1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the
___ Securities Exchange Act of 1934 for the quarterly period
ended June 30, 1995
Transition Report Pursuant to Section 13 or 15(d) of the
___ Securities Exchange Act of 1934 for the transition
period from to
Commission File Number 2-39621
UNITED FIRE & CASUALTY COMPANY
(Exact name of registrant as specified in its charter)
Iowa 42-0644327
________________________ _________________________________
(State of Incorporation) (IRS Employer Identification No.)
118 Second Avenue, S.E.
Cedar Rapids, Iowa 52407
______________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(319) 399-5700
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
_______ _______
As of August 4, 1995; 7,219,943 shares of common stock were outstanding.
2
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Report of Independent Public Accountants...... 3
Consolidated Balance Sheets for
June 30, 1995 and December 31, 1994.......... 4
Unaudited Consolidated Statements of
Operations - Three Months Ended
June 30, 1995 and 1994....................... 5
Unaudited Consolidated Statements of
Operations - Six Months Ended
June 30, 1995 and 1994....................... 6
Unaudited Consolidated Statements of
Cash Flows - Six Months Ended
June 30, 1995 and 1994....................... 7
Notes to Unaudited Consolidated
Financial Statements.......................... 8-11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 12-14
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures.................................... 15
Exhibit 11. Computation of Net Income Per
Common Share.................................. 16
3
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
________________________________________
To the Stockholders and Board of Directors of
United Fire & Casualty Company:
We have reviewed the accompanying consolidated balance sheet of UNITED FIRE &
CASUALTY COMPANY (an Iowa corporation) AND SUBSIDIARIES as of June 30, 1995, and
the related consolidated statements of operations for the three-month and
six-month periods ended June 30, 1995 and 1994, and the consolidated statements
of cash flows for the six-month periods ended June 30, 1995 and 1994. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the financial statements referred to above in order for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of United Fire & Casualty Company and
Subsidiaries as of December 31, 1994, and, in our report dated February 24,
1995, we expressed an unqualified opinion on that statement. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1994, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Chicago, Illinois
August 4, 1995
4
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
______________________________________________________________________________________________________
1995 1994
UNAUDITED Audited
______________________________________________________________________________________________________
ASSETS
INVESTMENTS:
Fixed maturities (market value $642,993,675 in 1995
and $571,306,514 in 1994) . . . . . . . . . . . . . . . . . . . . .$627,236,629 $593,637,794
Equity securities (cost $25,458,601
in 1995 and $24,913,743 in 1994). . . . . . . . . . . . . . . . . . 67,148,712 56,196,670
Mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,080,400 3,120,093
Policy loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,079,408 6,802,227
Other long-term investments (cost $6,813,314
in 1995 and $6,556,845 in 1994) . . . . . . . . . . . . . . . . . . 7,262,918 7,071,898
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . 9,651,049 9,954,637
______________________________________________________________________________________________________
721,459,116 676,783,319
CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . . . 4,485,118 10,254,892
ACCRUED INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . . 10,762,670 10,410,792
ACCOUNTS RECEIVABLE. . . . . . . . . . . . . . . . . . . . . . . . . . 43,833,607 33,864,498
DEFERRED POLICY ACQUISITION COSTS. . . . . . . . . . . . . . . . . . . 50,653,224 47,544,519
PROPERTY AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . 13,158,608 12,737,712
REINSURANCE RECEIVABLES. . . . . . . . . . . . . . . . . . . . . . . . 19,617,852 24,222,444
PREPAID REINSURANCE PREMIUMS . . . . . . . . . . . . . . . . . . . . . 3,691,484 3,033,531
INTANGIBLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,754,490 1,882,196
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,631,038 7,391,810
______________________________________________________________________________________________________
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$876,047,207 $828,125,713
======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
______________________________________________________________________________________________________
LIABILITIES:
Future policy benefits and losses, claims and settlement expenses
Property and casualty insurance . . . . . . . . . . . . . . . . .$203,844,302 $203,910,747
Life insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 366,751,503 344,095,937
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . 93,995,065 83,450,394
Accrued expenses and other liabilities. . . . . . . . . . . . . . . 15,825,962 22,323,899
Postretirement benefits other than pensions . . . . . . . . . . . . 2,636,017 2,366,492
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . 874,842 826,379
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 4,417,521 498,437
______________________________________________________________________________________________________
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . .$688,345,212 $657,472,285
______________________________________________________________________________________________________
STOCKHOLDERS' EQUITY:
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 24,066,490 $ 24,066,490
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . 12,048,856 12,048,856
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 124,213,939 113,616,829
Net unrealized appreciation, net of applicable
income taxes of $14,739,701 in 1995 and $11,009,092 in 1994 . . . . 27,372,710 20,921,253
______________________________________________________________________________________________________
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . .$187,701,995 $170,653,428
______________________________________________________________________________________________________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . .$876,047,207 $828,125,713
======================================================================================================
The Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
5
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 AND 1994
___________________________________________________________________________________________________
1995 1994
___________________________________________________________________________________________________
Revenues:
Premiums earned . . . . . . . . . . . . . . . . . . . . . . . . $ 49,833,143 $ 44,438,304
Investment income, net . . . . . . . . . . . . . . . . . . . . 13,512,578 10,884,036
Realized investment gains . . . . . . . . . . . . . . . . . . . 539,200 246,478
Commission and policy fee income. . . . . . . . . . . . . . . . 477,195 513,938
___________________________________________________________________________________________________
$ 64,362,116 $ 56,082,756
___________________________________________________________________________________________________
Benefits, Losses and Expenses:
Losses and settlement expenses. . . . . . . . . . . . . . . . . $ 29,866,448 $ 27,592,420
Increase in liability for future policy benefits. . . . . . . . 1,783,158 1,827,479
Amortization of deferred policy acquisition costs . . . . . . . 8,340,898 7,214,330
Other underwriting expenses . . . . . . . . . . . . . . . . . . 9,537,104 8,316,665
Interest on policyholders' accounts . . . . . . . . . . . . . . 5,078,004 4,474,889
___________________________________________________________________________________________________
$ 54,605,612 $ 49,425,783
___________________________________________________________________________________________________
Income before income taxes. . . . . . . . . . . . . . . . . . . $ 9,756,504 $ 6,656,973
Federal income taxes . . . . . . . . . . . . . . . . . . . . . 2,513,358 1,318,362
___________________________________________________________________________________________________
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,243,146 $ 5,338,611
===================================================================================================
Net income per common share . . . . . . . . . . . . . . . . . . $ 1.00 $ .74
===================================================================================================
Weighted average common shares outstanding . . . . . . . . . . . . 7,219,943 7,219,943
===================================================================================================
Cash dividends declared per common share . . . . . . . . . . . . . $ .20 $ . 18
===================================================================================================
The Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
6
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
___________________________________________________________________________________________________
1995 1994
___________________________________________________________________________________________________
Revenues:
Premiums earned . . . . . . . . . . . . . . . . . . . . . . . . $101,279,830 $ 87,046,328
Investment income, net . . . . . . . . . . . . . . . . . . . . 25,823,920 21,645,609
Realized investment gains . . . . . . . . . . . . . . . . . . . 912,427 498,900
Commission and policy fee income. . . . . . . . . . . . . . . . 938,880 968,064
___________________________________________________________________________________________________
$128,955,057 $110,158,901
___________________________________________________________________________________________________
Benefits, Losses and Expenses:
Losses and settlement expenses. . . . . . . . . . . . . . . . . $ 60,913,563 $ 56,822,746
Increase in liability for future policy benefits. . . . . . . . 4,709,794 2,756,847
Amortization of deferred policy acquisition costs . . . . . . . 19,864,572 14,856,630
Other underwriting expenses . . . . . . . . . . . . . . . . . . 16,163,132 16,095,801
Interest on policyholders' accounts . . . . . . . . . . . . . . 9,906,048 8,162,780
___________________________________________________________________________________________________
$111,557,109 $ 98,694,804
___________________________________________________________________________________________________
Income before income taxes. . . . . . . . . . . . . . . . . . . $ 17,397,948 $ 11,464,097
Federal income taxes . . . . . . . . . . . . . . . . . . . . . 3,906,643 2,006,579
___________________________________________________________________________________________________
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,491,305 $ 9,457,518
===================================================================================================
Net income per common share . . . . . . . . . . . . . . . . . . $ 1.87 $ 1.31
===================================================================================================
Weighted average common shares outstanding . . . . . . . . . . . . 7,219,943 7,219,943
===================================================================================================
Cash dividends declared per common share . . . . . . . . . . . . . $ .40 $ . 36
===================================================================================================
The Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
7
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
___________________________________________________________________________________________________
1995 1994
___________________________________________________________________________________________________
Cash Flows From Operating Activities:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,491,305 $ 9,457,518
___________________________________________________________________________________________________
Adjustments to reconcile net income to net cash provided by
operating activities
Net bond discount accretion . . . . . . . . . . . . . . . . . . . . (530,111) (183,136)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 470,233 1,206,456
Realized gains on sales and calls of investments. . . . . . . . . . (912,433) (498,900)
Changes in:
Accrued investment income . . . . . . . . . . . . . . . . . . . . (351,878) 80,569
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . (9,969,109) (7,141,160)
Deferred policy acquisition costs . . . . . . . . . . . . . . . . (3,108,705) (1,474,103)
Reinsurance receivables . . . . . . . . . . . . . . . . . . . . . 4,604,592 (3,593,907)
Prepaid reinsurance premiums. . . . . . . . . . . . . . . . . . . (657,953) 4,146
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . -- (301,045)
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 760,772 43,422
Future policy benefits and losses, claims and
settlement expenses . . . . . . . . . . . . . . . . . . . . . . . 5,476,984 11,775,224
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . 10,544,671 7,588,648
Accrued expenses and other liabilities. . . . . . . . . . . . . . (5,053,947) (4,211,227)
Postretirement benefits other than pensions . . . . . . . . . . . 269,525 306,466
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . 48,463 --
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 188,475 (649,071)
___________________________________________________________________________________________________
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,779,579 $ 2,952,382
___________________________________________________________________________________________________
Net cash provided by operating activities . . . . . . . . . . . . . $ 15,270,884 $ 12,409,900
___________________________________________________________________________________________________
Cash Flows From Investing Activities:
Proceeds from sale of available-for-sale investments. . . . . . . . $ 85,148 $ 144,920
Proceeds from call and maturity of held-to-maturity investments . . 14,591,879 38,687,621
Proceeds from call and maturity of available-for-sale investments . 704,474 989,792
Proceeds from sale of other investments . . . . . . . . . . . . . . 6,689,906 6,024,411
Purchase of investments held-to-maturity. . . . . . . . . . . . . . (47,819,154) (65,848,367)
Purchase of investments available-for-sale. . . . . . . . . . . . . (149,725) (854,401)
Purchase of other investments . . . . . . . . . . . . . . . . . . . (7,153,716) (9,375,091)
Proceeds from sale of property and equipment. . . . . . . . . . . . 822,509 29,883
Purchase of property and equipment. . . . . . . . . . . . . . . . . (1,585,932) (787,567)
___________________________________________________________________________________________________
Net cash used in investing activities . . . . . . . . . . . . . . . $(33,814,611) $(30,988,799)
___________________________________________________________________________________________________
Cash Flows From Financing Activities:
Policyholders' account balances
Deposits to investment and universal life type contracts. . . . . $ 45,023,634 $ 26,456,243
Withdrawals from investment and universal life type contracts . . (27,911,497) (14,167,528)
Purchase and retirement of common stock . . . . . . . . . . . . . . (6,218) --
Payment of cash dividends . . . . . . . . . . . . . . . . . . . . . (4,331,966) (3,898,889)
___________________________________________________________________________________________________
Net cash provided by financing activities . . . . . . . . . . . . . $ 12,773,953 $ 8,389,826
___________________________________________________________________________________________________
Decrease in Cash and Cash Equivalents . . . . . . . . . . . . . . . $ (5,769,774) $(10,189,073)
Cash and Cash Equivalents at Beginning of Year. . . . . . . . . . . 10,254,892 13,704,164
___________________________________________________________________________________________________
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . $ 4,485,118 $ 3,515,091
===================================================================================================
The Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.
8
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
In the opinion of the management of United Fire & Casualty Company and
Subsidiaries (the "Company"), the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position, the results of operations,
and cash flows for the periods presented. The results for the interim periods
are not necessarily indicative of the results of operations that may be expected
for the year. The financial statements contained herein should be read in
conjunction with the Company's annual report on Form 10-K for the year ended
December 31, 1994. The review report of Arthur Andersen LLP accompanies the
unaudited consolidated financial statements included in Item 1 of Part I.
NOTE 2.
The Company maintains its records in conformity with the accounting practices
prescribed or permitted by the Insurance Department of the State of Iowa. To the
extent that certain of these practices differ from generally accepted accounting
principles, adjustments have been made in order to present the accompanying
financial statements on the basis of generally accepted accounting principles.
Certain amounts included in the financial statements for the previous year
have been reclassified to conform with the financial statement presentation at
June 30, 1995.
NOTE 3.
For purposes of reporting cash flows, cash and cash equivalents include cash
and non-negotiable certificates of deposit with original maturities of three
months or less. Income taxes paid, net of refunds for the six months ended June
30, 1995 and 1994 were $3,700,000, and $3,250,000, respectively. There were no
significant payments of interest through June 30, 1995 and 1994, other than
interest credited to policyholders' accounts.
9
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4.
Effective December 31, 1994, the Company adopted Statement of Financial
Accounting Standards No. 119, "Disclosure about Derivative Financial Instruments
and Fair Value of Financial Instruments" ("SFAS No. 119"). SFAS No. 119 expands
disclosure requirements concerning derivative investments, including whether
investments are held for trading or other purposes, such as hedging. The Company
does not own any derivative investments as defined by SFAS No. 119, and
therefore is not subject to the expanded disclosure requirements.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). SFAS No. 115 addresses the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. The statement requires
that those investments be classified into the following three categories: 1)
debt securities that the enterprise has the positive intent and ability to hold
to maturity are classified as held-to-maturity securities and reported at
amortized cost; 2) debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities and reported at fair value, with unrealized gains and losses
included in net income; and 3) debt securities and marketable equity securities
not classified as either held-to- maturity securities or trading securities are
classified as available-for-sale securities and reported at fair value, with
unrealized gains and losses excluded from net income and reported as a separate
component of stockholders' equity. The Company classifies a majority of its
investments in fixed income securities as held-to-maturity.
A reconciliation of the amortized cost to fair values of investments in
held-to-maturity and available-for-sale fixed maturities, marketable equity
securities and other long-term investments as of June 30, 1995 is reported on
the next page.
10
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________________________________
JUNE 30, 1995 Gross Gross
Amortized Unrealized Unrealized Fair
TYPE OF INVESTMENT Cost Appreciation Depreciation Value
________________________________________________________________________________________________________
HELD-TO-MATURITY
Fixed Maturities
Bonds
U.S. Government,
government agencies and authorities
Collateralized mortgage obligations $ 93,495,378 $ 1,960,662 $ 2,295,542 $ 93,160,498
Mortgage-backed securities 31,143,102 2,108,788 2,980 33,248,910
All others 4,207,026 374,554 37,511 4,544,069
States, municipalities and
political subdivisions 171,270,855 8,926,237 718,520 179,478,572
Foreign 6,862,720 288,343 20,384 7,130,679
Public utilities 40,514,079 440,190 944,696 40,009,573
Corporate bonds
Collateralized mortgage obligations 104,231,104 2,175,543 3,677,414 102,729,233
All other corporate bonds 174,161,603 7,944,034 764,258 181,341,379
________________________________________________________________________________________________________
Total held-to-maturity $625,885,867 $ 24,218,351 $ 8,461,305 $641,642,913
________________________________________________________________________________________________________
AVAILABLE-FOR-SALE
Fixed Maturities
Bonds
U.S. Government,
government agencies and authorities
Mortgage-backed securities $ 102,962 $ 6,639 $ -- $ 109,601
All others 321,557 1,022 7,367 315,212
Public utilities 206,000 -- 30,000 176,000
Corporate bonds 747,547 17,202 14,800 749,949
________________________________________________________________________________________________________
Total fixed maturities $ 1,378,066 $ 24,863 $ 52,167 $ 1,350,762
________________________________________________________________________________________________________
Equity Securities
Common stocks
Public Utilities $ 3,774,378 $ 3,834,636 $ -- $ 7,609,014
Banks, trust and insurance companies 11,964,375 23,474,725 102,081 35,337,019
All other common stocks 8,690,514 14,413,938 311,277 22,793,175
Nonredeemable preferred stocks 1,029,334 395,670 15,500 1,409,504
________________________________________________________________________________________________________
Total equity securities $ 25,458,601 $ 42,118,969 $ 428,858 $ 67,148,712
________________________________________________________________________________________________________
Total available-for-sale $ 26,836,667 $ 42,143,832 $ 481,025 $ 68,499,474
========================================================================================================
Other long-term investments $ 6,813,314 $ 600,838 $ 151,234 $ 7,262,918
========================================================================================================
11
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and fair value of held-to-maturity and available-for-sale
fixed maturities at June 30, 1995 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.
________________________________________________________________________________________________________
Held-to-maturity Available-for-sale
________________________________________________________________________________________________________
Amortized Cost Fair Value Amortized Cost Fair Value
________________________________________________________________________________________________________
Due in one year or less $ 5,628,697 $ 5,736,075 $ 100,630 $ 101,710
Due after one year through five years 59,034,274 61,844,216 527,385 523,418
Due after five years through ten years 168,328,601 176,219,796 612,540 582,124
Due after ten years 164,024,711 168,704,185 34,549 33,908
Mortgage-backed securities 31,143,102 33,248,910 102,962 109,602
Collateralized mortgage obligations 197,726,482 195,889,731 -- --
________________________________________________________________________________________________________
$ 625,885,867 $ 641,642,913 $ 1,378,066 $ 1,350,762
========================================================================================================
12
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
ASSETS
The Company's total fixed maturity portfolio grew by 5.7% or $33,599,000
during the first half of 1995. Approximately 32% of these securities are
collateralized mortgage obligations ("CMOs"), compared to approximately 28% at
December 31, 1994. Continuing review of the fixed income market has shown that
CMOs are an attractive investment alternative. The Company minimizes its
prepayment risk by buying most issues priced at a slight discount. While buying
at a discount does not prevent prepayment, the yield is not penalized as is the
case when a premium is paid. In addition, although the stated maturity is longer
than the average life of the issues, the Company is concentrating on buying
issues with expected maturity in the seven to twelve year range.
The Company's equity securities consists of readily marketable common and
preferred stocks, all of which are classified as available-for-sale. Growth in
this asset is primarily the result of unrealized appreciation in market value.
Other long-term investments are primarily holdings in limited partnership funds
investing in banks.
The Company's accounts receivable are amounts due from property and casualty
insurance agents and brokers for premiums written net of commissions. Losses
payable to reinsurance brokers on assumed business are also netted against
accounts receivable. The growth in this asset of $9,969,000 or 29.4% is largely
the result of two factors. Utilization of the Company's deferred billing plans
has increased, which has the effect of increasing the direct agents accounts
receivable. The other factor relates to reinsurance. The Company deposits funds
with one reinsurer in January and June, and records the deposits as accounts
receivable. This asset is reduced as premiums are ceded to the reinsurer. The
Company pays deposits to other reinsurers on a quarterly basis, although the
aggregate amount of these deposits is smaller than the semi-annual payments.
13
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY (continued)
Reinsurance receivables are ceded losses, expenses and reserves that are
due the Company from reinsurers. The balance in this asset decreased $4,605,000
or 19.0% due primarily to the settlement of two large claims during the first
quarter of 1995, one of which relates to the Northridge earthquake. The Company
does not anticipate collection problems with regard to reinsurance receivables.
LIABILITIES
Gross reserves for property and casualty losses and settlement expenses
decreased $66,000 between June 30, 1995 and December 31, 1994. Gross reserves
relating to the Northridge earthquake were $5,888,000 through June 30, 1995. The
Company has incurred just $47,000 in connection with the Kobe earthquake, and
anticipates minimal additional exposure.
The Company is not aware of any significant contingent liabilities as far as
environmental issues are concerned. Because of the type of business the Company
writes, i.e. property coverage, there exists the potential for exposure for
environmental pollution and asbestos claims. The Company's underwriters are
aware of these exposures and use limited riders or endorsements to limit
exposure.
Accrued expenses and other liabilities decreased $6,498,000 or 29.1%. It is
typical to report a decrease at the end of the second quarter, because many of
the Company's expenses that were accrued at December 31, of the prior year, such
as contingent commissions and state premium taxes, are substantially paid by the
end of March of the current year.
The major contributing factor to the growth of $3,919,000 in deferred taxes
payable is the increase in unrealized appreciation of investments
available-for-sale.
14
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN RESULTS OF OPERATIONS
The Company's net premiums earned increased $14,234,000 or 16.4% over the
same period in 1994. The property and casualty segment has experienced growth in
its direct and assumed business, and has had to pay less for its ceded
protection due to a decrease in ceded premium rates.
Investment income rose 19.3% over the first six months of 1994, which is
attributable to a larger fixed maturity portfolio. The investment yield is 7.4%
at June 30, 1995 compared to 7.1% at June 30, 1994.
Losses and settlement expenses increased 7.2% or $4,091,000 between years.
Gross losses incurred related to the Northridge earthquake were $4,108,000 for
the first six months of 1995, with ceded incurred of $2,669,000.
Amortization of deferred acquisition costs increased by $5,008,000 or 33.7%
over June 30, 1994 due to an increase in premiums earned. This premium growth,
coupled with increasing interest rates, contributed to the increase in the life
segment's interest on policyholders' accounts.
15
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits-Exhibit 11 - Computation of Net Income Per Common
Share (Page 16).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED FIRE & CASUALTY COMPANY
_______________________________________
(Registrant)
August 4, 1995
_______________________________________
(Date)
/s/ Gary L. Huber
_______________________________________
Gary L. Huber
President and Chief Operating Officer
/s/ K.G. Baker
_______________________________________
K.G. Baker, Vice President
Chief Financial Officer and Principal
Accounting Officer
16
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
Exhibit 11. Computation of Net Income Per Common Share
___________________________________________________________________________________________________
Weighted Average Net Net Income per
Number of Shares Income Common Share
Outstanding
___________________________________________________________________________________________________
Three months ended June 30:
1995 . . . . . . . . . . 7,219,943 $ 7,243,146 $ 1.00
1994 . . . . . . . . . . 7,219,943 5,338,611 .74
Six months ended June 30:
1995 . . . . . . . . . . 7,219,943 $13,491,305 $ 1.87
1994 . . . . . . . . . . 7,219,943 9,457,518 1.31
Computation of weighted average number of common
and common equivalent shares:
_______________________________________
Three Months Ended June 30,
1995 1994
_______________________________________
Common shares outstanding throughout the period 7,219,943 7,219,943
========= =========