-----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, Kapxef2NmZLEqo71dMTheRLYSOQzfgtxgZ4kUsvQRUGiCTKs+Nml1F0Ue3Ea7LQ4 KV28zFirdqcSEF2pwTvyAw== 0000950152-98-002532.txt : 19980330 0000950152-98-002532.hdr.sgml : 19980330 ACCESSION NUMBER: 0000950152-98-002532 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 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: SEC FILE NUMBER: 000-05544 FILM NUMBER: 98575696 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 CASUALTY FORM 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, 1997 ----------------- [ ] 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 (I.R.S. Employer Identification No.) of incorporation or organization) 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, 1998 of the voting stock held by non-affiliates of the registrant was $1,416,224,864. On March 1, 1998 there were 33,629,908 shares outstanding. Page 1 of 102 INDEX TO EXHIBITS ON PAGES 31-32 ================================================================================ 2 DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Shareholders for the registrant's fiscal year ended December 31, 1997 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, 1997 for the Annual Shareholders meeting to be held April 15, 1998 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 four 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; American Fire and Casualty Company ("American Fire"), an Ohio corporation (originally incorporated under the laws of the State of Florida) acquired in 1969; and Avomark Insurance Company ("Avomark"), an Indiana corporation created in 1997. 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. During the fourth quarter of 1997, Great Southern Life Insurance Company legally replaced Ohio Life as the primary insurer for approximately 76% of the life insurance policies subject to the 1995 agreement. As a result of this assumption, fourth quarter net income was positively impacted by a partial recognition of unamortized ceding commission. The after-tax impact was an increase to net income of $5.3 million. There remains approximately $2.2 million in unamortized ceding commission. This will continue to be amortized over the remaining life of the underlying policies. Net income from discontinued operations amounted to $8.7 million or $.25 per share in 1997 compared with $5.3 million or $.15 per share in 1996 and $4.4 million or $.12 per share in 1995. (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The revenues, operating profit and identifiable assets of each industry segment for the three years ended December 31, 1997 are set forth in Note 12, Industry Segment Information, in the Notes to the Consolidated Financial Statements on page 29 of the Annual Report to Shareholders for the fiscal year ended December 31, 1997. 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, Avomark, 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)
1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- Auto liability $ 384,358 $ 386,121 $ 403,781 $ 420,031 $ 430,852 Auto physical damage 219,870 208,541 207,534 212,005 210,987 Homeowners multiple peril 168,168 166,457 160,444 160,089 156,797 Workers' compensation 97,176 115,398 140,558 145,641 165,577 Commercial multiple peril 141,931 132,808 131,553 135,595 136,559 Other liability 96,610 101,688 108,483 112,906 107,983 All other lines 98,708 97,059 96,842 98,714 95,562 ----------- ----------- ----------- ----------- ----------- Property and casualty premiums $ 1,206,821 $ 1,208,072 $ 1,249,195 $ 1,284,981 $ 1,304,317 =========== =========== =========== =========== =========== Premium finance revenues $ 1,511 $ 1,981 $ 2,314 $ 2,528 $ 2,887 =========== =========== =========== =========== =========== Discontinued operations- Statutory premiums: Individual life $ 0 $ 0 $ (126,979) $ 22,238 $ 38,409 Annuity 0 0 (195,870) 18,104 19,530 Other 6 215 (22,012) 8,606 6,716 ----------- ----------- ----------- ----------- ----------- Total 6 215 (344,861) 48,948 64,655 FAS 97 adjustments 0 0 (1,533) (26,173) (44,748) ----------- ----------- ----------- ----------- ----------- Discontinued operations revenues $ 6 $ 215 $ (346,394) $ 22,775 $ 19,907 =========== =========== =========== =========== ===========
Property and casualty net premiums written decreased 0.1% in 1997. New Jersey net premiums written decreased 2.3%, primarily due to a decline in the workers' compensation, general liability and auto lines of business. Premiums written in Pennsylvania declined 12.0% during 1997. This decline has primarily been driven by competitive pricing conditions in commercial lines during 1997. The Corporation is currently developing strategies to help counteract this decline. Net premiums written increased in both Ohio and Kentucky during 1997. In Ohio, premiums grew 4.8% in 1997. The growth has occurred in the auto and CMP lines of business. In Kentucky, premiums grew 14.6% in 1997. This growth is seen in our auto, homeowners and CMP lines of business. 4 5 ITEM 1. CONTINUED (c) NARRATIVE DESCRIPTION OF BUSINESS The Ohio Casualty Group is represented on a commission basis by approximately 4,442 independent insurance agents. In most cases, these agents also represent other unaffiliated companies which may compete with the Ohio Casualty Group. The 34 claim and 13 underwriting and service offices operated by the Ohio Casualty Group assist these independent agents in producing and servicing 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 1997 of Total 1996 of Total 1995 of Total ---- -------- ---- -------- ---- -------- New Jersey $220,588 18.0 New Jersey $218,553 18.0 New Jersey $220,373 17.6 Ohio 132,325 10.8 Ohio 125,675 10.3 Pennsylvania 128,603 10.3 Kentucky 101,341 8.3 Pennsylvania 114,998 9.5 Ohio 126,622 10.1 Pennsylvania 101,074 8.2 Kentucky 87,002 7.2 Kentucky 80,498 6.4 Illinois 63,347 5.2 Illinois 60,311 5.0 Illinois 64,352 5.1 Indiana 54,415 4.4 Maryland 52,204 4.3 Maryland 56,741 4.5 Maryland 46,660 3.8 Indiana 50,560 4.2 Indiana 49,353 3.9 Texas 42,005 3.4 Texas 37,678 3.1 Texas 43,036 3.4 North Carolina 37,383 3.0 Florida 36,995 3.0 Florida 42,061 3.4 Florida 34,570 2.8 North Carolina 34,108 2.8 North Carolina 33,955 2.7 --------- ----- --------- ------ --------- ------ $833,708 67.9 $818,084 67.4 $845,594 67.4 ======== ==== ======== ==== ======== ====
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. 5 6 ITEM 1. CONTINUED 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: Ohio Casualty Group Distribution of Invested Assets (in millions)
1997 Average % of % of % of Rating 1997 Total 1996 Total 1995 Total ------- -------- ----- -------- ----- -------- ----- U.S. government AAA $ 69.8 2.2 $ 82.5 2.7 $ 116.5 3.8 Tax exempt bonds and notes AA+ 875.7 27.8 794.5 25.8 898.5 29.1 Debt securities issued by foreign governments A+ 3.5 0.1 3.3 0.1 3.4 0.1 Corporate securities BBB+ 929.9 29.5 983.7 32.0 986.4 32.0 Mortgage backed securities U.S. government AAA 17.6 0.6 176.9 5.8 170.2 5.5 Other AA+ 329.5 10.4 270.0 8.8 232.9 7.6 -------- ----- -------- ----- -------- ----- Total bonds A+ 2,226.0 70.6 2,310.9 75.2 2,407.9 78.1 Common stocks 853.9 27.1 713.4 23.2 627.4 20.3 Preferred stocks 5.6 0.2 7.8 0.2 33.7 1.1 -------- ----- -------- ----- -------- ----- Total stocks 859.5 27.3 721.2 23.4 661.1 21.4 Short-term 65.9 2.1 41.5 1.4 14.4 0.5 -------- ----- -------- ----- -------- ----- Total investments $3,151.4 100.0 $3,073.6 100.0 $3,083.4 100.0 ======== ===== ======== ===== ======== ===== Total market value of investments $3,151.4 $3,073.6 $3,083.4 ======== ======== ======== Total amortized cost of investments $2,453.8 $2,573.9 $2,617.5 ======== ======== ========
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, 1997. Investments in below investment grade securities (Standard and Poor's rating below BBB-) and unrated securities are summarized as follows:
1997 1996 1995 ---- ---- ---- Below investment grade securities: Carrying value $141.4 $184.6 $203.9 Amortized cost 135.6 180.0 203.7 Unrated securities: Carrying value $242.8 $315.4 $286.3 Amortized cost 228.6 308.3 271.2
6 7 ITEM 1. CONTINUED Utilizing ratings provided by other agencies, such as the NAIC, categorizes additional unrated securities into below investment grade ratings. The following summarizes the additional unrated securities that are rated in the below investment grade category by other rating agencies:
1997 1996 1995 ---- ---- ---- Below investment grade securities at carrying value $141.4 $184.6 $203.9 Other rating agencies categorizing unrated securities as below investment grade 8.1 27.3 28.9 --------- -------- -------- Below investment grade securities at carrying value $149.5 $211.9 $232.8
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 51 corporate borrowers in approximately 36 industries. At December 31, 1997, the market value of the Corporation's five largest investments in below investment grade securities totaled $44.4 million, and had an approximate amortized cost of $41.2 million. None of these holdings individually exceeded $15.9 million. At December 31, 1997, the fixed income portfolio relating to property and casualty operations totaled $2.2 billion which consisted of 89.1% investment grade securities and 10.9% below investment grade and/or unrated securities. At December 31, 1997, the fixed income portfolio relating to discontinued operations totaled $18.2 million, all of which are classified as investment grade 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 8.6% and 8.4% at December 31, 1997 and 1996, respectively. Below investment grade securities were yielding 9.3% and 9.2% at December 31, 1997 and 1996, respectively, while investment grade securities were yielding 8.5% in 1997 and 8.2% in 1996. Yield for tax exempt securities was 6.2% at December 31, 1997 and 1996, 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, 1997, the portfolio consisted of 74 separate issues, diversified across 53 different industries; and the largest single position was 10.2% 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. 7 8 ITEM 1. CONTINUED 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 23 and 24 of the 1997 Annual Report to Shareholders. Purchases of taxable fixed income securities in 1997 were as follows: $90.7 million of investment grade securities, $43.1 million of high yield securities and $30.0 million of unrated securities. Purchases of tax-exempt and equity securities in 1997 totaled $187.6 million and $66.4 million, respectively. Disposals (including maturities, calls, exchanges and scheduled prepayments) of taxable fixed income securities in 1997 were as follows: $200.9 million of investment grade securities, $79.5 million of high yield securities and $68.8 million of unrated securities. Dispositions of tax-exempt and equity securities in 1997 totaled $96.2 million and $154.7 million, respectively. 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 14 on page 30 of the Annual Report to Shareholders, we have an interest rate swap with Chase Manhattan Bank covering one-half the outstanding balance of the revolving line of credit. This swap is not classified as an investment but rather as a hedge against a portion of the variable rate loan. Consolidated net realized investment gains (before taxes) in 1997 totaled $50.7 million, $1.48 per share. Included in this amount are approximately $7.0 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. During 1997, 1,544,688 shares were repurchased for $64.9 million. This compares with 264,600 shares repurchased in 1996 for $9.2 million and 613,900 shares repurchased in 1995 for $20.9 million. In November 1997, the Board of Directors authorized an additional 1.5 million shares to be repurchased. This brings the remaining repurchase authorization to 2,026,812 shares as of December 31, 1997. 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 8 9 ITEM 1. CONTINUED general expenses of administering the claims adjustment process. The liabilities for claims incurred in accident years 1996, 1995 and 1994 were reduced in the subsequent year as shown below: Accident Year Loss and Loss Adjustment Expense Liabilities Subsequent Year Adjustment (in millions)
1996 1995 1994 ---- ---- ---- Property $ 2 $27 $ 11 Auto 12 14 30 Workers' compensation and other liability 6 37 35 ----- ----- ----- Total reduction $20 $78 $76 ===== ===== =====
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 pages 28 and 29 of the 1997 Annual Report to Shareholders. 9 10 ITEM 1. CONTINUED Reconciliation of Liabilities for Losses and Loss Adjustment Expense (in thousands)
1997 1996 1995 ---- ---- ---- Net liabilities, beginning of year $1,486,622 $1,557,065 $1,606,487 Provision for current accident year claims 922,065 1,009,086 1,008,321 Increase (decrease)in provisions for prior accident year claims (53,615) (76,920) (104,998) ---------- ---------- ---------- 868,450 932,166 903,323 Payments for claims occurring during: Current accident year 484,402 515,025 444,558 Prior accident years 484,866 487,584 508,187 ---------- ---------- ---------- 933,268 1,002,609 952,745 Net liabilities, end of year 1,421,804 1,486,622 1,557,065 Reinsurance recoverable 62,003 70,048 74,119 ---------- ---------- ---------- Gross liabilities, end of year $1,483,807 $1,556,670 $1,631,184 ========== ========== ==========
10 11 Property and Casualty Insurance Operations Analysis of Development of Loss and Loss Adjustment Expense Liabilities (In thousands)
Year Ended December 31 1987 1988 1989 1990 1991 1992 1993 - ---------------------- ---- ---- ---- ---- ---- ---- ---- Liability as originally estimated: $ 1,171,392 $ 1,252,404 $ 1,370,054 $ 1,483,985 $ 1,566,139 $ 1,673,205 $ 1,692,895 Cumulative payments as of: One year later 438,195 440,173 489,562 506,246 526,973 561,133 533,634 Two years later 667,894 695,364 745,766 783,948 822,634 869,620 833,399 Three years later 828,325 845,472 902,081 955,666 1,007,189 1,060,433 1,017,893 Four years later 922,744 937,034 1,000,299 1,063,507 1,123,591 1,176,831 1,147,266 Five years later 977,575 996,353 1,061,173 1,131,012 1,201,317 1,264,900 Six years later 1,015,889 1,033,508 1,100,683 1,182,110 1,266,605 Seven years later 1,041,563 1,055,972 1,134,145 1,235,315 Eight years later 1,057,509 1,078,561 1,177,259 Nine years later 1,076,321 1,112,120 Ten years later 1,105,530 Liability reestimated as of: One year later 1,131,539 1,179,052 1,285,233 1,403,172 1,515,129 1,601,406 1,539,178 Two years later 1,139,684 1,175,861 1,299,428 1,407,197 1,500,890 1,555,452 1,510,943 Three years later 1,139,584 1,193,127 1,296,215 1,388,381 1,467,256 1,524,054 1,515,114 Four years later 1,156,930 1,195,712 1,281,246 1,368,530 1,449,789 1,559,492 1,525,493 Five years later 1,160,997 1,186,680 1,268,193 1,366,676 1,498,881 1,561,763 Six years later 1,159,372 1,178,126 1,270,734 1,423,277 1,499,009 Seven years later 1,154,169 1,184,233 1,327,228 1,420,105 Eight years later 1,162,837 1,233,809 1,325,938 Nine years later 1,208,920 1,230,778 Ten years later 1,204,196 Decrease (increase) in original estimates: $ (32,804) $ 21,626 $ 44,116 $ 63,880 $ 67,130 $ 111,442 $ 167,402 Year Ended December 31 1994 1995 1996 1997 - ---------------------- ---- ---- ---- ---- Liability as originally estimated: $ 1,605,526 $ 1,553,131 $ 1,482,900 $ 1,421,704 Cumulative payments as of: One year later 510,219 486,168 483,574 Two years later 803,273 772,670 Three years later 997,027 Four years later 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 1,500,528 1,474,795 1,427,992 Two years later 1,501,530 1,441,081 Three years later 1,486,455 Four years later Five years later Six years later Seven years later Eight years later Nine years later Ten years later Decrease (increase) in original estimates: $ 119,071 $ 112,050 $ 54,908
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.
1995 1996 1997 ---- ---- ---- Gross liability - end of year $ 1,624,197 $ 1,547,595 $ 1,481,657 Reinsurance recoverable 71,066 64,695 59,952 Net liability - end of year 1,553,131 1,482,900 1,421,704 Gross re-estimated liability - latest 1,532,567 1,481,399 Re-estimated recoverable - latest 57,772 53,407 Net re-estimated liability - latest 1,474,795 1,427,992 Gross cumulative deficiency 91,630 66,196
11 12 ITEM 1. CONTINUED COMPETITION More than 2,400 property and casualty insurance companies compete in the United States and no one company or company group has a market share greater than approximately 13%. The Ohio Casualty Group ranked as the forty-fifth largest property and casualty insurance groups in the United States based on net insurance premiums written in 1996, 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 and Avomark are 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 to $42.1 million plus interest. The Corporation is currently involved in hearings with the State of California. In mid 1997, the Administrative Law Judge presiding over the hearing requested a submission from the state showing revised rollback calculations. The California Department of Insurance filed two revised rollback calculations in December 1997. These alternatives, based on concession of certain issues, provide a range of rollback liabilities between $35.9 million plus interest and $39.9 million plus interest. In January 1998, the Judge indicated her intent to rule under the Department's regulations, without consideration of the Corporation's constitutional challenge that the Corporation's liability should be below $30.0 million plus interest. The Commissioner may accept or reject the Judge's ultimate decision in whole or in part and her determination will be subject to de novo review by the State Superior Court. After consultation with outside counsel, the Corporation has determined that $35.9 million plus interest is the more reasonable of the two Department 12 13 ITEM 1. CONTINUED calculations should the Department of Insurance prevail. As a result, the Corporation's reserve for this alleged liability is $66.9 million. An administrative hearing process is ongoing concerning the potential rollback liability. It is uncertain when this matter will ultimately be resolved. The Corporation will continue to challenge the validity of any rollback and plans to continue negotiations with Department officials. To date, the Corporation has paid $4.0 million in legal costs related to the withdrawal, Proposition 103 and Fair Plan assessments. 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 become more difficult. 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 and the Unsatisfied Claim and Judgment fund, the Corporation has incurred expenses of $3.3 million in 1997, $3.6 million in 1996 and $3.7 million in 1995. These assessments have negatively affected our combined ratios by .3 points in each of the three years. 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 three NAIC financial ratios that were outside the usual range in the last five calendar years. Beginning in 1994, the NAIC required 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 twice 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 1997, $170.1 million of policyholders' surplus is not subject to restrictions or prior dividend approval. EMPLOYEES At December 31, 1997, the Ohio Casualty Group had approximately 3,280 employees of which approximately 1,250 were located in Hamilton, Ohio. YEAR 2000 The year 2000 is a point of concern within the industry as regards the extent of liability for coverages under various property, general liability and directors and officers liability policies. The Corporation believes that no coverage exists under current liability contracts except as regards certain possible products exposures. However, this exposure is minimal as our 13 14 ITEM 1. CONTINUED commercial lines business has historically excluded any heavy manufacturing risks which might produce computer or computer dependent products. Furthermore, in analyzing our property forms, the Corporation has found that there is no coverage under our current contracts. The Insurance Services Office (ISO) recently developed policy language that clarifies that there is no coverage for certain year 2000 occurrences. The liability exclusion has been accepted in 40 states and a companion filing for property has been accepted in at least 20 states at this time. Several states have not adopted or approved the property exclusion form sighting specifically that there is no coverage under the current property contracts and therefore, there is no reason to accept a clarifying endorsement. It is our intention to include the ISO clarification language in all of our applicable general liability and property policies written in mid-1998 and thereafter. Directors and officers could be held liable if a company in their control failed to take necessary actions to fix any year 2000 problems and that failure results in a material financial loss to the company. The Corporation has written directors' and officers' liability policies since 1995, with approximately $.9 million in premiums written in 1997. The Corporation is managing its D&O year 2000 exposure through a combination of underwriting guidelines which address year 2000 issues in the application process and reinsurance policies which provide coverage for any loss in excess of $.3 million. For a discussion of the Corporation's preparedness for year 2000 issues, please see page 18 of the 1997 Annual Report to Shareholders. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard 130 "Reporting Comprehensive Income". This statement requires display of comprehensive income in a set of general-purpose financial statements. Comprehensive income is defined as changes in equity of a business enterprise during a period from transactions and other events from non-owner sources. The major component for the Corporation will be unrealized gains and losses from changes in market values for investments. The Corporation will display comprehensive income in quarterly and annual reports for fiscal periods beginning after December 15, 1997. If the Corporation reported comprehensive income for 1997 it would have been $261.2 million. Also in June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard 131 "Disclosures about Segments of an Enterprise and Related Information". This statement requires selected information to be reported on the Corporation's operating segments. Operating segments are determined by the way management structures the segments in making operating decisions and assessing performance. The Corporation is currently reviewing what changes, if any, this will require on the presentation of the financial statements for fiscal periods beginning after December 15, 1997. In December 1997, the American Institute of Certified Public Accountants issued Statement of Position 97-3 "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments". This statement provides guidance on accounting for insurance related assessments and required disclosure information. This statement is effective for fiscal years beginning after December 15, 1998. The Corporation does not believe that this statement will materially affect the Corporation's financial statements or disclosures. 14 15 ITEM 1. CONTINUED During 1997, the SEC issued Financial Reporting Release 48 " Disclosures about Derivatives and Other Financial Instruments" which is effective for periods ending after June 15, 1997 for registrants with market capitalizations in excess of $2.5 billion and effective one year later for all other registrants. The Corporation has a market capitalization of less than $2.5 billion. FRR 48 does not impact the Corporation's financial statements but does require enhanced disclosures about market risk inherent in derivatives and other financial instruments. The additional information will be included in annual filings with the SEC after June 15, 1998. 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 61 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. Treasurer of Avomark since September 1997.
15 16 ITEM 4. CONTINUED
Position with Company and/or Principal Occupation or Employment Name Age (1) During Last Five Years ---- ------- ---------------------- Michael L. Evans 54 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 52 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. Donald J. Dehne 47 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 and Avomark since September 1997; 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 43 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 45 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 and Avomark since September 1997; 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.
16 17 ITEM 4. CONTINUED
Position with Company and/or Principal Occupation or Employment Name Age (1) During Last Five Years ---- ------- ---------------------- Coy Leonard, Jr. 53 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 57 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. Elizabeth M. Riczko 31 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 43 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 42 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 pages 1 and 12 of the Annual Report to Shareholders for the fiscal year ended December 31, 1997. 17 18 ITEM 6. SELECTED FINANCIAL DATA See pages 10 and 11 of the Annual Report to Shareholders for the fiscal year ended December 31, 1997. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See pages 12 through 18 of the Annual Report to Shareholders for the fiscal year ended December 31, 1997. SAFE HARBOR FOR FORWARD LOOKING STATEMENTS From time to time, the Company may publish forward looking statements relating to such matters as anticipated financial performance, business prospects and plans, regulatory developments and similar matters. The statements contained in the Management's Discussion and Analysis of Financial Condition and Results of Operations portion of the 1997 Annual Report, which portion has been incorporated herein by reference in response to Item 7 hereof, that are not historical information, are forward looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of 1933 and The Securities Exchange Act of 1934 for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include the following: changes in property and casualty reserves; catastrophe losses; premium and investment growth; product pricing environment; availability of credit; changes in government regulation; performance of financial markets; fluctuations in interest rates; availability and pricing of reinsurance; litigation and administrative proceedings and general economic and market conditions. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements and Schedules. (See Index to Financial Statements attached hereto.) 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 through 6 of the Proxy Statement of the Board of Directors for the fiscal year ended December 31, 1997 and Executive Officers of the Registrant separately captioned under Part I of this annual report. 18 19 ITEM 11. EXECUTIVE COMPENSATION See pages 7 through 14 of the Proxy Statement of the Board of Directors for the fiscal year ended December 31, 1997. 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, 1997. 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, 1997. 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) Form 8-K announcing completion of initial assumption closing with Great Southern Life Insurance Company in relation to Ohio Life filed on November 25, 1997 (c) Exhibits. (See index to exhibits attached hereto.) 19 20 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, 1998 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, 1998 /s/ Joseph L. Marcum ------------------------------------------------------- Joseph L. Marcum, Chairman of the Board March 27, 1998 /s/ William L. Woodall ------------------------------------------------------- William L. Woodall, Vice Chairman of the Board March 27, 1998 /s/ Lauren N. Patch ------------------------------------------------------- Lauren N. Patch, President and Chief Executive Officer March 27, 1998 /s/ Arthur J. Bennert ------------------------------------------------------- Arthur J. Bennert, Director March 27, 1998 /s/ Jack E. Brown ------------------------------------------------------- Jack E. Brown, Director March 27, 1998 /s/ Catherine E. Dolan ------------------------------------------------------- Catherine E. Dolan, Director March 27, 1998 /s/ Wayne R. Embry ------------------------------------------------------- Wayne R. Embry, Director March 27, 1998 /s/ Vaden Fitton ------------------------------------------------------- Vaden Fitton, Director March 27, 1998 /s/ Jeffery D. Lowe ------------------------------------------------------- Jeffery D. Lowe, Director March 27, 1998 /s/ Stephen S. Marcum ------------------------------------------------------- Stephen S. Marcum, Director March 27, 1998 /s/ Stanley N. Pontius ------------------------------------------------------- Stanley N. Pontius, Director March 27, 1998 /s/ Howard L. Sloneker III ------------------------------------------------------- Howard L. Sloneker III, Director March 27, 1998 /s/ Barry S. Porter ------------------------------------------------------- Barry S. Porter, Chief Financial Officer and Treasurer March 27, 1998 /s/ Michael L. Evans ------------------------------------------------------- Michael L. Evans, Vice President 20 21 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, 1997:
Page Number in Annual Report ---------------- Consolidated Balance Sheet at December 31, 1997, 1996, 1995 19 Statement of Consolidated Income for the years ended December 31, 1997, 1996 and 1995 20 Statement of Consolidated Shareholders' Equity for the years ended December 31, 1997, 1996 and 1995 21 Statement of Consolidated Cash Flow for the years ended December 31, 1997, 1996 and 1995 22 Notes to Consolidated Financial Statements 23-31 Report of Independent Accountants 32
Page Number in this Report -------------- The following financial statement schedules are included herein: Schedule I - Consolidated Summary of Investments Other Than Investments in Related Parties at December 31, 1997 23 Schedule II - Condensed Financial Information of Registrant for the years ended December 31, 1997, 1996 and 1995 24 Schedule III - Consolidated Supplementary Insurance Information for the years ended December 31, 1997, 1996 and 1995 25-27 Schedule IV - Consolidated Reinsurance for the years ended December 31, 1997, 1996 and 1995 28 Schedule V - Valuation and Qualifying Accounts for the years ended December 31, 1997, 1996 and 1995 29 Schedule VI - Consolidated Supplemental Information Concerning Property and Casualty Insurance Operations for the years ended December 31, 1997, 1996 and 1995 30
21 22 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders of Ohio Casualty Corporation Our report on the consolidated financial statements of Ohio Casualty Corporation has been incorporated by reference in this Form 10-K from page 32 of the 1997 Annual Report of Ohio Casualty Corporation. In connection with our audits of such consolidated financial statements, we have also audited the related financial statement schedules on pages 23 through 32 of this Form 10-K. In our opinion, the financial statement schedules referred to above when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Cincinnati, Ohio January 30, 1998 22 23 Schedule I Ohio Casualty Corporation and Subsidiaries Consolidated Summary of Investments Other than Investments in Related Parties (In thousands)
December 31, 1997 Amount shown Type of investment Cost Value in balance sheet - ------------------ ---- ----- ---------------- Fixed maturities Bonds: United States govt. and govt. agencies with auth $ 66,244 $ 69,844 $ 69,844 States, municipalities and political subdivisions 835,355 875,741 875,741 Debt securities issued by foreign governments 3,000 3,458 3,458 Corporate securities 872,904 929,924 929,924 Mortgage-backed securities: U.S. government guaranteed 16,876 17,553 17,553 Other 317,912 329,510 329,510 ---------- ---------- ---------- Total fixed maturities 2,112,291 2,226,030 2,226,030 Equity securities: Common stocks: Banks, trust and insurance companies 56,116 276,626 276,626 Industrial, miscellaneous and all other 214,777 577,225 577,225 Preferred stocks: Non-redeemable 244 244 244 Convertible 4,500 5,380 5,380 ---------- ---------- ---------- Total equity securities 275,637 859,475 859,475 Short-term investments 65,849 65,849 65,849 ---------- ---------- ---------- Total investments $2,453,777 $3,151,354 $3,151,354 ========== ========== ==========
23 24 Schedule II Ohio Casualty Corporation Condensed Financial Information of Registrant (In thousands)
1997 1996 1995 ---- ---- ---- Condensed Balance Sheet: Investment in wholly-owned subsidiaries, at equity $ 1,258,432 $ 1,167,237 $ 1,156,718 Investment in bonds/stocks 85,742 57,233 20,165 Cash and other assets 13,000 5,706 2,468 ----------- ----------- ----------- Total assets 1,357,174 1,230,176 1,179,351 Bank note payable 40,000 50,000 60,000 Other liabilities 2,345 5,076 8,337 ----------- ----------- ----------- Total liabilities 42,345 55,076 68,337 Shareholders' equity $ 1,314,829 $ 1,175,100 $ 1,111,014 =========== =========== =========== Condensed Statement of Income: Dividends from subsidiaries $ 169,988 $ 100,000 $ 80,018 Equity in subsidiaries (30,867) 3,957 21,431 Operating (expenses) (74) (1,500) (1,714) ----------- ----------- ----------- Net income $ 139,047 $ 102,457 $ 99,735 =========== =========== =========== Condensed Statement of Cash Flows: Cash flows from operations Net distributed income $ 169,914 $ 98,500 $ 78,304 Other (805) 4,879 4,358 ----------- ----------- ----------- Net cash from operations 169,109 103,379 82,662 Investing Purchase of bonds/stocks (57,031) (34,458) (4,555) Sales of bonds/stocks 28,147 7,190 7,723 ----------- ----------- ----------- Net cash from investing (28,884) (27,268) 3,168 Financing Note payable (10,000) (10,000) (10,000) Exercise of stock options 371 135 578 Purchase of treasury stock (64,858) (9,168) (21,193) Dividends paid to shareholders (57,456) (56,380) (54,335) ----------- ----------- ----------- Net cash from financing (131,943) (75,413) (84,950) Net change in cash 8,282 698 880 Cash, beginning of year 3,375 2,677 1,797 ----------- ----------- ----------- Cash, end of year $ 11,657 $ 3,375 $ 2,677 =========== =========== ===========
For complete disclosures see Notes to Consolidated Financial Statements on pages 23-31 of the 1997 Annual Report to Shareholders. 24 25 Schedule III Ohio Casualty Corporation and Subsidiaries Consolidated Supplementary Insurance Information (In thousands) December 31, 1997
Deferred Future policy Benefits, Amortization policy benefits Net losses and of deferred acquisition losses and Unearned Premium investment loss acquisition costs loss expenses premiums revenue income expenses costs ----------- ------------- ---------- ----------- ------------ ------------ ------------ Segment - ------- Property and casualty insurance: Underwriting Automobile $ 38,082 $ 588,834 $ 186,886 $ 599,112 $ 483,171 $ 121,730 Workers' compensation 5,290 367,802 40,705 103,484 65,762 21,313 Gen. liability, A&H 14,036 254,159 43,030 98,971 55,331 33,731 Homeowners 26,582 64,681 94,752 166,474 125,136 44,666 CMP, fire and allied lines, inland marine 33,537 193,885 103,751 200,330 131,499 64,520 Fidelity, surety, burglary 10,721 12,296 25,759 35,045 3,743 17,534 Miscellaneous Income 3,925 Investment 172,372 --------- ----------- --------- ----------- --------- --------- --------- Total property and casualty insurance 128,248 1,481,657 494,883 1,207,341 172,372 864,642 303,494 Life ins.(discontinued operations) (2,185) 36,298 23,865 3,954 268 15,049 Premium finance 193 1,632 65 Corporation 5,264 --------- ----------- --------- ----------- --------- --------- --------- Total $ 126,063 $ 1,517,955 $ 495,076 $ 1,232,838 $ 181,655 $ 864,910 $ 318,543 ========= =========== ========= =========== ========= ========= ========= General operating Premiums expenses written ----------- ----------- Segment - ------- Property and casualty insurance: Underwriting $ 24,933 $ 604,228 Automobile 9,979 97,176 Workers' compensation 11,597 96,698 Gen. liability, A&H 15,897 168,168 Homeowners CMP, fire and allied lines, 21,220 206,133 inland marine 5,220 34,418 Fidelity, surety, burglary Miscellaneous Income Investment -------- ----------- Total property and 88,846 1,206,821 casualty insurance 819 6 Life ins.(discontinued operations) 1,655 1,511 Premium finance 5,329 Corporation -------- ----------- $ 96,649 $ 1,208,338 Total ======== ===========
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. 25 26 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. 26 27 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. 27 28 Schedule IV Ohio Casualty Corporation and Subsidiaries Consolidated Reinsurance (In thousands) December, 1997, 1996 and 1995
Percent of amount Ceded to Assumed assumed Gross other from other Net to net amount companies companies amount amount ------------ ------------ ------------ ------------ ------------- Year Ended December 31, 1997 Life insurance in force $ 547 $ 547 $ 0 $ 0 0.0% Premiums Property and casualty insurance $ 1,225,813 $ 31,298 $ 12,306 $ 1,206,821 1.0% Life insurance (Discontinued operations) 18,359 18,359 0 0 0.0% Accident and health insurance 1,392 1,575 189 6 3150.0% ------------ ------------ ------------ ------------ Total premiums 1,245,564 51,232 12,495 1,206,827 1.0% Premium finance charges 1,511 Life insurance - FAS 97 adjustment 0 ------------ Total premiums and finance charges written 1,208,338 Change in unearned premiums and finance charges (3,283) ------------ Total premiums and finance charges earned 1,205,055 Miscellaneous income 3,925 Discontinued operations - life insurance (6) ------------ Total premiums & finance charges earned - continuing operations $ 1,208,974 ============ 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 ------------ 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 ============
28 29 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, 1997 Reserve for bad debt 3,700 500 0 4,200 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
29 30 Schedule VI Ohio Casualty Corporation and Subsidiaries Consolidated Supplemental Information Concerning Property and Casualty Insurance Operations (In thousands)
Claims and claim Reserves for adjustment expenses Deferred unpaid claims incurred related to policy and claim Discount Net ------------------------ Affiliation with acquisition adjustment of Unearned Earned investment Current Prior registrant costs expenses reserves premiums premiums income year years ---------- ----------- ---------- ----------- ----------- ---------- ------------ ----------- Property and casualty subsidiaries Year ended December 31, 1997 $ 128,248 $ 1,481,657 $ 0 $ 494,883 $1,207,341 $ 172,372 $ 921,818 $ (53,615) ========== =========== ========== =========== =========== ========== ============ =========== Year ended December 31, 1996 $ 128,170 $ 1,547,587 $ 0 $ 491,388 $1,224,536 $ 179,407 $1,008,395 $ (76,920) ========== =========== ========== =========== =========== ========== ============ =========== Year ended December 31, 1995 $ 133,330 $ 1,664,197 $ 0 $ 505,771 $1,265,703 $ 184,585 $1,007,380 $ (104,998) ========== =========== ========== =========== =========== ========== ============ =========== Amortization Paid of deferred claims policy and claim Affiliation with acquisition adjustment Premiums registrant costs expenses written ------------ ----------- ----------- Property and casualty subsidiaries Year ended December 31, 1997 $ 303,494 $ 929,399 $ 1,206,821 ============ =========== =========== Year ended December 31, 1996 $ 308,856 $1,001,706 $ 1,208,072 ============ =========== =========== Year ended December 31, 1995 $ 327,055 $ 954,777 $ 1,249,195 ============ =========== ===========
30 31 FORM 10-K OHIO CASUALTY CORPORATION INDEX TO EXHIBITS
Page Number ------ Exhibit 13 Annual Report to Shareholders for the Registrant's fiscal year ended December 31, 1997 33-68 Exhibit 21 Subsidiaries of Registrant 69 Exhibit 22 Proxy Statement of the Board of Directors for the fiscal year ended December 31, 1997 70-86 Exhibit 23 Consent of Independent Accountants to incorporation of their opinion by reference in Registration Statement on Form S-3 87 Exhibit 27 Financial Data Schedule 88 Exhibit 28 Information from Reports Furnished to State Insurance Regulation Authorities 89-102 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 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 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 10a1 Ohio Casualty Corporation amended 1993 Stock Incentive Program filed with Form 10-Q dated May 14, 1997
31 32 FORM 10-K OHIO CASUALTY CORPORATION INDEX TO EXHIBITS, CONTINUED 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 Exhibit 10c Credit Agreement dated October 27, 1997 with Chase Manhattan Bank, N.A. as agent, filed with Form 10-Q on November 13, 1997 Exhibit 99.1 Press release dated November 25, 1997, announcing the settlement with Great Southern Life Insurance Company 32 EX-13 2 EXHIBIT 13 1 OHIO CASUALTY CORPORATION & SUBSIDIARIES Exhibit 13 SHAREHOLDER INFORMATION STOCK PRICE AND DIVIDEND INFORMATION (NASDAQ: OCAS)
Quarter 1st 2nd 3rd 4th - ------------------------------------------------------------------- 1997 HIGH 42 46 3/4 47 15/16 50 3/4 LOW 34 3/8 36 1/8 44 43 5/16 DIVIDEND DECLARED $0.42 $0.42 $0.42 $0.42 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
1998 ANTICIPATED DIVIDEND SCHEDULE DECLARATION DATE RECORD DATE PAYABLE DATE - ---------------------------------------------------------------------------- February 19, 1998 March 2, 1998 March 10, 1998 May 21, 1998 June 1, 1998 June 10, 1998 August 20, 1998 September 1, 1998 September 10, 1998 November 19, 1998 December 1, 1998 December 10, 1998 DIVIDEND REINVESTMENT/STOCK PURCHASE PLAN The Corporation offers a dividend reinvestment/stock purchase plan for all registered holders of common stock. Under the Plan, shareholders may reinvest their dividends to buy 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/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 Company 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 15, 1998, 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. 2 OHIO CASUALTY CORPORATION & SUBSIDIARIES FINANCIAL HIGHLIGHTS
(IN THOUSANDS) 1997 1996 1995 ============================================================================ Gross premiums and finance charges $1,240,681 $1,240,354 $1,294,541 Investment income, less expenses 177,700 183,308 188,107 Income before investment gains 97,406 64,941 91,400 Realized investment gains, after taxes 32,986 32,287 3,963 Income from discontinued operations 8,655 5,229 4,372 Net income 139,047 102,457 99,735 Property and casualty combined ratio 105.3% 109.5% 104.0% BASIC AND DILUTED EARNINGS PER COMMON SHARE Income before investment gains $ 2.85 $ 1.85 $ 2.56 Realized investment gains, after taxes 0.96 0.91 0.11 Income from discontinued operations 0.25 0.15 0.12 Net income 4.06 2.91 2.79 Book value 39.11 33.44 31.39 Dividends 1.68 1.60 1.52 FINANCIAL CONDITION Assets $3,778,782 $3,889,981 $3,980,142 Shareholders' equity 1,314,829 1,175,100 1,111,014 Average shares outstanding - basic 34,228 35,247 35,750 Average shares outstanding - diluted 34,257 35,254 35,759 Shares outstanding on December 31 33,622 35,141 35,396 Number of shareholders 6,200 6,500 6,100
3 OHIO CASUALTY CORPORATION & SUBSIDIARIES TEN-YEAR SUMMARY OF OPERATIONS
(IN MILLIONS) 1997 1996 1995 1994 ================================================================================================================================ CONSOLIDATED OPERATIONS Income after taxes Operating income $ 97.4 $ 64.9 $ 91.4 $ 77.1 Realized investment gains (losses) 33.0 32.3 4.0 14.2 - -------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 130.4 97.2 95.4 91.3 Discontinued operations 8.7 5.3 4.3 5.9 Cumulative effect of accounting changes 0.0 0.0 0.0 (0.3) - -------------------------------------------------------------------------------------------------------------------------------- Net income 139.1 102.5 99.7 96.9 ================================================================================================================================ Income after taxes per average share outstanding - BASIC Operating income 2.85 1.85 2.56 2.14 Realized investment gains (losses) 0.96 0.91 0.11 0.40 Discontinued operations 0.25 0.15 0.12 0.16 Cumulative effect of accounting changes 0.00 0.00 0.00 (0.01) - -------------------------------------------------------------------------------------------------------------------------------- Net income 4.06 2.91 2.79 2.69 ================================================================================================================================ Average shares outstanding - BASIC 34.2 35.2 35.8 36.0 Income after taxes per average share outstanding - DILUTED Operating income 2.85 1.85 2.56 2.14 Realized investment gains (losses) 0.96 0.91 0.11 0.40 Discontinued operations 0.25 0.15 0.12 0.16 Cumulative effect of accounting changes 0.00 0.00 0.00 (0.01) - -------------------------------------------------------------------------------------------------------------------------------- Net income 4.06 2.91 2.79 2.69 ================================================================================================================================ Average shares outstanding -DILUTED 34.3 35.3 35.8 36.0 Total assets 3,778.8 3,890.0 3,980.1 3,739.0 Shareholders' equity 1,314.8 1,175.1 1,111.0 850.8 Book value per share 39.11 33.44 31.39 23.64 Dividends paid per share 1.68 1.60 1.52 1.46 Percent increase over previous year 5.0% 5.3% 4.1% 2.8% PROPERTY AND CASUALTY OPERATIONS Net premiums written 1,207.6 1,209.0 1,250.6 1,286.4 Net premiums earned 1,204.3 1,223.4 1,264.6 1,297.7 GAAP underwriting gain (loss) before taxes (49.6) (112.2) (68.8) (92.9) Loss ratio 62.7% 66.5% 61.2% 61.6% Loss expense ratio 9.4% 9.7% 10.2% 10.0% Underwriting expense ratio 33.2% 33.3% 32.6% 32.2% Combined ratio 105.3% 109.5% 104.0% 103.8% Investment income before taxes 172.4 179.4 184.6 183.8 Per average share outstanding 5.04 5.09 5.16 5.10 Property and casualty reserves Unearned premiums 494.9 491.4 505.8 517.8 Losses 1,174.5 1,215.8 1,268.1 1,303.6 Loss adjustment expense 307.2 331.8 356.1 367.3 Statutory policyholders' surplus 1,109.5 984.9 876.9 660.0
4
10-Year Compound 1993 1992 1991 1990 1989 1988 Annual Growth ================================================================================================================================ $ 51.5 $ 57.8 $ 99.1 $ 94.6 $ 109.3 $ 135.2 0.6% 28.7 35.1 9.8 (8.7) (10.5) (14.2) 0.0% - -------------------------------------------------------------------------------------------------------------------------------- 80.2 92.9 108.9 85.9 98.8 121.0 5.8% 6.8 4.1 (1.0) (1.8) 2.7 7.0 6.8% 0.0 1.5 0.0 0.0 0.0 0.0 0.0% - -------------------------------------------------------------------------------------------------------------------------------- 87.0 98.5 107.9 84.1 101.5 128.0 5.9% ================================================================================================================================ 1.43 1.60 2.77 2.47 2.56 3.10 3.4% 0.80 0.98 0.27 (0.23) (0.25) (0.32) 0.0% 0.19 0.12 (0.03) (0.05) 0.06 0.16 9.6% 0.00 0.04 0.00 0.00 0.00 0.00 0.0% - -------------------------------------------------------------------------------------------------------------------------------- 2.42 2.74 3.01 2.19 2.37 2.94 8.8% ================================================================================================================================ 36.0 36.0 35.8 38.4 42.8 43.6 (2.7)% 1.43 1.60 2.76 2.47 2.55 3.10 3.4% 0.79 0.98 0.27 (0.23) (0.25) (0.32) 0.0% 0.19 0.12 (0.03) (0.05) 0.06 0.16 9.6% 0.00 0.04 0.00 0.00 0.00 0.00 0.0% - -------------------------------------------------------------------------------------------------------------------------------- 2.41 2.74 3.00 2.19 2.36 2.94 8.8% ================================================================================================================================ 36.0 36.0 35.9 38.5 42.9 43.6 (2.7)% 3,816.8 3,760.7 3,531.3 3,252.9 3,145.7 2,922.0 3.5% 862.3 825.2 774.5 651.2 775.0 718.5 7.9% 23.93 23.43 21.58 18.19 18.46 16.65 10.9% 1.42 1.34 1.24 1.16 1.04 0.94 7.2% 6.0% 8.1% 6.9% 11.5% 10.6% 11.9% 1,306.0 1,508.5 1,492.3 1,468.4 1,377.6 1,353.2 (1.2)% 1,379.4 1,517.6 1,469.1 1,438.0 1,364.2 1,339.6 (1.2)% (147.3) (130.8) (74.5) (79.4) (62.6) (16.3) 64.9% 63.7% 60.4% 61.4% 58.4% 55.2% 11.8% 10.8% 10.6% 10.9% 12.1% 11.8% 33.6% 33.5% 33.9% 33.0% 33.2% 33.8% 110.3% 108.0% 104.9% 105.3% 103.7% 100.8% 190.4 194.6 191.6 176.7 187.7 169.8 0.9% 5.29 5.41 5.34 4.59 4.38 3.89 3.8% 529.6 596.1 605.2 582.0 551.6 538.2 (0.6)% 1,378.0 1,309.2 1,216.1 1,148.9 1,061.5 979.3 2.4% 390.6 364.0 350.0 335.1 308.5 273.1 2.4% 713.6 674.2 643.4 465.8 531.6 452.1 9.3%
5 MANAGEMENT'S DISCUSSION & ANALYSIS RESULTS OF OPERATIONS Net income increased 35.7% for 1997 to $139.0 million or $4.06 per share while the combined ratio decreased by 4.2 points to 105.3%. Losses were negatively impacted by catastrophes with $21.4 million of catastrophe losses in 1997 versus $62.2 million in 1996. Underwriting expenses continued to decline in 1997, down, $2.1 million from 1996, which had declined over $3.8 million from 1995. General operating expenses, a component of underwriting expenses, have increased over the period of 1995 to 1997. The increase in operating expenses is primarily due to expenditures in two categories. First, advertising expenses increased as part of the Corporation's efforts to increase name recognition of its property and casualty companies. Second, the branch consolidation process results in extra expenditures in the year of closing. We are beginning to see the efficiencies that are produced through this process in declining statutory underwriting expenses. Branch consolidation resulted in closing 16 branches in 1997, 7 branches in 1996 and 3 branches in 1995. We anticipate closing an additional 3 branches in 1998. Net premiums written were flat for the year. However, if the impact of residual market and canceled agent reductions are excluded, there was an increase of 5.3% of written premium from our active agents. Our growth campaign continued to be led in 1997 by our key agents with a 7.1% increase in written premium for the year. Net cash produced from operations was $26.4 million compared with cash used of $14.0 million in 1996 and cash used of $56.4 million in 1995. Investing activities produced net cash of $164.0 million in 1997, compared with $112.7 million in 1996 and $151.0 million in 1995. Dividend payments were $57.5 million in 1997 compared with $56.4 million in 1996 and $54.3 million in 1995. Total cash used for financing activities was $131.9 million in 1997 compared with $75.4 million in 1996 and $85.0 million in 1995. Overall, total cash generated in 1997 was $58.4 million, compared with $23.3 million in 1996 and $9.6 million in 1995. 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, 1997, our five-year average return on equity was 15.5% compared with 13.4% calculated at December 31, 1996 compared with 16.2% at December 31, 1995. PROPERTY AND CASUALTY Property and casualty operating income was $97.4 million, $2.84 per share, in 1997 compared with $66.1 million, $1.88 per share, in 1996 and $92.5 million, $2.59 per share in 1995. Catastrophe losses in 1997 totaled $21.4 million compared with $62.2 million in 1996 and $27.3 million in 1995. There were 25 separate catastrophes in 1997 compared with 39 catastrophes in 1996 and 34 in 1995. Catastrophe losses added 1.8 points to the combined ratio in 1997 compared with 5.1 points in 1996 and 2.2 points in 1995. The 1996 losses were largely due to winter and spring storms in the Midwest. Statutory surplus, a traditional insurance industry measure of strength and underwriting capacity, was $1,109.5 million at December 31, 1997 compared with $984.9 million at December 31, 1996 and $876.9 million at December 31, 1995. The increases 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 1.1 to 1. Ratios below 3 to 1 generally 6 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. In a continuing effort to maximize the use of technology in our industry, we are furthering the expansion of our Internet applications. This is being accomplished with our newest subsidiary, Avomark, which began operations on January 1, 1998. Targeting two New York locales, the company plans to reach those consumers who find ease and convenience in buying our product through use of the Internet and direct telemarketing. 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 increasing retention. By retaining valued customers, the Corporation is able to increase premium volume while limiting the higher expense associated with new business underwriting.
PREMIUM DISTRIBUTIONS BY TOP STATES 1997 1996 1995 New Jersey 17.9% 18.3% 18.1% Ohio 10.7% 10.2% 9.6% Pennsylvania 8.3% 9.4% 10.0% Kentucky 8.2% 7.2% 6.5% Illinois 5.2% 5.0% 5.1%
After declining in 1995, premiums written increased in both Ohio and Kentucky in 1996 and 1997. In Ohio, premiums grew 4.8% in 1997, 1.6% in 1996, and declined 3.3% in 1995. Primarily, this growth has come from the auto and CMP lines of business. Net written premiums in Ohio totaled $129.8 million in 1997, $123.8 million in 1996 and $120.4 million in 1995. In Kentucky, premiums grew 14.6% in 1997, 6.1% in 1996 and declined .2% in 1995. Net written premiums in Kentucky totaled $99.1 million in 1997, $86.5 million in 1996 and $81.7 million in 1995. New Jersey showed a small decline in premiums written of 2.3% during 1997. Net premiums written were $216.0 million compared with $221.2 million in 1996 and $226.5 million in 1995. The reduction in premium growth is primarily due to a decline in the workers compensation, general liability and auto lines of business. New Jersey requires insurers to write all submitted auto business that meets underwriting guidelines regardless of risk concentration. Premiums written in Pennsylvania declined during 1997 to $99.8 million compared with $113.5 million in 1996 and $125.7 million in 1995. This decline has primarily been driven by competitive pricing conditions in commercial lines during 1997. The Corporation is currently developing strategies to help counteract this decline. We remain committed to the state of Pennsylvania and believe we can generate premium growth in all lines in 1998.
COMBINED RATIOS 1997 1996 1995 1994 1993 ================================== ============== ============ ============ =========== =========== Automobile 107.1% 109.1% 103.9% 101.9% 103.5% Commercial Multiple Peril, Fire and Inland Marine 107.7% 115.0% 105.7% 108.6% 124.2% General Liability 103.0% 89.1% 105.3% 90.3% 120.6% Workers' Compensation 93.0% 94.3% 93.7% 87.8% 111.3% Homeowners 111.2% 135.9% 113.7% 135.7% 118.0% Fidelity and Surety 76.5% 73.4% 84.5% 72.8% 79.1% - ---------------------------------- -------------- ------------ ------------ ----------- ----------- Total 105.3% 109.5% 104.0% 103.8% 110.3% ================================== ============== ============ ============ =========== ===========
7 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 with Great Southern Life Insurance Company. The existing blocks of business were reinsured through a 100% coinsurance arrangement. During the fourth quarter of 1997, Great Southern Life Insurance Company legally replaced Ohio Life as the primary insurer on approximately 76% of the life insurance business subject to the 1995 reinsurance agreement with Ohio Life. As a result of this assumption, fourth quarter net income for the Corporation was positively impacted by a partial recognition of unamortized ceding commission from the original agreement. The before-tax income impact for the quarter was $8.1 million or $.24 per share. The after-tax impact was $5.3 million or $.16 per share. There remains approximately $2.2 million in unamortized ceding commission. This will continue to be amortized over the remaining life of the policies which have yet to be assumed by Great Southern. Net income from discontinued operations amounted to $8.7 million or $.25 per share in 1997 compared with $5.2 million or $.15 per share in 1996 and $4.4 million or $.12 per share in 1995. REINSURANCE In order to preserve capital and shareholder value, Ohio Casualty Corporation purchases reinsurance to protect the Corporation against large or catastrophic losses. 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. Property reinsurance covers $15.0 million in excess of the retention. 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. Casualty reinsurance covers $11.0 million in excess of the retention; and workers' compensation reinsurance covers $74.0 million in excess of the retention. The Catastrophe Reinsurance contract protects the Corporation against an accumulation of losses arising from one defined catastrophic occurrence or series of events. The 1998 Catastrophe Program, similar to 1997, provides $150.0 million coverage in excess of the Corporation's $25.0 million retention. In 1997, a portion of the Catastrophe Program was again renewed with a multi-year placement. In 1998, approximately 55% of our reinsurance program is on a three-year placement. The multi-year placements maintain rates, continuity, and each reinsurers' overall share on the 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 $31.5 million and $29.8 million, respectively. Both of these losses exceeded our prior retention amount of $13.0 million. The Corporation recovered $30.3 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 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 $1.5 billion at December 31, 1997 and $1.6 billion at December 31, 1996 and 1995. 8 In 1997, the Corporation continued the use of a toll free number for direct reporting of claims. The percentage of all claims handled by direct reporting was approximately 55% in 1997. This compares with 50% in 1996 and 30% in 1995. The Corporation continues to receive 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, 15% building/premises, 13% mercantile and only 5% manufacturers. Within the manufacturing category, we have concentrated on the light manufacturers which further limits our exposure to environmental claims. Estimated asbestos and environmental reserves are composed of case reserves, incurred but not reported reserves and reserves for loss adjustment expense. For 1997, 1996 and 1995 respectively those reserves were $40.1 million, $41.0 million and $40.7 million. Asbestos reserves were $7.0 million , $5.2 million and $5.2 million and environmental reserves were $33.2 million, $35.7 million and $35.5 million for those respective years. 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. At year end 1996, the state's assertion of the Corporation's liability was $42.1 million plus accrued interest. An administrative hearing process is ongoing concerning the potential rollback liability. Upon the Administrative Law Judge's request that it submit what it now asserts is the rollback liability for Ohio Casualty, the California Department of Insurance filed two revised rollback calculations in December 1997. These alternatives, based on concession of certain issues, provide a range of rollback liabilities between $35.9 million plus interest and $39.9 million plus interest. In January 1998, the Judge indicated her intent to rule under the departments regulations, without consideration of Ohio Casualty's constitutional challenge, that Ohio Casualty's liability should be below $30 million plus interest. The commissioner may accept or reject the Judge's ultimate decision in whole or in part, and his determination will be subject to de novo review by the state superior court. After consultation with outside counsel, the Corporation has determined that the $35.9 million plus interest is the 9 more reasonable of the two Department calculations should the Department of Insurance prevail. Our current reserve of $66.9 million is based on this testimony. We made no additions to reserves for principal amounts in 1997; however, we continue to accrue interest on the assessed liability. Reducing this alleged liability positively impacted net income by $4.9 million or $.14 per share in 1997. Increases in reserve due to accruing interest negatively impacted net income by $2.7 million or $.08 per share in 1996 and $14.9 million or $.42 per share in 1995. The Corporation continues to challenge the validity of any rollback and plans to continue negotiations with Department officials. While we anticipate an administrative decision in 1998, it is uncertain when this matter will ultimately be resolved. INVESTMENTS Consolidated pre-tax investment income from continuing operations decreased 3.1% to $177.7 million in 1997 compared with $183.3 million in 1996 and $188.1 million in 1995. After-tax investment income totaled $133.6 million in 1997 compared with $138.6 million in 1996 and $138.4 million in 1995. Pre-tax and after-tax investment income comparisons are impacted by an increased investment in municipal bonds beginning in 1996. Cash flow from investment income has been impacted by our continued share repurchase program. During 1997, Ohio Casualty Corporation purchased 1,544,688 shares of its common stock at a cost of $64.9 million compared with 264,600 shares for $9.2 million in 1996 and 613,900 shares for $20.9 million in 1995. The Corporation is currently authorized to repurchase 2.0 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 12.2 million shares at an average cost of $24.55 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. At year end 1997, consolidated investments had a carrying value of $3.2 billion. The excess of market value over cost was $697.6 million, compared with a $499.7 million excess at year end 1996 and $465.9 million at year end 1995. The increase in the excess of market value over cost in 1997 was attributable to the strong performance of our equity and fixed income portfolios. After-tax realized investment gains from continuing operations amounted to $33.0 million in 1997 compared with $32.3 million in 1996 and $4.0 million in 1995. 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 14, we have an interest rate swap with Chase Manhattan Bank covering the outstanding balance of our line of credit. 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, 1997, Ohio Casualty maintained a $347.1 million mortgage-backed securities portfolio compared with $446.9 million at December 31, 1996 and $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. $5.8, $27.0, $27.8 million of this portfolio was invested in more volatile bond classes (e.g. interest-only, super-floaters, inverses) in 1997, 1996 and 1995, respectively. 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 is prudent to remain fully invested at all times, subject only to our liquidity needs. Tax exempt bonds were 39.4% of the fixed income portfolio at year end 1997 versus 34.4% at December 31, 1996 and 37.3% at December 31, 1995. This higher average exposure to municipals reflects our internal tax planning strategy as well as our belief that, coming into 1997, municipals 10 were attractive relative to taxable bond alternatives. 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% in 1996 to 27.3% at year end 1997. 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 three years. YEAR 2000 Recently, the "Year 2000 Problem" has received extensive press in the insurance industry. According to published reports, many companies 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. This would obviously create havoc with date related calculations such as policy premiums. Ohio Casualty started very early 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 70% of our systems have been modified for year 2000. We have added compliance testing to our year 2000 compliance criteria. Compliance testing involves migrating our data forward and changing the internal date in the computer to critical dates in late 1999 and early 2000. With this addition to our criteria we are over 50% completed with the entire year 2000 compliance process. Complete testing of year 2000 compliance for all systems is set to be completed by the end of 1998. To date, we have spent approximately $.7 million and expect to spend an additional $1.4 million to complete our efforts. The readiness of outside parties, such as vendors, agents or governmental units, also play a role in the Company's exposure to the "Year 2000 Problem." In 1997, Ohio Casualty contacted those parties to request written verification that their software will be compliant. As of year end 1997, over 50% have responded. The Corporation expects this process to be completed by year end 1998. 11 OHIO CASUALTY CORPORATION & SUBSIDIARIES CONSOLIDATED BALANCE SHEET
DECEMBER 31 (IN THOUSANDS) 1997 1996 1995 ======================================================================================================================= ASSETS Investments: Fixed maturities: Available for sale, at fair value $ 2,226,030 $ 2,310,938 $ 2,407,853 (Cost: $2,112,291; $2,225,517; $2,276,150) Equity securities, at fair value 859,475 721,152 661,154 (Cost: $275,637; $306,865; $326,999) Short-term investments at cost 65,849 41,546 14,399 - ----------------------------------------------------------------------------------------------------------------------- Total investments 3,151,354 3,073,636 3,083,406 Cash 54,206 20,078 23,883 Premiums and other receivables 193,615 186,676 196,175 Deferred policy acquisition costs 126,063 116,684 119,795 Property and equipment 50,699 42,239 43,846 Reinsurance recoverable 108,962 362,683 446,167 Other assets 93,883 87,985 66,870 - ----------------------------------------------------------------------------------------------------------------------- Total assets $ 3,778,782 $ 3,889,981 $ 3,980,142 ======================================================================================================================= LIABILITIES Insurance reserves: Unearned premiums $ 495,076 $ 491,613 $ 506,035 Losses 1,176,614 1,224,873 1,275,077 Loss adjustment expenses 307,193 331,797 356,107 Future policy benefits 34,148 280,002 360,074 Note payable 40,000 50,000 60,000 California Proposition 103 reserve 66,908 74,376 70,167 Deferred income taxes 95,389 27,993 2,112 Other liabilities 248,625 234,227 239,556 - ----------------------------------------------------------------------------------------------------------------------- Total liabilities 2,463,953 2,714,881 2,869,128 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 Additional paid-in capital 3,923 3,603 3,422 Unrealized gain on investments, net of applicable income taxes 454,241 332,042 305,049 Retained earnings 1,158,308 1,076,545 1,030,468 Treasury stock, at cost (Shares: 13,182,240; 11,662,559; 11,407,745) (307,493) (242,940) (233,775) - ----------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 1,314,829 1,175,100 1,111,014 - ----------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 3,778,782 $ 3,889,981 $ 3,980,142 =======================================================================================================================
See notes to consolidated financial statements 12 OHIO CASUALTY CORPORATION & SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME
YEAR ENDED DECEMBER 31 (IN THOUSANDS) 1997 1996 1995 =============================================================================================================== Premiums and finance charges earned $ 1,208,974 $ 1,226,651 $ 1,268,269 Investment income less expenses 177,700 183,308 188,107 Investment gains realized, net 50,749 49,672 6,096 - --------------------------------------------------------------------------------------------------------------- Total income 1,437,423 1,459,631 1,462,472 Losses and benefits for policyholders 751,207 812,234 774,282 Loss adjustment expenses 113,435 118,354 128,099 General operating expenses 103,299 100,939 89,970 Amortization of deferred policy acquisition costs 303,494 308,856 327,055 California Proposition 103 reserve, including interest (7,469) 4,210 22,889 - --------------------------------------------------------------------------------------------------------------- Total expenses 1,263,966 1,344,593 1,342,295 Income from continuing operations before income taxes 173,457 115,038 120,177 Income taxes Current 44,263 10,173 23,514 Deferred (1,198) 7,637 1,300 - --------------------------------------------------------------------------------------------------------------- Total income taxes 43,065 17,810 24,814 - --------------------------------------------------------------------------------------------------------------- Income before discontinued operations 130,392 97,228 95,363 Income from discontinued operations net of taxes of $4,661, $2,663 and $4,345 (see Note 17) 8,655 5,229 4,372 - --------------------------------------------------------------------------------------------------------------- Net income $ 139,047 $ 102,457 $ 99,735 =============================================================================================================== Average shares outstanding 34,228 35,247 35,750 Basic and diluted earnings per share: Income before discontinued operations $ 3.81 $ 2.76 $ 2.67 Income from discontinued operations 0.25 0.15 0.12 - --------------------------------------------------------------------------------------------------------------- Net income per share $ 4.06 $ 2.91 $ 2.79 ===============================================================================================================
See notes to consolidated financial statements 13 OHIO CASUALTY CORPORATION & SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
ADDITIONAL UNREALIZED TOTAL COMMON PAID-IN GAIN (LOSS) RETAINED TREASURY SHAREHOLDERS' (IN THOUSANDS) STOCK CAPITAL ON INVESTMENTS EARNINGS STOCK EQUITY ==================================================================================================================================== Balance, January 1, 1995 $ 5,850 $ 3,271 $ 69,610 $ 985,068 $ (213,009) $ 850,790 Unrealized gain 360,372 360,372 Deferred income tax on net unrealized loss (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 Unrealized gain 188,081 188,081 Deferred income tax on net unrealized gain (65,882) (65,882) Net issuance of treasury stock under stock option plan and by charitable donation (25,007 shares) 320 172 305 797 Repurchase of treasury stock (1,544,688 shares) (64,858) (64,858) Net income 139,047 139,047 Cash dividends paid ($1.68 per share) (57,456) (57,456) - ----------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1997 $ 5,850 $ 3,923 $ 454,241 $ 1,158,308 $ (307,493) $ 1,314,829 ===================================================================================================================================
See notes to consolidated financial statements 14 OHIO CASUALTY CORPORATION & SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS
YEAR ENDED DECEMBER 31 (IN THOUSANDS) 1997 1996 1995 =============================================================================================================================== CASH FLOWS FROM: Operations Net income $ 139,047 $ 102,457 $ 99,735 Adjustments to reconcile net income to cash from operations: Changes in: Insurance reserves (315,255) (169,006) 116,397 Income taxes 10,691 8,238 (7,157) Premiums and other receivables (6,939) 9,500 2,993 Deferred policy acquisition costs (9,379) 3,111 45,838 Reinsurance recoverable 253,720 83,484 (358,418) Other assets (22,339) 775 6,871 Other liabilities 20,677 (18,442) 14,577 California Proposition 103 reserves (7,469) 4,209 21,353 Depreciation and amortization 16,035 12,388 12,600 Investment (gains) losses (52,382) (50,674) (11,199) - ------------------------------------------------------------------------------------------------------------------------------- Net cash from operations 26,407 (13,960) (56,410) - ------------------------------------------------------------------------------------------------------------------------------- INVESTING Purchase of securities: Fixed income securities - available for sale (351,393) (539,690) (944,077) Equity securities (66,433) (74,243) (86,517) Proceeds from sales: Fixed income securities - available for sale 342,193 501,394 929,890 Equity securities 144,688 122,970 89,771 Proceeds from maturities and calls: Fixed income securities - available for sale 103,165 101,970 132,572 Equity securities 10,013 6,702 47,605 Property and equipment: Purchases (18,968) (7,340) (19,071) Sales 702 952 813 - ------------------------------------------------------------------------------------------------------------------------------- Net cash from investments 163,967 112,715 150,986 - ------------------------------------------------------------------------------------------------------------------------------- FINANCING Note payable repayment (10,000) (10,000) (10,000) Proceeds from exercise of stock options 371 135 578 Purchase of treasury stock (64,858) (9,168) (21,193) Dividends paid to shareholders (57,456) (56,380) (54,335) - ------------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (131,943) (75,413) (84,950) - ------------------------------------------------------------------------------------------------------------------------------- Net change in cash and cash equivalents 58,431 23,342 9,626 Cash and cash equivalents, beginning of year 61,624 38,282 28,656 - ------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 120,055 $ 61,624 $ 38,282 ===============================================================================================================================
See notes to consolidated financial statements 15 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. Investment securities are 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. 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 $24,611 of such liabilities in 1997, $230,843 in 1996 and $293,732 in 1995 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 17.9% was generated in the State of New Jersey, 10.8% in Ohio and 8.3% 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. The Corporation believes that the fair value of long-term debt is approximately equal to its carrying value due to the market-based variable interest rates associated with the debt. 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, 1997, approximately $170,115 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:
1997 1996 1995 - --------------------------------------------------------------- Investment income from: Fixed maturities $166,554 $176,160 $177,621 Equity securities 13,776 14,135 14,721 Short-term securities 3,477 2,129 3,096 - --------------------------------------------------------------- Total investment income 183,807 192,424 195,438 Investment expenses 6,107 9,116 7,331 - --------------------------------------------------------------- Net investment income $177,700 $183,308 $188,107 ===============================================================
16 Realized and unrealized gains (losses) on investments in securities are summarized as follows:
1997 1996 1995 - --------------------------------------------------------------- Realized gains (losses): Fixed maturities $ 9,317 $ 4,567 $ (8,104) Equity securities 42,956 41,278 16,913 Other investments (1,524) 3,827 (2,713) - --------------------------------------------------------------- $ 50,749 $ 49,672 $ 6,096 =============================================================== Unrealized gains (losses): Securities $ 188,081 $ 40,297 $ 360,372 Deferred tax (65,882) (13,304) (124,933) - --------------------------------------------------------------- $ 122,199 $ 26,993 $ 235,439 ===============================================================
The amortized cost and estimated market values of investments in debt and equity securities are as follows:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR 1997 COST GAINS LOSSES VALUE - --------------------------------------------------------------------------------- Securities available for sale: U.S. Government $66,244 $3,601 $(1) $69,844 States, municipalities and political subdivisions 835,355 40,405 (19) 875,741 Debt securities issued by foreign governments 3,000 458 0 3,458 Corporate securities 872,904 58,046 (1,026) 929,924 Mortgage-backed securities: U.S. Government Agency 16,876 678 (1) 17,553 Other 317,912 12,838 (1,240) 329,510 - --------------------------------------------------------------------------------- Total fixed 2,112,291 116,026 (2,287) 2,226,030 maturities Equity securities 275,637 597,803 (13,965) 859,475 Short-term investments 65,849 0 0 65,849 - --------------------------------------------------------------------------------- Total securities, available for sale $2,453,777 $713,829 $(16,252) $3,151,354 =================================================================================
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR 1996 COST GAINS LOSSES VALUE - -------------------------------------------------------------------------------- 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 1995 COST GAINS LOSSES VALUE - -------------------------------------------------------------------------------- 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 ================================================================================
The amortized cost and estimated fair value of debt securities at December 31, 1997, 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. 17
ESTIMATED AMORTIZED FAIR COST VALUE - -------------------------------------------------------------- Due in one year or less $ 21,712 $ 21,869 Due after one year through five years 337,931 356,217 Due after five years through ten years 736,400 779,447 Due after ten years 681,460 721,434 Mortgage-backed securities: U.S. Government Agency 16,876 17,553 Other 317,912 329,510 - -------------------------------------------------------------- Total fixed maturities $2,112,291 $2,226,030 ==============================================================
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 $14,433, $19,456 and $26,290 during 1997, 1996 and 1995, respectively, representing a reduction in value of $0, $7,055 and $9,696 on fixed maturities and $14,433, $12,401 and $16,595 on equity securities. Proceeds from maturities and sales of investments in debt securities during 1997, 1996 and 1995 were $445,358, $603,364 and $1,062,462, respectively. Gross gains of $12,665, $14,257 and $20,834 and gross losses of $4,311, $10,388 and $24,500 were realized on those maturities and sales in 1997, 1996 and 1995, respectively. 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 1997 AMOUNT VALUE - ----------------------------------------------------------- Assets Cash and cash equivalents $ 120,055 $ 120,055 Securities - available for sale 3,085,505 3,085,505 Liabilities Future policy benefits $ 34,148 $ 34,148 Long-term debt 40,000 40,000 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
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:
1997 1996 1995 - --------------------------------------------------------------- Deferred, January 1 $116,684 $119,795 $165,633 - --------------------------------------------------------------- Additions: Commissions and brokerage 190,029 190,461 204,594 Salaries and employee 46,241 47,092 43,867 benefits Other 67,301 66,143 73,090 - --------------------------------------------------------------- Deferral of expense 303,571 303,696 321,551 - --------------------------------------------------------------- Amortization to expense Discontinued operations (9,302) (2,049) 40,333 Continuing operations 303,494 308,856 327,055 - --------------------------------------------------------------- Deferred, December 31 $126,063 $116,684 $119,795 ===============================================================
The above schedule includes deferred policy acquisition costs (net of unamortized ceding commission) for discontinued life insurance operations of $(2,185), $(11,486) and $(13,535) as of 1997, 1996 and 1995, 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 1997, 1996 and 1995 for the following reasons:
1997 1996 1995 - -------------------------------------------------------------- Tax at statutory rate $ 60,710 $ 40,263 $ 42,062 Tax exempt interest (16,522) (18,367) (16,150) Dividends received deduction (DRD) (3,239) (4,056) (3,446) Proration of DRD and tax exempt interest 2,796 3,017 3,319 Reduction in provision for audit issues 0 (3,000) 0 Miscellaneous (680) (47) (971) - -------------------------------------------------------------- Actual tax $ 43,065 $ 17,810 $ 24,814 ==============================================================
Tax years 1993 through 1995 are being examined by The Internal Revenue Service. Management believes 18 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:
1997 1996 1995 - ------------------------------------------------------------- Unearned premium proration $ 34,065 $ 33,833 $ 34,823 Accrued expenses 43,164 59,217 64,658 Postretirement benefits 28,522 27,355 26,331 Discounted loss and loss expense reserves 78,217 81,350 88,589 - ------------------------------------------------------------- Total deferred tax assets 183,968 201,755 214,401 Deferred policy acquisition costs (44,122) (51,129) (53,616) Unrealized gains on investments (235,235) (178,619) (162,897) - ------------------------------------------------------------- Total deferred tax liabilities (279,357) (229,748) (216,513) - ------------------------------------------------------------- Net deferred tax asset (liability) $ (95,389) $ (27,993) $ (2,112) =============================================================
Taxes paid amounted to $37,035 in 1997, $16,336 in 1996 and $37,346 in 1995. NOTE 6 -- EMPLOYEE BENEFITS The Corporation has a non-contributory defined benefit retirement plan, contributory health care, life and disability insurance and savings plans covering substantially all employees. Benefit expenses are as follows:
1997 1996 1995 - -------------------------------------------------------------- Employee benefit costs: Retirement $ (252) $ (136) $(1,689) Health care 12,555 14,415 13,339 Life and disability insurance 463 555 594 Savings plan 2,321 2,489 2,586 - -------------------------------------------------------------- $15,087 $17,323 $14,830 ==============================================================
The pension benefit is determined as follows:
1997 1996 1995 - -------------------------------------------------------------- Service cost/(benefit) earned during the year $ 6,354 $ 6,256 $ 5,701 Interest cost on projected benefit obligation 15,003 13,927 13,262 Actual return on plan assets (62,113) (19,070) (34,448) Amortization of unrecognized net asset existing at 40,504 (1,249) 13,796 January 1 - -------------------------------------------------------------- Net pension benefit $ (252) $ (136) $ (1,689) ==============================================================
Pension plan funding at December 31:
1997 1996 1995 - -------------------------------------------------------------- Plan assets at fair value (primarily fixed income and equity securities) $276,477 $225,681 $217,274 - -------------------------------------------------------------- Plan benefit obligations: Vested benefits 179,601 160,667 157,371 Non-vested benefits 3,061 2,780 3,046 Future benefits due to salary increases 31,058 34,091 30,591 - -------------------------------------------------------------- Total 213,720 197,538 191,008 - -------------------------------------------------------------- Excess plan assets over obligations $ 62,757 $ 28,143 $ 26,266 ============================================================== Unrecognized net gain (loss) $ 42,443 $ 1,617 $ (3,082) Unrecognized net assets 15,085 18,102 21,119 Unrecognized prior service cost (2,508) (566) (624) Expected long-term return on plan assets 8.25% 8.75% 8.50% Discount rate on plan benefit obligations 7.25% 7.75% 7.50% Expected future rate of salary increases 5.25% 5.25% 5.25%
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 1997, 1996 and 1995. The maximum pension expense deductible for income tax purposes has been funded. Plan assets at December 31, 1997 include $37,585 of the Corporation's common stock at market value compared to $29,899 and $32,637 at December 31, 1996 and 1995, respectively. 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:
1997 1996 1995 - ------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $(46,119) $(40,313) $(39,084) Active employees (35,575) (31,484) (32,435) - ------------------------------------------------------------- Total (81,694) (71,797) (71,519) Unrecognized net loss (gain) 203 (6,203) (2,481) - ------------------------------------------------------------- Accrued postretirement benefit liability $(81,491) $(78,000) $(74,000) =============================================================
Postretirement benefit cost at December 31:
1997 1996 1995 - ------------------------------------------------------------- Service cost $1,739 $1,967 $1,883 Interest cost 5,588 5,412 5,144 - ------------------------------------------------------------- Net periodic postretirement benefit cost $7,327 $7,379 $7,027 =============================================================
19 Postretirement benefit rate assumptions at October 1:
1997 1996 1995 - --------------------------------------------------------------- Medical trend rate 8% 9% 10% Dental trend rate 6% 7% 8% Ultimate health care trend rate 5% 5% 5% Discount rate 8.00% 7.75% 8.00%
The postretirement plan measurement date is October 1 for 1997, 1996 and 1995. 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, 1997 by approximately $14,705 and increase the postretirement benefit cost for 1997 by $1,685. The Corporation's health care plan is 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 3,000 active employees and 1,378 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. 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, directors, and other full time salaried employees 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 either 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, 1997, 988,289 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. At December 31, 1997, there were no outstanding stock appreciation rights. Restricted stock awards are occasionally issued by the Corporation. The common shares covered by a restricted stock award may be sold or otherwise disposed of only after a minimum of six months from the grant date of the award. The difference between issue price and the fair market value on the date of issuance is recorded as compensation expense. The amount of compensation expense recognized in 1997 related to restricted stock awards was $345 before tax. There were no restricted stock awards in 1996 or 1995. Currently there are 7,136 shares of restricted stock outstanding. The Corporation also issues, at its discretion, dividend payment rights in connection with the grant of stock options. These rights entitle the holder to receive, for each dividend payment right, an amount in cash equal to the aggregate amount of dividends that the Corporation has paid on each common share from the date on which such right becomes effective through the payout date. One third of these rights becomes vested on each anniversary after the grant. Dividends accrue and payments are made when the rights are fully vested by the rightholder. The Corporation recognizes compensation expense accordingly. The amount of compensation expense related to dividend payment rights recognized in 1997 was $517 before tax. There was not any compensation expense recognized in 1996 or 1995 related to dividend payment rights. As of December 31, 1997, 213,000 dividend payment rights were outstanding. The Corporation continues to elect APB 25 for recognition of stock-based compensation expense. Under APB 25, expense is recognized based on the intrinsic value of the options. 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 1997, 1996 and 1995, respectively: dividend yield of 4.5% for 1997, 1996 and 1995, expected volatility of 26.1% for 1997 and 25.3% for both 1996 and 1995, risk free interest rate of 6.87%, 6.34% and 6.20%, and expected life of 8 years. The following table summarizes information about the stock-based compensation plan as of December 31, 1997, 1996 and 1995, and changes that occurred during the year: 20
1997 1996 1995 -------------------------------------------------------------- Weighted- Weighted- Weighted- Avg Avg Avg Shares Exercise Shares Exercise Shares Exercise (000) Price (000) Price (000) Price -------------------------------------------------------------- Outstanding beginning of year 173 $33.84 74 $30.02 91 $28.71 Granted 120 41.44 127 34.93 12 30.50 Exercised (27) 33.33 (28) 28.75 (29) 26.11 Canceled (4) 32.38 0 0 ------ ------ ------ Outstanding end of year 262 $37.38 173 $33.84 74 $30.02 ====== ====== ====== Options exercisable at year-end 81 52 74 Weighted-Avg fair value of options granted during the year $10.18 $ 8.14 $ 7.02
At year end 1997, 262,494 options were outstanding with an average remaining contractual life of 8.35 years and weighted exercise price of $37.38. Of the amount outstanding, 81,493 were exercisable with a weighted average exercise price of $34.05. At year end 1996, 172,500 options were outstanding with an average remaining contractual life of 8.49 years and a weighted exercise price of $33.84. Of the amount outstanding, 51,500 were exercisable with a weighted average exercise price of $31.23. At year end 1995, 73,800 options were outstanding with an average remaining contractual life of 5.81 years and a weighted exercise price of $30.02. Of the amount outstanding, 73,800 were exercisable with a weighted average exercise price of $30.02. Had the Corporation adopted FAS 123, the amount of compensation expense that would have been recognized in 1997, 1996 and 1995 respectively, would be $755, $350 and $84. The Corporation's net income and earnings per share would have been reduced to the pro forma amounts disclosed below:
1997 1996 1995 - ---------------------------------------------------------------- Net Income As Reported: $139,047 $102,457 $99,735 Pro Forma: $138,557 $102,229 $99,680 Basic/diluted earnings per share As Reported: $4.06 $2.91 $2.79 Pro Forma: $4.05 $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:
1997 1996 1995 - --------------------------------------------------------------- Premiums earned $32,169 $ 30,534 $ 41,012 Losses incurred 13,387 11,846 22,030 Reserve for unearned premiums 8,242 8,062 8,294 Reserve for losses 54,209 61,205 62,847 Reserve for future policy benefits 34,148 280,002 360,074 Reserve for loss adjustment expenses 7,794 8,833 11,272
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 $25,123, $25,139 and $24,300 at December 31, 1997, 1996 and 1995, 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. In October 1997, this obligation was transferred from Ohio Casualty Insurance Company to Ohio Casualty Corporation. At December 31, 1997, the market value of the account exceeded the $163,615 required balance by $2,080 compared with $699 in 1996 and $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. 21
1997 1996 1995 - ----------------------------------------------------------------------- Balance as of January 1, net of reinsurance recoverables of $70,048, $74,119 and $65,336 $1,486,622 $1,557,065 $1,606,487 Incurred related to: Current year 922,065 1,009,086 1,008,321 Prior years (53,615) (76,920) (104,998) - ----------------------------------------------------------------------- 868,450 932,166 903,323 Paid related to: Current year 448,402 515,025 444,558 Prior years 484,866 487,584 508,187 - ----------------------------------------------------------------------- Total paid 933,268 1,002,609 952,745 Balance as of December 31, net of reinsurance recoverables of $62,003, $70,048 and $74,119 $1,421,804 $1,486,622 $1,557,065 ========================================================================
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:
1997 1996 1995 - ----------------------------------------------------------- Incurred losses $21,389 $62,189 $27,277 Loss ratio effect 1.8% 5.1% 2.2%
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 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 asbestos and environmental reserves are composed of case reserves, incurred but not reported reserves and reserves for loss adjustment expense. For 1997, 1996 and 1995, respectively, total case, incurred but not reported and loss adjustment expense reserves were $40,121, $40,956 and $40,719. Asbestos reserves were $6,966, $5,215 and $5,215 and environmental reserves were $33,155, $35,741 and $35,504 for those respective years. NOTE 10 -- EARNINGS PER SHARE During 1997, the Corporation adopted Statement of Financial Accounting Standard 128 "Earnings Per Share". Basic earnings per share is computed using weighted average number of common shares outstanding. Diluted earnings per share is computed similar to basic earnings per share except that the weighted average number of shares outstanding is increased to include the number of additional common shares that would have been issued if all dilutive outstanding stock options would have been exercised. All prior periods were recalculated under the new definition of basic and diluted earnings per share. Basic and diluted earnings per share are summarized as follows:
1997 1996 1995 - --------------------------------------------------------------- Income from continuing operations $130,392 $97,228 $95,363 Average common shares outstanding - basic 34,228 35,247 35,750 Basic income from continuing operations per average share $3.81 $2.76 $2.67 =============================================================== Average common shares outstanding 34,228 35,247 35,750 Effect of dilutive securities 29 7 9 - --------------------------------------------------------------- Average common shares outstanding - diluted 34,257 35,254 35,759 Diluted income from continuing operations per average share $3.81 $2.76 $2.67 ===============================================================
NOTE 11 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
1997 FIRST SECOND THIRD FOURTH - -------------------------------------------------------------- Premiums and finance charges earned $302,479 $307,788 $300,252 $298,455 Net investment income 43,717 45,153 45,365 43,465 Investment gains (losses) realized 13,340 8,498 20,806 8,105 Income from continuing operations 31,257 32,962 25,324 40,849 Income from discontinued operations 1,458 1,143 (85) 6,139 Net income 32,715 34,105 25,239 46,988 Basic and diluted net income per share .94 1.00 .74 1.39
22
1996 First Second Third Fourth - -------------------------------------------------------------- Premiums and finance charges $310,217 $304,641 $301,054 $310,739 earned 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 Basic and diluted net income per share .10 .43 .81 1.58
NOTE 12 -- INDUSTRY SEGMENT INFORMATION
1997 1996 1995 - ----------------------------------------------------------------------- Property and Casualty Insurance Revenue $1,430,590 $1,453,623 $1,456,242 Income before taxes 173,608 116,906 121,741 Identifiable assets 3,585,030 3,437,622 3,457,750 Premium Finance and Other Revenue 6,833 6,008 6,230 Loss before taxes (151) (1,868) (1,564) Identifiable assets 108,858 65,039 26,939 Discontinued Operations (Life insurance) Revenue 29,452 10,396 (335,835) Income before taxes 13,316 7,892 8,717 Identifiable assets 65,337 347,477 511,818
NOTE 13 -- 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.
1997 1996 1995 - ----------------------------------------------------------- Property and Casualty Insurance Statutory net income $ 142,457 $104,137 $103,802 Statutory policyholders' surplus 1,109,517 984,859 876,918 Life Insurance Statutory net income 29,794 4,885 38,981 Statutory policyholders' surplus 29,971 58,511 92,297
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 statutory statement of operations. Following this same treatment, during 1997 the principal reduction in the Proposition 103 liability was taken as an increase to statutory surplus and not included in the 1997 statutory statement of operations. 23 NOTE 14 -- BANK NOTE PAYABLE In 1994, $70,000 was borrowed under a term loan credit facility. During 1997, the Corporation signed a new credit facility that makes available a $300,000 revolving line of credit which was immediately accessed to refinance the outstanding term loan balance. The credit agreement contains financial covenants and provisions customary for such arrangements. The agreement expires in 2002, with any outstanding loan balance due at that time. The revolving line of credit maintains the interest rate swap that existed on the term loan. The effect of the swap agreement was to establish a fixed rate of 6.34% on $20,000 of the outstanding balance of $40,000 converted to the revolving line of credit. The remaining balance and any additional borrowings under the line of credit bear interest at a periodically adjustable rate. The interest rate was 6.08% at December 31, 1997. 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 $3,147, $3,769 and $4,474 in 1997, 1996 and 1995 respectively. Under the loan agreement, statutory surplus is $359,517 in excess of the minimum amount required to be maintained at December 31, 1997. NOTE 15 -- 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 24 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, to $42,100 plus interest. The Corporation is currently involved in hearings with the State of California. In mid 1997, the Administrative Law Judge presiding over the hearing requested a submission from the state showing revised rollback calculations. The California Department of Insurance filed two revised rollback calculations in December 1997. These alternatives, based on concession of certain issues, provide a range of rollback liabilities between $35.9 million plus interest and $39.9 million plus interest. In January 1998, the Judge indicated her intent to rule under the Department's regulations, without consideration of the Corporation's constitutional challenge that the Corporation's liability should be below $30.0 million plus interest. The Commissioner may accept or reject the Judge's ultimate decision in whole or in part and his determination will be subject to de novo review by the State Superior Court. After consultation with outside counsel, the Corporation has determined that $35.9 million plus interest is the more reasonable of the two Department calculations should the Department of Insurance prevail. As a result, the Corporation's reserve for this alleged liability is $66,908. An administrative hearing process is ongoing concerning the potential rollback liability. It is uncertain when this matter will ultimately be resolved. The Corporation will continue to challenge the validity of any rollback and plans to continue negotiations with Department officials. To date, the Corporation has paid $3,955 in legal costs related to the withdrawal, Proposition 103, and Fair Plan assessments. NOTE 16 -- SHAREHOLDER RIGHTS PLAN In December 1989, the Board of Directors adopted a Shareholder Rights Plan declaring a dividend of one Common Share Purchase Right for each outstanding share of common stock. This plan was amended by the Board of Directors on February 19, 1998 which extended the expiration of the rights from 1999 to 2009. Each right entitles the registered holder, under certain conditions, to purchase one share of common stock at a price of $250, 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 by the rightholder for one cent per right at any time prior to becoming exercisable. 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. During the fourth quarter of 1997, Great Southern Life Insurance Company legally replaced Ohio Life as the primary insurer for approximately 76% of the life insurance policies subject to the 1995 agreement. As a result of this assumption, fourth quarter net income was positively impacted by a partial recognition of unamortized ceding commission. The after-tax impact was an increase to net income of $5,300. There remains approximately $2,200 in unamortized ceding commission. This will continue to be amortized over the remaining life of the underlying policies. Results of the discontinued life insurance operations for the years ended December 31 were as follows:
1997 1996 1995 - ------------------------------------------------------------ Gross premiums written $ 1,267 $ 1,428 $ 38,580 Net premiums earned 23,865 4,582 (345,080) Net investment income 3,954 4,812 4,143 Realized investment gains 1,633 1,002 5,102 - ------------------------------------------------------------ Total income 29,452 10,396 (335,835) Income before income taxes 13,316 7,892 8,717 - ------------------------------------------------------------ Provision for income taxes 4,661 2,663 4,345 - ------------------------------------------------------------ Net income $ 8,655 $ 5,229 $ 4,372 ============================================================
Assets and liabilities of the discontinued life insurance operations as of the years ended December 31 were as follows: 25
1997 1996 1995 - -------------------------------------------------------------- Cash $ 9,214 $ 1,150 $ 9,793 Investments 21,320 71,313 107,603 Receivables 0 (4) 5,165 Deferred policy acquisition costs, net of unamortized ceding commission (2,185) (11,486) (13,535) Reinsurance receivable 36,198 285,354 363,127 Other assets 4,219 7,380 3,570 - -------------------------------------------------------------- Total assets $68,766 $353,707 $475,723 ============================================================== Future policy benefits $34,148 $280,002 $360,074 Deferred income tax (1,357) 1,728 11,172 Other liabilities 35,512 17,505 18,196 - -------------------------------------------------------------- Total liabilities $68,303 $299,235 $389,442 ==============================================================
NOTE 18 -- NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard 130 "Reporting Comprehensive Income". This statement requires display of comprehensive income in a set of general-purpose financial statements. Comprehensive income is defined as changes in equity of a business enterprise during a period from transactions and other events from non-owner sources. The Corporation will display comprehensive income in quarterly and annual reports for fiscal periods beginning after December 15, 1997. Also in June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard 131 "Disclosures about Segments of an Enterprise and Related Information". This statement requires selected information to be reported on the Corporation's operating segments. Operating segments are determined by the way management structures the segments in making operating decisions and assessing performance. The Corporation is currently reviewing what changes, if any, this will require on the presentation of the financial statements for fiscal periods beginning after December 15, 1997. In December 1997, the American Institute of Certified Public Accountants issued Statement of Position 97-3 "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments". This statement provides guidance on accounting for insurance related assessments and required disclosure information. This statement is effective for fiscal years beginning after December 15, 1998. The Corporation does not believe that this statement will materially affect the Corporation's financial statements or disclosures. During 1997, the SEC issued Financial Reporting Release 48 "Disclosures about Derivatives and Other Financial Instruments" which is effective for periods ending after June 15, 1997 for registrants with market capitalizations in excess of $2.5 billion and effective one year later for all other registrants. The Corporation has a market capitalization of less than $2.5 billion. FRR 48 does not impact the Corporation's financial statements but does require enhanced disclosures about market risk inherent in derivatives and other financial instruments. The additional information will be included in annual filings with the SEC after June 15, 1998. EX-21 3 EXHIBIT 21 1 Exhibit 21 Ohio Casualty Corporation Subsidiaries of Registrant December 31, 1997 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 Avomark Insurance Company Indiana The Ohio Life Insurance Company Ohio Ocasco Budget, Inc. Ohio 69 EX-22 4 EXHIBIT 22 1 Exhibit 22 OHIO CASUALTY CORPORATION 136 NORTH THIRD STREET HAMILTON, OHIO 45025 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 15, 1998 Hamilton, Ohio March 13, 1998 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 15, 1998, at 10:30 a.m., local time, for the following purposes: (1) To elect the following four Directors for terms expiring in 2001 (Class II), as successors to the class of Directors whose terms expire in 1998: Wayne Embry, Stephen S. Marcum, Stanley N. Pontius and William L. Woodall. (2) To ratify the selection of Coopers & Lybrand L.L.P. as independent public accountants of the Company for the fiscal year ending December 31, 1998. (3) In their discretion, to consider and vote upon 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 2, 1998 are entitled to notice of and to vote at the Annual Meeting and at any adjournment thereof. As of March 2, 1998, there were 33,629,908 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, 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 13, 1998 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 1998 Annual Meeting of Shareholders (the "Annual Meeting") scheduled for Wednesday, April 15, 1998 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 ratification of the selection of Coopers & Lybrand L.L.P. as independent public accountants of the Company for the fiscal year ending December 31, 1998. 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 2, 1998, the record date fixed for the determination of shareholders entitled to notice of and to vote at the Annual Meeting, there were outstanding 33,629,908 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 3,178,294(1) 9.45% 12-31-97 SOUTHWESTERN OHIO Third and High Streets Hamilton, Ohio 45011 THE CAPITAL GROUP, INC. 2,997,500(3) 8.92% 12-31-97 333 South Hope Street Los Angeles, California 90071 THE CHASE MANHATTAN BANK, N.A., 2,351,357(2) 6.99% 12-31-97 Trustee 1211 Avenue of the Americas New York, New York 10036 JOSEPH L. MARCUM 2,208,416(4) 6.57% 03-02-98 136 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 2,732,124 shares, shared voting power for 0 shares, sole investment power for 1,482,960 shares, and shared investment power for 1,283,542 shares. 413,371 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 by directors and executive officers of the Company. (2) 1,509,125 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, 1998, 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 2,997,500 shares as of December 31, 1997. (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 2, 1998, 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 16,178 6,000 22,178 Jack E. Brown 1,100 6,000 7,100 Catherine E. Dolan 100 6,000 6,100 Wayne Embry 200 6,000 6,200 Vaden Fitton 227,779 (4) 6,000 233,799 Jeffery D. Lowe 162,119 (4) 3,000 165,119 Joseph L. Marcum 1,363,184 (4)(5)(6) 3,000 842,232 2,208,416 6.57% Stephen S. Marcum 212,744 (4) 6,000 218,744 Lauren N. Patch 246,569 (4)(7) 30,000 842,232 1,118,801 3.33% Stanley N. Pontius 1,163 6,000 7,163 Howard L. Sloneker III 221,164 (7) 6,666 227,830 William L. Woodall 20,700 6,000 26,700 Michael L. Evans 5,673 (7) 9,999 15,672 Coy Leonard, Jr. 639 (7) 3,000 3,779 Barry S. Porter 28,135 (7) 9,999 842,232 880,366 2.62% All Executive Officers and Directors as a Group (31 Persons) 2,775,718 152,491 842,232 3,770,441 11.21% - -------------------------------- (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 individuals share 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 are the beneficial owners of more than 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, 102,857; Mr. Lowe, 140,350; Mr. Joseph L. Marcum, 614,154; Mr. Stephen S. Marcum, 84,090; and Mr. Patch, 207,601.
3 5 (5) Includes 225,852 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 97,806 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. Patch, Sloneker, Evans, Leonard and Porter includes 4,658; 2,382; 1,284; 140; and 9,757 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. ELECTION OF DIRECTORS The Board of Directors intends that the four persons named under Class II in the following table (the "Nominees") will be nominated for election at the Annual Meeting for three-year terms expiring in 2001. The terms of the remaining directors in Classes I 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 Code of 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: CLASS II --TERMS EXPIRING IN 2001: Wayne Embry, Executive Vice President and General Manager of the Cleveland Cavaliers 1991 61 (professional basketball franchise). Stephen S. Marcum, Member of the law firm of Parrish, Beimford, Fryman, Smith & Marcum Co., 1989 40 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 Bancorp and its 1994 51 principal subsidiary, First National Bank of Southwestern Ohio, Hamilton, Ohio. William L. Woodall, Director of the Company, The Ohio Casualty Insurance Company, West 1986 74 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.
4 6
POSITION WITH COMPANY AND/OR PRINCIPAL OCCUPATION OR EMPLOYMENT DIRECTOR NAME AND AGE(1) DURING LAST FIVE YEARS(2) SINCE - --------------- ---------------------------------------------------------------------------- ---------- DIRECTORS WHOSE TERMS CONTINUE BEYOND THE ANNUAL MEETING CLASS III -- TERMS EXPIRING IN 1999 Arthur J. Bennert, Director of the Company, The Ohio Casualty Insurance Company, West 1989 71 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, First Union 1994 40 National Bank, Charlotte, North Carolina. Jeffery D. Lowe, Director of the Company, The Ohio Casualty Insurance Company, West 1983 52 American Insurance Company, American Fire and Casualty Company, Ohio Security Insurance Company and The Ohio Life Insurance Company. Lauren N. Patch, President, Chief Executive Officer and Director of the Company, The Ohio 1987 47 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. CLASS I: TERMS EXPIRING IN 2000 Jack E. Brown, Chairman of the Board, BBI Marketing Services, Inc., Cincinnati, Ohio 1994 54 (professional marketing consulting firm). Vaden Fitton, Director and Retired First Vice President of First National Bank of 1967 69 Southwestern Ohio, Hamilton, Ohio. Joseph L. Marcum, Chairman of the Board and Director of the Company, The Ohio Casualty 1949 74 Insurance Company, West American Insurance 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, The Ohio Casualty 1983 41 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.
- ----------------------- (1) Ages are listed as of the date of the Annual Meeting. 5 7 (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. 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 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 1997, 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, Executive Compensation and Nominating Committees. The Executive Committee held one meeting during 1997. The members of the Executive Committee are Joseph L. Marcum, Lauren N. Patch, and Howard L. Sloneker III. All Executive Committee members attended the meeting in 1997. 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 three meetings during 1997. 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 all of the meetings in 1997 except Ms. Dolan and Mr. Fitton who attended two meetings. 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 one meeting during 1997. The members of the Executive Compensation Committee are Jack E. Brown, Vaden Fitton, Stephen S. Marcum and Stanley N. Pontius. All members of the Executive Compensation Committee attended the meeting in 1997. 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. The Nominating Committee held one meeting during 1997. The members of the Nominating Committee are Jack E. Brown, Wayne Embry, Vaden Fitton, Joseph L. Marcum, Stephen S. Marcum, Stanley N. Pontius and Howard L. Sloneker III. The Nominating Committee's responsibilities include the selection of potential candidates for director and the recommendation of candidates to the Board. The Nominating Committee will consider nominees for director recommended by shareholders for the 1999 6 8 Annual Meeting of Shareholders provided that the names of such nominees are submitted not later than November 13, 1998, to Howard L. Sloneker III, Secretary, 136 North Third Street, Hamilton, Ohio 45025. DIRECTORS' FEES AND COMPENSATION Each director received $25,000 for services as a director of the Company during 1997. Each non-employee director of the Company also received $1,500 per meeting for attending the meetings of the Board of Directors in 1997. 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 1997 as compensation for serving as the Chairman of the Board. On May 20, 1997, Jack E. Brown, Vaden Fitton and Joseph L. Marcum, 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 $42.25 per share, the closing market price of the common shares on the date of grant. Any individual who becomes or is re-elected a non-employee director is automatically granted an NQSO to purchase 3,000 common shares effective on the third business day following the first meeting of the Board of Directors after his/her election or appointment to the Board. The exercise price of each NQSO granted to a non-employee director is equal to the fair market value of the common shares on the date of grant. NQSOs granted to non-employee directors have terms of ten years (subject to earlier termination in certain cases) and may not be exercised during the six months following their date of grant. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table presents information concerning compensation provided by the Company to its Chief Executive Officer and to each of the Company's four most highly compensated executive officers, other than the Chief Executive Officer, for services rendered in all capacities for each of the Company's last three completed fiscal years:
LONG-TERM ANNUAL COMPENSATION COMPENSATION AWARDS -------------------- ------------------------------------------------- OTHER SECURITIES ANNUAL RESTRICTED UNDERLYING DIVIDEND NAME AND SALARY COMPENSATION STOCK OPTIONS/ PAYMENT PRINCIPAL POSITION YEAR ($)(1) ($)(2)(3) AWARDS($)(4) SARS(#) RIGHTS(#)(5) ------------------ ---- ------ --------- ------------ ------- ------------ Lauren N. Patch 1997 530,000 70,898 98,025 30,000 30,000 President and Chief 1996 529,560 47,881 57,709 30,000 30,000 Executive Officer 1995 474,231 13,477 0 0 0 Barry S. Porter 1997 258,000 32,463 40,165 10,000 10,000 Chief Financial 1996 248,604 22,484 24,956 10,000 10,000 Officer and Treasurer 1995 233,208 6,996 0 0 0 Michael L. Evans 1997 213,750 11,083 6,694 10,000 10,000 Executive Vice President 1996 199,500 19,051 18,686 10,000 10,000 1995 174,462 4,500 0 0 0 Howard L. Sloneker III 1997 209,500 23,488 27,760 10,000 10,000 Vice President 1996 197,698 16,603 16,335 10,000 10,000 1995 181,398 4,597 0 0 0 Coy Leonard, Jr. 1997 158,821 14,312 18,163 3,000 3,000 Vice President 1996 132,352 7,952 9,446 3,000 3,000 1995 117,108 1,171 0 0 0
7 9 (1) Includes annual directors' fees for Messrs. Patch and Sloneker. (2) Includes for Messrs. Patch, Porter, Evans, Sloneker and Leonard for 1997 the amounts of $4,800, $4,800, $4,800, $4,800 and $1,588, respectively, contributed by the Company under the Company's Employee Savings Plan. Also includes for Messrs. Patch, Porter, Evans and Sloneker for 1997 the amounts of $10,350, $3,060, $1,612 and $748, respectively, contributed by the Company under the Company's Supplemental Executive Savings Plan. (3) Includes for Messrs. Patch, Porter, Evans, Sloneker and Leonard for 1997, the amounts of $55,748, $24,603, $4,671, $17,940 and $12,724, respectively, paid to reimburse them for income taxes incurred as a result of the grant of restricted shares described in note (4) below. These amounts were paid in 1998. (4) Shares of restricted stock were granted on February 20, 1997 for services rendered in 1996 and on February 19, 1998 for services rendered in 1997. The value of the outstanding restricted stock awards at the end of the fiscal year 1997 was $62,430, $25,615, $20,215, $17,672 and $10,219 for Messrs. Patch, Porter, Evans, Sloneker and Leonard, respectively. The number of the restricted stock awards held by Messrs. Patch, Porter, Evans, Sloneker and Leonard at the end of the fiscal year 1997 was 1,399, 574, 453, 396 and 229, respectively. Such restricted common shares vest on the third anniversary of the date of the grant so long as the executive officer is an employee on such date (with earlier vesting occurring on retirement, death or disability or termination of employment following a change of control). During the restriction period, the executive officer will receive all dividends paid on the shares. (5) Dividend payment rights were granted to the named executive officers in 1997 and 1998. These rights entitle the executive officer on the April 15th following the third anniversary of the grant date to receive, for each dividend payment right, an amount in cash equal to the aggregate amount of dividends that the Company has paid on each common share from the date on which such right becomes effective through the payout date subject to certain restrictions OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth information concerning the grant of stock options during the last fiscal year to each of the executive officers of the Company named in the Summary Compensation Table. No stock appreciation rights were granted during the last fiscal year.
% OF TOTAL POTENTIAL REALIZABLE OPTIONS VALUE AT ASSUMED NUMBER OF GRANTED ANNUAL RATES OF STOCK SECURITIES TO EXERCISE PRICE APPRECIATION FOR UNDERLYING EMPLOYEES OR BASE OPTION TERM OPTIONS IN FISCAL PRICE EXPIRATION ($) ($) NAME GRANTED # (1) YEAR ($/SH) DATE 5% 10% ---- ------------ ---------- -------- ----------- -------- ----------- Lauren N. Patch 30,000 29.41 41.375 02-20-07 780,615 1,978,233 Barry S. Porter 10,000 9.80 41.375 02-20-07 260,205 659,411 Michael L. Evans 10,000 9.80 41.375 02-20-07 260,205 659,411 Howard L. Sloneker III 10,000 9.80 41.375 02-20-07 260,205 659,411 Coy Leonard, Jr. 3,000 2.94 41.375 02-20-07 78,062 197,823
8 10 (1) All of these stock options, which were granted pursuant to the Ohio Casualty Corporation 1993 Stock Incentive Program, were granted at the fair market value of the underlying option shares 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 and 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. OPTION EXERCISES IN LAST FISCAL YEAR The following table sets forth information concerning the exercise of stock options 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 EXERCISES IN ------------------------------ LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE -------------------------------------------------
NUMBER OF NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS ACQUIRED ON VALUE FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1) ---------------------------- -------------------------- NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ------------ ----------- ----------- ------------- ------------------------- Lauren N. Patch 0 0 10,000 50,000 96,250 290,000 Barry S. Porter 0 0 3,333 16,667 32,081 96,670 Michael L. Evans 0 0 3,333 16,667 32,081 96,670 Howard L. Sloneker III 3,333 37,734 0 16,667 0 96,670 Coy Leonard, Jr. 0 0 1,000 5,000 9,625 116,750
(1) "Value of Unexercised In-the-Money Options at Fiscal Year-End" is based upon the fair market value of the Company's common shares on December 31, 1997 ($44.625), less the exercise price of in-the-money options 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: 9 11
PENSION PLANS TABLE 15 20 25 30 35 40 45 ANNUAL EARNINGS YEARS YEARS YEARS YEARS YEARS YEARS YEARS --------------- ----- ----- ----- ----- ----- ----- ----- $125,000 $27,932 $37,242 $46,553 $55,864 $65,174 $74,485 $83,795 175,000 39,932 53,242 66,553 79,864 93,174 106,485 119,795 225,000 51,932 69,242 86,553 103,864 121,174 138,485 155,795 275,000 63,932 85,242 106,553 127,864 149,174 170,485 191,795 325,000 75,932 101,242 126,553 151,864 177,174 202,485 227,795 375,000 87,932 117,242 146,553 175,864 205,174 234,485 263,795 400,000 93,932 125,242 156,553 187,864 219,174 250,485 281,795 425,000 99,932 133,242 166,553 199,864 233,174 266,485 299,795 450,000 105,932 141,242 176,553 211,864 247,174 282,485 317,795 475,000 111,932 149,242 186,553 223,864 261,174 298,485 335,795 500,000 117,932 157,242 196,553 235,864 275,174 314,485 353,795 525,000 123,932 165,242 206,553 247,864 289,174 330,485 371,795 550,000 129,932 173,242 216,553 259,864 303,174 346,485 389,795 600,000 141,932 189,242 236,553 283,864 331,174 378,485 425,795
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 limits compensation in excess of $160,000 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, 1997, credited years of service and average annual earnings for purposes of the Employees Retirement Plan and the Benefit Equalization Plan for the executive officers named in the Summary Compensation Table were: Lauren N. Patch, 21.5 years ($421,643); Barry S. Porter, 23.5 years ($228,217); Michael L. Evans, 22.5 years ($171,050); Howard L. Sloneker III, 15.75 years ($154,721); and Coy Leonard, Jr., 4.4 years ($124,980). 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. 10 12 REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE EXECUTIVE COMPENSATION POLICIES The Company's executive compensation programs are designed to attract and retain quality talent, and to motivate the Company's key employees to maximize shareholder returns by achieving both the short-term and long-term goals of the Company. The Executive Compensation Committee of the Board of Directors (the " Committee"), consisting entirely of non-employee directors, approves all of the policies under which compensation is paid or awarded to the Company's executive officers. 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 executive compensation program was redesigned to link each executive officer's compensation directly to individual and Company performance. A significant portion of each executive officer's total compensation is now variable and dependent upon the attainment of annual objectives and long-term shareholder returns. The compensation structure provides a portion of each executive officer's compensation in stock thereby creating a mutuality of interest between executive officers and shareholders. The Committee annually reviews the short-term and long-term compensation levels for the CEO and other senior executives to consider and implement any changes necessary to achieve its on-going objectives. In determining the comparable compensation levels discussed further below, the Committee considers information from surveys of compensation practices within the property and casualty industry which surveys may include some or all of the companies included in the Performance Graph on page 14. SPECIFIC COMPENSATION PROGRAMS There are three components to the Company's "pay for performance" system established for its executive officers and 16 additional key executives (collectively called the "partners"): (i) base salary established on an annual basis, (ii) awards under the Annual Incentive Plan and (iii) awards under the Long-Term Incentive Plan. Each component of the Company's executive compensation program aims to accomplish a different purpose. BASE SALARY. Base salary levels for the CEO and the other executive officers of the Company are based on individual performance, the responsibilities associated with an individual's position in the Company, skill level and experience and potential future contribution, all of which are reviewed annually and benchmarked against similar positions within 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 on an annual basis. Salary adjustments are based on individual performance, as determined in accordance with the Company's executive performance evaluation system, and reflective of competitive conditions existing at the time. 11 13 ANNUAL INCENTIVE PLAN AWARDS: The potential award opportunities for each of the executive officers who participates in the Annual Incentive Plan are determined at the beginning of each fiscal year. Potential award opportunities for a fiscal year, which are expressed as a percentage of a participant's salary for that fiscal year, are based on the participant's level within the organization, with higher percentages being assigned to executive officers who hold more senior positions. Actual awards are based on a combination of individual and team performance. This balance supports the accomplishment of overall objectives and rewards individual contributions by the executives. Team performance, which accounts for up to 50% of the total award potential, is based on the Company's actual performance against pre-determined targets for return on equity and growth in premiums for the year. A performance threshold for each measure ensures that no awards are made for substandard accomplishments. If the performance threshold is achieved, each of the eligible executive officers 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, which account for the remaining 50% of the award potential, 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 the CEO to fund such individual 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 such as the achievement of pre-established Company and individual goals. 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). Currently, awards under the Annual Incentive Plan are paid in restricted shares of the Company. Such restricted shares may not be transferred by the participant for a three-year period following the date of the 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. Awards under the Annual Incentive Plan for the 1997 fiscal year were paid in the form of restricted common shares issued in February of 1998. LONG-TERM INCENTIVE PLAN Awards under the Long-Term Incentive Plan consist of incentive stock options, non-qualified stock options, or a combination of both, and dividend payment rights, one-third of which vests on each of the first three anniversaries of the date of the grant. 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. Stock options expire at the end of ten years from the date of grant. Stock option grants are generally made at the beginning of the fiscal 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 is based on the participant's salary level and position. While it is the intention of the Committee to make stock option 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 options granted to each participant over each three-year period, beginning in 1996. 12 14 DIVIDEND PAYMENT RIGHTS In addition to stock options, the participants in the Long-Term Incentive Plan may be granted dividend payment rights. One-third of these rights become effective on each anniversary of the grant date. These rights entitle the holder on the April 15th following the third anniversary of the grant date (or earlier if the holder dies, becomes disabled or retires or is terminated from employment after a change in control of the Company) 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 the dividend payment right becomes effective through the payout date. Unless the employment of the holder of a dividend payment right terminates as a result of death, disability, retirement at normal retirement age, or following a change in control, the holder forfeits the right if his or her employment terminates prior to the scheduled payout date. 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. 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 the 75th percentile of salaries for similar positions among the survey companies. Section 162(m) of the Code generally limits the corporate tax deduction for the compensation paid to executive officers named in the Summary Compensation Table in the proxy statement to $1 million, unless certain requirements for qualifying compensation as "performance based" are met. The compensation paid to each of the executive officers of the Company in 1997 was less than the threshold for deductibility under Section 162(m). BASES FOR CHIEF EXECUTIVE OFFICER COMPENSATION The Committee evaluates the performance of the CEO at least annually. In 1997, Mr. Patch received a base salary of $505,000. Mr. Patch also received an award under the Annual Incentive Plan for service in 1997 of a total of 2,094 restricted common shares of the Company, which were issued to him in February of 1998 and which 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 1997 total return performance as measured against established return on equity and growth in premium targets. The Company also granted to Mr. Patch in 1998 pursuant to the Long-Term Incentive Plan, a non-qualified stock option for 30,000 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 1997: Jack E. Brown Vaden Fitton Stephen S. Marcum Stanley N. Pontius 13 15 EXECUTIVE COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The directors of the Company who served as members of the Company's Executive Compensation Committee during 1997 were Jack E. Brown, Vaden Fitton, Stephen S. Marcum and Stanley N. Pontius. Mr. Fitton and Mr. Porter, the Company's Chief Financial Officer and Treasurer, also served as members of the Executive Compensation Committee of First Financial Bancorp during 1997, whose Chief Executive Officer, Stanley N. Pontius, is a member of the Executive Compensation Committee 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. 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): PERFORMANCE GRAPH FOR OHIO CASUALTY CORPORATION [GRAPH]
1992 1993 1994 1995 1996 1997 ------------- ------------- ------------- ------------- ------------- ------------- DJ EQUITY MARKET INDEX 100.00 109.95 110.76 152.49 187.63 251.34 DJ INSURANCE P&C 100.00 100.83 106.03 148.53 178.61 263.14 OHIO CASUALTY CORP 100.00 105.76 98.47 161.23 135.39 176.75
14 16 (1) The Dow Jones Insurance Index for Property and Casualty Companies is comprised of 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 Allstate Corp.; American International Group Inc.; Chubb Corp.; HSB Group Inc.; Loews Corp.; MBIA Inc.; Ohio Casualty Corporation; Progressive Corp.; SAFECO Corp.; St. Paul Cos.; and USF&G Corp. ANNUAL REPORT The Company's Annual Report for the fiscal year ended December 31, 1997, accompanies this Proxy Statement. RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS The accounting firm of Coopers & Lybrand L.L.P. has been selected by the Board of Directors to serve as independent public accountants of the Company for the fiscal year ending December 31, 1998. 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 affirmative vote of the holders of a majority of the Common Shares represented in person or by proxy at the Annual Meeting is necessary to ratify the selection of the Company's independent public accountants. Under Ohio law, abstentions and broker non-votes are counted as present; the effect of an abstention or broker non-vote on this proposal is the same as a "no" vote. Unless otherwise indicated, the persons named in the Proxy will vote all Proxies in favor of ratifying the selection of independent public accountants. Coopers & Lybrand L.L.P. were the independent public accountants of the Company for the fiscal year ended December 31, 1997. In connection with the audit function, the firm also reviewed the Company'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 no later than November 13, 1998, 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. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE 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. 15 17 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 1997. 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, 1997, WITHOUT CHARGE BY SUBMITTING A WRITTEN REQUEST 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. 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 $12,000. By Order of the Board of Directors, Howard L. Sloneker III, Secretary March 13, 1998 16 EX-23 5 EXHIBIT 23 1 Exhibit 23 Consent of Independent Accountants We consent to the incorporation by reference in the registration statement of Ohio Casualty Corporation on Form S-3 (File No. 05544) of our report dated January 30, 1998, except as to the information presented in Note 16, for which the date is February 19, 1998, on our audits of the consolidated financial statements and financial statement schedules of Ohio Casualty Corporation and Subsidiaries as of December 31 1997, 1996 and 1995 and for the years then ended, which report is incorporated by reference in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Cincinnati, Ohio March 27, 1998 87 EX-27 6 EXHIBIT 27
7 12-MOS DEC-31-1997 DEC-31-1997 2,291,879,190 2,291,879,190 2,291,879,190 859,474,835 0 22,423,125 3,173,777,150 54,205,850 108,962,306 126,063,105 3,778,781,705 1,483,807,193 495,075,999 0 34,148,430 40,000,000 0 0 5,850,484 1,308,978,681 3,778,781,705 1,208,973,644 177,700,834 50,748,606 0 864,642,003 303,493,633 95,830,257 173,457,191 43,065,298 130,391,893 8,655,340 0 0 139,047,233 4.06 4.06 1,482,900,208 382,999,209 1,065,199,225 310,752,838 386,370,376 1,448,198,434 (31,330,607)
EX-28 7 EXHIBIT 28 1 OHIO CASUALTY GROUP Exhibit 28 SCHEDULE P-PART 1 - SUMMARY
ALLOCATED LOSS EXPENSE PREMIUMS EARNED LOSS PAYMENTS PAYMENTS (1) (2) (3) (4) (5) (6) (7) (8) ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR XXXX XXXX XXXX 31,122,523 7,490,766 4,828,071 274,810 1988 1,375,824,489 36,271,960 1,339,552,529 705,464,895 8,457,053 64,160,378 725,963 1989 1,393,527,230 29,350,534 1,364,176,696 793,898,714 15,327,292 66,860,717 822,169 1990 1,462,962,148 24,961,247 1,438,000,901 852,221,181 10,305,649 75,671,263 790,339 1991 1,495,615,389 26,560,767 1,469,054,622 891,074,182 36,268,521 72,688,163 2,039,592 1992 1,550,273,214 32,683,713 1,517,589,501 903,276,673 23,467,796 71,336,489 1,206,000 1993 1,423,123,140 43,696,082 1,379,427,058 805,047,725 7,902,613 59,808,045 742,220 1994 1,342,790,625 45,133,158 1,297,657,467 758,495,103 7,759,345 48,213,877 27,027 1995 1,305,588,605 41,012,065 1,264,576,540 645,100,926 7,828,413 32,909,842 51,011 1996 1,253,886,669 30,533,833 1,223,867,888 629,576,753 6,872,901 23,691,729 16,917 1997 1,236,434,526 32,169,380 1,204,265,146 393,661,889 3,192,174 7,387,254 0 TOTAL XXXX XXXX XXXX 7,408,940,565 134,872,524 527,555,828 6,696,048
SALVAGE & NUMBER OF UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS PAYMENTS RECEIVED TOTAL NET PAID REPORTED (1) (9) (10) (11) (12) (13) ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 1,024,738 0 1,289,137 29,209,756 XXXX 1988 62,215,667 0 31,763,856 822,657,925 XXXX 1989 64,989,089 0 34,752,270 909,599,059 XXXX 1990 67,223,602 0 34,428,003 984,020,058 XXXX 1991 66,972,643 0 33,919,812 992,426,876 XXXX 1992 72,251,346 0 34,509,115 1,022,190,712 XXXX 1993 65,375,857 0 27,711,529 921,586,794 XXXX 1994 68,091,543 0 27,228,035 867,014,151 XXXX 1995 61,199,812 0 24,878,259 731,331,155 XXXX 1996 65,370,455 0 21,769,290 711,749,118 XXXX 1997 46,675,676 0 11,478,801 444,532,645 XXXX TOTAL 641,390,428 0 283,728,105 8,436,318,250 XXXX
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID CASE BASIS BULK + IBNR CASE BASIS (14) (15) (16) (17) (18) (19) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR 85,055,588 29,344,406 17,351,574 31,335 5,092,265 267,203 1988 13,442,545 1,851,995 4,160,360 11,121 1,333,758 73,876 1989 21,475,029 3,431,571 6,036,448 15,505 1,670,714 108,462 1990 23,420,965 2,460,204 7,888,926 85,126 2,246,541 140,193 1991 24,657,016 478,297 11,822,593 170,035 3,220,015 194,001 1992 34,834,271 772,969 16,083,298 83,741 4,653,802 244,095 1993 45,625,840 1,715,203 17,430,086 228,399 7,058,983 327,796 1994 64,466,641 945,602 20,552,698 259,911 11,069,448 477,693 1995 96,014,806 1,513,179 42,101,008 566,111 19,259,064 756,513 1996 130,041,591 2,301,051 91,889,817 1,159,159 25,581,129 1,018,363 1997 198,549,181 2,033,444 201,562,872 2,699,505 33,197,183 1,310,225 TOTAL 737,583,474 46,847,921 436,879,680 5,309,948 114,382,902 4,918,421
SALVAGE & TOTAL NET NUMBER OF ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING (20) (21) (22) (23) (24) (25) (26) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 15,094,837 11,539 6,810,262 1,084,342 0 98,665,702 XXXX 1988 2,331,828 4,030 713,426 47,871 0 19,993,023 XXXX 1989 3,345,524 5,125 1,149,732 96,179 0 30,020,606 XXXX 1990 3,764,110 8,468 1,580,528 96,402 0 36,110,677 XXXX 1991 6,908,286 17,026 1,880,492 15,497 0 47,613,546 XXXX 1992 7,201,908 29,786 2,851,935 35,005 0 64,459,618 XXXX 1993 10,102,341 59,399 3,538,483 60,928 0 81,364,009 XXXX 1994 12,040,239 105,705 4,915,511 54,901 0 111,200,725 XXXX 1995 16,687,530 191,389 8,012,674 65,099 0 178,982,790 XXXX 1996 20,048,116 247,205 13,310,848 137,732 0 276,007,991 XXXX 1997 24,570,378 326,121 25,951,497 176,291 0 477,285,525 XXXX TOTAL 122,095,096 1,005,792 70,715,387 1,870,246 0 1,421,704,211 XXXX
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE (27) (28) (29) (30) (31) (32) DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET PRIOR XXXX XXXX XXXX XXXX XXXX XXXX 1988 853,822,856 11,171,909 842,650,948 62.1 30.8 62.9 1989 959,425,967 19,806,302 939,619,665 68.8 67.5 68.9 1990 1,034,017,116 13,886,381 1,020,130,735 70.7 55.6 70.9 1991 1,079,223,391 39,182,969 1,040,040,422 72.2 147.5 70.8 1992 1,112,489,722 25,839,392 1,086,650,330 71.8 79.1 71.6 1993 1,013,987,360 11,036,557 1,002,950,803 71.3 25.3 72.7 1994 987,845,061 9,630,185 978,214,876 73.6 21.3 75.4 1995 921,285,661 10,971,716 910,313,945 70.6 26.8 72.0 1996 999,510,438 11,753,328 987,757,109 79.7 38.5 80.7 1997 931,555,930 9,737,760 921,818,170 75.3 30.3 76.5 TOTAL XXXX XXXX XXXX XXXX XXXX XXXX
INTER-COMPANY POOLING NET BALANCE SHEET RESERVES NONTABULAR DISCOUNT PARTICIPATION AFTER DISCOUNT (33) (34) (35) (36) (37) LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID PRIOR 0 0 XXXX 73,031,422 25,634,280 1988 0 0 0.0 15,739,789 4,253,234 1989 0 0 0.0 24,064,401 5,956,204 1990 0 0 0.0 28,764,561 7,346,115 1991 0 0 0.0 35,831,277 11,782,269 1992 0 0 0.0 50,060,859 14,398,759 1993 0 0 0.0 61,112,324 20,251,685 1994 0 0 0.0 83,813,827 27,386,898 1995 0 0 0.0 136,036,523 42,946,266 1996 0 0 0.0 218,471,198 57,536,793 1997 0 0 0.0 395,379,104 81,906,421 TOTAL 0 0 XXXX 1,122,305,285 299,398,926
2 OHIO CASUALTY GROUP SCHEDULE P-PART 1A - HOMEOWNERS
ALLOCATED LOSS EXPENSE PREMIUMS EARNED LOSS PAYMENTS PAYMENTS (1) (2) (3) (4) (5) (6) (7) (8) ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR XXXX XXXX XXXX 186,231 89,392 26,365 0 1988 168,375,661 1,787,037 166,588,624 87,466,758 50,000 4,662,700 17 1989 167,250,533 2,262,236 164,988,297 103,361,168 0 5,833,465 13 1990 172,691,271 2,320,885 170,370,386 114,448,983 378,204 5,779,220 179 1991 180,475,310 3,102,136 177,373,174 145,879,863 19,995,461 6,045,896 287,977 1992 187,626,381 3,099,967 184,526,414 137,614,497 6,593,491 6,932,884 618,218 1993 176,137,420 8,407,961 167,729,459 126,292,252 494,000 6,985,820 4,165 1994 167,093,737 9,016,379 158,077,358 135,128,241 91,905 7,036,000 595 1995 169,545,732 8,427,980 161,117,752 105,994,317 0 4,675,044 0 1996 170,607,856 4,977,843 165,630,013 148,764,684 0 5,754,049 0 1997 172,710,473 6,175,490 166,534,984 80,971,145 0 1,749,811 0 TOTAL XXXX XXXX XXXX 1,186,108,139 27,692,452 55,481,253 911,164 SALVAGE 8 NUMBER OF UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS PAYMENTS RECEIVED TOTAL NET PAID REPORTED (1) (9) (10) (11) (12) (13) ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 6,520 0 4,678 129,723 XXXX 1988 3,565,362 0 1,597,850 95,644,804 64,996 1989 4,061,915 0 1,561,829 113,256,536 65,760 1990 4,576,537 0 1,891,764 124,426,356 65,034 1991 5,502,852 0 1,337,984 137,145,173 66,254 1992 9,449,520 0 1,651,800 146,785,192 67,899 1993 9,056,377 0 1,256,499 141,836,285 67,878 1994 10,811,009 0 1,427,657 152,882,749 72,531 1995 8,249,620 0 866,272 118,918,980 54,930 1996 12,029,791 0 862,824 166,548,523 73,001 1997 8,016,515 0 219,154 90,737,471 45,690 TOTAL 75,326,017 0 12,678,311 1,288,311,793 XXXX
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID CASE BASIS BULK + IBNR CASE BASIS (14) (15) (16) (17) (18) (19) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR 160,117 2,000 0 0 30,894 15 1988 114,462 0 0 0 24,834 8 1989 142,574 0 0 0 38,504 9 1990 129,801 1,165 0 0 41,492 14 1991 221,582 11,632 0 0 68,578 27 1992 1,323,513 1 0 0 200,754 72 1993 1,957,188 5,000 606,398 0 319,708 143 1994 2,293,627 0 144,594 4,426 588,459 286 1995 4,179,650 3 390,627 13,279 1,181,332 573 1996 6,734,399 0 1,013,062 39,838 1,849,969 898 1997 24,284,070 0 9,390,565 385,105 3,145,315 1,526 TOTAL 41,540,983 19,801 11,545,246 442,649 7,489,839 3,570 SALVAGE & TOTAL NET NUMBER OF ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING (20) (21) (22) (23) (24) (25) (26) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 5,212 328 5,199 51 0 199,027 10 1988 2,606 164 3,545 0 0 145,275 5 1989 3,103 195 4,118 0 0 188,094 10 1990 4,964 312 4,172 30 0 178,907 10 1991 9,308 586 7,737 299 0 294,661 22 1992 24,820 1,562 42,399 0 0 1,589,851 38 1993 644,977 3,124 267,955 128 0 3,787,830 65 1994 135,951 6,249 96,861 211 0 3,248,320 118 1995 266,948 12,545 180,492 633 0 6,172,015 219 1996 359,118 19,645 283,506 1,899 0 10,177,774 590 1997 589,994 33,400 1,158,122 18,357 0 38,129,678 5,126 TOTAL 2,047,000 78,110 2,054,104 21,609 0 64,111,433 6,213
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE (27) (28) (29) (30) (31) (32) DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET PRIOR XXXX XXXX XXXX XXXX XXXX XXXX 1988 95,840,268 50,188 95,790,080 56.9 2.8 57.5 1989 113,444,847 217 113,444,630 67.8 0.0 68.8 1990 124,985,168 379,905 124,605,263 72.4 16.4 73.1 1991 157,735,815 20,295,982 137,439,834 87.4 654.3 77.5 1992 155,588,386 7,213,343 148,375,043 82.9 232.7 80.4 1993 146,130,675 506,560 145,624,115 83.0 6.0 86.8 1994 156,234,742 103,672 156,131,070 93.5 1.1 98.8 1995 125,118,029 27,033 125,090,996 73.8 0.3 77.6 1996 176,788,577 62,280 176,726,297 103.6 1.3 106.7 1997 129,305,537 438,388 128,867,148 74.9 7.1 77.4 TOTAL XXXX XXXX XXXX XXXX XXXX XXXX INTER-COMPANY POOLING NET BALANCE SHEET RESERVES NONTABULAR DISCOUNT PARTICIPATION % AFTER DISCOUNT (33) (34) (35) (36) (37) LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID PRIOR 0 0 XXXX 158,117 40,910 1988 0 0 0.0 114,462 30,813 1989 0 0 0.0 142,574 45,520 1990 0 0 0.0 128,636 50,271 1991 0 0 0.0 209,950 84,711 1992 0 0 0.0 1,323,512 266,339 1993 0 0 0.0 2,558,586 1,229,244 1994 0 0 0.0 2,433,795 814,526 1995 0 0 0.0 4,556,994 1,615,021 1996 0 0 0.0 7,707,622 2,470,151 1997 0 0 0.0 33,289,530 4,840,147 TOTAL 0 0 XXXX 52,623,779 11,487,654
3 OHIO CASUALTY GROUP SCHEDULE P-PART 1B - PRIVATE PASSENGER AUTO
ALLOCATED LOSS EXPENSE PREMIUMS EARNED LOSS PAYMENTS PAYMENTS (1) (2) (3) (4) (5) (6) (7) (8) ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR XXXX XXXX XXXX 2,206,835 1,653,638 133,066 19,406 1988 318,131,302 7,787,046 310,344,256 227,849,215 3,498,716 14,142,566 18,506 1989 318,461,609 7,648,858 310,812,750 239,651,557 3,036,953 12,852,802 3,108 1990 333,396,443 6,675,812 326,720,631 255,302,212 2,334,181 13,868,445 0 1991 339,450,775 6,390,994 333,059,781 245,189,405 2,611,787 14,349,638 0 1992 362,947,213 7,108,258 355,838,955 261,027,458 2,891,266 16,335,470 1,874 1993 334,285,756 12,196,407 322,089,349 245,312,510 4,898,819 15,144,842 22,044 1994 320,149,419 12,617,186 307,532,233 225,213,012 4,892,937 12,834,983 33,443 1995 305,098,094 7,698,429 297,399,665 196,333,914 4,074,985 9,455,254 0 1996 290,090,509 7,674,484 282,416,025 149,968,524 3,055,440 5,407,345 0 1997 286,421,257 9,267,645 277,153,612 81,242,268 1,722,961 1,649,646 0 TOTAL XXXX XXXX XXXX 2,129,296,910 34,671,683 116,174,056 98,381 SALVAGE & NUMBER OF UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS PAYMENTS RECEIVED TOTAL NET PAID REPORTED (1) (9) (10) (11) (12) (13) ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 181,986 0 60,074 848,842 XXXX 1988 23,279,631 0 4,923,005 261,754,191 69,365 1989 24,184,765 0 5,793,421 273,649,063 64,144 1990 24,757,634 0 5,745,992 291,594,109 61,389 1991 22,892,987 0 4,857,591 279,820,242 57,898 1992 22,616,275 0 4,816,644 297,086,063 60,080 1993 21,003,958 0 5,270,081 276,540,446 54,981 1994 21,345,732 0 4,335,831 254,467,347 53,263 1995 19,650,618 0 3,515,600 221,364,801 49,181 1996 19,422,658 0 2,262,598 171,743,087 47,845 1997 12,111,332 0 904,430 93,280,286 45,067 TOTAL 211,447,575 0 42,485,266 2,422,148,478 XXXX
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID CASE BASIS BULK + IBNR CASE BASIS (14) (15) (16) (17) (18) (19) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR 15,378,054 12,207,976 295,908 1,970 146,131 10,414 1988 323,297 29,320 355,090 2,363 65,749 4,663 1989 801,829 165,965 591,816 3,939 76,814 5,440 1990 1,058,034 52,096 828,542 5,515 101,006 6,994 1991 2,301,589 107,948 946,906 6,302 178,455 12,434 1992 5,059,268 596,495 1,561,099 10,241 338,467 23,781 1993 9,229,660 123,907 2,197,179 14,574 832,297 59,063 1994 17,280,276 170,247 2,367,264 15,756 2,181,062 155,429 1995 33,731,652 247,163 9,232,330 61,449 4,209,450 299,978 1996 56,314,387 890,160 26,986,811 179,620 5,888,868 419,658 1997 76,305,471 450,137 73,030,099 486,076 7,808,203 556,436 TOTAL 217,783,517 15,041,414 118,393,045 787,806 21,826,504 1,554,291 SALVAGE & TOTAL NET NUMBER OF ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING (20) (21) (22) (23) (24) (25) (26) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 95,351 612 1,054,691 593,626 0 4,155,538 144,000 1988 42,767 274 48,301 1,560 0 797,024 19,000 1989 49,918 319 98,697 8,329 0 1,435,082 26,000 1990 64,692 411 131,482 2,957 0 2,115,785 52,000 1991 114,756 730 226,176 5,720 0 3,634,746 79,000 1992 218,826 1,396 456,560 29,772 0 6,972,535 165,000 1993 541,590 3,468 784,836 7,048 0 13,377,502 392,000 1994 1,423,142 9,127 1,337,900 9,400 0 24,229,686 821,000 1995 2,746,664 17,615 2,959,423 16,423 0 52,236,891 1,696,000 1996 3,842,484 24,643 5,813,734 56,243 0 97,275,961 3,627,000 1997 5,094,849 32,674 10,624,185 57,050 0 171,280,434 13,589,000 TOTAL 14,235,039 91,268 23,535,985 788,128 0 377,511,183 20,610,000
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE (27) (28) (29) (30) (31) (32) DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET PRIOR XXXX XXXX XXXX XXXX XXXX XXXX 1988 266,106,615 3,555,401 262,551,214 83.6 45.7 84.6 1989 278,308,198 3,224,053 275,084,145 87.4 42.2 88.5 1990 296,112,048 2,402,154 293,709,894 88.8 36.0 89.9 1991 286,199,910 2,744,922 283,454,988 84.3 42.9 85.1 1992 307,613,423 3,554,826 304,058,598 84.8 50.0 85.4 1993 295,046,872 5,128,924 289,917,948 88.3 42.1 90.0 1994 283,983,372 5,286,338 278,697,033 88.7 41.9 90.6 1995 278,319,306 4,717,613 273,601,693 91.2 61.3 92.0 1996 273,644,812 4,625,764 269,019,048 94.3 60.3 95.3 1997 267,866,054 3,305,334 264,560,720 93.5 35.7 95.5 TOTAL XXXX XXXX XXXX XXXX XXXX XXXX INTER-COMPANY POOLING NET BALANCE SHEET RESERVES NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT (33) (34) (35) (36) (37) LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID PRIOR 0 0 XXXX 3,464,017 691,521 1988 0 0 0.0 646,703 150,320 1989 0 0 0.0 1,223,741 211,341 1990 0 0 0.0 1,828,966 286,819 1991 0 0 0.0 3,134,244 500,502 1992 0 0 0.0 6,013,631 958,904 1993 0 0 0.0 11,288,357 2,089,144 1994 0 0 0.0 19,461,537 4,768,149 1995 0 0 0.0 42,655,370 9,581,521 1996 0 0 0.0 82,231,419 15,044,543 1997 0 0 0.0 148,399,357 22,881,077 TOTAL 0 0 XXXX 320,347,342 57,163,841
4 OHIO CASUALTY GROUP SCHEDULE P-PART 1C - COMMERCIAL AUTO
ALLOCATED LOSS EXPENSE PREMIUMS EARNED LOSS PAYMENTS PAYMENTS (1) (2) (3) (4) (5) (6) (7) (8) ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR XXXX XXXX XXXX 964,108 161,990 95,138 10,453 1988 111,554,866 2,979,933 108,574,933 62,193,799 1,313,307 6,048,627 28,060 1989 115,498,723 3,154,328 112,344,396 65,389,176 1,194,192 5,585,223 16,253 1990 123,518,477 3,020,941 120,497,536 76,761,136 881,609 6,407,371 15,302 1991 130,823,468 3,059,789 127,763,679 80,100,299 706,087 6,515,896 8,280 1992 135,772,129 3,261,305 132,510,824 77,672,317 1,933,969 6,884,043 17,459 1993 129,920,600 4,227,838 125,692,762 72,554,844 1,023,625 6,732,684 251,005 1994 124,061,161 4,326,619 119,734,542 76,367,258 1,322,529 5,820,063 10,590 1995 118,167,750 3,897,033 114,270,717 54,988,886 1,688,556 3,491,016 18,879 1996 111,494,112 3,041,823 108,452,289 39,001,708 1,592,222 1,860,712 16,847 1997 108,150,971 2,584,990 105,565,981 21,327,334 728,855 559,842 0 TOTAL XXXX XXXX XXXX 627,320,861 12,546,941 50,000,616 393,128 NUMBER OF UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS PAYMENTS RECEIVED TOTAL NET PAID REPORTED (1) (9) (10) (11) (12) (13) ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 62,879 0 4,097 949,678 XXXX 1988 6,027,433 0 400,096 72,928,493 12,872 1989 6,032,368 0 755,732 75,796,322 13,362 1990 6,202,776 0 762,646 88,474,371 13,344 1991 6,184,103 0 703,099 92,085,931 13,261 1992 5,502,743 0 1,111,788 88,107,675 13,834 1993 5,262,136 0 683,331 83,275,034 13,769 1994 5,725,211 0 685,966 86,579,412 13,921 1995 5,101,137 0 583,780 61,873,604 12,321 1996 4,489,733 0 397,055 43,743,084 12,350 1997 2,844,076 0 266,158 24,002,396 10,904 TOTAL 53,434,594 0 6,353,747 717,816,002 XXXX
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID CASE BASIS BULK + IBNR CASE BASIS (14) (15) (16) (17) (18) (19) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR 1,368,142 1,118,393 897,750 675 42,036 1,572 1988 296,250 0 171,537 506 31,518 1,209 1989 497,835 71,320 297,787 506 47,277 1,814 1990 1,525,900 582,511 123,863 506 83,631 3,224 1991 1,014,505 0 415,863 676 114,837 4,433 1992 2,523,512 0 457,882 1,015 243,096 9,269 1993 5,489,231 74,001 363,895 1,013 456,224 17,732 1994 13,425,549 82,000 294,955 1,857 926,793 36,270 1995 16,186,072 173,774 4,833,193 30,386 1,983,338 77,617 1996 19,144,398 809,250 15,016,837 94,534 2,883,357 112,839 1997 23,095,993 336,722 32,709,658 205,950 3,501,219 137,019 TOTAL 84,567,387 3,247,971 55,583,222 337,627 10,313,327 402,998 SALVAGE & TOTAL NET NUMBER OF ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING (20) (21) (22) (23) (24) (25) (26) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 778,784 183 349,692 53,226 0 2,262,354 22 1988 101,174 141 53,327 36 0 651,914 3 1989 230,986 211 107,154 3,433 0 1,103,755 10 1990 78,844 376 113,835 27,721 0 1,311,734 14 1991 275,991 517 129,043 47 0 1,944,565 25 1992 175,597 1,081 163,923 71 0 3,552,573 51 1993 395,585 2,068 389,798 3,592 0 6,996,326 96 1994 573,496 4,230 846,575 4,022 0 15,938,991 252 1995 1,234,374 9,052 1,317,548 10,398 0 25,253,298 425 1996 1,787,009 13,160 2,166,510 45,127 0 39,923,200 818 1997 2,167,263 15,980 3,569,132 30,481 0 64,317,113 2,917 TOTAL 7,799,103 47,000 9,206,535 178,154 0 163,255,824 4,633
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE (27) (28) (29) (30) (31) (32) DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET PRIOR XXXX XXXX XXXX XXXX XXXX XXXX 1988 74,923,665 1,343,259 73,580,407 67.2 45.1 67.8 1989 78,187,806 1,287,729 76,900,077 67.7 40.8 68.5 1990 91,297,356 1,511,250 89,786,106 73.9 50.0 74.5 1991 94,750,537 720,041 94,030,497 72.4 23.5 73.6 1992 93,623,113 1,962,864 91,660,249 69.0 60.2 69.2 1993 91,644,396 1,373,036 90,271,360 70.5 32.5 71.8 1994 103,979,900 1,461,497 102,518,403 83.8 33.8 85.6 1995 89,135,565 2,008,663 87,126,902 75.4 51.5 76.2 1996 86,350,265 2,683,980 83,666,284 77.4 88.2 77.1 1997 89,774,516 1,455,007 88,319,509 83.0 56.3 83.7 TOTAL XXXX XXXX XXXX XXXX XXXX XXXX INTER-COMPANY POOLING NET BALANCE SHEET RESERVES NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT (33) (34) (35) (36) (37) LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID PRIOR 0 0 XXXX 1,146,824 1,115,530 1988 0 0 0.0 467,280 184,634 1989 0 0 0.0 723,796 379,960 1990 0 0 0.0 1,066,746 244,989 1991 0 0 0.0 1,429,692 514,873 1992 0 0 0.0 2,980,379 572,194 1993 0 0 0.0 5,778,112 1,218,214 1994 0 0 0.0 13,636,647 2,302,343 1995 0 0 0.0 20,815,105 4,438,192 1996 0 0 0.0 33,257,451 6,665,749 1997 0 0 0.0 55,262,979 9,054,134 TOTAL 0 0 XXXX 136,565,011 26,690,813
5 OHIO CASUALTY GROUP SCHEDULE P-PART 1D - WORKERS COMPENSATION
ALLOCATED LOSS EXPENSE PREMIUMS EARNED LOSS PAYMENTS PAYMENTS (1) (2) (3) (4) (5) (6) (7) (8) ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR XXXX 0 0 6,459,377 859,275 496,502 2,484 1988 179,207,624 3,811,020 175,396,604 109,079,952 543,565 9,233,122 0 1989 201,801,876 4,147,639 197,654,237 131,777,799 1,478,138 11,539,838 86,120 1990 220,036,820 3,333,416 216,703,404 150,055,753 613,935 13,428,570 45 1991 219,109,861 3,143,510 215,966,351 137,941,800 94,787 12,484,995 647 1992 213,577,106 2,909,054 210,668,052 117,912,378 19,280 8,986,981 1,771 1993 185,737,510 2,443,331 183,294,179 87,404,497 0 5,923,739 0 1994 153,211,860 1,955,046 151,256,814 58,725,413 1,500 3,867,013 1,696 1995 143,658,352 1,654,337 142,004,015 47,762,300 0 2,846,731 0 1996 124,749,682 592,288 124,157,394 32,675,567 228,201 1,850,182 0 1997 103,906,558 422,962 103,483,596 14,328,948 0 552,949 0 TOTAL XXXX XXXX XXXX 894,123,784 3,838,681 71,210,624 92,763 SALVAGE & NUMBER OF UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS PAYMENTS RECEIVED TOTAL NET PAID REPORTED (9) (10) (11) (12) (13) DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 257,370 0 256,171 6,351,490 XXXX 1988 4,101,456 0 3,152,252 121,870,965 31,194 1989 5,098,397 0 3,255,082 146,851,776 33,409 1990 5,627,298 0 4,594,005 168,497,641 32,853 1991 5,748,549 0 3,483,732 156,079,911 28,094 1992 6,582,748 0 3,037,460 133,461,056 24,644 1993 4,986,282 0 1,376,913 98,314,518 17,625 1994 3,930,527 0 906,106 66,519,758 13,939 1995 4,201,355 0 536,728 54,810,386 11,795 1996 3,288,229 0 293,527 37,585,778 10,763 1997 2,409,588 0 37,124 17,291,486 9,093 TOTAL 46,231,802 0 20,929,101 1,007,634,765 XXXX
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID CASE BASIS BULK + IBNR CASE BASIS (14) (15) (16) (17) (18) (19) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR 55,772,075 15,085,607 6,283,440 9,567 1,501,117 198,500 1988 10,859,242 1,747,675 2,150,639 3,878 432,123 (55,357) 1989 16,883,989 3,194,276 3,366,947 6,462 650,324 86,391 1990 14,831,478 1,263,364 4,011,343 7,755 855,277 111,644 1991 15,349,279 135,897 6,154,025 12,924 1,220,851 148,860 1992 16,377,029 139,734 9,514,780 22,743 1,524,359 167,471 1993 16,230,317 1,073,657 10,227,768 25,843 1,836,734 188,739 1994 16,434,635 0 11,986,286 31,011 1,961,889 190,071 1995 20,901,407 872,435 12,985,144 33,595 2,140,243 207,350 1996 18,076,765 25,860 18,978,287 49,101 2,853,657 276,466 1997 19,322,749 0 21,475,430 55,561 3,745,425 362,862 TOTAL 221,038,966 23,538,505 107,134,090 258,439 18,722,000 1,993,711 SALVAGE & TOTAL NET NUMBER OF ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING (20) (21) (22) (23) (24) (25) (26) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 1,177,769 1,525 1,382,150 397,073 0 50,424,279 763 1988 323,634 450 288,327 46,114 0 12,200,492 124 1989 513,655 658 462,583 84,231 0 18,505,480 200 1990 658,499 878 392,647 33,477 0 19,332,127 223 1991 849,284 1,317 458,333 4,038 0 23,728,736 236 1992 901,605 1,756 556,921 4,429 0 28,538,563 267 1993 973,706 2,194 587,782 29,109 0 28,536,765 293 1994 940,525 2,414 658,549 1,064 0 31,757,325 302 1995 1,026,027 2,633 829,416 24,117 0 36,742,106 430 1996 1,368,036 3,511 1,040,283 2,383 0 41,959,707 813 1997 1,795,547 4,608 3,721,988 1,899 0 49,636,209 3,289 TOTAL 10,528,288 21,944 10,378,978 627,934 0 341,361,789 6,940
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE (27) (28) (29) (30) (31) (32) DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET PRIOR XXXX XXXX XXXX XXXX XXXX XXXX 1988 136,468,495 2,397,038 134,071,456 76.2 62.9 76.4 1989 170,293,533 4,936,277 165,357,256 84.4 119.0 83.7 1990 189,860,867 2,031,099 187,829,768 86.3 60.9 86.7 1991 180,207,117 398,470 179,808,647 82.2 12.7 83.3 1992 162,356,802 357,183 161,999,619 76.0 12.3 76.9 1993 128,170,826 1,319,542 126,851,283 69.0 54.0 69.2 1994 98,504,838 227,755 98,277,083 64.3 11.6 65.0 1995 92,692,622 1,140,130 91,552,492 64.5 68.9 64.5 1996 80,131,006 585,521 79,545,485 64.2 98.9 64.1 1997 67,352,624 424,930 66,927,694 64.8 100.5 64.7 TOTAL XXXX XXXX XXXX XXXX XXXX XXXX INTER-COMPANY POOLING NET BALANCE SHEET RESERVES NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT (33) (34) (35) (36) (37) LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID PRIOR 0 0 XXXX 46,960,341 3,463,938 1988 0 0 0.0 11,258,328 942,163 1989 0 0 0.0 17,050,198 1,455,282 1990 0 0 0.0 17,571,703 1,760,424 1991 0 0 0.0 21,354,484 2,374,252 1992 0 0 0.0 25,729,333 2,809,230 1993 0 0 0.0 25,358,585 3,178,180 1994 0 0 0.0 28,389,911 3,367,414 1995 0 0 0.0 32,980,521 3,761,586 1996 0 0 0.0 36,980,091 4,979,616 1997 0 0 0.0 40,742,617 8,893,591 TOTAL 0 0 XXXX 304,376,112 36,985,677
6 OHIO CASUALTY GROUP SCHEDULE P-PART 1E - COMMERCIAL MULTI-PERIL
ALLOCATED LOSS EXPENSE PREMIUMS EARNED LOSS PAYMENTS PAYMENTS (1) (2) (3) (4) (5) (6) (7) (8) ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR XXXX XXXX XXXX 18,812,831 5,000,000 1,329,329 196,166 1988 100,340,132 2,434,770 97,905,362 30,089,989 25,447 5,821,234 180 1989 98,708,427 2,400,642 96,307,785 41,022,492 647,866 6,851,714 58,206 1990 109,609,476 2,062,177 107,547,299 49,369,930 1,783,294 9,168,682 18,100 1991 125,345,866 2,460,164 122,885,702 64,158,314 4,939,604 9,822,773 107,587 1992 147,343,234 4,565,315 142,777,919 93,553,143 8,323,911 11,101,651 56,139 1993 146,366,198 5,672,668 140,693,530 78,042,340 135,217 9,759,834 89,650 1994 143,239,939 6,537,857 136,702,082 77,086,819 242,715 7,742,048 138,532 1995 139,601,917 6,742,565 132,859,352 63,513,395 189,151 5,269,689 0 1996 136,835,193 4,550,420 132,284,773 68,774,107 181,349 3,699,487 0 1997 142,019,235 4,984,286 137,034,949 40,991,633 114,940 981,663 0 TOTAL XXXX XXXX XXXX 625,414,993 21,583,494 71,548,103 664,560 SALVAGE & NUMBER OF UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS PAYMENTS RECEIVED TOTAL NET PAID REPORTED (1) (9) (10) (11) (12) (13) ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 21,669 0 2,698 14,967,663 XXXX 1988 3,477,064 0 1,301,587 39,362,661 10,872 1989 2,556,821 0 1,791,476 49,724,955 12,532 1990 3,319,262 0 1,645,090 60,056,480 13,469 1991 4,235,059 0 4,956,553 73,168,955 15,813 1992 5,284,688 0 2,384,972 101,559,432 19,208 1993 5,004,790 0 1,437,904 92,582,096 19,562 1994 5,204,195 0 1,920,751 89,651,814 19,623 1995 4,907,265 0 1,471,987 73,501,198 17,003 1996 4,798,173 0 953,409 77,090,418 17,753 1997 2,885,276 0 399,607 44,743,633 13,766 TOTAL 41,694,263 0 18,266,035 716,409,304 XXXX
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID CASE BASIS BULK + IBNR CASE BASIS (14) (15) (16) (17) (18) (19) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR 3,982,637 118,310 3,647,071 10,082 629,588 1,471 1988 118,600 0 83,344 2,161 194,278 551 1989 296,550 5 9,731 2,161 202,438 551 1990 1,165,026 0 89,151 3,601 404,875 1,103 1991 1,575,998 5,000 1,048,848 5,761 645,012 2,757 1992 2,818,475 5,750 323,773 8,642 911,830 4,596 1993 6,030,677 0 1,305,702 28,807 1,845,695 11,029 1994 6,096,380 30,000 1,447,476 43,211 2,935,003 20,221 1995 8,520,951 3 4,787,647 144,036 5,336,368 36,765 1996 13,291,175 301,270 12,098,272 360,089 6,670,460 45,956 1997 24,575,838 898,063 27,587,289 831,806 8,538,189 58,824 TOTAL 68,472,307 1,358,401 52,428,304 1,440,356 28,313,736 183,824 SALVAGE & TOTAL NET NUMBER OF ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING (20) (21) (22) (23) (24) (25) (26) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 5,143,765 3,867 1,193,187 1,926 0 14,460,592 228 1988 203,502 1,450 43,840 84 0 639,319 15 1989 134,134 1,450 28,116 84 0 666,718 23 1990 371,356 2,901 111,131 140 0 2,133,794 33 1991 1,694,867 7,251 90,224 289 0 5,033,889 39 1992 824,522 12,086 150,350 410 0 4,997,467 66 1993 1,970,964 29,006 297,732 1,120 0 11,380,808 136 1994 2,394,657 53,177 288,592 2,069 0 13,013,429 245 1995 4,340,155 96,686 447,148 5,598 0 23,149,181 415 1996 5,569,367 120,857 819,710 17,902 0 37,602,910 728 1997 6,942,027 154,697 1,512,960 43,973 0 67,168,942 2,937 TOTAL 29,589,315 483,428 4,982,990 73,594 0 180,247,049 4,865
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE (27) (28) (29) (30) (31) (32) DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET PRIOR XXXX XXXX XXXX XXXX XXXX XXXX 1988 40,031,852 29,873 40,001,979 39.9 1.2 40.9 1989 51,101,996 710,323 50,391,672 51.8 29.6 52.3 1990 63,999,412 1,809,138 62,190,275 58.4 87.7 57.8 1991 83,271,094 5,068,250 78,202,844 66.4 206.0 63.6 1992 114,968,432 8,411,534 106,556,898 78.0 184.2 74.6 1993 104,257,732 294,829 103,962,903 71.2 5.2 73.9 1994 103,195,168 529,925 102,665,243 72.0 8.1 75.1 1995 97,122,619 472,239 96,650,380 69.6 7.0 72.7 1996 115,720,751 1,027,423 114,693,328 84.6 22.6 86.7 1997 114,014,877 2,102,302 111,912,575 80.3 42.2 81.7 TOTAL XXXX XXXX XXXX XXXX XXXX XXXX INTER-COMPANY POOLING NET BALANCE SHEET RESERVES NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT (33) (34) (35) (36) (37) LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID PRIOR 0 0 XXXX 7,501,315 6,959,276 1988 0 0 0.0 199,784 439,535 1989 0 0 0.0 304,116 362,602 1990 0 0 0.0 1,250,576 883,218 1991 0 0 0.0 2,614,084 2,419,805 1992 0 0 0.0 3,127,856 1,869,611 1993 0 0 0.0 7,307,572 4,073,236 1994 0 0 0.0 7,470,645 5,542,784 1995 0 0 0.0 13,164,559 9,984,622 1996 0 0 0.0 24,728,088 12,874,822 1997 0 0 0.0 50,433,259 16,735,684 TOTAL 0 0 XXXX 118,101,854 62,145,195
7 OHIO CASUALTY GROUP SCHEDULE P-PART 1G - BOILER & MACHINERY
ALLOCATED LOSS EXPENSE PREMIUMS EARNED LOSS PAYMENTS PAYMENTS (1) (2) (3) (4) (5) (6) (7) (8) ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR XXXX XXXX 0 0 0 0 1988 0 0 0 0 0 0 1989 0 0 0 0 0 0 0 1990 143,036 57,628 85,408 94,811 62,034 669 0 1991 271,065 213,756 57,309 82,738 70,799 12,530 0 1992 225,513 183,902 41,611 326,539 260,881 0 0 1993 36,594 43,445 (6,851) 0 0 0 0 1994 18,241 16,879 1,362 9,366 2,238 209 0 1995 32,924 30,389 2,535 0 0 0 0 1996 49,025 48,882 143 5,068 5,068 0 0 1997 59,177 59,177 0 0 0 0 0 TOTAL XXXX XXXX XXXX 518,522 401,019 13,409 0 SALVAGE & NUMBER OF UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS PAYMENTS RECEIVED TOTAL NET PAID REPORTED (1) (9) (10) (11) (12) (13) ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 0 0 0 0 XXXX 1988 0 0 0 0 XXXX 1989 0 0 0 0 XXXX 1990 0 0 0 33,447 XXXX 1991 0 0 0 24,470 XXXX 1992 0 0 0 65,659 XXXX 1993 0 0 0 0 XXXX 1994 0 0 0 7,338 XXXX 1995 0 0 0 0 XXXX 1996 0 0 0 0 XXXX 1997 0 0 0 0 XXXX TOTAL 0 0 0 130,912 XXXX
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID CASE BASIS BULK + IBNR CASE BASIS (14) (15) (16) (17) (18) (19) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR 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 689 459 0 0 0 0 1992 0 0 0 0 0 0 1993 0 0 0 0 0 0 1994 0 0 0 0 0 0 1995 0 0 0 0 0 0 1996 0 0 0 0 0 0 1997 0 0 0 0 0 0 TOTAL 689 459 0 0 0 0 SALVAGE & TOTAL NET NUMBER OF ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING (20) (21) (22) (23) (24) (25) (26) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 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 0 230 1 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 1997 0 0 0 0 0 0 0 TOTAL 0 0 0 0 0 230 1
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE (27) (28) (29) (30) (31) (32) DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET PRIOR XXXX XXXX XXXX XXXX XXXX XXXX 1988 0 0 0 0.0 0.0 0.0 1989 0 0 0 0.0 0.0 0.0 1990 95,480 62,034 33,447 66.8 107.6 39.2 1991 95,957 71,258 24,700 35.4 33.3 43.1 1992 326,539 260,881 65,659 144.8 141.9 157.8 1993 0 0 0 0.0 0.0 0.0 1994 9,576 2,238 7,338 52.5 13.3 538.7 1995 0 0 0 0.0 0.0 0.0 1996 5,068 5,068 0 10.3 10.4 0.0 1997 0 0 0 0.0 0.0 0.0 TOTAL XXXX XXXX XXXX XXXX XXXX XXXX INTER-COMPANY POOLING NET BALANCE SHEET RESERVES NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT (33) (34) (35) (36) (37) LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID PRIOR 0 0 XXXX 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 0.0 230 0 1992 0 0 0.0 0 0 1993 0 0 0.0 0 0 1994 0 0 0.0 0 0 1995 0 0 0.0 0 0 1996 0 0 0.0 0 0 1997 0 0 0.0 0 0 TOTAL 0.00 0.00 XXXX 230 0
8 OHIO CASUALTY GROUP SCHEDULE P-PART 1H(1) - GENERAL LIABILITY (OCCURENCE)
ALLOCATED LOSS EXPENSE PREMIUMS EARNED LOSS PAYMENTS PAYMENTS (1) (2) (3) (4) (5) (6) (7) (8) ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR XXXX XXXX XXXX 1,283,970 (61,000) 665,295 (46,829) 1988 140,322,272 2,728,277 137,593,995 39,636,113 1,007,842 14,357,372 20,489 1989 138,825,255 2,811,203 136,014,052 46,392,896 3,244,810 14,754,092 87,049 1990 140,819,473 2,495,606 138,323,867 48,852,045 2,866,669 17,719,367 692,428 1991 128,769,170 2,252,476 126,516,694 45,095,728 1,679,873 13,785,474 74,211 1992 120,598,579 2,154,696 118,443,883 39,504,950 2,251,930 12,655,788 3,072 1993 111,023,544 1,962,492 109,061,052 31,589,468 615,683 9,217,142 29,690 1994 112,505,526 1,992,713 110,512,813 26,068,341 1,384,782 6,147,310 11,292 1995 111,545,266 1,892,511 109,652,755 14,974,193 0 3,075,130 0 1996 104,751,105 1,051,089 104,217,068 12,374,721 500,000 1,621,678 0 1997 98,938,574 726,289 98,212,286 4,774,806 0 336,485 0 TOTAL XXXX XXXX XXXX 310,547,229 13,490,588 94,335,134 871,403 SALVAGE & NUMBER OF UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS PAYMENTS RECEIVED TOTAL NET PAID REPORTED (1) (9) (10) (11) (12) (13) ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 128,954 0 522,000 2,186,048 XXXX 1988 7,036,044 0 935,549 60,001,198 6,910 1989 7,737,951 0 1,206,502 65,553,080 7,454 1990 8,445,349 0 717,761 71,457,664 7,941 1991 7,998,664 0 648,027 65,125,782 7,387 1992 5,608,404 0 1,123,282 55,514,140 7,030 1993 4,355,663 0 577,604 44,516,900 6,655 1994 4,786,356 0 440,540 35,605,933 6,507 1995 2,600,799 0 326,342 20,650,121 5,527 1996 3,971,790 0 287,584 17,468,188 5,219 1997 1,527,294 0 172,572 6,638,585 3,960 TOTAL 54,197,268 0 6,957,763 444,717,641 XXXX
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID CASE BASIS BULK + IBNR CASE BASIS (14) (15) (16) (17) (18) (19) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR 4,439,110 250,010 6,079,130 843 1,554,020 51,888 1988 881,500 0 1,338,420 667 337,232 10,938 1989 832,860 5 1,704,492 889 395,364 12,392 1990 3,563,259 500,000 2,650,149 1,111 482,563 14,573 1991 3,793,859 77,741 2,969,107 1,200 749,564 20,499 1992 6,118,095 1 3,996,518 2,668 1,137,113 30,191 1993 6,172,365 300,665 2,384,040 6,231 1,452,558 37,328 1994 8,317,089 544,367 3,948,459 28,935 2,131,517 53,306 1995 10,413,688 3 9,247,500 68,464 3,875,485 96,920 1996 13,081,390 0 16,518,789 122,415 4,627,329 115,722 1997 6,335,331 0 28,484,214 211,712 5,038,130 125,996 TOTAL 63,948,546 1,672,792 79,320,818 445,135 21,780,875 569,753
9 OHIO CASUALTY GROUP SCHEDULE P-PART 1H2 - GENERAL LIABILITY (CLAIMS MADE)
ALLOCATED LOSS EXPENSE PREMIUMS EARNED LOSS PAYMENTS PAYMENTS (1) (2) (3) (4) (5) (6) (7) (8) ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR XXXX XXXX XXXX 0 0 0 0 1988 0 0 0 0 0 0 0 1989 0 0 0 0 0 0 0 1990 15,331 198 15,133 0 0 0 0 1991 49,676 606 49,070 0 0 0 0 1992 108,651 1,326 107,325 0 0 0 0 1993 137,578 1,728 135,850 60,000 0 23,077 0 1994 158,192 2,025 156,167 20,192 0 256,325 0 1995 395,268 108,203 287,065 255,868 0 176,361 0 1996 807,258 290,207 515,052 46,476 0 22,304 0 1997 1,010,179 369,462 640,717 13,736 0 1,735 0 TOTAL XXXX XXXX XXXX 396,272 0 479,802 0 SALVAGE & NUMBER OF UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS PAYMENTS RECEIVED TOTAL NET PAID REPORTED (1) (9) (10) (11) (12) (13) ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 0 0 0 0 XXXX 1988 0 0 0 0 0 1989 0 0 0 0 0 1990 0 0 0 0 0 1991 0 0 0 0 0 1992 0 0 0 0 0 1993 25,830 0 0 108,907 0 1994 29,324 0 0 305,841 0 1995 50,137 0 0 482,366 32 1996 840 0 250 69,620 43 1997 1,849 0 1,183 17,319 23 TOTAL 107,979 0 1,433 984,053 XXXX
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID CASE BASIS BULK + IBNR CASE BASIS (14) (15) (16) (17) (18) (19) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR 0 0 153 1 54 0 1988 0 0 121 1 17 0 1989 0 0 161 1 28 0 1990 0 0 201 1 43 0 1991 0 0 217 1 103 0 1992 0 0 482 3 172 0 1993 0 0 1,126 7 241 0 1994 0 0 5,227 32 378 0 1995 0 0 12,367 76 688 0 1996 10,000 0 22,113 136 821 0 1997 100 0 38,243 234 894 0 TOTAL 10,100 0 80,411 493 3,440 0 SALVAGE & TOTAL NET NUMBER OF ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING (20) (21) (22) (23) (24) (25) (26) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 555 1 17 0 0 777 0 1988 182 0 13 0 0 332 0 1989 274 0 18 0 0 479 0 1990 435 1 22 0 0 699 0 1991 884 1 24 0 0 1,226 0 1992 1,624 2 53 0 0 2,326 0 1993 2,512 3 123 0 0 3,991 0 1994 3,827 4 570 (1) 0 9,967 0 1995 6,843 8 1,348 (3) 0 21,165 0 1996 8,182 10 4,457 (5) 0 45,434 1 1997 8,946 10 4,189 (9) 0 52,137 1 TOTAL 34,264 40 10,832 (18) 0 138,532 2
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE (27) (28) (29) (30) (31) (32) DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET PRIOR XXXX XXXX XXXX XXXX XXXX XXXX 1988 333 1 332 0 0 0 1989 480 1 479 0 0 0 1990 701 2 699 5 1 5 1991 1,228 2 1,226 2 0 2 1992 2,331 5 2,326 2 0 2 1993 112,908 10 112,898 82 1 83 1994 315,843 35 315,808 200 2 202 1995 503,612 81 503,531 127 0 175 1996 115,194 140 115,053 14 0 22 1997 69,692 236 69,456 7 0 11 TOTAL XXXX XXXX XXXX XXXX XXXX XXXX INTER-COMPANY POOLING NET BALANCE SHEET RESERVES NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT (33) (34) (35) (36) (37) LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID PRIOR 0 0 XXXX 152 625 1988 0 0 0.0 120 212 1989 0 0 0.0 160 319 1990 0 0 0.0 200 500 1991 0 0 0.0 216 1,010 1992 0 0 0.0 480 1,847 1993 0 0 0.0 1,119 2,872 1994 0 0 0.0 5,195 4,772 1995 0 0 0.0 12,291 8,873 1996 0 0 0.0 31,977 13,456 1997 0 0 0.0 38,109 14,028 TOTAL 0 0 XXXX 90,018 48,514
10 OHIO CASUALTY GROUP SCHEDULE P-PART 1I - SPECIAL PROPERTY
ALLOCATED LOSS EXPENSE PREMIUMS EARNED LOSS PAYMENTS PAYMENTS (1) (2) (3) (4) (5) (6) (7) (8) ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR XXXX XXXX XXXX (107,450) 0 163,409 0 1996 66,985,134 3,519,797 63,465,337 42,310,868 57,722 1,338,626 0 1997 67,467,867 3,977,870 63,489,997 25,319,777 0 476,636 0 TOTAL XXXX XXXX XXXX 67,523,195 57,722 1,978,672 0 SALVAGE & NUMBER OF UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS PAYMENTS RECEIVED TOTAL NET PAID REPORTED (1) (9) (10) (11) (12) (13) ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED PRIOR (4,537) 0 757,192 51,422 XXXX 1996 2,788,745 0 433,950 46,380,517 XXXX 1997 2,362,951 0 213,123 28,159,365 XXXX TOTAL 5,147,159 0 1,404,266 74,591,304 XXXX
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID CASE BASIS BULK + IBNR CASE BASIS (14) (15) (16) (17) (18) (19) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR 822,697 6,196 335,838 19,633 67,039 68 1996 951,563 2,278 190,611 11,143 28,256 34 1997 5,816,079 0 1,288,891 75,347 56,512 68 TOTAL 7,590,339 8,474 1,815,340 106,122 151,807 169 SALVAGE & TOTAL NET NUMBER OF ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING (20) (21) (22) (23) (24) (25) (26) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 32,006 953 19,910 0 0 1,250,641 69 1996 16,733 498 64,006 0 0 1,237,216 101 1997 32,412 965 391,260 0 0 7,508,774 1,043 TOTAL 81,151 2,416 475,176 0 0 9,996,632 1,213
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE (27) (28) (29) (30) (31) (32) DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET PRIOR XXXX XXXX XXXX XXXX XXXX XXXX 1996 47,689,409 71,675 47,617,734 71.2 2.0 75.0 1997 35,744,518 76,379 35,668,139 53.0 1.9 56.2 TOTAL XXXX XXXX XXXX XXXX XXXX XXXX INTER-COMPANY POOLING NET BALANCE SHEET RESERVES NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT (33) (34) (35) (36) (37) LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID PRIOR 0 0 XXXX 1,132,706 117,935 1996 0 0 0.0 1,128,753 108,463 1997 0 0 0.0 7,029,624 479,151 TOTAL 0 0 XXXX 9,291,083 705,549
11 OHIO CASUALTY GROUP SCHEDULE P-PART 1J - AUTO PHYSICAL DAMAGE
ALLOCATED LOSS EXPENSE PREMIUMS EARNED LOSS PAYMENTS PAYMENTS (1) (2) (3) (4) (5) (6) (7) (8) ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR XXXX XXXX XXXX (1,848,317) (18,519) 304,142 0 1996 209,636,877 938,825 208,698,052 132,662,761 1,000,187 1,744,007 0 1997 217,918,241 569,662 217,348,579 123,441,854 502,806 1,001,758 0 TOTAL XXXX XXXX XXXX 254,256,298 1,484,473 3,049,907 0 SALVAGE & NUMBER OF UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS PAYMENTS RECEIVED TOTAL NET PAID REPORTED (1) (9) (10) (11) (12) (13) ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED PRIOR (103,427) 0 2,345,508 (1,629,083) XXXX 1996 13,108,482 0 16,085,239 146,515,063 XXXX 1997 13,609,123 0 9,217,315 137,549,929 XXXX TOTAL 26,614,178 0 27,648,061 282,435,909 XXXX
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID CASE BASIS BULK + IBNR CASE BASIS (14) (15) (16) (17) (18) (19) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR 312,427 0 0 0 475,453 1,621 1996 659,666 3,000 225,415 598 321,630 1,097 1997 16,594,092 67,910 4,282,893 11,361 601,307 2,050 TOTAL 17,566,185 70,910 4,508,308 11,959 1,398,390 4,768 SALVAGE & TOTAL NET NUMBER OF ALLOCATED LOSS EXPENSES UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING (20) (21) (22) (23) (24) (25) (26) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 201,199 516 26,637 0 0 1,014,779 176 1996 143,460 366 56,585 0 0 1,401,696 564 1997 266,173 679 1,421,710 0 0 23,084,175 9,988 TOTAL 612,032 1,561 1,504,933 0 0 25,500,650 10,728
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE (27) (28) (29) (30) (31) (32) DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET PRIOR XXXX XXXX XXXX XXXX XXXX XXXX 1996 148,922,007 1,005,247 147,916,760 71.0 107.1 70.9 1997 161,218,910 584,806 160,634,104 74.0 102.7 73.9 TOTAL XXXX XXXX XXXX XXXX XXXX XXXX INTER-COMPANY POOLING NET BALANCE SHEET RESERVES NONTABULAR DISCOUNT PARTICIPATION AFTER DISCOUNT (33) (34) (35) (36) (37) LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID PRIOR 0 0 XXXX 312,427 702,352 1996 0 0 0.0 881,483 520,213 1997 0 0 0.0 20,797,714 2,286,462 TOTAL 0 0 XXXX 21,991,624 3,509,026
12 OHIO CASUALTY GROUP SCHEDULE P-PART 1K - FIDELITY AND SURETY
ALLOCATED LOSS EXPENSE PREMIUMS EARNED LOSS PAYMENTS PAYMENTS (1) (2) (3) (4) (5) (6) (7) (8) ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR XXXX XXXX XXXX (382,370) (1,268,301) 562,120 314,977 1996 36,197,340 2,549,177 33,648,163 2,606,745 0 317,534 0 1997 36,372,708 1,967,157 34,405,551 1,093,201 0 70,925 0 TOTAL XXXX XXXX XXXX 3,317,577 (1,268,301) 950,578 314,977 SALVAGE & NUMBER OF UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS PAYMENTS RECEIVED TOTAL NET PAID REPORTED (1) (9) (10) (11) (12) (13) ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED PRIOR (67,620) 0 905,830 1,065,454 XXXX 1996 900,588 0 190,283 3,824,867 XXXX 1997 633,091 0 46,907 1,797,217 XXXX TOTAL 1,466,059 0 1,143,020 6,687,538 XXXX
LOSSES UNPAID UNALLOCATED LOSS EXPENSES UNPAID CASE BASIS BULK + IBNR CASE BASIS (14) (15) (16) (17) (18) (19) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR 2,593,347 313,187 706,564 37,506 641,900 34,451 1996 983,435 0 400,606 21,287 290,438 17,225 1997 1,836,033 0 2,708,858 143,942 580,876 34,450 TOTAL 5,412,815 313,187 3,816,028 202,735 1,513,214 86,126 SALVAGE & TOTAL NET NUMBER OF ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING (20) (21) (22) (23) (24) (25) (26) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 537,623 28,492 81,852 0 0 4,147,649 268,000 1996 280,957 14,896 33,718 0 0 1,935,744 170,000 1997 544,203 28,854 63,303 0 0 5,526,027 316,000 TOTAL 1,362,782 72,243 178,873 0 0 11,609,421 754,000
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE (27) (28) (29) (30) (31) (32) DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET PRIOR XXXX XXXX XXXX XXXX XXXX XXXX 1996 5,814,020 53,409 5,760,611 16.1 2.1 17.1 1997 7,530,490 207,246 7,323,244 20.7 10.5 21.3 TOTAL XXXX XXXX XXXX XXXX XXXX XXXX INTER-COMPANY POOLING NET BALANCE SHEET RESERVES NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT (33) (34) (35) (36) (37) LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID PRIOR 0 0 XXXX 2,949,218 1,198,431 1996 0 0 0.0 1,362,754 572,991 1997 0 0 0.0 4,400,949 1,125,078 TOTAL 0 0 XXXX 8,712,921 2,896,500
13 OHIO CASUALTY GROUP SCHEDULE P-PART 1L - ACCIDENT & HEALTH
ALLOCATED LOSS EXPENSE PREMIUMS EARNED LOSS PAYMENTS PAYMENTS (1) (2) (3) (4) (5) (6) (7) (8) ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR XXXX XXXX XXXX 374,642 374,642 2,868 2,868 1996 1,297,719 1,297,719 0 252,713 252,713 70 70 1997 1,062,936 1,062,937 (1) 122,612 122,612 0 0 TOTAL XXXX XXXX XXXX 749,967 749,967 2,938 2,938 SALVAGE & NUMBER OF UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS PAYMENTS RECEIVED TOTAL NET PAID REPORTED (1) (9) (10) (11) (12) (13) ACC/YR DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 0 0 0 (0) XXXX 1996 0 0 0 0 XXXX 1997 0 0 0 0 XXXX TOTAL 0 0 0 0 XXXX
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID CASE BASIS BULK + IBNR CASE BASIS (14) (15) (16) (17) (18) (19) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR 676,162 676,162 703,602 703,602 0 0 1996 269,233 269,233 280,160 280,160 0 0 1997 280,612 280,612 292,000 292,000 0 0 TOTAL 1,226,007 1,226,007 1,275,762 1,275,762 0 0 SALVAGE & TOTAL NET NUMBER OF ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING (20) (21) (22) (23) (24) (25) (26) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 0 0 0 0 0 0 1 1996 0 0 0 0 0 0 0 1997 0 0 0 0 0 0 0 TOTAL 0 0 0 0 0 0 1
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE (27) (28) (29) (30) (31) (32) DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET PRIOR XXXX XXXX XXXX XXXX XXXX XXXX 1996 802,176 802,176 0 61.8 61.8 0.0 1997 695,224 695,224 0 65.4 65.4 0.0 TOTAL XXXX XXXX XXXX XXXX XXXX XXXX INTER-COMPANY POOLING NET BALANCE SHEET RESERVES NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT (33) (34) (35) (36) (37) LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID PRIOR 0 0 0 0 0 1996 0 0 0.0 0 0 1997 0 0 0.0 0 0 TOTAL 0 0 XXXX 0 0
14 OHIO CASUALTY GROUP SCHEDULE P-PART 1R1 - PRODUCT LIABILITY (OCCURENCE)
ALLOCATED LOSS EXPENSE PREMIUMS EARNED LOSS PAYMENTS PAYMENTS (1) (2) (3) (4) (5) (6) (7) (8) ACC/YR DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR XXXX XXXX XXXX 1,494,690 (30,000) 1,943,480 0 1988 16,133,804 290,408 15,843,396 3,931,259 0 4,153,400 0 1989 14,373,177 258,717 14,114,460 4,283,110 0 2,227,584 0 1990 13,298,268 218,187 13,080,081 3,389,882 0 3,071,275 0 1991 10,830,510 132,713 10,697,797 3,221,387 45,000 1,712,524 10,785 1992 9,395,225 114,623 9,280,602 1,911,538 0 1,398,415 0 1993 6,068,861 75,297 5,993,564 1,878,390 0 1,066,404 0 1994 1,231,286 15,761 1,215,525 576,351 0 492,850 0 1995 485,873 6,255 479,618 296,297 0 112,132 0 1996 384,859 1,279 383,580 132,811 0 75,734 0 1997 396,349 1,454 394,895 34,574 0 5,804 0 TOTAL XXXX XXXX XXXX 21,150,289 15,000 16,259,603 10,785 SALVAGE & NUMBER OF UNALLOCATED LOSS EXPENSE SUBROGATION CLAIMS PAYMENTS RECEIVED TOTAL NET PAID REPORTED (9) (10) (11) (12) (13) DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 411,165 0 274,441 3,879,335 XXXX 1988 654,623 0 289,636 8,739,282 556 1989 619,243 0 26,870 7,129,936 481 1990 366,654 0 43,592 6,827,812 374 1991 357,421 0 103,241 5,235,547 320 1992 261,443 0 31,953 3,571,397 266 1993 288,347 0 21,483 3,233,141 105 1994 285,045 0 3,570 1,354,246 203 1995 1,095,454 0 7,261 1,503,883 123 1996 571,426 0 2,572 779,971 106 1997 274,581 0 1,227 314,959 66 TOTAL 5,185,401 0 805,847 42,569,508 XXXX
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID CASE BASIS BULK + IBNR CASE BASIS (14) (15) (16) (17) (18) (19) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED CEDED PRIOR 3,315,670 350,000 81,388 2 1,140,994 1,872 1988 714,030 0 32,983 1 220,802 596 1989 1,541,040 0 37,286 2 222,891 954 1990 990,520 0 65,677 2 226,026 1,490 1991 188,850 0 69,807 2 173,021 3,576 1992 370,210 0 83,757 5 186,952 5,961 1993 178,510 0 48,233 12 135,688 8,345 1994 219,800 0 37,547 56 76,624 13,113 1995 279,010 0 88,843 133 139,317 23,842 1996 525,180 0 158,854 238 166,344 28,467 1997 102,813 0 274,731 411 181,111 30,995 TOTAL 8,425,633 350,000 979,106 865 2,869,771 119,210 SALVAGE & TOTAL NET NUMBER OF ALLOCATED LOSS EXPENSES UNPAID UNALLOCATED LOSS EXPENSES SUBROGATION LOSSES & CLAIMS BULK + IBNR UNPAID ANTICIPATED EXPENSES UNPAID OUTSTANDING (20) (21) (22) (23) (24) (25) (26) DIR & ASSUMED CEDED DIR & ASSUMED CEDED DIR & ASSUMED PRIOR 18,291 3 256,677 22,367 0 4,438,777 907 1988 14,249 1 49,144 0 0 1,030,609 37 1989 19,364 2 99,495 0 0 1,919,120 37 1990 21,803 3 63,507 0 0 1,366,038 26 1991 33,140 5 13,103 0 0 474,337 21 1992 39,948 10 125,816 13 0 800,694 10 1993 50,196 15 13,557 0 0 417,812 15 1994 59,577 23 23,111 0 0 403,467 13 1995 65,810 42 27,047 0 0 576,010 16 1996 65,765 50 55,182 0 0 942,570 22 1997 70,767 54 10,917 0 0 608,880 27 TOTAL 458,909 208 737,557 22,380 0 12,978,313 1,131
TOTAL LOSSES & LOSS EXPENSES INCURRED LOSS AND LOSS EXPENSE PERCENTAGE (27) (28) (29) (30) (31) (32) DIR & ASSUMED CEDED NET DIR & ASSUMED CEDED NET PRIOR XXXX XXXX XXXX XXXX XXXX XXXX 1988 9,770,489 598 9,769,890 60.6 0.2 61.7 1989 9,050,013 957 9,049,056 63.0 0.4 64.1 1990 8,195,345 1,495 8,193,850 61.6 0.7 62.6 1991 5,769,252 59,369 5,709,883 53.3 44.7 53.4 1992 4,378,080 5,989 4,372,091 46.6 5.2 47.1 1993 3,659,325 8,372 3,650,953 60.3 11.1 60.9 1994 1,770,905 13,193 1,757,712 143.8 83.7 144.6 1995 2,103,909 24,017 2,079,892 433.0 384.0 433.7 1996 1,751,296 28,755 1,722,542 455.0 2248.2 449.1 1997 955,299 31,460 923,839 241.0 2163.6 233.9 TOTAL XXXX XXXX XXXX XXXX XXXX XXXX INTER-COMPANY POOLING NET BALANCE SHEET RESERVES NONTABULAR DISCOUNT PARTICIPATION% AFTER DISCOUNT (33) (34) (35) (36) (37) LOSS LOSS EXPENSE LOSSES UNPAID LOSS EXPENSES UNPAID PRIOR 0 0 XXXX 3,047,057 1,391,720 1988 0 0 0.0 747,012 283,597 1989 0 0 0.0 1,578,324 340,795 1990 0 0 0.0 1,056,195 309,844 1991 0 0 0.0 258,655 215,682 1992 0 0 0.0 453,962 346,733 1993 0 0 0.0 226,730 191,082 1994 0 0 0.0 257,291 146,176 1995 0 0 0.0 367,720 208,290 1996 0 0 0.0 683,796 258,774 1997 0 0 0.0 377,133 231,747 TOTAL 0 0 XXXX 9,053,874 3,924,439
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