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UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 11-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-5544
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
THE OHIO CASUALTY INSURANCE COMPANY EMPLOYEE SAVINGS PLAN
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Ohio Casualty Corporation
9450 Seward Road
Fairfield, OH 45014
Page 1 of 15
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REQUIRED INFORMATION
The Ohio Casualty Insurance Company Employee Savings Plan ("Plan") is
subject to the Employee Retirement Income Security Act of 1974 ("ERISA").
Therefore, in lieu of the requirements of Items 1-3 of Form 11-K, the
financial statements of net assets available for benefits of the Plan as
of December 31, 2006 and 2005, and the changes in net assets available for
benefits for the year ended December 31, 2006, which have been prepared in
accordance with the financial reporting requirements of ERISA, are attached
hereto as Appendix 1 and incorporated herein by this reference.
The following exhibits are being filed herewith:
Exhibit No. Description
- ---------- -----------
23 Consent of Independent Registered Public Accounting Firm
2
SIGNATURES
The Plan, pursuant to the requirements of the Securities Exchange Act of
1934, the trustees (or other persons who administer the employee benefit
plan) have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE OHIO CASUALTY INSURANCE COMPANY
EMPLOYEE SAVINGS PLAN
By: The Ohio Casualty Insurance Company Benefits Committee
June 26, 2007 /s/Lynn C. Schoel
--------------------------------------------
Lynn C. Schoel
Senior Vice President, Human Resources
Chairman, Benefits Committee
3
APPENDIX 1
THE OHIO CASUALTY INSURANCE COMPANY EMPLOYEE SAVINGS PLAN
FINANCIAL STATEMENTS OF NET ASSETS AVAILABLE FOR THE BENEFITS OF THE PLAN
AS OF DECEMBER 31, 2006 AND 2005, AND CHANGES IN NET ASSETS AVAILABLE FOR
BENEFITS FOR THE YEAR ENDED DECEMBER 31, 2006, SUPPLEMENTAL SCHEDULE AS OF
DECEMBER 31, 2006, AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM.
4
THE OHIO CASUALTY INSURANCE COMPANY EMPLOYEE SAVINGS PLAN
TABLE OF CONTENTS
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Pages
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Report of Independent Registered Public Accounting Firm ............. 6
Financial Statements:
Statements of Net Assets Available for Benefits
as of December 31, 2006 and 2005.............................. 7
Statement of Changes in Net Assets Available for
Benefits for the year ended December 31, 2006................. 8
Notes to the Financial Statements............................... 9-14
Supplemental Schedule:
Schedule H, Line 4i - Schedule of Assets (Held At End of Year).. 15
5
Report of Independent Registered Public Accounting Firm
We have audited the accompanying statements of net assets available for
benefits of The Ohio Casualty Insurance Company Employee Savings Plan (the
Plan) as of December 31, 2006 and 2005, and the related statement of
changes in net assets available for benefits for the year ended December
31, 2006. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the Standards of the Public
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged
to perform an audit of the Plan's internal control over financial
reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Plan's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets available for benefits of the Plan
at December 31, 2006 and 2005, and the changes in its net assets available
for benefits for the year ended December 31, 2006, in conformity with U.S.
generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the
financial statements taken as a whole. The accompanying supplemental
schedule of assets (held at end of year) as of December 31, 2006, is
presented for purposes of additional analysis and is not a required part of
the financial statements but is supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure
under the Employee Retirement Income Security Act of 1974. This
supplemental schedule is the responsibility of the Plan's management. The
supplemental schedule has been subjected to the auditing procedures applied
in our audit of the financial statements and, in our opinion, is fairly
stated in all material respects in relation to the financial statements
taken as a whole.
/s/Ernst & Young LLP
Cincinnati, Ohio
June 22, 2007
6
The Ohio Casualty Insurance Company Employee Savings Plan
Statements of Net Assets Available For Benefits
As of December 31
2006 2005
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Assets
Cash $ 28,702 $ 39,499
Investments, at fair value 197,313,046 168,715,024
Receivables:
Profit sharing contribution from employer 7,296,483 8,420,145
Due from broker for securities sold - 55,224
Accrued interest 8,230 7,158
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Total receivables 7,304,713 8,482,527
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Net assets available for benefits, at fair value 204,646,461 177,237,050
Adjustment from fair value to contract value
for fully benefit responsive investment contracts 323,904 380,402
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Net assets available for benefits $204,970,365 $177,617,452
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The accompanying notes are an integral part of the financial statements.
7
The Ohio Casualty Insurance Company Employee Savings Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2006
2006
--------------
Additions
Investment income:
Net appreciation in fair value of investments $ 12,634,078
Interest and dividends 6,528,462
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19,162,540
Contributions:
Participants 11,087,848
Employer 13,474,969
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24,562,817
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Total additions 43,725,357
Deductions
Benefits paid directly to participants 16,335,190
Administrative expenses 37,254
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Total deductions 16,372,444
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Net increase in net assets available for benefits 27,352,913
Net assets available for benefits:
Beginning of year 177,617,452
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End of year $204,970,365
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The accompanying notes are an integral part of the financial statements.
8
The Ohio Casualty Insurance Company Employee Savings Plan
Notes To Financial Statements
December 31, 2006
1. Significant Accounting Policies:
-------------------------------
The accompanying financial statements have been prepared on the accrual
basis of accounting.
A. Investment securities are stated at fair value. Shares of mutual
funds are valued at quoted market prices, which represent the net
asset values of shares held by The Ohio Casualty Insurance Company
Employee Savings Plan (the Plan) at year-end.
Securities traded on a national securities exchange, including Ohio
Casualty Corporation common stock, are valued at the last recorded
sales price of the last business day of the Plan year.
The fair value of the participation units owned by the Plan in common
and collective trust funds are valued at the net asset value as of the
last business day of the Plan year.
B. Interest income is recorded as earned. Dividend income is recorded on
the ex-dividend date.
C. Purchases and sales of securities are recorded on a trade-date basis.
Realized gains or losses on disposition of investments are determined
on the basis of historical cost of specific investments sold on a
trade-date basis.
D. The Plan presents in the Statement of Changes in Net Assets Available
for Benefits the net appreciation in the fair value of its
investments, which consists of realized gains or losses and
unrealized appreciation (depreciation) on those investments.
E. Contributions from participants and the Ohio Casualty Insurance
Company (the Company) are recorded in the month the Company makes
payroll deductions from Plan participants. The profit sharing
contribution, if any, is contributed during the first quarter following
the Plan year end and is reflected as a receivable in the Statements of
Net Assets Available for Benefits when incurred.
F. Benefits are recorded when paid.
G. The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make
significant estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results
could differ from those estimates.
2. Description of Plan:
-------------------
The following brief description of the Plan is provided for general
information purposes only. Reference should be made to the Plan
Document and The Ohio Casualty Insurance Company Benefits Manual for a
complete description of the Plan.
A. General:
The Plan, which is subject to provisions of the Employee Retirement
Income Security Act of 1974 (ERISA), is a defined contribution plan.
The Plan is a thrift savings plan with a 401(k)
9
The Ohio Casualty Insurance Company Employee Savings Plan
Notes To Financial Statements, Continued
2. Description of Plan, continued:
------------------------------
feature covering all eligible employees of the Company who have
elected to participate and/or received a profit sharing contribution.
B. Participants of the Plan must be at least 18 years of age and be a
Full-time or Part-time employee of the Company working 20 or more
hours per week, or work 1,000 or more hours in a calendar year, to be
eligible.
C. Participants direct the investment of their contributions into various
available fund options. Participants can contribute between 1-32% of
eligible compensation to the Plan on a before-tax and/or after-tax
basis. Effective January 1, 2005, the Company matches 100% of the
participant's contribution for the first 3% of eligible pay and 50% of
the participant's contribution for the next 2% of eligible pay. The
maximum match is 4%. The Company match is invested according to the
participants' investment direction.
Also effective January 1, 2005, employees with 10 or more years
of service as of July 1, 2004 are eligible for a temporary,
discretionary, additional Company contribution of 2.5% of eligible
compensation. This additional Company contribution was $1,620,901 for
the 2006 Plan year.
Effective January 1, 2006, the Plan was amended to allow
participants to diversify up to 100% of the Company's matching
contribution invested in the Ohio Casualty Stock Fund on any valuation
day. This amendment provides more flexibility to the Plan participants
for diversification related to Ohio Casualty Corporation common stock.
The Ohio Casualty Stock Fund is an Employee Stock Ownership Plan
(ESOP).
Participants are 100% vested in the value of their own
contributions and related investment earnings, as well as 100% vested
in the value of the Company matching contributions and related
investment earnings.
D. Effective July 1, 2004, a discretionary profit sharing contribution
may be made by the Company each year if certain profitability levels
are achieved. The performance criteria and the range of contribution
are set by the Company's Board of Directors. Employees are not
required to contribute to the Plan to be eligible for the profit
sharing contribution; however, they must be employed by the Company on
December 31st of the applicable Plan year (unless death or retirement
occurred during the year). In February 2007, a profit sharing
contribution of $7,296,483 was contributed by the Company for the 2006
Plan year.
E. Each participant's account is credited with his/her contributions,
his/her share of the Company's contributions and an allocation of fund
earnings. Allocations of fund earnings are based on participants'
account balances, as defined by the Plan. The benefit to which a
participant is entitled is the benefit that can be provided from
his/her fully vested account balance.
F. Effective March 1, 2005, the automatic payout limit for terminated
participants was reduced from $5,000 to $1,000.
10
The Ohio Casualty Insurance Company Employee Savings Plan
Notes To Financial Statements, Continued
2. Description of Plan, continued:
------------------------------
G. Certain costs of administering the Plan are paid by the Company.
These costs totaled $143,703 for the year ended December 31, 2006.
H. Benefits are payable to participants upon termination of employment,
retirement, disability, and/or death. In-service withdrawals, including
withdrawals due to financial hardship as defined by the Internal Revenue
Service, are also available.
3. Plan Termination:
----------------
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions set forth in ERISA. In the
event of Plan termination, the Plan's assets will be used to provide
benefits for participants and beneficiaries in accordance with federal
law.
4. Related Party Transactions:
--------------------------
Fidelity Management Trust Company is the trustee of the Plan and has a
relationship with Fidelity Investments Institutional Operations Company,
who is the Plan's record keeper. Fidelity Investments Institutional
Operations Company manages certain mutual funds which are investment
options for the Plan participants and therefore these transactions
qualify as party-in-interest transactions.
The Plan is sponsored by the Company, which is a wholly-owned subsidiary
of Ohio Casualty Corporation ("the Corporation"), the holding company.
The Plan holds units in the Ohio Casualty Stock Fund, which in turn owns
1,274,950 shares ($38,006,260) and 1,401,595 shares ($39,693,170) of the
Corporation's common stock as of December 31, 2006 and 2005,
respectively.
5. Income Tax Status:
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The Plan received a favorable tax determination letter from the Internal
Revenue Service dated April 14, 2006, stating that the Plan is qualified
under Section 401(a) of the Internal Revenue Code (the Code) and,
therefore, the related trust is exempt from taxation. Once qualified,
the Plan is required to operate in conformity with the Code to maintain
its qualification. The Plan Administrator believes the Plan is being
operated in compliance with the applicable requirements of the Code and,
therefore, believes that the Plan is qualified and the related trust is
tax exempt.
11
The Ohio Casualty Insurance Company Employee Savings Plan
Notes To Financial Statements, Continued
6. Investments:
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The following investments represent 5% or more of the Plan's net assets:
Fair Value
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December 31, December 31,
2006 2005
-----------------------------
Common Stock Fund
-----------------
The Ohio Casualty Stock Fund $38,006,260 $39,693,170
Mutual Funds
------------
T. Rowe Price Small Cap $22,655,088 $19,276,481
Chesapeake Core Grth 12,748,512 -
LSV Value Equity 15,932,912 -
Fidelity Equity Income - 10,897,217
Fidelity Balance 21,489,467 17,423,542
Fidelity Blue Chip - 11,573,385
Fidelity Diversified Intl 10,269,260 *
Common/Collective Trusts
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Fidelity Managed Income Portfolio II $27,014,290 $25,570,781
Fidelity U.S. Equity Index Pool 23,043,616 19,281,776
*Represents less than 5% of the Plan's net assets as of the respective
date.
Net appreciation in the fair value of the investments (including
investments bought and sold, as well as held during the year) as
determined by quoted market prices is as follows:
Year Ended
December 31, 2006
-----------------
Common stock $ 2,128,741
Mutual funds 7,393,799
Common/collective trusts 3,111,538
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Total $ 12,634,078
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7. Loans Receivable - Participants:
Participants are permitted to borrow from the trust using their vested
account balance as collateral. The minimum loan amount is $1,000 and
the maximum loan amount is the lesser of $50,000 reduced
by the participant's highest outstanding aggregate balance of loans from
the Plan during the previous twelve months, the total value of the
participant's before-tax, after-tax, and rollover accounts, or 50% of
the vested value of the participant's accounts. Interest is charged at
JPMorgan Chase & Co. bank's commercial rate plus 1%. Repayment of loans
are arranged through payroll deductions with a maximum repayment term of
5 years, or 15 years for a home loan. Terminated employees can continue
loan repayments following termination of employment.
12
The Ohio Casualty Insurance Company Employee Savings Plan
Notes To Financial Statements, Continued
8. Fully Benefit-Responsive Investment Contracts:
---------------------------------------------
The Financial Accounting Standards Board (FASB) issued Staff Position
AAG INV-1 and SOP 94-4-1, `Reporting of Fully Benefit Responsive
Investment Contracts Held by Certain Investment Companies Subject to the
AICPA Investment Company Guide and Defined-Contribution Health and
Welfare Pension Plans' (the FSP). Under the FSP, only assets that are
attributable to "fully benefit-responsive" investment contracts are
eligible for contract value accounting treatment. This FSP was adopted
by The Ohio Casualty Insurance Company Employees Savings Plan for the
year ended December 31, 2006 and applied retrospectively, as required by
the FSP. The Fidelity Managed Income Portfolio II (MIP) meets the
definition of a fully benefit responsive investment contract. The MIP
invests typically in fixed-income securities or bond funds that may
include futures contracts and swap agreements. The underlying assets
and wrap contracts purchased by the MIP are designed to pay all
participant-initiated transactions at contract value. The contract
value of the MIP for a particular participant is equal to the sum of
that participant's invested principal plus all accrued interest.
9. Reconciliation of Financial Statements to Form 5500:
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The following is a reconciliation of the net increase in net assets
available for benefits per the financial statements to the Form 5500:
Year Ended
December 31, 2006
-----------------
Net increase in net assets available for benefits
per the financial statements $27,352,913
Adjustment from fair value to contract value for
fully benefit responsive investment contracts (323,904)
------------
Net income per the Form 5500 $27,029,009
============
10. Subsequent Event:
----------------
On May 6, 2007, Ohio Casualty Corporation (the "Corporation") entered
into an Agreement and Plan of Merger (the "Merger Agreement"), among
Liberty Mutual Insurance Company ("Liberty") and Waterfall Merger Corp.
a wholly-owned direct subsidiary of Liberty ("Waterfall").
The Merger Agreement provides for a business combination whereby
Waterfall will merge with and into the Corporation (the "Merger"). As a
result of the Merger, the separate corporate existence of Waterfall will
cease and the Corporation will continue as the surviving corporation in
the Merger. At the effective time of the Merger, each common share, par
value $.0125 per share, of the Corporation (other than shares owned by
the Corporation, Liberty and Waterfall) will be converted into the right
to receive $44.00 in cash, without interest. Each Corporation stock
option and other share purchase rights outstanding at the time of the
closing will be cancelled in the Merger and the holder thereof
13
The Ohio Casualty Insurance Company Employee Savings Plan
Notes To Financial Statements, Continued
10. Subsequent Event, continued:
---------------------------
will be entitled to an amount of cash, without interest, equal to the
difference between $44.00 and the exercise price of such stock option or
purchase right.
The Merger is subject to the approval of a majority of the Corporation's
outstanding shares. In addition, the Merger is subject to clearance
under the Hart-Scott-Rodino Antitrust Improvements Acts and other
regulatory laws applicable to the Merger, including state insurance laws
and regulation, as well as other customary closing conditions. The
Merger Agreement contains certain termination rights for both the
Corporation and Liberty and further provides that upon termination of
the Merger Agreement under certain circumstances, the Corporation may be
obligated to pay Liberty a termination fee of $62.0 million.
14
Supplemental Schedule
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
The Ohio Casualty Insurance Company Employee Savings Plan
Schedule H, Line 4i - Schedule of Assets (Held At End of Year)
December 31, 2006
EIN 31-0396250
Plan Number 002
(a) (b) (c) (d) (e)
Current
Investments Shares/Units Cost Value
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Cash:
Interest-bearing cash 11,951 $ 1,883,549 $ 1,883,549
Common Stock Fund:
* The Ohio Casualty Stock Fund 241,157 17,989,942 38,006,260
Mutual Funds:
T. Rowe Price Small Cap 549,747 15,861,349 22,655,088
PIM Total Rt Inst 245,688 2,572,860 2,550,239
Chesapeake Core Grth 705,507 12,154,818 12,748,512
LSV Value Equity 832,441 14,035,322 15,932,912
Century Sm Cp Sel I 19,307 488,265 468,389
* Fidelity Balanced 1,105,994 18,560,105 21,489,467
* Fidelity Diversified Intl 277,923 8,624,436 10,269,260
* Fidelity Small Cap Stock 193,984 3,539,703 3,687,635
* Fidelity Freedom Income 41,305 464,253 476,654
* Fidelity Freedom 2000 10,412 125,585 129,736
* Fidelity Freedom 2010 231,559 3,159,694 3,385,399
* Fidelity Freedom 2020 337,225 4,680,508 5,237,109
* Fidelity Freedom 2030 156,073 2,154,922 2,501,846
* Fidelity Freedom 2040 104,294 857,531 988,703
* Fidelity Freedom 2005 11,253 124,016 130,643
* Fidelity Freedom 2015 74,528 874,304 909,240
* Fidelity Freedom 2025 35,686 438,206 455,716
* Fidelity Freedom 2035 14,750 187,102 194,556
Common/Collective Trusts:
* Fidelity Managed Income Portfolio II 27,014,290 27,014,290 27,014,290
* Fidelity U.S. Equity Index Pool 507,457 18,386,437 23,043,616
Loans:
** Participant Loans - 3,154,227
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TOTAL INVESTMENTS $154,177,197 $197,313,046
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* Indicates party-in-interest to the Plan
** The interest rates on these loans range from 5.0% to 9.25%, with
maturity dates of 2007 through 2021.
15