24.5 years ($231,569); Jeffery D. Lowe, 21.5 years ($194,475); and Michael L. Evans, 21.5 years ($148,778). The compensation covered by the Employees Retirement Plan and the Benefit Equalization Plan is the amount shown in the Summary Compensation Table as salary, less any directors' fees. EXECUTIVE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION POLICIES The Company's executive compensation programs are designed to enable it to recruit, retain and motivate outstanding executives. This is essential for the Company to achieve its challenging performance objectives and to achieve superior investment returns for its shareholders. The Committee believes that the Company's executive compensation opportunities, including those for the Company's Chief Executive Officer ("CEO"), should create incentives for superior performance and consequences for below-target performance. In 1996, the Company's Board of Directors approved a redesigned executive compensation program which more closely links the level of executive compensation with Company performance. A substantial portion of each executive's compensation potential is now tied to achievement of annual objectives and long-term shareholder returns. An important consideration in the design of the new executive compensation program was the use of Company shares to encourage greater share ownership by Company executives so that the opportunity of the Company's executives for financial gain is directly linked to increases in shareholder wealth, as reflected by the market price of the Company's common shares. This redesigned executive compensation program was first implemented during the 1996 fiscal year. The Company's basic compensation program for its executive officers and approximately 17 additional key executives (collectively called the "Partners") consists of the following ele- 10 12 ments: (i) base salary established on an annual basis, (ii) an Annual Incentive Plan whereby annual awards, payable in the form of restricted common shares, may be made to the Partners based on individual and team performance with team performance being measured generally by the Company's total return performance as measured against predetermined return on equity (ROE) goals; and (iii) a Long-Term Incentive Plan whereby stock options and dividend payment rights are awarded on an annual basis. As described more fully below, each element of the Company's executive compensation program has a somewhat different purpose. Stock options and restricted shares are issued under the shareholder-approved 1993 Stock Incentive Program. As part of the administration of the Company's new executive compensation program, the Committee will annually examine short-term and long-term compensation levels for the CEO and other senior executives against a survey of the compensation practices of comparably sized property and casualty insurance companies (the "survey companies"). The survey companies include some, but not all, of the companies covered in the Dow Jones Insurance Index for Property and Casualty Companies included in the Performance Graph on page 14. SPECIFIC COMPENSATION PROGRAMS Base salary ranges for the CEO and the other executive officers of the Company are based on individual performance, the responsibilities associated with an individual's position and the skills and experience of the individual, which are reviewed annually and benchmarked against similar positions among the survey companies. Salary ranges are targeted at the median level for similar positions among the survey companies. The base salary of the CEO is established by the Committee. The base salaries of the other executive officers are established by the CEO. Salary adjustments are evaluated on an annual basis and are based on individual performance, as determined in accordance with the Company's executive performance evaluation system, and as reflective of competitive conditions existing at the time. The Company's Annual Incentive Plan and its Long Term Incentive Plan are designed to provide participants with the opportunity to receive total compensation targeted at 75th percentile of salaries for similar positions among the survey companies. The potential award opportunities for each of the executives who participate in the Annual Incentive Plan are determined at the beginning of such year by the Committee for the executive officers, including the CEO, and by the CEO for all other Partners. Potential award opportunities for a fiscal year, which are expressed as a percentage of a participant's base salary for the fiscal year, are based on a participant's position in the Company's management organization, with higher percentages being assigned to executives who hold more senior positions. Actual award amounts are based on a combination of team performance and individual performance. Team performance, which accounts for up to 50% of the total award potential, is based on the Company's actual performance against pre-determined return on equity and premium growth goals for the year. If the Company does not meet the established threshold performance level, no team awards are made. If the threshold performance is achieved, each of the executive officers and other Partners receives a team award, the amount of which depends on the extent to which the Company's performance exceeds the threshold level and the potential award opportunity assigned to each individual participant, as described above. Individual awards are made only if the performance level required for team awards has been met and then only if a determination is made by the Committee and CEO to fund such awards. The Committee determines, based on a recommendation from the CEO, the level of funding for the individual award pool based on the performance achieved by the management team on a number of criteria. The pool is allocated among the participants on the basis of their performance evaluations as determined by the CEO (the CEO's performance evaluation is conducted by the Committee). Individual performance accounts for the remaining 50% of the total award potential under the Annual Incentive Plan. 11 13 Awards under the Annual Incentive Plan are paid in restricted shares of the Company. The Company also pays the taxable income resulting to the participant from the grant. Such restricted stock shares may not be transferred by the participant for a three-year period following the date of grant, unless the participant dies or his employment is terminated as a result of disability or retirement or following a change in control of the Company. If the employment of the participant terminates for any other reason during such three-year period, the restricted shares will be forfeited to the Company. The Committee believes that restricted shares provide a strong incentive for executives to continue as employees of the Company and to work to increase the value of the Company during their employment. Awards under the Annual Incentive Plan for 1996 were paid in the form of restricted common shares issued in February of 1997. Awards under the Company's Long-Term Incentive Plan consist of stock options, either incentive stock options or non-qualified stock options, and dividend payment rights. Stock options are granted at market value on the date of grant and increase in value only to the extent of appreciation in the Company's common shares. The stock options become exercisable over a period of three years and expire at the end of ten years from the date of grant. Stock option grants are made at the beginning of each year, although grants may be made at different times to participants who are promoted or newly hired. The number of stock options to be granted annually to an individual participant over a three-year period is based on the participant's salary level and position. While it is the intention of the Committee to make stock options grants annually, the Committee has reserved the right to eliminate stock option awards or make other modifications in the Long-Term Incentive Plan. The Committee also intends to hold constant the number of shares granted to each participant over each three-year period, although it has reserved the right to make changes in the number of shares granted to any participant. In addition to stock options, participants in the Long-Term Incentive Plan may be granted dividend payment rights. These rights, which become effective over a three-year period, entitle the holder on the scheduled payout date to receive, for each right, an amount in cash equal to the aggregate amount of dividends that the Company has paid on each common share from the date on which the dividend payment right becomes effective through the payout date. If the holder ceases to be an employee prior to the payout date as a result of death, disability, retirement or as a result of termination following change in control of the Company, the Company will pay, for each dividend payment right which is effective on the termination date, a cash amount equal to the aggregate amount of dividends that the Company has paid on each Common Share from the date on which the dividend payment right became effective through the termination date. If the employment of the holder terminates for any other reason, the holder will not be entitled to any payment whatsoever under this agreement. The employees to whom stock options and dividend payment rights are to be awarded are determined annually by the Committee for the executive officers, including the CEO, and by the CEO for all other Partners. Section 162(m) of the Code generally limits the corporate tax deduction for compensation paid to executive officers named in the Summary Compensation Table in the proxy statement to $1 million, unless certain requirements are met. None of the executive officers of the Company exceeded the threshold for deductibility under Section 162(m) in 1996. BASES FOR CHIEF EXECUTIVE OFFICER COMPENSATION The Committee evaluates the performance of the CEO at least annually. In 1996, Mr. Patch received a base salary of $505,000, which represented a 12.2% increase over his base salary for 1995. The Committee's decision to increase Mr. Patch's base salary was based on its evaluation of his performance and its current policy that the salaries for the Company's executive officers, including Mr. Patch, should be set at the median level for CEO's of the survey companies. Mr. Patch also received an award under the Annual Incentive Plan for service in 1996 of a total of 1,399 restricted common shares of the Company, which were issued to him in 1997 and which 12 14 will be forfeited to the Company if he leaves the Company during the three-year period following the date of issue. As described in detail above, the Committee's determination of the number of restricted common shares awarded to Mr. Patch (and to all of the other executive officers) under the Annual Incentive Plan was based on the Company's 1996 total return performance as measured against an established return on equity target. No individual awards were made to any of the Company's executive officers under the Annual Incentive Plan for 1996. The Company also granted to Mr. Patch in 1996 pursuant to the Long-Term Incentive Plan an incentive stock option for 8,571 shares and a non-qualified stock option for 21,429 shares. The number of stock options granted to Mr. Patch was based on his salary level and position with the Company. As previously indicated, in establishing the compensation of Mr. Patch and the other executive officers, the goal of the Committee has been to create a total compensation opportunity through base salary and awards under the Annual Incentive Plan and the Long-Term Incentive Plan which, if realized as a result of the Company's performance, would result in total compensation being at the 75th percentile for similar positions at the survey companies. The foregoing report on executive compensation is provided by the following directors, who constituted the Executive Compensation Committee during 1996: VADEN FITTON JACK E. BROWN JOSEPH L. MARCUM EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The directors of the Company who served as members of the Company's Executive Compensation Committee during 1996 were Vaden Fitton, Jack E. Brown and Joseph L. Marcum. Joseph L. Marcum, is the Chairman of the Board of Directors and former President and Chief Executive Officer of the Company. Mr. Fitton and Barry S. Porter, the Company's Chief Financial Officer, also served in 1996, as members of the Executive Compensation Committee of First Financial Bancorp, whose Chief Executive Officer, Stanley N. Pontius is a member of the Board of Directors of the Company. As indicated in the Executive Compensation Committee Report on Executive Compensation, Lauren N. Patch, the Company's President and Chief Executive Officer, participates in decision-making regarding the compensation of certain executive officers named in the Summary Compensation Table. Mr. Patch is not a member of the Executive Compensation Committee. 13 15 COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN The following graph compares the five-year cumulative total shareholder return, including reinvested dividends, of the Company with the Dow Jones Equity Market Index and the Dow Jones Insurance Index for Property and Casualty Companies(1):
Measurement Period DJ Equity Market DJ Insurance P & Ohio Casualty (Fiscal Year Covered) Index C (1) Corporation 1991 100.00 100.00 100.00 1992 108.61 121.77 133.38 1993 119.41 122.78 141.06 1994 120.33 129.11 131.34 1995 166.31 182.40 188.37 1996 205.57 219.31 180.58
- --------------- (1) The Dow Jones Insurance Index for Property and Casualty Companies (13 companies, including the Company) that are traditionally considered as a peer group of property and casualty insurance companies within the United States. The companies making up the Index are American International; Chubb Corp.; Cincinnati Financial; Continental Corp.; GEICO Corp.; General RE Corp.; Hartford Steam Boiler Co.; Loews Corp.; Ohio Casualty Corporation; Progressive Corp.; Safeco Corp.; St. Paul Co.'s; and USF&G Corp. PROPOSED AMENDMENT TO 1993 STOCK INCENTIVE PROGRAM The Company's 1993 Stock Incentive Program, which was approved by the shareholders of the Company at the 1993 Annual Meeting of Shareholders, provides for the issuance of incentive stock options ("ISOs"), nonqualified stock options ("NQSOs") (ISOs and NQSOs are herein referred to together as "Stock Options"), stock appreciation rights ("SARs"), limited stock appreciation rights ("LSARs") and restricted stock awards (collectively, "Awards"). The purpose of the 1993 Program is to attract and retain outstanding individuals as directors, officers and other key employees of the Company and its subsidiaries and to furnish incentives to such persons by providing them opportunities to acquire common shares of the Company on advantageous terms. The 1993 Program is administered by the Executive Compensation Committee of the Board of Directors of the Company (the "Committee"). Officers and other full-time, salaried employees of the Company and its subsidiaries (including the persons identified in the Summary Compensation Table on page ) who are selected by the Committee are eligible to receive Stock Options and other Awards under the 1993 Program. Directors of the Company who are not full-time employees of the Company or its subsidiaries ("Non-Employee Directors") are participants in 14 16 the 1993 Program solely for purposes of receiving certain NQSO Awards. See "Stock Option Grant to Non-Employee Directors." The 1993 Program currently authorizes the granting of Stock Options and other Awards for a total of 1,000,000 common shares and an additional 293,500 common shares of the Company from the prior plan, subject to adjustment to reflect certain corporate events, including stock splits. As of the date of this Proxy Statement, a total of 1,006,320 common shares were available for future grants of Stock Options and other Awards. As of March 3, 1997, ISOs to purchase an aggregate of 118,284 common shares were outstanding and held by 18 employees, including executive officers; NQSOs to purchase an aggregate of 133,716 common shares were outstanding and held by 4 employees, including executive officers and 9 Non-Employee Directors; and restricted stock awards for a total of 5,579 common shares were outstanding and held by 18 executive officers. It is estimated that a total of 60 employees of the Company and its subsidiaries and 9 Non-Employee Directors are currently eligible to participate in the 1993 Program. DESCRIPTION OF AMENDMENTS On February 20, 1997, the Board of Directors of the Company adopted, effective upon shareholder approval at the Annual Meeting, the following amendments to the 1993 Program (the "Amendments"): 1. For purposes of satisfying the requirements of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), the 1993 Program has been amended, subject to shareholder approval, to (i) provide that no participant may be granted Stock Options and other Awards for more than 75,000 common shares during any 12-month period, and (ii) to clarify that members of the Committee must satisfy the requirements of "outside directors" as such term is described in the Code and accompanying regulations of the Internal Revenue Service. In addition, the 1993 Program has been amended, subject to shareholder approval, to provide that the Committee shall be comprised of directors who are "Non-Employee Directors" as that term is defined in Rule 16b-3(b) promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the "1934 Act"). 2. The 1993 Program has been amended, subject to shareholder approval, to permit the Company to grant Stand Alone Stock Appreciation Rights which may be granted without reference to any stock option granted under the 1993 Program ("Stand Alone Stock Appreciation Rights"). Previous to such amendment, upon exercise of SARs granted pursuant to the 1993 Program, the holder must surrender a related stock option for the number of SARs being exercised. Stand Alone Stock Appreciation Rights may be exercised by a holder without having to surrender a stock option or any portion thereof. 3. The 1993 Program has also been amended, subject to shareholder approval, to clarify the circumstances under which Non-Employee Directors are entitled to receive NQSOs. The Committee has interpreted the language of the 1993 Program as providing for the grant of a NQSO to each Non-Employee Director on the third business day following the first meeting of the Board of Directors after his or her election or appointment to the Board and on the third business day following re-election to the Board by the shareholders. The proposed Amendment to the 1993 Program is intended to clarify and confirm such interpretation of the Committee. The Amendments will become effective as of February 20, 1997, the date of approval of the Amendments by the Board of Directors, if a majority of the common shares of the Company, present in person, or by proxy at the Annual Meeting is voted in favor of the Amendments. The closing price of the Company's common shares as reported in the NASDAQ National Market 15 17 System on March 3, 1997 (record date for the Annual Meeting) was $39.50 per share. The Amendments are discussed in greater detail below. OPERATION OF THE 1993 PROGRAM There follows a summary of the 1993 Program. This summary is qualified in its entirety by reference to the copy of the 1993 Program, as amended, attached to this Proxy Statement as Exhibit A. SHARES AVAILABLE UNDER THE 1993 PROGRAM Common shares issued pursuant to the 1993 Program may be either authorized and unissued common shares or treasury shares. If there is a lapse, expiration, termination or cancellation of any Stock Option or Award without the issuance of common shares or payment of cash thereunder, or if common shares are issued under any Award and thereafter are reacquired by the Company pursuant to rights reserved upon the issuance thereof, in each case so long as the holder thereof has not received any benefits of ownership of such common shares, the common shares subject to or reserved for such Stock Option, or other Award may again be used for new Stock Options or other authorized Awards under the 1993 Program. In the event of the exercise of an SAR or an LSAR, the number of common shares reserved for issuance under the 1993 Program will be reduced by the number of common shares covered by the Stock Option or portion thereof which is surrendered in connection with such exercise. If the Amendments are adopted and Stand Alone Stock Appreciation Rights are authorized the exercise of Stand Alone Stock Appreciation Rights will also reduce the number of common shares reserved for issuance under the 1993 Program by the number of Stand Alone Stock Appreciation Rights being exercised. ADMINISTRATION The 1993 Program is administered by the Committee. The Committee has complete discretion to select the individuals to whom Stock Options and other Awards are granted (other than Non-Employee Directors) and to establish the terms and conditions of each such grant, subject in each case to the provisions of the Program. In addition, the Committee is empowered to interpret the 1993 Program and make all determinations necessary or advisable for its administration. Presently, the members of the Committee are Messrs. Vaden Fitton, Jack E. Brown, and Stanley N. Pontius. Section 162(m) of the Code prohibits a publicly held corporation, such as the Company, from claiming a deduction on its federal income tax return for compensation in excess of $1 million paid for a given fiscal year to the chief executive officer (or person acting in that capacity) at the close of the corporation's fiscal year or any of the four most highly compensated officers of the corporation, other than the chief executive officer, at the end of the corporation's fiscal year. The $1 million compensation deduction limitation does not apply to "performance-based compensation." The regulations issued by the Internal Revenue Service under Section 162(m) (the "IRS Regulations") set forth a number of provisions which compensatory plans, such as the 1993 Program, must contain if Stock Options issued under such plans are to qualify as performance-based for the purposes of Section 162(m). One of the Amendments that is necessary in order that the 1993 Program will satisfy the requirements for performance based compensation set forth in the IRS Regulation relates to the composition of the Committee. If the Amendments are adopted by the shareholders, each member of the Committee will be required to be an "outside director" as that term is used in the Code and the accompanying regulations of the Code. The Amendments will also require that the Committee be comprised of persons who satisfy the requirements of a "Non-Employee Director" as that term is defined in newly-amended Rule 16b-3(b) under the 1934 Act. Rule 16b-3 16 18 provides for an exemption from the short-swing profits recapture provisions of Section 16(b) of the 1934 Act for certain transactions between an issuer and its officers or directors involving shares of the issuer. ELIGIBILITY Officers and other full-time, salaried employees of the Company and its subsidiaries (including the persons named in the Summary Compensation Table on page 7) who are selected by the Committee are eligible to receive Stock Options and other Awards. Non-Employee Directors are participants in the 1993 Program solely for purposes of receiving certain NQSO awards. There are currently 9 Non-Employee Directors of the Company. A second amendment of the 1993 Program that is necessary in order that the 1993 Program will satisfy the requirements of the IRS Regulations, for Stock Options under Section 162(m) of the Code relates to the maximum number of common shares which can be allocated to any one person under the 1993 Program. The 1993 Program originally included no limit on the number of common shares that could be allocated to any one person, other than the limits imposed on common shares covered by NQSO awards granted to Non-Employee Directors. The Amendments provide that no participant may be granted Stock Options and other Awards for more than 75,000 common shares during any calendar year. As described in the Executive Compensation Committee Report on Executive Compensation, grants of stock options and restricted common shares under the 1993 Program are significant elements of the Company's executive compensation program. The following table sets forth the number and exercise price of Stock Options and restricted common shares granted and issued during 1996 and 1997 (through the date of this Proxy Statement) under the 1993 Program to (1) each of the executive officers of the Company named in the Summary Compensation Table, (ii) all current executive officers of the Company as a group, (iii) all current directors who are not executive officers as a group and (iv) all employees, including all current officers who are not executive officers, as a group. None of the nominees for election as director who is not an executive officer received stock options or other awards in 1996 or 1997 (through the date of this proxy statement). No Stock Options or other Awards have been granted to associates of any of the directors or executive officers, and other than the persons identified in the following table, 17 19 no person received five percent or more of the Stock Options or restricted shares granted under the 1993 Program during 1996 or 1997.
1996 1997 1996 1997 OPTION OPTION 1997 DIVIDEND DIVIDEND 1996 EXERCISE 1997 EXERCISE RESTRICTED PAYMENT PAYMENT NAME OR GROUP OPTIONS# PRICE OPTIONS# PRICE SHARES RIGHTS# RIGHTS# - -------------------------- -------- -------- -------- -------- ---------- -------- -------- Lauren N. Patch 30,000 $35.00 30,000 $41.375 1,399 30,000 30,000 Chief Executive Officer Barry S. Porter 10,000 $35.00 10,000 $41.375 574 10,000 10,000 Chief Financial Officer Andrew T. Fogarty 10,000 $35.00 0 0 0 10,000 0 Senior Vice President Jeffery D. Lowe, 3,000 $35.00 0 0 0 3,000 0 Vice President Michael L. Evans 10,000 $35.00 10,000 $41.375 453 10,000 10,000 Executive Vice President All current executive 99,000 $35.00 111,000 $41.375 5,579 102,000 111,000 officers as a group(1) 3,000 $33.00 All current directors who 6,000 $34.50 0 0 0 0 0 are not executive officers as a group All employees (including 0 0 0 0 1,601 0 0 all current officers 0 0 who are not executive officers), as a group
- --------------- (1) No restricted shares were granted in 1996. Information concerning the restricted shares awarded in 1997 appears in the Summary Compensation Table for 1996 because these restricted shares were granted in connection with services rendered in 1996. (2) As discussed in the Report of the Executive Compensation Committee, it is anticipated that a similar number of Stock Options will be granted under the 1993 Program to executive officers in 1998. (3) See Report of the Executive Compensation Committee for discussion of restricted share awards. DURATION Any grant of a Stock Option or other Award must be made within ten years after the date the 1993 Program was adopted by the Company's Board of Directors (February 18, 1993). ADJUSTMENTS The 1993 Program provides for adjustment in the number of common shares reserved for issuance under the 1993 Program, the maximum number of common shares which may be sold or awarded to any participant and the number and exercise or purchase price of common shares covered by each outstanding Stock Option or other Award in the event of a stock dividend, stock split or other change in the Company's capitalization affecting its common shares and for adjustment of Stock Options or other Awards in the event of changes in the common shares resulting from reorganization, sale, merger, consolidation or similar occurrence. TERMS OF AWARDS Stock Options. The option exercise price of any Stock Option granted under the 1993 Program may not be less than 100% of the Fair Market Value of the Common shares on the date of grant. In the case of any Stock Option, Fair Market Value is defined as the closing price of the Company's common shares on the relevant date, as reported in the NASDAQ National Market System. The period during which any Stock Option may be exercised is determined by the 18 20 Committee, but no Stock Option may be exercised after the expiration of ten years from the date it is granted. Under the 1993 Program, no employee may receive an ISO if, at the time of grant, such employee owns of record or beneficially more than 10% of the total combined voting power of all classes of stock of the Company or of any subsidiary of the Company unless the option exercise price is at least 110% of the Fair Market Value of the common shares covered by the ISO on the date of grant and the option term does not exceed five years. The 1993 Program provides that the aggregate fair market value (determined as of the time as ISO is granted) of the common shares with respect to which ISOs may become exercisable for the first time by any individual during any calendar year (under all option plans of the Company and its subsidiary corporations) may not exceed $100,000. The Committee may provide for the payment of the option exercise price of common shares under a Stock Option in cash, by delivery of other common shares of the Company having a Fair Market Value equal to the option exercise price of such shares, or by delivery of an exercise notice accompanied by a copy of irrevocable instructions to a broker to deliver promptly to the Company sale or loan proceeds to pay the option exercise price. A Stock Option may be exercised only after six months from its grant date. The 1993 Program contains special rules governing the time of exercise of Stock Options and SARs in cases of retirement, death, disability, or other termination of employment. The 1993 Program also provides that, upon the occurrence of a "Change in Control" (as defined in the 1993 Program) of the Company, all Stock Options, SARs, Stand Alone Stock Appreciation Rights and LSARs which have been outstanding for at least six months (whether or not then exercisable) will become fully exercisable as of the date of the Change in Control. SARs. An SAR permits the holder to elect to surrender any related Stock Option or portion thereof which is then exercisable and to receive in exchange therefor cash in an amount equal to the excess of the Fair Market Value on the date of such election of one common share over the option exercise price multiplied by the number of common shares covered by the Stock Option or portion thereof which is surrendered. The Committee has the discretion to satisfy the right of a holder of an SAR to receive cash upon the exercise of an SAR, in whole or in part, by the delivery of common shares. For purposes of an SAR, Fair Market Value is defined as the closing price of the Company's common shares on the date of grant. SARs may be granted with respect to a Stock Option at the time of its grant or at any time thereafter up to six months prior to its expiration. An SAR may be granted to an employee regardless of whether such employee has been granted an LSAR (as described below) with respect to the same Stock Option, although an SAR may not be exercised during any period that an LSAR with respect to the same Stock Option may be exercised. An SAR may be exercised only after six months from its grant date. An SAR will be exercisable upon such additional terms and conditions as may be prescribed by the Committee in its sole discretion, but in no event will it be exercisable after the expiration of the related Stock Option. LSARs. The 1993 Program also permits the grant of LSARs to the holder of any Stock Option at the time of the grant of the Stock Option or at any time thereafter up to six months prior to its expiration. An LSAR may be granted to an employee regardless of whether such employee has been granted an SAR with respect to the same Stock Option. An LSAR will permit the holder to surrender the related Stock Option or portion thereof which is then exercisable and receive in exchange therefor cash in an amount equal to the excess of the Fair Market Value on the date of such election of one common share over the option exercise price multiplied by the number of common shares covered by the Stock Option or portion thereof which is surrendered. An LSAR may be exercised only after six months from its date of grant and only during the sixty-day period commencing with the day following the date of a Change in Control of the Company. In the case of an LSAR (other than an LSAR related to an ISO), Fair Market Value is 19 21 the higher of (i) the highest daily closing price of the Common Shares during the sixty-day period following the Change in Control or (ii) the highest price paid for Common Shares by the acquirer in the Change in Control. In addition, an LSAR will be exercisable upon such additional terms and conditions as may be prescribed by the Committee, in its sole discretion, but in no event will an LSAR be exercisable after the expiration of the related Stock Option. Restricted Stock. Restricted stock awards consist of common shares transferred to participants, without other payment therefor (other than the payment of the par value of such common shares if required by applicable law), as additional compensation for their services to the Company or one of its subsidiaries. Restricted stock awards will be subject to such terms and conditions as the Committee determines appropriate including, without limitation, restrictions on the sale or other disposition of such common shares and rights of the Company to acquire such common shares upon termination of the participant's employment within specified periods. Subject to such other restrictions as are imposed by the Committee, the common shares covered by a restricted stock award may be sold or otherwise disposed of only after six months from the grant date of the award. Stand Alone Stock Appreciation Rights. If the Amendments are adopted by the shareholders, the 1993 Program will authorize the grant of Stand Alone Stock Appreciation Rights. Unlike SARs and LSARs, Stand Alone Stock Appreciation Rights may be granted without reference to any Stock Option granted under the 1993 Program. Thus, when a Stand Alone Stock Appreciation Right is exercised, the holder is not required to surrender any related Stock Option or portion thereof. Upon exercise of a Stand Alone Stock Appreciation Right, the holder will receive cash (or, at the election of the Committee, common shares) in an amount (or, in the case of common shares, having a Fair Market Value) equal to the excess of the Fair Market Value on the date of election of one common share over the exercise price of the right multiplied by the number of Stand Alone Stock Appreciation Rights being exercised. For purposes of the Stand Alone Stock Appreciation Rights, Fair Market Value is defined as the closing price of the common shares as reported in the NASDAQ National Market System on the date of grant. Stand Alone Stock Appreciation Rights may not be exercised during the six months following the date of grant. The Amendments contain special rules governing the time of exercise of Stand Alone Stock Appreciation Rights in case of death or other termination of employment. Stock Option Grants to Non-Employee Directors. The 1993 Program also provides that each person who becomes a Non-Employee Director of the Company is automatically granted an NQSO to purchase 3,000 common shares (reflects adjustment for a two-for-one stock split in 1994) effective on the third business day following the first meeting of the Board of Directors after election or appointment to the Board. The option exercise price of each NQSO granted to a Non-Employee Director is equal to the Fair Market Value of the common shares on the date of grant. The Committee has interpreted the language of the 1993 Program as providing for the grant of a NQSO to a Non-Employee Director following his or her initial election or appointment to the Board of Directors and following each subsequent annual meeting of shareholders at which he or she is re-elected to the Board of Directors. The Amendments clarify the language of the 1993 Program to provide for the grant of a NQSO to a Non-Employee Director on the third business day following the date of his or her first election or appointment to the Board of Directors and on the third business day following each Annual Meeting of Shareholders at which he or she is elected or re-elected to the Board of Directors for an additional term of office by the shareholders of the Company. NQSOs granted to Non-Employee Directors have terms of ten years. The 1993 Program contains special rules governing the time of exercise of NQSOs granted to Non-Employee Directors in case of death, disability or other termination of service as a director. Stock Options 20 22 granted to Non-Employee Directors may not be exercised during the six months following their date of grant. Each Stock Option, SAR, LSAR, Stand Alone Stock Appreciation Right and restricted stock award granted under the 1993 Program will not be transferable other than by will or the laws of descent and distribution, and will be exercisable, during a participant's lifetime, only by the participant or the participant's guardian or legal representative. AMENDMENTS AND DISCONTINUANCE The Board of Directors may amend the 1993 Program from time to time or terminate the 1993 Program at any time without the approval of the shareholders of the Company except as such shareholder approval may be required (a) to satisfy the requirements of Rule 16b-3 under the Securities Exchange Act of 1934, (b) to satisfy applicable tax law requirements or (c) to satisfy applicable requirements of the NASDAQ National Market System. No such action may, without the consent of the participant, reduce the amount of any existing Award of such participant or adversely change the terms and conditions thereof. The provisions of the 1993 Program governing grants of NQSOs to Non-Employee Directors may not be amended more frequently than once every six months other than to comport with changes in the Code, or the rules thereunder or changes in the Employee Retirement Income Security Act of 1974. The terms and conditions applicable to any Awards granted and outstanding may at any time be amended, modified, or canceled, without shareholder approval, by mutual agreement between the Committee and the participant so long as shareholder approval of such amendment, modification or cancellation is not required to permit the 1993 Program to satisfy the requirements of Rule 16b-3, to satisfy applicable provisions of the tax laws or to satisfy any applicable requirements of the NASDAQ National Market System. The Committee may, at any time and in its sole discretion, declare any or all Stock Options (other than any NQSO granted to a Non-Employee Director), SARs, Stand Alone Stock Appreciation Rights and LSARs then outstanding under the 1993 Program to be exercisable, and any or all outstanding restricted stock awards to be vested, whether or not such Stock Options, SARs, Stand Alone Stock Appreciation Rights, LSARs or other Awards are otherwise exercisable or vested. FEDERAL INCOME TAX CONSEQUENCES Based on current provisions of the Code and the existing regulations thereunder, the anticipated federal income tax consequences in respect of Stock Options and other Awards granted under the 1993 Program are as described below. The following discussion is not intended to be a complete statement of applicable law and is based upon the federal income tax laws as in effect on the date hereof. Since tax law is subject to change and since the application of tax law may vary depending upon the facts applicable to the taxpayer, each participant in the 1993 Program will be advised to consult with such Participant's own tax advisor before taking action with respect to benefits awarded to him or her under the 1993 Program. ISOS In general, a participant who is granted an ISO does not recognize taxable income either on the date of grant or on the date of exercise. However, upon the exercise of the ISO, the difference between the Fair Market Value of the common shares received and the option price is a tax preference item potentially subject to the alternative minimum tax. Upon disposition of common shares acquired from exercise of an ISO, long-term capital gain or loss is generally recognized in an amount equal to the difference between the amount realized on the sale or disposition and the exercise price. However, if the participant disposes of the common shares within two years of the date of grant or within one year from the date of the issuing of the common shares to the participant (a "Disqualifying Disposition"), then the 21 23 participant will recognize ordinary income, as opposed to capital gain, at the time of disposition in an amount generally equal to the lesser of (i) the amount of gain realized on the disposition or (ii) the difference between the Fair Market Value of the common shares received on the date of exercise and the exercise price. Any remaining gain or loss is treated as a short-term or long- term capital gain or loss, depending upon the period of time the common shares have been held. The Company is not entitled to a tax deduction upon either exercise of an ISO or disposition of common shares acquired pursuant to such exercise, except to the extent that the participant recognizes ordinary income in a Disqualifying Disposition. If the holder of an ISO pays the exercise price, in whole or in part, with previously acquired shares, the exchange will not affect the tax treatment of the exercise. Upon such exchange, and except for Disqualifying Dispositions, no gain or loss is recognized upon the delivery of the previously acquired shares to the Company, and the shares received by the participant equal in number to the previously acquired shares exchanged therefor will have the same basis and holding period for capital gain or capital loss purposes as the previously acquired shares. Shares received by the participant in excess of the number of previously acquired shares will have a basis of zero and a holding period which commences as of the date the shares are issued to the participant upon exercise of the ISO. If such an exercise is effected using shares previously acquired through the exercise of an ISO, the exchange of the previously acquired shares will be considered a disposition of such shares for the purpose of determining whether a Disqualifying Disposition has occurred. NQSOS In general, a participant receiving an NQSO generally does not recognize taxable income on the date of grant of the NQSO. The participant must recognize ordinary income generally at the time of exercise of the NQSO in the amount of the difference between the Fair Market Value of the common shares on the date of exercise and the option price. The ordinary income received will constitute compensation for which tax withholding generally will be required. The amount of ordinary income recognized by a participant will be deductible by the Company in the year that the participant recognizes the income if the Company complies with the applicable withholding requirement. Common shares acquired upon exercise of an NQSO will have a tax basis equal to their fair market value on the exercise date or other relevant date on which ordinary income is recognized, and the holding period for the common shares generally will begin on the date of exercise or such other relevant date. Upon subsequent disposition of the common shares, the participant will recognize long-term capital gain or loss if the participant has held the common shares for more than one year prior to disposition, or short-term capital gain or loss if the participant has held the common shares for one year or less. If the holder of an NQSO pays the exercise price, in whole or in part, with previously acquired shares, the exchange will not affect the tax treatment of the exercise, i.e., the holder will recognize ordinary income in the amount by which the fair market value of the shares received exceeds the exercise price. Upon such exchange, no gain or loss is recognized upon delivery of the previously acquired shares to the Company, and the shares received by the holder equal in number to the previously acquired shares exchanged therefor will have the same basis and holding period for capital gain purposes as the previously acquired shares. Shares received by the holder of the NQSO in excess of the number of previously acquired shares will have a basis equal to the fair market value of such additional shares as of the date ordinary income equal to such fair market value is realized and a holding period which commences as of such date. 22 24 SARS AND STAND ALONE STOCK APPRECIATION RIGHTS A participant is not taxed upon the grant of SARS or Stand Alone Stock Appreciation Rights. Rather, participants will generally be taxed upon the exercise date, at ordinary income tax rates, on the amount of cash received and the fair market value of any common shares received. The amount of ordinary income recognized by a participant will be deductible by the Company in the year in which the participant recognizes income. RESTRICTED STOCK AWARDS An employee who is granted a restricted stock award will not be taxed upon the acquisition of such common shares so long as the interest in such common shares is subject to a substantial risk of forfeiture. Upon lapse or release of the restrictions, the participant will be taxed at ordinary income tax rates on an amount equal to either the current fair market value of the common shares (in the case of lapse or termination) or the sale price (in the case of a sale), less any consideration paid for the shares. The Company will be entitled to a corresponding deduction. The basis of restricted shares held after lapse or termination of restrictions will be equal to their fair market value on the date of lapse or termination of restrictions, and upon subsequent disposition, any further gain or loss will be long-term or short-term capital gain or loss, depending upon the length of time the common shares are held. A participant may elect to be taxed at ordinary income tax rates on the full fair market value of the restricted shares at the time of issuance (less any consideration paid). The basis of the common shares so acquired will be equal to the fair market value at such time. If the election is made, no tax will be payable upon the subsequent lapse or release of the restrictions, and any gain or loss upon disposition will be a capital gain or loss. VOTE REQUIRED Shareholder approval of the Amendments to the 1993 Program will require the affirmative vote of the holders of a majority of the Company's common shares represented in person or by proxy at the Annual Meeting or any adjournment thereof. Under Ohio Law, abstentions and broker non-votes are counted as present; the effect of an abstention or broker non-vote on the proposal is the same as a "no" vote. THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE AMENDMENTS TO THE 1993 PROGRAM. UNLESS OTHERWISE DIRECTED, THE PERSONS NAMED IN THE ENCLOSED PROXY WILL VOTE THE COMMON SHARES REPRESENTED BY ALL PROXIES RECEIVED PRIOR TO THE ANNUAL MEETING, AND NOT PROPERLY REVOKED, IN FAVOR OF THE AMENDMENTS TO THE 1993 PROGRAM. ANNUAL REPORT The Company's Annual Report for the fiscal year ended December 31, 1996 accompanies this Proxy Statement. INDEPENDENT PUBLIC ACCOUNTANTS The accounting firm of Coopers & Lybrand has served for many years as independent public accountants for the Company and its subsidiaries, and Coopers & Lybrand will continue to serve as independent public accountants for 1997. Management expects that representatives of that firm will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. The Company's financial statements for the last fiscal year were examined by Coopers & Lybrand. In connection with the audit function, Coopers & Lybrand also reviewed the Com- 23 25 pany's annual and quarterly reports and reviewed its filings with the Securities and Exchange Commission. SHAREHOLDER PROPOSALS If an eligible shareholder wishes to present a proposal for action at the next annual meeting of shareholders of the Company, it must be received by the Company not later than November 25, 1997 for inclusion in the Company's Proxy Statement and form of Proxy relating to that meeting. An eligible shareholder may present no more than one proposal of not more than five hundred (500) words, including supporting statements, for inclusion in the Company's proxy materials for the next annual meeting. Proposals shall be sent to Ohio Casualty Corporation, Attention: Howard L. Sloneker III, Secretary, 136 North Third Street, Hamilton, Ohio 45025. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission (SEC). Officers, directors and greater than ten percent shareholders are required by SEC regulations to furnish the Company with copies of all Forms 3, 4 and 5 they file. Based on the Company's review of the copies of such forms it has received, the Company believes that all its officers, directors, and greater than ten percent beneficial owners complied with all filing requirements applicable to them with respect to transactions during fiscal 1996. OTHER MATTERS The Company files annually with the Securities and Exchange Commission an Annual Report on Form 10-K. This report includes financial statements and financial statement schedules. A SHAREHOLDER OF THE COMPANY MAY OBTAIN A COPY OF THE ANNUAL REPORT ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES, FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996, WITHOUT CHARGE BY SUBMITTING A WRITTEN REQUEST THEREFOR TO THE FOLLOWING ADDRESS: OHIO CASUALTY CORPORATION Attention: Barry S. Porter Chief Financial Officer/Treasurer 136 North Third Street Hamilton, Ohio 45025 Management and the Board of Directors of the Company know of no business to be brought before the Annual Meeting other than as set forth in this Proxy Statement. However, if any matters other than those referred to in this Proxy Statement should properly come before the Annual Meeting, it is the intention of the persons named in the enclosed proxy to vote the common shares represented by such proxy on such matters in accordance with their best judgment. 24 26 EXPENSES OF SOLICITATION The expense of proxy solicitation will be borne by the Company. Proxies will be solicited by mail and may be solicited, for no additional compensation, by officers, directors or employees of the Company or its subsidiaries, by telephone, telegraph or in person. Brokerage houses and other custodians, nominees and fiduciaries may be requested to forward soliciting material to the beneficial owners of common shares of the Company, and will be reimbursed for their related expenses. In addition, the Company has retained Morrow & Co., Inc., a professional soliciting organization, to assist in soliciting proxies from brokerage houses, custodians and nominees. The fees and expenses of that firm in connection with such solicitation are not expected to exceed $15,000. By Order of the Board of Directors, Howard L. Sloneker III, Secretary March 14, 1997 25 27 EXHIBIT A OHIO CASUALTY CORPORATION 1993 STOCK INCENTIVE PROGRAM (AS AMENDED THROUGH FEBRUARY 20, 1997) 1. PURPOSE. The purpose of the Ohio Casualty Corporation 1993 Stock Incentive Program (the "Program") is to attract and retain outstanding individuals as directors, officers and other key employees of Ohio Casualty Corporation (the "Company") and its Subsidiaries, and to furnish incentives to such persons by providing such persons opportunities to acquire Common Shares of the Company, or monetary payments based on the value of such shares, on advantageous terms as herein provided. 2. ADMINISTRATION. The Program will be administered by a committee (the "Committee") of at least three persons which shall be either the Executive Compensation Committee of the Board of Directors of the Company or such other committee comprised entirely of persons that are both (i) Non-Employee Directors as defined in Rule 16b-3 promulgated by the Securities and Exchange Commission, and (ii) "outside directors" as defined in Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder, as the Board of Directors of the Company may from time to time designate. The Committee shall interpret the Program, prescribe, amend and rescind rules and regulations relating thereto, and make all other determinations necessary or advisable for the administration of the Program. Any determination, decision or action of the Committee in connection with the construction, interpretation, administration or application of the Program shall be final, conclusive and binding upon all persons participating in the Program and any person validly claiming under or through persons participating in the Program. A majority of the members of the Committee shall constitute a quorum at any meeting of the Committee, and all determinations of the Committee at a meeting shall be made by a majority of its members. Any determination of the Committee under the Program may be made without a meeting of the Committee by a writing signed by all of its members. The Company shall effect the granting of Awards under the Program in accordance with the determination of the Committee, by execution of instruments in writing in such form as approved by the Committee. With respect to persons subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), transactions under this Program are intended to comply with all applicable conditions of Rule 16b-3 of the Securities and Exchange Commission or its successors. To the extent any provision of the Program or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 3. PARTICIPANTS. Participants in the Program will consist of such officers and other full-time, salaried employees of the Company and its Subsidiaries as the Committee in its sole discretion may designate from time to time to receive Awards hereunder. The Committee's designation of a Participant in any year shall not require the Committee to designate such person to receive an Award in any other year. The Committee shall consider such factors as it deems pertinent in selecting Participants and in determining the type and amount of their respective Awards, including without limitation (i) the financial condition of the Company and its Subsidiaries; (ii) anticipated profits for the current or future years; (iii) contributions of Participants to the profitability and development of the Company and its Subsidiaries; and (iv) other compensation provided to Participants. Non-Employee Directors shall also be Participants in the Program solely for purposes of receiving Stock Options under Section 11 hereof. For purposes of Section 11 of the Program, the term "Non-Employee Director" shall mean a member of the Board of Directors of the Company who is not a full-time employee of the Company or any of its Subsidiaries. 26 28 4. TYPES OF AWARDS. Awards under the Program may be granted in any one or a combination of (a) Incentive Stock Options; (b) Non-Qualified Stock Options; (c) Stock Appreciation Rights; (d) Limited Stock Appreciation Rights; (e) Stand Alone Stock Appreciation Rights; and (f) Restricted Stock Awards, all as described below in Sections 6-11 hereof. The maximum aggregate number of Common Shares with respect to which Awards may be made to any Participant in any calendar year is 75,000 Common Shares. For purposes of this limitation, a Stock Option shall be treated as being made with respect to the number of Common Shares that may be purchased with the Stock Option; a Stand Alone Stock Appreciation Right shall be treated as being made with respect to the number of Common Shares as to which the cash payment at exercise is computed; a Restricted Stock Award shall be counted as being equal to the number of underlying Common Shares; and Stock Appreciation Rights and Limited Stock Appreciation Rights shall not enter into the computation hereunder if such Awards, when exercised, will result in a related Stock Option being surrendered. 5. SHARES RESERVED UNDER THE PROGRAM. There is hereby reserved for issuance under the Program an aggregate of One Million (1,000,000) Common Shares, which may be newly issued or treasury shares. The Common Shares hereby reserved are in addition to the Common Shares previously reserved under the Company's 1982 Incentive Stock Program (the "Prior Stock Option Program"). Any Common Shares reserved for issuance under the Prior Stock Option Program in excess of the number of Common Shares as to which stock options or other awards have been awarded thereunder on the Effective Date, plus any such shares as to which stock options or other awards granted under the Prior Stock Option Program may lapse, expire, terminate or be canceled after the Effective Date (so long as the holder thereof has not received any benefits of ownership of such shares), shall also be reserved and available for issuance in connection with Awards under this Program. All of such shares may, but need not, be issued pursuant to the exercise of Incentive Stock Options. If there is a lapse, expiration, termination or cancellation of any Award granted hereunder without the issuance of Common Shares or payment of cash thereunder, or if Common Shares are issued under any Award and thereafter are reacquired by the Company pursuant to rights reserved upon the issuance thereof, the Common Shares subject to or reserved for such Award may again be used for new Stock Options or other Awards under this Program so long as the holder thereof has not received any benefits of ownership of such shares; provided, however, that in no event may the number of Commons Shares issued under this Program exceed the total number of Common Shares reserved for issuance hereunder. 6. INCENTIVE STOCK OPTION PLAN. Incentive Stock Options will consist of Stock Options, qualifying as "incentive stock options" under the requirements of Section 422 of the Code, to purchase Common Shares at purchase prices not less than One Hundred Percent (100%) of the Fair Market Value of such Common Shares on the date of grant. Incentive Stock Options will be exercisable over not more than ten (10) years after the date of grant. In the event of termination of employment for any reason other than Retirement, Disability or death, the right of the optionee to exercise an Incentive Stock Option shall terminate immediately upon the termination of employment. In the event of termination of employment due to Retirement, the right of the optionee to exercise an Incentive Stock Option shall terminate upon the earlier of the end of the original term of the Incentive Stock Option or three (3) months after the date of such Retirement. In the event of termination of employment due to Disability, the right of the optionee to exercise an Incentive Stock Option shall terminate upon the earlier of the end of the original term of the Incentive Stock Option or one (1) year after the date of termination of employment. If the optionee should die while employed, the right of the optionee's successor in interest to exercise an Incentive Stock Option granted to the optionee shall terminate upon the earlier of the end of the original term of the Incentive Stock Option or one (1) year after optionee's last date of employment. If the optionee should die within three (3) months after termination of employment due to Retirement, the right of his or her successor in interest to 27 29 exercise an Incentive Stock Option shall terminate three (3) months after the date of termination of employment as a result of such Retirement, but not later than the end of the original term of the Incentive Stock Option. If the optionee should die within one (1) year after termination of employment due to Disability, the right of his or her successor in interest to exercise an Incentive Stock Option shall terminate upon the earlier of one (1) year after the date of termination of employment or the end of the original term of the Incentive Stock Option. The aggregate fair market value (determined as of the time the Stock Option is granted) of the Common Shares with respect to which incentive stock options are exercisable for the first time by any Participant during any calendar year (under all option plans of the Company and all Subsidiaries and Parents of the Company) shall not exceed $100,000. An Incentive Stock Option granted to a Participant under the Program may be exercised only after six (6) months from its grant date. Anything contained herein to the contrary notwithstanding, no Incentive Stock Option shall be granted to an employee who, at the time the Incentive Stock Option is granted, owns (actually or constructively under the provisions of Section 424(d) of the Code) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company, unless the option exercise price is not less than 110% of the Fair Market Value of the Common Shares subject to the Incentive Stock Option on the date of grant and the Incentive Stock Option by its terms is not exercisable more than five years from the date it is granted. For purposes of this Section 6, if an optionee terminates his employment voluntarily, the date of termination of employment shall be deemed the date on which he notifies the Company of his intention to terminate his employment; in all other cases the date of termination of employment shall be the last day of employment. 7. NON-QUALIFIED STOCK OPTION PLAN. Non-Qualified Stock Options will consist of options (other than Incentive Stock Options) to purchase Common Shares at purchase prices not less than One Hundred Percent (100%) of the Fair Market Value of such Common Shares on the date of grant. Non-Qualified Stock Options will be exercisable over not more than ten (10) years after the date of grant. In the event of termination of employment for any reason other than Retirement, Disability or Death, the right of the optionee to exercise a Non-Qualified Stock Option shall terminate immediately upon the termination of employment. In the event of termination of employment due to Retirement or Disability, or if the optionee should die while employed, the right of the optionee or his or her successor in interest to exercise a Non-Qualified Stock Option shall terminate upon the earlier of the end of the original term of the Non-Qualified Stock Option or one (1) year after the date of termination of employment as a result of such Retirement, Disability or Death. If the optionee should die within one (1) year after termination of employment due to Retirement or Disability, the right of his or her successor in interest to exercise a Non-Qualified Stock Option shall terminate upon the earlier of one (1) year after termination of employment as a result of such Retirement or Disability or the end of the original term of the Non-Qualified Stock Option. A Non-Qualified Stock Option granted to a Participant under the Program may be exercised only after six (6) months from its grant date. For purposes of this Section 7, if an optionee terminates his employment voluntarily, the date of termination of employment shall be deemed the date on which he notifies the Company of his intention to terminate his employment; in all other cases the date of termination shall be the last day of employment. 8. STOCK APPRECIATION RIGHTS PLAN. The Committee may, in its discretion, grant a Stock Appreciation Right to the holder of any Stock Option granted hereunder. Such Stock Appreciation Rights shall be subject to such terms and conditions consistent with the Program as the Committee shall impose from time to time, including the following: (a) A Stock Appreciation Right may be granted with respect to a Stock Option at the time of its grant or at any time thereafter up to six (6) months prior to its expiration. 28 30 (b) Stock Appreciation Rights will permit the holder to surrender any related Stock Option or portion thereof which is then exercisable and to elect to receive in exchange therefor cash in an amount equal to: (i) The excess of the Fair Market Value on the date of such election of one Common Share over the option exercise price, multiplied by (ii) The number of Common Shares covered by such Stock Option or portion thereof which is so surrendered. (c) A Stock Appreciation Right granted to a Participant under the Program may be exercised only after six (6) months from its grant date. (d) The Committee shall have the discretion to satisfy a Participant's right to receive the amount of cash determined under subsection (b) hereof, in whole or in part, by the delivery of Common Shares valued as of the date of the Participant's election. (e) A Stock Appreciation Right may be granted to a Participant regardless of whether such Participant has been granted a Limited Stock Appreciation Right with respect to the same Stock Option. However, a Stock Appreciation Right may not be exercised during any period that a Limited Stock Appreciation Right with respect to the same Stock Option may be exercised. (f) In the event of the exercise of a Stock Appreciation Right, the number of Common Shares reserved for issuance hereunder shall be reduced by the number of shares covered by the Stock Option or portion thereof surrendered. 8A. STAND ALONE STOCK APPRECIATION RIGHTS PLAN. The Committee may, in its discretion, grant Stand Alone Stock Appreciation Rights to any Participant. Such Stand Alone Stock Appreciation Rights shall be subject to such terms and conditions consistent with the Program as the Committee shall impose from time to time, including the following: (a) Stand Alone Stock Appreciation Rights shall be granted without reference to any Stock Option which is then exercisable. (b) Each Stand Alone Stock Appreciation Right will permit the holder to elect to receive in exchange therefor cash in an amount equal to the excess of: (i) the Fair Market Value on the date of such election of one Common Share, over (ii) the Fair Market Value of one Common Share on the date which the Stand Alone Stock Appreciation Right was granted. (c) A Stand Alone Stock Appreciation Right granted to a Participant under the Program may be exercised only after six (6) months from its grant date. (d) The Committee shall have the discretion to satisfy a Participant's right to receive the amount of cash determined under subsection (b) hereof, in whole or in part, by the delivery of Common Shares valued as of the date of the Participant's election. (e) Stand Alone Stock Appreciation Rights will be exercisable over not more than ten (10) after the date of grant. (f) In the event of termination of employment of a Participant to whom a Stand Alone Stock Appreciation Right is granted for any reason other than Retirement, Disability or death, the right of the holder to exercise such Stand Alone Stock Appreciation Right shall terminate immediately upon the termination of employment. In the event of termination of employment due to Retirement or Disability, or if the optionee should die while employed, the right of the holder or his or her successor in interest to exercise a Stand Alone Stock Appreciation Right shall terminate upon the earlier of the end of the original term of the 29 31 Stand Alone Stock Appreciation Right or one (1) year after the date of termination of employment as a result of such Retirement, Disability or Death. If the holder should die within one (1) year after termination of employment due to Retirement or Disability, the right of his or her successor in interest to exercise a Stand Alone Stock Appreciation Right shall terminate upon the earlier of one (1) year after termination of employment as a result of such Retirement or Disability or the end of the original term of the Stand Alone Stock Appreciation Right. For purposes of this Section 8A, if a holder terminates his employment voluntarily, the date of termination of employment shall be deemed the date on which he notifies the Company of his intention to terminate his employment; in all other cases the date of termination of employment shall be the last day of employment. (g) In the event of the grant of any Stand Alone Stock Appreciation Rights, the number of Common Shares reserved for issuance hereunder shall be reduced by the number of Stand Alone Stock Appreciation Rights granted. 9. LIMITED STOCK APPRECIATION RIGHTS PLAN. The Committee may, in its discretion, grant a Limited Stock Appreciation Right to the holder of any Stock Option granted hereunder. Such Limited Stock Appreciation Rights shall be subject to such terms and conditions consistent with the Program as the Committee shall impose from time to time, including the following: (a) A Limited Stock Appreciation Right may be granted with respect to a Stock Option at the time of its grant or at any time thereafter up to six (6) months prior to its expiration. (b) A Limited Stock Appreciation Right will permit the holder to surrender any related Stock Option or portion thereof which is then exercisable and to receive in exchange therefor cash in an amount equal to: (i) The excess of the Fair Market Value on the date of such election of one Common Share over the option exercise price, multiplied by (ii) The number of Common Shares covered by such Stock Option or portion thereof which is so surrendered. (c) A Limited Stock Appreciation Right granted to a Participant under the Program may be exercised only after six (6) months from its grant date and only during the sixty (60) day period commencing with the day following the date of a Change in Control. (d) A Limited Stock Appreciation Right may be granted to a Participant regardless of whether such Participant has been granted a Stock Appreciation Right with respect to the same Stock Option. (e) In the event of the exercise of a Limited Stock Appreciation Right, the number of Common Shares reserved for issuance hereunder shall be reduced by the number of Common Shares covered by the Stock Option or portion thereof surrendered. 10. RESTRICTED STOCK AWARDS PLAN. Restricted Stock Awards will consist of Common Shares transferred to Participants without other payment therefor (other than the payment of the par value of such shares if required by applicable law) as additional compensation for their services to the Company or one of its Subsidiaries. Restricted Stock Awards shall be subject to such terms and conditions as the Committee determines appropriate including, without limitation, restrictions on the sale or other disposition of such shares and rights of the Company to reacquire such shares upon termination of the Participant's employment within specified periods. Subject to such other restrictions as are imposed by the Committee, the Common Shares covered by a Restricted Stock Award granted to a Participant under the Program may be sold or otherwise disposed of only after six (6) months from the grant date of the award. 30 32 11. NON-QUALIFIED STOCK OPTION AWARDS FOR NON-EMPLOYEE DIRECTORS. (a) Grant of Options. Each person who is a Non-Employee Director shall be granted a Non-Qualified Stock Option to purchase 3,000 Common Shares effective on the third business day following the date of his or her first election or appointment to the Board of Directors and on the third business day following each annual meeting of shareholders at which he or she is re-elected to the Board of Directors. (b) Price. The option exercise price per share of each Non-Qualified Stock Option granted under this Section 11 shall be equal to the Fair Market Value of a Common Share on the date of grant, provided that the option exercise price shall be subject to adjustment as provided in Section 18 hereof: (c) Term of Options. Non-Qualified Stock Options granted under this Section 11 shall be effective on and shall be of a term of ten (10) years from the date of grant. Each such option shall be subject to earlier termination as provided in subsection (e) hereof. (d) Restriction on Exercise. Non-Qualified Stock Options granted under this Section 11 may not be exercised within six (6) months following their date of grant. (e) Termination of Service as a Director. (i) Except as otherwise provided in this subsection (e), any Non-Qualified Stock Option granted under this Section 11 is exercisable only by the optionee, is exercisable only while the optionee is a director of the Company and then only if the option has become exercisable by its terms, and if not exercisable by its terms at the time the optionee ceases to be a director of the Company, shall immediately expire on the date the optionee ceased to be a director of the Company. (ii) Any Non-Qualified Stock Option granted under this Section 11 which is exercisable by its terms at the time the optionee ceases to be a director of the Company must be exercised on or before the earlier of three months after the date the optionee ceases to be a director of the Company or the expiration date of such option, after which period such option shall expire. Notwithstanding the foregoing, if an optionee's status as a director of the Company is Terminated For Cause (as herein defined), however, all options granted to such optionee shall, to the extent not previously exercised, expire immediately upon such termination. (iii) In the event of the death of the holder of a Non-Qualified Stock Option granted under this Section 11 while a director of the Company or within three months after he ceases to be a director of the Company, such optionee's unexercised Non-Qualified Stock Option (whether or not then exercisable by its terms) shall become immediately exercisable by the optionee's successor in interest for a period ending on the earlier of the end of the original term of the option or twelve months after the date of death, after which period such option shall expire. (iv) In the case of any Non-Qualified Stock Option granted under this Section 11, in the event the optionee ceases to be a director of the Company by reason of a Disability, such optionee's unexercised Non-Qualified Stock Option (whether or not then exercisable by its terms) shall become immediately exercisable for a period ending on the earlier of the end of the original term of such option or twelve months from the date the optionee ceases to be a director, after which period such option shall expire. (f) Except in the event of conflict, all provisions of the Program shall apply to this Section 11. In the event of any conflict between the other provisions of the Program and this Section 11, this Section 11 shall control. Those provisions of Sections 8 and 9 hereof which authorize the Committee to grant a Stock Appreciation Right or a Limited Stock Appreciation Right with respect to a Stock Option shall not apply to any Non-Qualified Stock Option 31 33 granted under this Section 11. Those provisions of Section 14 hereof which authorize the Committee to declare outstanding options to be vested and to amend or modify the terms of any Awards shall not apply to any Non-Qualified Stock Option granted under this Section 11. 12. NONTRANSFERABILITY. Each Stock Option, Stock Appreciation Right, Stand Alone Stock Appreciation Right, Limited Stock Appreciation Right and Restricted Stock Award granted under this Program shall not be transferable other than by will or the laws of descent and distribution, and shall be exercisable, during the Participant's lifetime, only by the Participant or the Participant's guardian or legal representative. 13. OTHER PROVISIONS. The grant of any Award under the Program may also be subject to other provisions (whether or not applicable to any Award granted to any other Participant) as the Committee determines appropriate including, without limitation, provisions for the purchase of Common Shares under Stock Options in installments, provisions for the payment of the option exercise price of shares under a Stock Option by delivery of other Common Shares of the Company having a then Fair Market Value equal to the option exercise price of such shares, restrictions on resale or other disposition, such provisions as may be appropriate to comply with federal or state securities laws and stock exchange requirements and understandings or conditions as to the Participant's employment in addition to those specifically provided for under the Program. The Committee may, in its discretion, permit payment of the option exercise price of shares under Stock Options by delivery of a properly executed exercise notice together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay the option exercise price. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms. The Committee may, in its discretion and subject to such rules as it may adopt, permit a Participant (other than a Non-Employee Director who receives a Non-Qualified Stock Option under Section 11 hereof) to pay all or a portion of the federal, state and local taxes, including FICA withholding tax, arising in connection with the following transactions: (a) the exercise of a Non-Qualified Stock Option; (b) the lapse of restrictions on Common Shares received as a Restricted Stock Award; or (c) the receipt or exercise of any other Award; by electing (i) to have the Company withhold Common Shares, (ii) to tender back Common Shares received in connection with such Award or (iii) to deliver other previously acquired Common Shares of the Company having a Fair Market Value approximately equal to the amount to be withheld. 14. TERM OF PROGRAM AND AMENDMENT, MODIFICATION, CANCELLATION OR ACCELERATION OF AWARDS. No Award shall be granted under the Program more than ten (10) years after the date of the original adoption of this Program by the Company's Board of Directors. The terms and conditions applicable to any Award granted prior to such date may at any time be amended, modified or canceled, without shareholder approval, by mutual agreement between the Committee and the Participant or such other persons as may then have an interest therein, so long as shareholder approval of such amendment, modification or cancellation is not required under Rule 16b-3 of the Securities and Exchange Commission or any applicable requirements of any securities exchange on which are listed any of the Company's equity securities or any applicable requirements for issuers whose securities are traded in the NASDAQ National Market System or any applicable requirements of the Code. The Committee may, at any time and in its sole discretion, declare any or all Stock Options, Stock Appreciation Rights and Stand Alone Stock Appreciation Rights then outstanding under this Program or the Prior Stock Option Program to be exercisable and any or all then outstanding Restricted Stock Awards to be vested, whether or not such options, rights or awards are then otherwise exercisable or vested. 15. AMENDMENT TO PRIOR STOCK OPTION PROGRAM. No Stock Options or other awards shall be granted under the Prior Stock Option Program on or after the Effective Date. 32 34 16. TAXES. The Company shall be entitled to withhold the amount of any tax attributable to any amount payable or shares deliverable under the Program after giving the person entitled to receive such amount or shares notice as far in advance as practicable, and the Company may defer making payment or delivery if any such tax may be pending unless and until indemnified to its satisfaction. 17. DEFINITIONS. (a) Award. The term "Award" means an award or grant of a Stock Option, Stock Appreciation Right, Limited Stock Appreciation Right, Stand Alone Stock Appreciation Right or Restricted Stock Award made to a Participant under Sections 5, 6, 7, 8, 9, 10 or 11 of the Program. (b) Change in Control. A "Change in Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person (including a "group" as defined in Section 13(d)(3) of the Exchange Act) shall have become the beneficial owner of, or shall have obtained voting control over, twenty percent (20%) or more of the outstanding Common Shares; (ii) The date the shareholders of the Company approve a definitive agreement (A) to merge or consolidate the Company with or into another corporation, in which the Company is not the continuing or surviving corporation or pursuant to which any Common Shares would be converted into cash, securities or other property of another corporation, other than a merger of the Company in which holders of Common Shares immediately prior to the merger have the same proportionate ownership of Common Shares of the surviving corporation immediately after the merger as immediately before, or (B) to sell or otherwise dispose of substantially all the assets of the Company; or (iii) The date there shall have been a change in a majority of the Board of Directors of the Company within a twelve (12) month period; provided, however, that any new director whose nomination for election by the Company's shareholders was approved, or who was appointed or elected to the Board, by the vote of two-thirds of the directors then still in office who were in office at the beginning of the twelve (12) month period shall not be counted in determining whether there has been such a change in a majority of the Board. (c) Code. The term "Code" means the Internal Revenue Code of 1986, as amended, and regulations and rulings thereunder. References to a particular section of the Code shall include references to successor provisions. (d) Committee. The "Committee" means the Committee of the Board of Directors of the Company constituted as provided in Section 2 hereof. (e) Common Shares. "Common Shares" means the Common Shares of the Company or any security of the Company issued in substitution, exchange or lieu thereof. (f) Company. The "Company" means Ohio Casualty Corporation, an Ohio corporation, or any successor corporation. (g) Disability. The term "Disability" means, as it relates to the exercise of an Incentive Stock Option after termination of employment, a disability within the meaning of Section 22(e)(3) of the Code, and for all other purposes, a mental or physical condition which, in the opinion of the Committee, renders an optionee unable or incompetent to carry out the job responsibilities which such optionee held or the tasks to which such optionee 33 35 was assigned at the time the disability was incurred, and which is expected to be permanent or for an indefinite duration exceeding one year. (h) Effective Date. The term "Effective Date" means the date on which the Program is approved originally by the shareholders of the Company. (i) Exchange Act. The term "Exchange Act" means the Securities Act of 1934, as amended, or a successor statute. (j) Fair Market Value. The "Fair Market Value" of the Company's Common Shares at any time shall mean, on any given date, the closing price of the Common Shares, as reported on the NASDAQ National Market System for such date or, if Common Shares were not traded on such date, on the next preceding day on which Common Shares were traded; provided, however, that in the case of any Limited Stock Appreciation Right (other than a right related to an Incentive Stock Option), the Fair Market Value shall be the higher of: (i) The highest daily closing price of the Common Shares during the sixty (60) day period following the Change in Control; or (ii) The highest gross price paid or to be paid for the Common Shares in any of the transactions described in Sections 17(b)(i) and 17(b)(ii). (k) Incentive Stock Option. "Incentive Stock Option" means any Stock Option granted pursuant to the provisions of Section 6 of the Program that is intended to be and is specifically designated as an "incentive stock option" within the meaning of Section 422 of the Code. (l) Limited Stock Appreciation Rights. "Limited Stock Appreciation Rights" mean limited stock appreciation rights granted to a Participant under Section 9 of the Program. (m) Non-Employee Director. For purposes of Section 11 of the Program, "Non-Employee Director" means a member of the Board of Directors of the Company who is not a full-time employee of the Company or any Subsidiary. (n) Non-Qualified Stock Option. A "Non-Qualified Stock Option" means any Stock Option granted pursuant to the provisions of Section 7 or Section 11 of the Program that is not an Incentive Stock Option. (o) Parent. The term "Parent of the Company" shall have the meaning set forth in 424(e) of the Code. (p) Participant. The term "Participant" means a full-time employee of the Company or a Subsidiary or a Non-Employee Director who is granted a Non-Qualified Stock Option under Section 11 of the Program. (q) Prior Stock Option Program. The "Prior Stock Option Program" means the Ohio Casualty Corporation 1982 Incentive Stock Program, as amended. (r) Program. The "Program" means this Ohio Casualty Corporation 1993 Stock Incentive Program, as set forth herein and as it may be hereafter amended and from time to time in effect. (s) Restricted Stock Awards. "Restricted Stock Awards" mean awards of restricted stock granted to a Participant under Section 10 of the Program. (t) Retirement. The term "Retirement" for all purposes of the Program shall have the meaning given to such term in the Ohio Casualty Corporation Employees Retirement Plan. (u) Stock Appreciation Rights. "Stock Appreciation Rights" mean stock appreciation rights granted to a Participant under Section 8 of the Program. 34 36 (v) Stock Option. The term "Stock Option" means any Incentive Stock Option or Non-Qualified Stock Option granted under the Program. (w) Stock Option Awards. The term "Stock Option Awards" means any grant of a Stock Option to a Participant under the Program. (x) Subsidiary. The term "Subsidiary" for all purposes other than the Incentive Stock Option plan described in Section 6, shall mean any corporation, partnership, joint venture or business trust, fifty percent (50%) or more of the control of which is owned, directly or indirectly, by the Company. For Incentive Stock Option plan purposes the term "Subsidiary" shall be defined as provided in Section 424(f) of the Code. (y) Terminated for Cause. The term "Terminated for Cause" for purposes of the Program shall mean termination on account of any act of fraud or intentional misrepresentation or embezzlement, misappropriation or conversion of assets or opportunities of the Company or a Subsidiary, the conviction of a felony or intentional and repeated violations of the written policies or procedures of the Company or any Subsidiary. (z) Stand Alone Stock Appreciation Rights. The term "Stand Alone Stock Appreciation Rights" means the stock appreciation rights granted to a Participant under Section 8A of the Program. 18. ADJUSTMENT PROVISIONS. (a) The existence of this Program and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Board of Directors or the shareholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Company's capital stock or the rights thereof, the dissolution or liquidation of the Company or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding. (b) In the event of any change in capitalization affecting the Common Shares, such as a stock dividend, stock split, recapitalization, merger, consolidation, split-up, combination or exchange of shares or other form of reorganization, or any other change affecting the Common Shares, the Committee shall make proportionate adjustments to reflect such change with respect to the aggregate number of Common Shares for which Awards in respect thereof may be granted under the Program, the maximum number of Common Shares which may be sold or awarded to any Participant, the number of Common Shares covered by each outstanding Award and the price per share in respect of outstanding Awards. (c) The Committee also shall make such adjustments in the number of shares covered by, and the price or other value of any outstanding Awards in the event of a spin-off or other distribution (other than normal cash dividends) of Company assets to shareholders. (d) Subject to the six month holding requirements of Sections 6, 7, 8(c), 8A(c), 9(c), 10 and 11(d) but notwithstanding any other provision of this Program or the Prior Stock Option Program, upon the occurrence of a Change in Control: (i) All Stock Options then outstanding under this Program or the Prior Stock Option Program shall become fully exercisable as of the date of the Change in Control, whether or not then otherwise exercisable; (ii) All Stock Appreciation Rights, Stand Alone Stock Appreciation Rights and Limited Stock Appreciation Rights then outstanding shall become fully exercisable as of the date of the Change in Control, whether or not then otherwise exercisable; and 35 37 (iii) All terms and conditions of all Restricted Stock Awards then outstanding shall be deemed satisfied as of the date of the Change in Control, whether or not then otherwise satisfied. 19. AMENDMENT AND TERMINATION OF PROGRAM. The Board of Directors of the Company may amend the Program from time to time or terminate the Program at any time without the approval of the shareholders of the Company except as such shareholder approval may be required (a) to satisfy the requirements of Rule 16b-3 of the Securities and Exchange Commission, (b) to satisfy applicable requirements of the Code or (c) to satisfy applicable requirements of any securities exchange on which are listed any of the Company's equity securities or any requirements applicable to issuers whose securities are traded in the NASDAQ National Market System. No such action to amend or terminate the Program shall reduce the then existing amount of any Participant's Award or adversely change the terms and conditions thereof without the Participant's consent. Section 11 of the Program may not be amended more frequently than once every six months other than to comport with changes in the Code, or changes in the Employees Retirement Income Securities Act, or the rules thereunder, and no amendment of the Program shall result in any Committee member losing his or her status as a "disinterested person" as defined in Rule 16b-3 of the Securities and Exchange Commission with respect to any employee benefit plan of the Company or result in the Program losing its status as a plan satisfying the requirements of said Rule 16b-3. 20. NO RIGHT TO EMPLOYMENT. Neither the adoption of the Program nor the granting of any Awards hereunder shall confer upon any employee of the Company or any Subsidiary any right to continued employment with the Company or any Subsidiary, as the case may be, nor shall it interfere in any way with the right of the Company or a Subsidiary to terminate the employment of any of its employees at any time, with or without cause. 21. UNFUNDED PLAN. The Program shall be unfunded and the Company shall not be required to segregate any assets that may at any time be represented by Awards under the Program. Any liability of the Company to any person with respect to any Awards under the Program shall be based solely upon any contractual obligations that may be effected pursuant to the Program. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company or any Subsidiary. 22. PAYMENTS TO TRUST. The Committee is authorized to cause to be established a trust agreement or several trust agreements whereunder the Committee may make payments of amounts due or to become due to Participants in the Program. 23. ENGAGING IN COMPETITION WITH COMPANY. In the event a Participant terminates his or her employment with the Company or a Subsidiary for any reason whatsoever, and within eighteen (18) months after the date thereof accepts employment with any competitor of, or otherwise engaged in competition with, the Company or any subsidiary, the Committee, in its sole discretion, may require such Participant to return to the Company the economic value of any Award which is realized or obtained (measured at the date of exercise, vesting or payment) by such Participant at any time during the period beginning on that date which is six months prior to the date of such Participant's termination of employment with the Company or any Subsidiary. 24. OTHER COMPANY AWARD AND COMPENSATION PROGRAMS. Payments and other Awards received by a Participant under the Program shall not be deemed a part of a Participant's regular, recurring compensation for purposes of any termination indemnity or severance pay law and shall not be included in, nor have any effect on, the determination of Awards under any other employee benefit plan or similar arrangement provided by the Company or a Subsidiary unless expressly so provided by such other plan or arrangements, or except where the Committee or the Board of Directors determines that an Award or portion of an Award should be included to accurately reflect competitive compensation practices or to recognize that an 36 38 Award has been made in lieu of a portion of competitive annual cash compensation. Awards under the Program may be made in combination with or in tandem with, or as alternatives to, grants, awards or payments under any other Company or Subsidiary plans. The Program notwithstanding, the Company or any Subsidiary may adopt such other compensation programs and additional compensation arrangements as it deems necessary to attract, retain and reward employees for their service with the Company and its Subsidiaries. 25. SECURITIES LAW RESTRICTIONS. No Common Shares shall be issued under the Program unless counsel for the Company shall be satisfied that such issuance will be in compliance with applicable federal and state securities law. Certificates for Common Shares delivered under the Program may be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Shares are then listed or traded on the NASDAQ National Market System or any applicable federal or state securities law. The Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. 26. AWARD AGREEMENT. Each Participant receiving an Award under the Program shall enter into an agreement with the Company in a form specified by the Committee agreeing to the terms and conditions of the Award and such related matters as the Committee shall, in its sole discretion determine. 27. COST OF PROGRAM. The costs and expenses of administering the Program shall be borne by the Company. 28. GOVERNING LAW. The Program and all actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Ohio. 29. SHAREHOLDER APPROVAL. The Program was adopted by the Board of Directors of the Company on February 18, 1993. The Program and any Award granted thereunder shall be null and void if shareholder approval is not obtained within twelve (12) months of the adoption of the Program by the Board of Directors. 37 EX-23 7 EXHIBIT 23 1 Exhibit 23 [COOPERS & LYBRAND LETTERHEAD] Consent of Independent Accountants to Incorporation of Opinion by Reference in Registration Statement on Form S-8 We consent to the incorporation by reference in the Registration Statement of Ohio Casualty Corporation on Form S-8 (File No. 05544) of our report dated January 30, 1997, on our audits of the consolidated financial statements and financial statement schedules of Ohio Casualty Corporation and Subsidiaries as of December 31, 1996, 1995 and 1994 and for the years then ended, which report is included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L..L.P. Coopers & Lybrand L.L.P. Cincinnati, Ohio March 25, 1997 111 EX-27 8 EXHIBIT 27
7 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 2,352,484,429 2,352,484,429 2,352,484,429 721,151,725 0 21,628,763 3,095,264,917 20,077,675 362,682,690 116,684,358 3,889,981,148 1,556,670,799 491,613,421 0 280,002,157 50,000,000 5,850,484 0 0 1,169,249,461 3,889,981,148 1,226,651,115 183,308,374 49,672,355 0 930,588,497 308,856,667 105,148,523 115,036,156 17,810,839 97,227,317 5,229,270 0 0 102,456,587 2.91 2.91 1,553,130,969 494,272,811 988,627,428 514,122,497 486,167,503 1,482,900,239 (78,336,038)
EX-28 9 EXHIBIT 28 1 OHIO CASUALTY GROUP EXHIBIT 28 SCHEDULE P - PART 1 - SUMMARY
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9) ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED PRIOR XXX XXX XXX 10,224 1,480 3,355 398 606 1987 1,394,210 37,581 1,356,629 723,834 9,927 71,837 572 33,138 1988 1,375,824 36,272 1,339,553 702,278 8,414 63,069 726 31,522 1989 1,393,527 29,351 1,364,177 786,000 15,188 65,081 614 34,280 1990 1,462,962 24,961 1,438,001 844,956 10,013 72,832 790 33,999 1991 1,495,615 26,561 1,469,055 882,331 36,636 69,984 2,020 33,156 1992 1,550,273 32,684 1,517,590 885,202 22,583 66,684 1,169 32,850 1993 1,423,123 43,696 1,379,427 772,707 7,790 52,618 699 25,735 1994 1,342,791 45,133 1,297,657 706,540 7,406 38,671 (155) 24,429 1995 1,305,589 41,012 1,264,577 565,749 6,145 23,140 22 21,265 1996 1,253,887 30,534 1,223,353 453,698 3,615 12,638 0 11,452 TOTAL XXX XXX XXX 7,333,518 129,198 539,910 6,855 282,432 (1) (10) (11) (12) ACC/YR UNALLOCATED LOSSES + LAE REPORTED LAE PAID CLAIMS PRIOR 506 12,207 XXX 1987 62,456 847,628 XXX 1988 62,101 818,309 XXX 1989 64,754 900,033 XXX 1990 66,919 973,904 XXX 1991 66,651 980,309 XXX 1992 71,221 999,355 XXX 1993 63,331 880,168 XXX 1994 64,483 802,443 XXX 1995 55,554 638,276 XXX 1996 51,401 514,122 XXX TOTAL 629,378 8,366,754 XXX LOSSES UNPAID ALLOCATED LAE UNPAID CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR ACC/YR (13) (14) (15) (16) (17) (18) (19) (20) DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED PRIOR 89,812 33,875 25,124 418 11,243 3,135 17,186 236 1987 13,953 329 3,773 24 2,274 29 1,324 9 1988 16,203 1,715 3,985 17 2,036 164 1,345 7 1989 26,814 3,594 6,506 55 4,271 330 2,565 19 1990 30,498 3,031 8,418 84 6,478 574 4,057 31 1991 30,792 484 10,977 119 7,278 101 5,309 43 1992 50,076 916 13,587 154 12,127 139 6,018 54 1993 76,224 1,423 12,262 119 16,459 260 4,892 43 1994 101,238 1,056 51,835 464 20,855 221 16,707 143 1995 136,761 1,339 93,695 651 20,353 111 23,212 168 1996 210,998 2,872 202,258 3,114 22,727 220 32,248 365 TOTAL 783,369 50,634 432,420 5,220 126,100 5,283 114,863 1,118 ACC/YR (21) (22) (23) (24) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING ANTICIPATED LAE UNPAID RESERVES CLAIMS PRIOR 4,997 110,697 XXX 1987 970 21,902 XXX 1988 984 22,649 XXX 1989 1,678 37,835 XXX 1990 2,354 48,084 XXX 1991 2,788 56,397 XXX 1992 4,552 85,097 XXX 1993 6,567 114,560 XXX 1994 12,285 201,037 XXX 1995 18,617 290,370 XXX 1996 32,612 494,273 XXX TOTAL 88,403 1,482,900 XXX TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY ACC/YR (25) (26) (27) (28) (29) (30) (31) (32) DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET PRIOR XXX XXX XXX XXX XXX XXX 1987 880,420 10,890 869,530 63.1 29.0 64.1 1988 852,001 11,043 840,958 61.9 30.4 62.8 1989 957,669 19,801 937,868 68.7 67.5 68.7 1990 1,036,511 14,523 1,021,988 70.9 58.2 71.1 1991 1,076,109 39,403 1,036,706 72.0 148.4 70.6 1992 1,109,468 25,016 1,084,452 71.6 76.5 71.5 1993 1,005,061 10,334 994,728 70.6 23.6 72.1 1994 1,012,615 9,135 1,003,480 75.4 20.2 77.3 1995 937,081 8,436 928,645 71.8 20.6 73.4 1996 1,018,581 10,185 1,008,395 81.2 33.4 82.4 TOTAL XXX XXX XXX XXX XXX XXX ACC/YR INTERCOMPANY LOSSES LAE POOLING PERC. UNPAID UNPAID (33) (34) (35) PRIOR XXX 80,642 30,055 1987 17,373 4,529 1988 18,455 4,194 1989 29,670 8,164 1990 35,800 12,284 1991 41,167 15,230 1992 62,593 22,504 1993 86,944 27,616 1994 151,554 49,483 1995 228,467 61,903 1996 407,270 87,003 TOTAL XXX 1,159,935 322,965
2 OHIO CASUALTY GROUP SCHEDULE P - PART 1A - HOMEOWNERS
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9) ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED PRIOR XXX XXX XXX 14 0 9 0 18 1987 166,422 1,902 164,520 87,196 26 5,943 (0) 1,620 1988 168,376 1,787 166,589 87,522 50 4,654 0 1,542 1989 167,251 2,262 164,988 103,277 0 5,764 0 1,544 1990 172,691 2,321 170,370 114,362 378 5,740 0 1,863 1991 180,475 3,102 177,373 145,643 19,995 5,967 271 1,257 1992 187,626 3,100 184,526 136,376 5,961 6,694 583 1,633 1993 176,137 8,408 167,729 125,060 494 6,629 4 1,213 1994 167,094 9,016 158,077 133,831 92 6,525 1 1,334 1995 169,546 8,428 161,118 102,213 0 4,145 0 646 1996 170,608 4,978 165,630 121,129 0 4,344 0 272 TOTAL XXX XXX XXX 1,156,624 26,997 56,413 860 12,941 (1) (10) (11) (12) ACC/YR UNALLOCATED LOSSES + LAE REPORTED LAE PAID CLAIMS PRIOR 1 23 XXX 1987 3,572 96,684 71,440 1988 3,568 95,694 64,993 1989 4,058 113,099 65,755 1990 4,575 124,298 65,029 1991 5,495 136,838 66,245 1992 9,423 145,949 67,889 1993 9,003 140,194 67,861 1994 10,755 151,019 72,465 1995 8,086 114,445 54,746 1996 10,333 135,806 69,521 TOTAL 68,868 1,254,049 XXX LOSSES UNPAID ALLOCATED LAE UNPAID CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR ACC/YR (13) (14) (15) (16) (17) (18) (19) DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED PRIOR 173 0 (0) (0) 20 0 (0) 1987 122 4 0 0 14 1 0 1988 114 0 0 0 13 0 0 1989 197 0 0 0 35 0 0 1990 269 1 16 0 47 0 4 1991 695 20 53 1 183 3 18 1992 2,353 471 72 2 618 83 25 1993 3,112 5 135 4 962 1 54 1994 3,602 0 639 17 1,272 0 294 1995 7,222 0 625 16 1,654 0 187 1996 27,649 0 11,711 308 3,169 0 1,749 TOTAL 45,507 501 13,251 348 7,987 88 2,331 (21) (22) (23) (24) (20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING ACC/YR CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS PRIOR (0) 8 201 10 1987 0 3 133 5 1988 0 2 130 4 1989 0 7 239 11 1990 0 6 340 18 1991 0 17 941 34 1992 1 40 2,550 61 1993 1 111 4,364 123 1994 8 147 5,928 237 1995 5 217 9,885 477 1996 46 1,310 45,235 6,172 TOTAL 61 1,869 69,945 7,152 TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY ACC/YR (25) (26) (27) (28) (29) (30) (31) (32) DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET PRIOR XXX XXX XXX XXX XXX XXX 1987 96,849 31 96,818 58.2 1.6 58.8 1988 95,874 50 95,824 56.9 2.8 57.5 1989 113,338 0 113,338 67.8 0.0 68.7 1990 125,019 380 124,638 72.4 16.4 73.2 1991 158,070 20,292 137,779 87.6 654.1 77.7 1992 155,600 7,101 148,499 82.9 229.1 80.5 1993 145,067 509 144,558 82.4 6.1 86.2 1994 157,064 117 156,947 94.0 1.3 99.3 1995 124,351 21 124,329 73.3 0.3 77.2 1996 181,394 354 181,041 106.3 7.1 109.3 TOTAL XXX XXX XXX XXX XXX XXX INTERCOMPANY LOSSES LAE ACC/YR POOLING PERC. UNPAID UNPAID (33) (34) (35) PRIOR XXX 173 28 1987 118 16 1988 114 15 1989 197 42 1990 283 57 1991 727 215 1992 1,951 599 1993 3,239 1,125 1994 4,224 1,704 1995 7,831 2,053 1996 39,052 6,183 TOTAL XXX 57,908 12,037
3 OHIO CASUALTY GROUP SCHEDULE P - PART 1B - PP AUTO LIABILITY
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9) ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED PRIOR XXX XXX XXX 1,820 1,296 157 126 46 1987 320,026 7,756 312,270 239,276 2,428 16,722 2 6,096 1988 318,131 7,787 310,344 227,709 3,468 14,116 19 4,909 1989 318,462 7,649 310,813 239,450 2,912 12,821 3 5,768 1990 333,396 6,676 326,721 255,133 2,323 13,785 0 5,672 1991 339,451 6,391 333,060 244,022 2,332 14,100 (0) 4,707 1992 362,947 7,108 355,839 256,822 2,658 15,472 2 4,632 1993 334,286 12,196 322,089 233,163 4,788 13,432 22 4,956 1994 320,149 12,617 307,532 205,129 4,737 10,008 3 3,458 1995 305,098 7,698 297,400 156,530 3,077 6,216 0 2,558 1996 290,091 7,674 282,416 80,748 1,519 2,357 0 919 TOTAL XXX XXX XXX 2,139,803 31,537 119,185 176 43,721 (1) (10) (11) (12) ACC/YR UNALLOCATED LOSSES + LAE REPORTED LAE PAID CLAIMS PRIOR 24 579 XXX 1987 23,399 276,967 77,054 1988 23,268 261,607 69,365 1989 24,170 273,526 64,143 1990 24,745 291,339 61,389 1991 22,798 278,588 57,893 1992 22,278 291,913 60,078 1993 20,025 261,810 54,964 1994 19,728 230,126 53,222 1995 16,445 176,115 48,998 1996 13,229 94,815 45,989 TOTAL 210,110 2,437,385 XXX LOSSES UNPAID ALLOCATED LAE UNPAID CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR ACC/YR (13) (14) (15) (16) (17) (18) (19) DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED PRIOR 16,435 13,658 435 3 2,556 1,613 74 1987 678 6 298 2 92 1 57 1988 534 26 584 4 76 3 111 1989 658 87 950 6 97 9 194 1990 1,188 65 1,030 6 186 7 223 1991 3,285 96 1,545 9 545 12 354 1992 8,363 267 1,900 11 1,546 38 484 1993 21,181 343 1,396 8 3,131 37 284 1994 31,371 273 10,460 63 4,926 30 2,264 1995 54,681 574 27,020 162 5,571 40 3,785 1996 83,493 1,104 68,827 413 5,425 54 6,135 TOTAL 221,867 16,499 114,444 687 24,151 1,845 13,966 (21) (22) (23) (24) (20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING ACC/YR CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS PRIOR 0 933 5,160 144 1987 0 90 1,205 17 1988 1 88 1,361 29 1989 1 140 1,936 42 1990 1 195 2,742 65 1991 2 423 6,032 146 1992 3 867 12,841 350 1993 2 1,884 27,487 837 1994 13 3,621 52,262 1,720 1995 22 7,052 97,310 3,700 1996 36 13,247 175,519 13,397 TOTAL 82 28,541 383,855 20,447 TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY ACC/YR (25) (26) (27) (28) (29) (30) (31) (32) DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET PRIOR XXX XXX XXX XXX XXX XXX 1987 280,611 2,439 278,173 87.7 31.4 89.1 1988 266,487 3,519 262,967 83.8 45.2 84.7 1989 278,480 3,018 275,462 87.4 39.5 88.6 1990 296,484 2,403 294,081 88.9 36.0 90.0 1991 287,071 2,451 284,620 84.6 38.4 85.5 1992 307,733 2,979 304,754 84.8 41.9 85.6 1993 294,497 5,200 289,297 88.1 42.6 89.8 1994 287,507 5,120 282,388 89.8 40.6 91.8 1995 277,301 3,876 273,425 90.9 50.4 91.9 1996 273,461 3,127 270,334 94.3 40.7 95.7 TOTAL XXX XXX XXX XXX XXX XXX INTERCOMPANY LOSSES LAE ACC/YR POOLING PERC. UNPAID UNPAID (33) (34) (35) PRIOR XXX 3,209 1,951 1987 968 238 1988 1,088 272 1989 1,515 421 1990 2,147 595 1991 4,725 1,308 1992 9,985 2,857 1993 22,227 5,260 1994 41,495 10,767 1995 80,965 16,346 1996 150,802 24,717 TOTAL XXX 319,125 64,730
4 OHIO CASUALTY GROUP SCHEDULE P - PART 1C - COMM AUTO LIABILITY
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9) ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED PRIOR XXX XXX XXX 161 111 82 5 1 1987 115,059 2,899 112,160 66,285 1,048 6,823 11 529 1988 111,555 2,980 108,575 62,189 1,313 6,019 28 400 1989 115,499 3,154 112,344 64,938 1,194 5,560 16 752 1990 123,518 3,021 120,498 76,562 840 6,336 15 759 1991 130,823 3,060 127,764 79,454 699 6,416 8 698 1992 135,772 3,261 132,511 75,195 1,934 6,569 17 1,009 1993 129,921 4,228 125,693 67,368 972 5,915 251 654 1994 124,061 4,327 119,735 65,625 1,190 4,495 8 548 1995 118,168 3,897 114,271 41,002 1,324 2,356 19 455 1996 111,494 3,042 108,452 20,906 906 708 0 228 TOTAL XXX XXX XXX 619,685 11,532 51,278 380 6,032 (1) (10) (11) (12) ACC/YR UNALLOCATED LOSSES + LAE REPORTED LAE PAID CLAIMS PRIOR 2 128 XXX 1987 6,466 78,515 14,149 1988 6,027 72,894 12,872 1989 6,003 75,291 13,361 1990 6,190 88,232 13,344 1991 6,142 91,304 13,260 1992 5,341 85,153 13,831 1993 4,925 76,984 13,760 1994 5,025 73,946 13,896 1995 4,188 46,203 12,233 1996 3,146 23,854 11,604 TOTAL 53,453 712,504 XXX LOSSES UNPAID ALLOCATED LAE UNPAID CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR ACC/YR (13) (14) (15) (16) (17) (18) (19) DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED PRIOR 1,904 1,260 116 1 413 226 39 1987 662 0 35 0 144 0 12 1988 188 0 30 0 41 0 10 1989 936 81 25 0 210 15 8 1990 2,306 606 106 1 484 100 31 1991 1,481 0 268 1 304 0 79 1992 4,398 0 732 4 813 0 196 1993 11,678 150 187 1 1,898 19 45 1994 19,802 174 5,679 31 2,550 17 1,067 1995 23,269 531 13,736 74 2,382 42 2,028 1996 22,202 1,056 29,568 160 1,862 70 3,571 TOTAL 88,826 3,858 50,483 273 11,101 490 7,087 (21) (22) (23) (24) ACC/YR (20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS PRIOR 0 108 1,093 31 1987 0 60 912 15 1988 0 18 288 6 1989 0 68 1,151 13 1990 0 103 2,324 22 1991 0 112 2,242 41 1992 1 341 6,476 93 1993 0 855 14,494 232 1994 6 1,752 30,623 468 1995 11 2,487 43,245 797 1996 20 3,588 59,485 2,804 TOTAL 39 9,494 162,332 4,522 TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY ACC/YR (25) (26) (27) (28) (29) (30) (31) (32) DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET PRIOR XXX XXX XXX XXX XXX XXX 1987 80,486 1,059 79,427 70.0 36.5 70.8 1988 74,523 1,342 73,181 66.8 45.0 67.4 1989 77,749 1,308 76,442 67.3 41.5 68.0 1990 92,119 1,562 90,556 74.6 51.7 75.2 1991 94,255 709 93,546 72.0 23.2 73.2 1992 93,585 1,957 91,628 68.9 60.0 69.1 1993 92,871 1,393 91,478 71.5 33.0 72.8 1994 105,995 1,426 104,569 85.4 33.0 87.3 1995 91,448 2,000 89,448 77.4 51.3 78.3 1996 85,551 2,212 83,339 76.7 72.7 76.8 TOTAL XXX XXX XXX XXX XXX XXX INTERCOMPANY LOSSES LAE ACC/YR POOLING PERC. UNPAID UNPAID (33) (34) (35) PRIOR XXX 760 334 1987 697 215 1988 218 69 1989 880 271 1990 1,806 518 1991 1,747 495 1992 5,126 1,350 1993 11,715 2,779 1994 25,277 5,346 1995 36,400 6,845 1996 50,554 8,931 TOTAL XXX 135,178 27,153
5 OHIO CASUALTY GROUP SCHEDULE P - PART 1D - WORKERS COMPENSATION
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9) ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED PRIOR XXX XXX XXX 6,531 987 461 8 268 1987 170,721 3,839 166,883 102,952 526 8,897 1 2,432 1988 179,208 3,811 175,397 107,623 532 9,108 (0) 3,113 1989 201,802 4,148 197,654 129,149 1,469 11,358 86 3,022 1990 220,037 3,333 216,703 146,772 404 13,157 0 4,451 1991 219,110 3,144 215,966 134,322 (0) 12,290 (0) 3,226 1992 213,577 2,909 210,668 113,240 13 8,595 0 2,671 1993 185,738 2,443 183,294 80,895 0 5,317 (0) 910 1994 153,212 1,955 151,257 51,563 2 3,154 2 487 1995 143,658 1,654 142,004 36,855 0 1,823 0 339 1996 124,750 592 124,157 14,805 0 561 0 43 TOTAL XXX XXX XXX 924,705 3,932 74,721 96 20,963 (1) (10) (11) (12) ACC/YR UNALLOCATED LOSSES + LAE REPORTED LAE PAID CLAIMS PRIOR 111 6,108 XXX 1987 3,711 115,033 33,604 1988 4,049 120,247 31,188 1989 5,012 143,964 33,403 1990 5,516 165,041 32,848 1991 5,631 152,243 28,092 1992 6,419 128,241 24,638 1993 4,766 90,977 17,618 1994 3,685 58,399 13,904 1995 3,807 42,484 11,735 1996 2,451 17,816 9,944 TOTAL 45,159 1,040,556 XXX LOSSES UNPAID ALLOCATED LAE UNPAID CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR ACC/YR (13) (14) (15) (16) (17) (18) (19) DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED PRIOR 45,588 13,751 6,553 10 3,780 1,258 461 1987 9,285 311 2,184 3 714 26 144 1988 12,900 1,614 2,184 3 989 137 144 1989 19,238 3,306 3,277 5 1,503 282 216 1990 18,245 1,650 3,823 6 1,660 164 298 1991 16,036 136 4,915 8 1,441 13 383 1992 20,245 148 5,461 8 1,807 14 426 1993 22,275 383 5,461 8 1,978 39 426 1994 22,279 0 17,476 27 2,418 0 1,677 1995 28,281 56 20,752 32 2,509 6 1,618 1996 20,632 0 37,136 58 2,538 0 4,008 TOTAL 235,004 21,356 109,222 169 21,338 1,939 9,800 (21) (22) (23) (24) (20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING ACC/YR CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS PRIOR 1 1,380 42,742 718 1987 0 394 12,381 126 1988 0 489 14,951 153 1989 0 673 21,314 244 1990 0 722 22,927 299 1991 1 756 23,373 329 1992 1 935 28,703 388 1993 1 1,007 30,716 442 1994 3 1,508 45,327 485 1995 3 1,857 54,920 810 1996 6 2,214 66,464 3,198 TOTAL 15 11,935 363,820 7,192 TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) ACC/YR (25) (26) (27) (28) (29) (30) DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET PRIOR XXX XXX XXX XXX XXX XXX 1987 128,281 868 127,414 75.1 22.6 76.3 1988 137,486 2,287 135,199 76.7 60.0 77.1 1989 170,427 5,148 165,279 84.5 124.1 83.6 1990 190,193 2,225 187,969 86.4 66.7 86.7 1991 175,774 157 175,617 80.2 5.0 81.3 1992 157,128 184 156,944 73.6 6.3 74.5 1993 122,125 431 121,694 65.8 17.6 66.4 1994 103,759 33 103,726 67.7 1.7 68.6 1995 97,501 96 97,404 67.9 5.8 68.6 1996 84,344 64 84,280 67.6 10.8 67.9 TOTAL XXX XXX XXX XXX XXX XXX DISCOUNT FOR INTERCOMPANY LOSSES LAE ACC/YR TIME VALUE OF MONEY POOLING PERC. UNPAID UNPAID (31) (32) (33) (34) (35) PRIOR XXX 38,380 4,363 1987 11,155 1,226 1988 13,466 1,485 1989 19,204 2,110 1990 20,412 2,516 1991 20,807 2,566 1992 25,550 3,153 1993 27,345 3,372 1994 39,727 5,600 1995 48,945 5,975 1996 57,710 8,754 TOTAL XXX 322,701 41,119
6 OHIO CASUALTY GROUP SCHEDULE P - PART 1E - CMP
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9) ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED PRIOR XXX XXX XXX 1,163 (6) 772 (53) 54 1987 114,668 2,837 111,831 35,903 558 8,425 102 1,496 1988 100,340 2,435 97,905 30,009 25 5,771 0 1,298 1989 98,708 2,401 96,308 39,939 648 6,671 1 1,789 1990 109,609 2,062 107,547 48,415 1,783 8,899 18 1,616 1991 125,346 2,460 122,886 63,048 4,657 9,494 106 4,923 1992 147,343 4,565 142,778 91,717 8,324 10,194 56 2,054 1993 146,366 5,673 140,694 74,312 135 8,506 90 1,206 1994 143,240 6,538 136,702 69,983 239 6,028 1 1,228 1995 139,602 6,743 132,859 57,062 155 3,458 (0) 981 1996 136,835 4,550 132,285 49,840 133 1,792 0 499 TOTAL XXX XXX XXX 561,391 16,653 70,010 321 17,143 (1) (10) (11) (12) ACC/YR UNALLOCATED LOSSES + LAE REPORTED LAE PAID CLAIMS PRIOR 40 2,034 XXX 1987 4,777 48,444 12,535 1988 3,473 39,228 10,864 1989 2,526 48,487 12,520 1990 3,280 58,792 13,458 1991 4,188 71,967 15,807 1992 5,207 98,738 19,187 1993 4,841 87,434 19,531 1994 4,892 80,662 19,552 1995 4,627 64,992 16,790 1996 3,845 55,344 16,111 TOTAL 41,696 656,123 XXX LOSSES UNPAID ALLOCATED LAE UNPAID CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR ACC/YR (13) (14) (15) (16) (17) (18) (19) DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED PRIOR 20,560 5,000 13,970 357 2,288 0 11,934 1987 733 0 181 5 437 0 117 1988 102 0 157 4 66 0 101 1989 1,570 75 226 6 868 17 127 1990 2,654 0 388 10 1,399 0 203 1991 2,715 0 603 15 1,530 0 340 1992 5,458 6 1,653 42 2,891 1 865 1993 7,274 50 1,643 42 4,239 13 926 1994 11,748 0 3,296 84 5,842 0 1,618 1995 10,482 35 8,104 207 5,142 7 3,913 1996 22,431 19 18,831 481 6,422 2 5,304 TOTAL 85,726 5,185 49,053 1,252 31,124 41 25,447 (21) (22) (23) (24) ACC/YR (20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS PRIOR 210 1,419 44,605 183 1987 2 46 1,508 20 1988 2 22 442 14 1989 2 150 2,840 32 1990 4 292 4,922 41 1991 6 286 5,453 69 1992 15 676 11,478 141 1993 16 850 14,810 262 1994 28 1,452 23,844 466 1995 69 1,684 29,008 736 1996 93 3,713 56,107 2,861 TOTAL 447 10,591 195,017 4,825 TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) ACC/YR (25) (26) (27) (28) (29) (30) DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET PRIOR XXX XXX XXX XXX XXX XXX 1987 50,620 668 49,952 44.1 23.5 44.7 1988 39,701 31 39,670 39.6 1.3 40.5 1989 52,076 749 51,327 52.8 31.2 53.3 1990 65,529 1,815 63,714 59.8 88.0 59.2 1991 82,204 4,784 77,420 65.6 194.5 63.0 1992 118,661 8,444 110,217 80.5 185.0 77.2 1993 102,590 346 102,244 70.1 6.1 72.7 1994 104,860 353 104,507 73.2 5.4 76.4 1995 94,472 472 93,999 67.7 7.0 70.8 1996 112,179 728 111,451 82.0 16.0 84.3 TOTAL XXX XXX XXX XXX XXX XXX DISCOUNT FOR INTERCOMPANY LOSSES LAE ACC/YR TIME VALUE OF MONEY POOLING PERC. UNPAID UNPAID (31) (32) (33) (34) (35) PRIOR XXX 29,173 15,432 1987 910 598 1988 254 187 1989 1,714 1,125 1990 3,032 1,890 1991 3,303 2,150 1992 7,063 4,415 1993 8,825 5,985 1994 14,960 8,884 1994 18,344 10,664 1996 40,763 15,344 TOTAL XXX 128,342 66,675
7 OHIO CASUALTY GROUP SCHEDULE P - PART 1F - MEDICAL MALPRACTICE
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9) ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED PRIOR XXX XXX XXX 0 0 0 0 0 1987 0 0 0 0 0 0 0 0 1988 0 0 0 0 0 0 0 0 1989 0 0 0 0 0 0 0 0 1990 0 0 0 0 0 0 0 0 1991 0 0 0 0 0 0 0 0 1992 0 0 0 0 0 0 0 0 1993 0 0 0 0 0 0 0 0 1994 0 0 0 0 0 0 0 0 1995 0 0 0 0 0 0 0 0 1996 0 0 0 0 0 0 0 0 TOTAL XXX XXX XXX 0 0 0 0 0 (1) (10) (11) (12) ACC/YR UNALLOCATED LOSSES + LAE REPORTED LAE PAID CLAIMS PRIOR 0 0 XXX 1987 0 0 0 1988 0 0 0 1989 0 0 0 1990 0 0 0 1991 0 0 0 1992 0 0 0 1993 0 0 0 1994 0 0 0 1995 0 0 0 1996 0 0 0 TOTAL 0 0 XXX LOSSES UNPAID ALLOCATED LAE UNPAID CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR ACC/YR (13) (14) (15) (16) (17) (18) (19) DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED PRIOR 0 0 0 0 0 0 0 1987 0 0 0 0 0 0 0 1988 0 0 0 0 0 0 0 1989 0 0 0 0 0 0 0 1990 0 0 0 0 0 0 0 1991 0 0 0 0 0 0 0 1992 0 0 0 0 0 0 0 1993 0 0 0 0 0 0 0 1994 0 0 0 0 0 0 0 1995 0 0 0 0 0 0 0 1996 0 0 0 0 0 0 0 TOTAL 0 0 0 0 0 0 0 (21) (22) (23) (24) (20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING ACC/YR CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS PRIOR 0 0 0 0 1987 0 0 0 0 1988 0 0 0 0 1989 0 0 0 0 1990 0 0 0 0 1991 0 0 0 0 1992 0 0 0 0 1993 0 0 0 0 1994 0 0 0 0 1995 0 0 0 0 1996 0 0 0 0 TOTAL 0 0 0 0 TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY ACC/YR (25) (26) (27) (28) (29) (30) (31) (32) DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET PRIOR XXX XXX XXX XXX XXX XXX 1987 0 0 0 0.0 0.0 0.0 1988 0 0 0 0.0 0.0 0.0 1989 0 0 0 0.0 0.0 0.0 1990 0 0 0 0.0 0.0 0.0 1991 0 0 0 0.0 0.0 0.0 1992 0 0 0 0.0 0.0 0.0 1993 0 0 0 0.0 0.0 0.0 1994 0 0 0 0.0 0.0 0.0 1995 0 0 0 0.0 0.0 0.0 1996 0 0 0 0.0 0.0 0.0 TOTAL XXX XXX XXX XXX XXX XXX INTERCOMPANY LOSSES LAE ACC/YR POOLING PERC. UNPAID UNPAID (33) (34) (35) PRIOR XXX 0 0 1987 0 0 1988 0 0 1989 0 0 1990 0 0 1991 0 0 1992 0 0 1993 0 0 1994 0 0 1995 0 0 1996 0 0 TOTAL XXX 0 0
8 OHIO CASUALTY GROUP SCHEDULE P - PART 1G - SPECIAL LIABILITY
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9) ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED PRIOR XXX XXX XXX 0 0 0 0 0 1987 0 0 0 0 0 0 0 0 1988 0 0 0 0 0 0 0 0 1989 0 0 0 0 0 0 0 0 1990 143 58 85 95 62 1 0 0 1991 271 214 57 83 71 13 0 0 1992 226 184 42 327 261 0 0 0 1993 37 43 (7) 0 0 0 0 0 1994 18 17 1 9 2 0 0 0 1995 33 30 3 0 0 0 0 0 1996 49 49 0 5 5 0 0 0 TOTAL XXX XXX XXX 519 401 13 0 0 (10) (11) (12) UNALLOCATED LOSSES + LAE REPORTED LAE PAID CLAIMS PRIOR 0 0 XXX 1987 0 0 0 1988 0 0 0 1989 0 0 0 1990 0 33 0 1991 0 24 1 1992 0 66 1 1993 0 0 1 1994 0 7 1 1995 0 0 1 1996 0 0 2 TOTAL 0 131 XXX LOSSES UNPAID ALLOCATED LAE UNPAID CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR ACC/YR (13) (14) (15) (16) (17) (18) (19) (20) DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED PRIOR 0 0 0 0 0 0 0 0 1987 0 0 0 0 0 0 0 0 1988 0 0 0 0 0 0 0 0 1989 0 0 0 0 0 0 0 0 1990 0 0 0 0 0 0 0 0 1991 2 1 0 0 0 0 0 0 1992 0 0 0 0 0 0 0 0 1993 0 0 0 0 0 0 0 0 1994 0 0 0 0 0 0 0 0 1995 0 0 0 0 0 0 0 0 1996 0 0 0 0 0 0 0 0 TOTAL 2 1 0 0 0 0 0 0 (21) (22) (23) (24) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING ANTICIPATED LAE UNPAID RESERVES CLAIMS PRIOR 0 0 0 1987 0 0 0 1988 0 0 0 1989 0 0 0 1990 0 0 0 1991 0 1 1 1992 0 0 0 1993 0 0 0 1994 0 0 0 1995 0 0 1 1996 0 0 1 TOTAL 0 1 3 TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY ACC/YR (25) (26) (27) (28) (29) (30) (31) (32) DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET PRIOR XXX XXX XXX XXX XXX XXX 1987 0 0 0 0 0 0 1988 0 0 0 0 0 0 1989 0 0 0 0 0 0 1990 95 62 33 66.8 107.6 39.2 1991 97 72 25 35.9 33.7 43.9 1992 327 261 66 144.8 141.9 157.8 1993 0 0 0 0.0 0.0 0.0 1994 10 2 7 52.5 13.3 538.7 1995 0 0 0 0.0 0.0 0.0 1996 5 5 0 10.3 10.4 0.0 TOTAL XXX XXX XXX XXX XXX XXX INTERCOMPANY LOSSES LAE POOLING PERC. UNPAID UNPAID (33) (34) (35) PRIOR XXX 0 0 1987 0 0 1988 0 0 1989 0 0 1990 0 0 1991 1 0 1992 0 0 1993 0 0 1994 0 0 1995 0 0 1996 0 0 TOTAL XXX 1 0
9 OHIO CASUALTY GROUP SCHEDULE P - PART 1H - OTHER LIABILITY (section 1)
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9) ACC/YR UB (2) (3) (4) (5) (6) (7) (8) SALVAGE & S DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED PRIOR XXX XXX XXX 422 (655) 808 224 (32) 1987 143,930 2,706 141,224 41,332 2,765 16,367 205 1,218 1988 140,322 2,728 137,594 39,038 1,008 14,011 20 936 1989 138,825 2,811 136,014 44,325 3,245 13,998 87 1,093 1990 140,819 2,496 138,324 46,689 2,867 16,056 692 681 1991 128,769 2,252 126,517 42,662 1,637 12,423 74 646 1992 120,599 2,155 118,444 35,947 2,252 11,147 3 971 1993 111,024 1,962 109,061 29,207 616 7,315 30 510 1994 112,506 1,993 110,513 20,633 1,384 3,936 (0) 375 1995 111,545 1,893 109,653 10,641 0 1,579 0 273 1996 104,753 1,051 103,702 5,519 0 453 0 154 TOTAL XXX XXX XXX 316,414 15,117 98,094 1,336 6,824 (10) (11) (12) UNALLOCATED LOSSES + LAE REPORTED LAE PAID CLAIMS PRIOR 295 1,957 XXX 1987 6,245 60,976 7,358 1988 7,036 59,057 6,885 1989 7,670 62,661 7,409 1990 8,306 67,493 7,900 1991 7,835 61,208 7,350 1992 5,325 50,163 6,968 1993 4,113 39,990 6,583 1994 4,194 27,378 6,365 1995 2,128 14,348 5,233 1996 3,112 9,084 4,258 TOTAL 56,260 454,315 XXX LOSSES UNPAID ALLOCATED LAE UNPAID CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR ACC/YR (13) (14) (15) (16) (17) (18) (19) (20) DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED PRIOR 2,451 0 3,821 18 1,231 0 4,568 16 1987 766 0 997 5 307 0 958 3 1988 876 0 997 5 352 0 958 3 1989 2,362 5 1,828 9 1,035 2 1,933 7 1990 4,477 600 2,741 13 2,215 292 3,163 11 1991 5,610 113 3,157 15 2,933 63 3,945 14 1992 7,981 0 3,323 16 3,984 0 3,833 14 1993 8,608 230 3,157 15 3,618 101 3,035 11 1994 11,325 500 13,125 61 3,531 163 9,338 33 1995 9,490 0 22,835 107 2,077 0 11,420 41 1996 9,340 500 27,019 127 1,560 85 10,414 37 TOTAL 63,286 1,948 82,999 389 22,843 707 53,566 190 (21) (22) (23) (24) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING ANTICIPATED LAE UNPAID RESERVES CLAIMS PRIOR 939 12,976 103 1987 243 3,263 46 1988 261 3,436 24 1989 527 7,661 61 1990 930 12,610 92 1991 1,104 16,545 129 1992 1,576 20,669 180 1993 1,710 19,771 278 1994 3,640 40,202 491 1995 4,970 50,645 526 1996 5,366 52,949 1,146 TOTAL 21,267 240,727 3,076 TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY ACC/YR (25) (26) (27) (28) (29) (30) (31) (32) DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET PRIOR XXX XXX XXX XXX XXX XXX 1987 67,216 2,977 64,238 47 110 45 1988 63,529 1,036 62,492 45 38 45 1989 73,677 3,355 70,323 53 119 52 1990 84,579 4,475 80,103 60 179 58 1991 79,669 1,916 77,753 62 85 61 1992 73,116 2,284 70,832 60.6 106.0 59.8 1993 60,763 1,002 59,761 54.7 51.1 54.8 1994 69,722 2,142 67,580 62.0 107.5 61.2 1995 65,141 148 64,994 58.4 7.8 59.3 1996 62,782 749 62,033 59.9 71.3 59.8 TOTAL XXX XXX XXX XXX XXX XXX INTERCOMPANY LOSSES LAE POOLING PERC. UNPAID UNPAID (33) (34) (35) PRIOR XXX 6,254 6,722 1987 1,758 1,504 1988 1,868 1,568 1989 4,176 3,486 1990 6,605 6,005 1991 8,639 7,906 1992 11,289 9,380 1993 11,520 8,251 1994 23,889 16,313 1995 32,219 18,427 1996 35,731 17,218 TOTAL XXX 143,948 96,779
10 OHIO CASUALTY GROUP SCHEDULE P - PART1H - OTHER LIABILITY (SECTION 2)
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9) REP/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED PRIOR XXX XXX XXX 0 0 0 0 0 1987 0 0 0 0 0 0 0 0 1988 0 0 0 0 0 0 0 0 1989 0 0 0 0 0 0 0 0 1990 15 0 15 0 0 0 0 0 1991 50 1 49 0 0 0 0 0 1992 109 1 107 0 0 0 0 0 1993 138 2 136 60 0 28 0 0 1994 158 2 156 20 0 263 0 0 1995 395 108 287 259 0 163 0 0 1996 805 290 515 38 0 36 0 0 TOTAL XXX XXX XXX 377 0 491 0 0 (10) (11) (12) UNALLOCATED LOSSES + LAE REPORTED LAE PAID CLAIMS PRIOR 0 0 XXX 1987 0 0 0 1988 0 0 0 1989 0 0 0 1990 0 0 0 1991 0 0 0 1992 0 0 0 1993 26 114 0 1994 29 313 0 1995 50 472 0 1996 0 74 0 TOTAL 105 973 XXX LOSSES UNPAID ALLOCATED LAE UNPAID CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR REP/YR (13) (14) (15) (16) (17) (18) (19) (20) DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED PRIOR 0 0 0 0 0 0 0 0 1987 0 0 0 0 0 0 0 0 1988 0 0 0 0 0 0 0 0 1989 0 0 0 0 0 0 0 0 1990 0 0 0 0 0 0 0 0 1991 0 0 0 0 0 0 0 0 1992 0 0 0 0 0 0 0 0 1993 0 0 0 0 0 0 0 0 1994 0 0 0 0 0 0 0 0 1995 43 0 35 0 18 0 15 0 1996 206 0 226 0 86 0 95 0 TOTAL 249 0 262 0 105 0 110 0 (21) (22) (23) (24) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING ANTICIPATED LAE UNPAID RESERVES CLAIMS PRIOR 0 0 0 1987 0 0 0 1988 0 0 0 1989 0 0 0 1990 0 0 0 1991 0 0 0 1992 0 0 0 1993 0 0 0 1994 0 0 0 1995 8 119 0 1996 41 654 0 TOTAL 49 773 0 TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY REP/YR (25) (26) (27) (28) (29) (30) (31) (32) DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET PRIOR XXX XXX XXX XXX XXX XXX 1987 0 0 0 0 0 0 1988 0 0 0 0 0 0 1989 0 0 0 0 0 0 1990 0 0 0 0 0 0 1991 0 0 0 0 0 0 1992 0 0 0 0 0 0 1993 114 0 114 83 0 84 1994 313 0 313 198 0 200 1995 591 0 591 150 0 206 1996 729 1 729 91 0 141 TOTAL XXX XXX XXX XXX XXX XXX INTERCOMPANY LOSSES LAE POOLING PERC. UNPAID UNPAID (33) (34) (35) PRIOR XXX 0 0 1987 0 0 1988 0 0 1989 0 0 1990 0 0 1991 0 0 1992 0 0 1993 0 0 1994 0 0 1995 79 40 1996 432 223 TOTAL XXX 510 263
11 OHIO CASUALTY GROUP SCHEDULE P - PART 1I- SPECIAL PROPERTY
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9) ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED PRIOR XXX XXX XXX 274 0 258 0 265 1995 67,714 5,196 62,517 33,495 10 1,143 0 566 1996 66,985 3,520 63,465 34,502 0 963 0 222 XXX XXX XXX 68,271 10 2,363 0 1,052 (10) (11) (12) UNALLOCATED LOSSES + LAE REPORTED LAE PAID CLAIMS 9 540 XXX 2,147 36,775 XXX 2,312 37,777 XXX 4,468 75,092 XXX LOSSES UNPAID ALLOCATED LAE UNPAID CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR (13) (14) (15) (16) (17) (18) (19) ACC/YR DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED PRIOR 758 12 306 16 52 0 29 1995 795 0 33 2 101 0 4 1996 7,248 0 997 51 217 0 26 8,801 12 1,335 68 370 0 59 (21) (22) (23) (24) (20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS 1 23 1,138 59 0 69 999 74 1 629 9,065 1,305 3 721 11,202 1,438 TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY (25) (26) (27) (28) (29) (30) (31) (32) ACC/YR DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET PRIOR XXX XXX XXX XXX XXX XXX 1995 37,786 12 37,775 55.8 0.2 60.4 1996 46,894 52 46,841 70.0 1.5 73.8 XXX XXX XXX XXX XXX XXX INTERCOMPANY LOSSES LAE POOLING PERC. UNPAID UNPAID (33) (34) (35) XXX 1,036 102 826 173 8,194 871 XXX 10,056 1,146
12 OHIO CASUALTY GROUP SCHEDULE P - PART 1J - AUTO PHYSICAL DAMAGE
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9) ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED PRIOR XXX XXX XXX (1,872) (3) 189 0 2,076 1995 212,541 975 211,565 123,367 1,108 1,896 0 15,299 1996 209,637 939 208,698 125,062 959 1,305 0 9,009 XXX XXX XXX 246,557 2,064 3,389 0 26,384 (10) (11) (12) UNALLOCATED LOSSES + LAE REPORTED LAE PAID CLAIMS (94) (1,774) XXX 12,158 136,313 107,802 11,944 137,352 104,504 24,008 271,890 XXX LOSSES UNPAID ALLOCATED LAE UNPAID CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR (13) (14) (15) (16) (17) (18) (19) (20) ACC/YR DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED PRIOR 248 0 943 4 69 0 249 1 1995 668 6 101 0 226 2 32 0 1996 15,530 68 3,076 14 1,236 5 227 1 16,446 74 4,120 19 1,531 6 508 2 (21) (22) (23) (24) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING ANTICIPATED LAE UNPAID RESERVES CLAIMS 101 1,604 146 105 1,124 430 1,988 21,970 9,446 2,194 24,698 10,022 TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY (25) (26) (27) (28) (29) (30) (31) (32) ACC/YR DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET PRIOR XXX XXX XXX XXX XXX XXX 1995 138,553 1,116 137,437 65 114 65 1996 160,368 1,046 159,322 76.5 111.4 76.3 TOTAL XXX XXX XXX XXX XXX XXX INTERCOMPANY LOSSES LAE (33) (34) (35) 1,187 418 763 361 18,524 3,446 XXX 20,473 4,225
13 OHIO CASUALTY GROUP SCHEDULE P - PART 1K - BONDS
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9) ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED PRIOR XXX XXX XXX (516) (829) 612 939 1,342 1995 35,287 2,866 32,420 3,664 0 311 0 141 1996 36,197 2,549 33,648 987 0 114 0 104 XXX XXX XXX 4,135 (829) 1,037 939 1,586 (10) (11) (12) UNALLOCATED LOSSES + LAE REPORTED LAE PAID CLAIMS 65 50 XXX 901 4,877 XXX 536 1,636 XXX 1,502 6,564 XXX LOSSES UNPAID ALLOCATED LAE UNPAID CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR (13) (14) (15) (16) (17) (18) (19) ACC/YR DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED PRIOR 2,465 397 984 64 741 100 584 1995 1,485 0 105 7 600 0 75 1996 2,011 0 3,208 210 191 0 533 5,961 397 4,297 281 1,532 100 1,192 (21) (22) (23) (24) (20) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING CEDED ANTICIPATED LAE UNPAID RESERVES CLAIMS 38 248 4,422 256 5 115 2,368 169 35 460 6,159 350 77 822 12,948 775 TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY (25) (26) (27) (28) (29) (30) (31) (32) ACC/YR DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET PRIOR XXX XXX XXX XXX XXX XXX 1995 7,256 12 7,245 21 0 22 1996 8,040 244 7,795 22 10 23 TOTAL XXX XXX XXX XXX XXX XXX (33) (34) (35) POOLING PERC. UNPAID UNPAID (33) (34) (35) XXX 2,986 1,435 1,583 784 5,010 1,149 XXX 9,580 3,368
14 OHIO CASUALTY GROUP SCHEDULE P - PART 1L - OTHER (A&H)
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS (9) ACC/YR (2) (3) (4) (5) (6) (7) (8) SALVAGE & SUB DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED RECEIVED PRIOR XXX XXX XXX 464 464 9 9 0 1995 1,517 1,517 0 472 472 3 3 0 1996 1,298 1,298 0 93 93 0 0 0 XXX XXX XXX 1,030 1,030 12 12 0 (10) (11) (12) UNALLOCATED LOSSES + LAE REPORTED LAE PAID CLAIMS 0 0 XXX 0 0 XXX 0 0 XXX 0 0 XXX LOSSES UNPAID ALLOCATED LAE UNPAID CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR (13) (14) (15) (16) (17) (18) (19) (20) ACC/YR DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED PRIOR 542 542 396 396 49 49 98 98 1995 137 137 42 42 15 15 13 13 1996 124 124 1,293 1,293 3 3 89 89 803 803 1,731 1,731 67 67 199 199 (21) (22) (23) (24) SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING ANTICIPATED LAE UNPAID RESERVES CLAIMS 0 0 46 0 0 22 0 0 42 0 0 110 TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY (25) (26) (27) (28) (29) (30) (31) (32) ACC/YR DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET PRIOR XXX XXX XXX XXX XXX XXX 1995 683 683 0 45 45 0 1996 1,603 1,603 0 124 124 0 TOTAL XXX XXX XXX XXX XXX XXX INTERCOMPANY LOSSES LAE POOLING PERC. UNPAID UNPAID (33) (34) (35) XXX 0 0 0 0 0 0 XXX 0 0
15 OHIO CASUALTY GROUP SCHEDULE P - PART 1R - PRODUCT LIABILITY
(1) PREMIUMS EARNED LOSS PAYMENTS ALLOCATED LAE PAYMENTS ACC/YR (2) (3) (4) (5) (6) (7) (8) DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED PRIOR XXX XXX XXX 500 (11) 898 14 1987 15,224 276 14,948 6,258 6 4,103 10 1988 16,134 290 15,843 2,994 0 3,651 0 1989 14,373 259 14,114 2,871 0 1,697 0 1990 13,298 218 13,080 2,899 0 2,657 0 1991 10,831 133 10,698 2,617 45 1,340 11 1992 9,395 115 9,281 1,448 0 1,038 0 1993 6,069 75 5,994 561 0 731 0 1994 1,231 16 1,216 496 0 359 0 1995 486 6 480 188 0 47 0 1996 385 1 384 65 0 6 0 TOTAL XXX XXX XXX 20,897 40 16,526 35 (1) (9) (10) (11) (12) ACC/YR SALVAGE & SUB UNALLOCATED LOSSES + LAE REPORTED RECEIVED LAE PAID CLAIMS PRIOR 41 46 1,440 XXX 1987 23 696 11,042 696 1988 195 614 7,259 511 1989 27 616 5,184 439 1990 44 367 5,923 344 1991 103 293 4,194 301 1992 20 223 2,709 257 1993 19 226 1,518 91 1994 4 228 1,084 197 1995 7 1,016 1,251 111 1996 2 494 564 81 TOTAL 484 4,819 42,167 XXX LOSSES UNPAID ALLOCATED LAE UNPAID CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR ACC/YR (13) (14) (15) (16) (17) (18) (19) (20) DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED DIR.& ASSUMED CEDED PRIOR 2,121 0 61 0 834 0 49 0 1987 1,667 0 24 0 554 0 16 0 1988 1,372 0 24 0 460 0 16 0 1989 1,334 0 37 0 488 0 27 0 1990 1,160 0 49 0 460 0 39 0 1991 537 0 61 0 230 0 52 0 1992 989 0 61 0 390 0 48 0 1993 1,151 0 61 0 384 0 41 0 1994 222 0 171 0 76 0 89 0 1995 206 0 306 0 59 0 124 0 1996 133 0 367 0 16 0 95 0 TOTAL 10,890 0 1,223 0 3,952 0 598 0 (21) (22) (23) (24) ACC/YR SALVAGE & SUB UNALLOCATED TOTAL OUTSTANDING ANTICIPATED LAE UNPAID RESERVES CLAIMS PRIOR 167 3,233 790 1987 118 2,380 49 1988 98 1,971 38 1989 97 1,982 48 1990 87 1,794 35 1991 45 925 27 1992 76 1,564 26 1993 88 1,725 23 1994 37 594 18 1995 53 747 18 1996 55 666 33 TOTAL 920 17,582 1,105 TOTAL LOSSES AND LOSS LOSS AND LOSS EXPENSE PERCENTAGE DISCOUNT FOR EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) TIME VALUE OF MONEY ACC/YR (25) (26) (27) (28) (29) (30) (31) (32) DIR.& ASSUMED CEDED NET DIR.& ASSUMED CEDED NET PRIOR XXX XXX XXX XXX XXX XXX 1987 13,437 16 13,422 88 6 90 1988 9,230 0 9,230 57 0 58 1989 7,167 0 7,167 50 0 51 1990 7,717 0 7,717 58 0 59 1991 5,175 56 5,119 47.8 42.1 47.9 1992 4,273 0 4,273 45.5 0.0 46.0 1993 3,243 0 3,243 53.4 0.0 54.1 1994 1,678 0 1,678 136.3 0.6 138.1 1995 1,998 0 1,998 411.2 2.5 416.6 1996 1,230 0 1,230 319.7 11.8 320.7 TOTAL XXX XXX XXX XXX XXX XXX INTERCOMPANY LOSSES LAE ACC/YR POOLING PERC. UNPAID UNPAID (33) (34) (35) PRIOR XXX 2,182 1,051 1987 1,691 689 1988 1,396 575 1989 1,371 612 1990 1,209 586 1991 598 327 1992 1,050 515 1993 1,212 513 1994 393 201 1995 511 235 1996 499 167 TOTAL XXX 12,112 5,470
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