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 September 30, 1996
------------------
Transition Report Pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 for the transition period from to
--------- --------
Commission File Number 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
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(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
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As of October 30, 1996, 10,727,712 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 1
Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 2
Unaudited Consolidated Statements of Operations - Three-Month
Periods Ended September 30, 1996 and 1995 3
Unaudited Consolidated Statements of Operations - Nine-Month
Periods Ended September 30, 1996 and 1995 4
Unaudited Consolidated Statements of Cash Flows - Nine-Month
Periods Ended September 30, 1996 and 1995 5
Notes to Unaudited Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures 12
Exhibit 11. Computation of Net Income Per
Common Share 13
3
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 September 30,
1996, and the related consolidated statements of operations for the three-month
and nine-month periods ended September 30, 1996 and 1995, and the consolidated
statements of cash flows for the nine-month periods ended September 30, 1996 and
1995. These financial statements are the responsibility of the Company's
management.
We conducted our review 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 review, we are not aware of any material modifications that should
be made to the financial statements referred to above 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, 1995, and, in our report dated February 22,
1996, 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, 1995, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
/s/ Arthur Andersen LLP
Chicago, Illinois
October 30, 1996
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4
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------
ASSETS 1996 1995
Unaudited Audited
- -----------------------------------------------------------------------------------------------------
INVESTMENTS
Fixed maturities
Held-to-maturity, at amortized cost (market
value $651,778 in 1996 and $617,915 in 1995) $ 641,452 $589,687
Available-for-sale, at market (cost $77,348
in 1996 and $80,464 in 1995) 73,554 84,707
Equity securities (cost $25,917 in 1996 and $25,558 in 1995) 85,011 75,678
Mortgage loans 2,980 3,041
Policy loans 7,667 7,163
Other long-term investments (cost $8,140 in 1996
and $7,563 in 1995) 9,123 8,627
Short-term investments 11,998 21,530
- -----------------------------------------------------------------------------------------------------
831,785 790,433
CASH AND CASH EQUIVALENTS 10,679 6,998
ACCRUED INVESTMENT INCOME 12,116 11,517
ACCOUNTS RECEIVABLE 47,822 38,620
DEFERRED POLICY ACQUISITION COSTS 57,866 52,670
PROPERTY AND EQUIPMENT 12,829 13,252
REINSURANCE RECEIVABLES 21,347 15,996
PREPAID REINSURANCE PREMIUMS 4,344 3,865
INTANGIBLES 1,399 1,589
INCOME TAXES RECEIVABLE 2,979 1,005
OTHER ASSETS 7,268 7,161
- -----------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,010,434 $943,106
=====================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Future policy benefits and losses, claims and settlement expenses
Property and casualty insurance $ 226,458 $203,702
Life insurance 411,694 393,603
Unearned premiums 110,102 97,025
Accrued expenses and other liabilities 29,313 23,376
Employee benefit obligations 6,412 5,693
Deferred income taxes 9,486 10,954
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 793,465 $734,353
- -----------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock $ 35,794 $ 36,098
Additional paid-in capital 9,622 12,031
Retained earnings 134,797 124,430
Net unrealized appreciation, net of applicable income taxes of
$19,526 in 1996 and $19,232 in 1995 36,756 36,194
- -----------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 216,969 $208,753
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,010,434 $943,106
=====================================================================================================
The Notes to Unaudited Consolidated Financial Statements are an integral part of
these statements.
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UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
- --------------------------------------------------------------------------------------------
(Dollars in Thousands
Except Per Share Data)
- --------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------
Revenues
Premiums earned $ 60,722 $ 52,382
Investment income, net 14,530 13,542
Realized investment gains and other income 569 521
Commission and policy fee income 495 457
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76,316 66,902
- --------------------------------------------------------------------------------------------
Benefits, Losses and Expenses
Losses and settlement expenses 47,778 31,918
Increase in liability for future policy benefits 1,718 2,594
Amortization of deferred policy acquisition costs 13,060 10,456
Other underwriting expenses 8,276 7,892
Interest on policyholders' accounts 5,239 4,974
- --------------------------------------------------------------------------------------------
76,071 57,834
- --------------------------------------------------------------------------------------------
Income before income taxes 245 9,068
Federal income taxes (1,054) 2,507
- --------------------------------------------------------------------------------------------
Net income 1,299 $ 6,561
============================================================================================
Net Income per common share $ 0.12 $ 0.60
============================================================================================
Weighted average common shares outstanding 10,740,639 10,829,554
============================================================================================
Cash dividends declared per common share $ 0.15 $ 0.13
============================================================================================
The Notes to Unaudited Consolidated Financial Statements are an integral part of
these statements.
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UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
- -----------------------------------------------------------------------------------------
(Dollars in Thousands
Except Per Share Data)
- -----------------------------------------------------------------------------------------
1996 1995
- -----------------------------------------------------------------------------------------
Revenues
Premiums earned $ 172,524 $ 153,662
Investment income, net 42,628 39,366
Realized investment gains and other income 5,417 1,433
Commission and policy fee income 1,440 1,396
- -----------------------------------------------------------------------------------------
222,009 195,857
- -----------------------------------------------------------------------------------------
Benefits, Losses and Expenses
Losses and settlement expenses 123,268 92,831
Increase in liability for future policy benefits 4,312 7,304
Amortization of deferred policy acquisition costs 38,752 30,321
Other underwriting expenses 21,604 24,055
Interest on policyholders' accounts 15,408 14,880
- -----------------------------------------------------------------------------------------
203,344 169,391
- -----------------------------------------------------------------------------------------
Income before income taxes 18,665 26,466
Federal income taxes 3,450 6,414
- -----------------------------------------------------------------------------------------
Net income $ 15,215 $ 20,052
=========================================================================================
Net Income per common share $ 1.41 $ 1.85
=========================================================================================
Weighted average common shares outstanding 10,788,080 10,829,654
=========================================================================================
Cash dividends declared per common share $ 0.45 $ 0.40
=========================================================================================
The notes to Unaudited Consolidated Financial Statements are an integral part of
these statements.
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UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
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(Dollars in Thousands)
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1996 1995
- --------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income $ 15,215 $ 20,052
- --------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by
operating activities
Net bond discount accretion (421) (685)
Depreciation and amortization 1,604 1,044
Realized investment gains (3,360) (1,433)
Changes in:
Accrued investment income (599) (653)
Accounts receivable (9,202) (8,353)
Deferred policy acquisition costs (5,196) (4,648)
Reinsurance receivables (5,351) 7,548
Prepaid reinsurance premiums (479) (925)
Income taxes receivable (1,974) (1,233)
Other assets (107) 953
Future policy benefits and losses, claims and
settlement expenses 26,817 6,567
Unearned premiums 13,077 13,472
Accrued expenses and other liabilities 7,562 820
Employee benefit obligations 719 590
Deferred income taxes (1,762) 1,247
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Total adjustments $ 21,328 $ 14,311
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Net cash provided by operating activities $ 36,543 $ 34,363
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Cash Flows From Investing Activities
Proceeds from sale of available-for-sale investments $ 21,978 $ 1,345
Proceeds from call and maturity of held-to-maturity investments 60,840 19,187
Proceeds from call and maturity of available-for-sale investments 5,454 3,205
Proceeds from sale of other investments 18,929 7,277
Purchase of investments held-to-maturity (111,896) (80,473)
Purchase of investments available-for-sale (21,447) (3,219)
Purchase of other investments (10,575) (9,643)
Proceeds from sale of property and equipment 501 889
Purchase of property and equipment (1,490) (1,953)
- ---------------------------------------------------------------------------------------------------
Net cash used in investing activities $(37,706) $(63,385)
- ---------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Policyholders' account balances
Deposits to investment and universal life type contracts $ 64,386 $ 65,985
Withdrawals from investment and universal life type contracts (50,356) (35,202)
Purchase and retirement of common stock (2,713) (10)
Payment of cash dividends (6,473) (5,777)
- ---------------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 4,844 $ 24,996
- ---------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents $ 3,681 $ (4,026)
Cash and Cash Equivalents at Beginning of Year 6,998 10,255
- ---------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 10,679 $ 6,229
===================================================================================================
The Notes to Unaudited Consolidated Financial Statements are an integral part of
these statements.
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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 adjustments)
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, 1995. 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 ("GAAP"), adjustments have been made in order to
present the accompanying financial statements on the basis of GAAP.
The preparation of financial statements in conformity with GAAP 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 the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Certain amounts included in the financial statements for the previous year
have been reclassified to conform with the financial statement presentation at
September 30, 1996.
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 nine month periods
ended September 30, 1996 and 1995 were $8,200,000, and $6,400,000, respectively.
There were no significant payments of interest through September 30, 1996 and
1995, other than interest credited to policyholders' accounts.
NOTE 4.
Earnings per common share, common shares outstanding and weighted average
common shares outstanding have been retroactively restated for additional shares
issued as a result of a three for two stock split to stockholders of record as
of December 18, 1995.
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UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5.
Included in realized gains and other income is $2,057,000 in interest in
connection with the settlement of a Federal income tax Revenue Agent Review for
previous tax years.
NOTE 6.
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.
In the fourth quarter of 1995, concurrent with the adoption of its
implementation guide on SFAS No. 115, the Financial Accounting Standards Board
allowed a one-time reassessment of the SFAS No. 115 classifications of all
securities currently held. Any reclassifications would be accounted for at fair
value in accordance with SFAS No. 115 and any reclassifications from the
held-to-maturity portfolio that resulted from this one-time reassessment would
not call into question the intent of the Company to hold other debt securities
to maturity in the future. The Company used the opportunity under this one-time
reassessment to reclassify $79,131,000 in securities from held-to-maturity to
the available-for-sale portfolio. In connection with this reclassification ,
gross unrealized gains of $5,145,000 and gross unrealized losses of $908,000
were recorded in available-for-sale securities and in stockholders' equity.
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10
UNITED FIRE & CASUALTY COMPANY
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 September 30, 1996 is as
follows.
- -----------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1996 Gross Gross
Amortized Unrealized Unrealized Fair
TYPE OF INVESTMENT Cost Appreciation Depreciation Value
- -----------------------------------------------------------------------------------------------------------
HELD-TO-MATURITY
Fixed Maturities
Bonds
United States Government,
government agencies and authorities
Collateralized mortgage obligations ("CMOs") $ 27,676 $ 277 $1,185 $ 26,768
Mortgage-backed securities 23,739 1,747 2 25,484
All others 3,842 270 45 4,067
States, municipalities and political subdivisions 206,702 7,954 1,190 213,466
Foreign 6,846 153 41 6,958
Public utilities 71,170 217 1,986 69,401
Corporate bonds
Collateralized mortgage obligations ("CMOs") 96,044 2,162 1,444 96,762
All other corporate bonds 205,433 5,747 2,308 208,872
- -----------------------------------------------------------------------------------------------------------
Total held-to-maturity $641,452 $18,527 $8,201 $651,778
===========================================================================================================
AVAILABLE-FOR-SALE
Fixed Maturities
Bonds
United States Government,
government agencies and authorities
Collateralized mortgage obligations ("CMOs") $ 57,955 $ 468 $3,259 $ 55,164
Mortgage-backed securities 69 4 0 73
All others 6,679 17 26 6,670
Public utilities 206 0 24 182
Corporate bonds
Collateralized mortgage obligations ("CMOs") 11,825 74 1,050 10,849
All other corporate bonds 614 12 10 616
- -----------------------------------------------------------------------------------------------------------
Total available-for-sale fixed maturities $ 77,348 $ 575 $4,369 $ 73,554
- -----------------------------------------------------------------------------------------------------------
Equity securities
Common stocks
Public utilities $ 3,562 $ 4,772 $ 0 $ 8,334
Banks, trust and insurance companies 12,589 38,293 0 50,882
All other common stocks 8,916 16,391 344 24,963
Nonredeemable preferred stocks 850 7 25 832
- -----------------------------------------------------------------------------------------------------------
Total equity securities $ 25,917 $59,463 $ 369 $ 85,011
- -----------------------------------------------------------------------------------------------------------
Total available-for-sale $103,265 $60,038 $4,738 $158,565
===========================================================================================================
Other long-term investments $ 8,140 $ 1,015 $ 32 $ 9,123
===========================================================================================================
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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 September 30, 1996 by contractual maturity are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
- -------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
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SEPTEMBER 30, 1996 Held-to-maturity Available-for-sale
- -------------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------
Due in one year or less $ 11,193 $ 11,349 $ 48 $ 48
Due after one year through five years 130,651 135,458 801 781
Due after five years through ten years 157,015 159,157 3,314 3,287
Due after ten years 195,134 196,800 3,336 3,352
Mortgage-backed securities 23,739 25,484 69 73
Collateralized mortgage obligations ("CMOs") 123,720 123,530 69,780 66,013
- -------------------------------------------------------------------------------------------------------------
$641,452 $651,778 $77,348 $73,554
=============================================================================================================
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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 fixed income portfolio increased $40,612,000 between
September 30, 1996 and December 31, 1995. Net unrealized losses of $3,794,000
were recorded on the available-for-sale fixed maturity securities, compared to
an unrealized gain of $4,243,000 at December 31, 1995. Approximately 27% of the
Company's fixed maturities are collateralized mortgage obligations ("CMOs"),
compared to 31% at December 31, 1995. The Company minimizes its prepayment risk
by buying mostly 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 also invests in readily marketable common and preferred stocks,
all of which are classified as available-for-sale. Other long-term investments
are primarily holdings in limited partnership funds investing in banks.
Unrealized appreciation on stocks and other long-term investments, net of
applicable income taxes, increased between 1996 and 1995 by $8,893,000 or 17%.
The Company's short-term investments, comprised of money market accounts,
overnight repurchase agreements and fixed maturities are utilized to meet
anticipated short-term cash requirements. At December 31, 1995, the Company held
a larger than normal balance in this account in anticipation of a withdrawal of
a block of single premium business which occurred during the first quarter of
1996.
The Company's accounts receivable are balances due from property and
casualty insurance agents and brokers for premiums written, net of commissions.
In 1996, this asset grew by $9,202,000 or 24% due to increased property and
casualty premium writings.
The balance in the Company's deferred acquisition costs asset increased
$5,196,000 or 10% between September 30, 1996 and December 31, 1995. The increase
in property and casualty premiums and associated expenses contributed to this
increase.
Reinsurance receivables are loss and expense payments and ceded reserves
that are due the Company from reinsurers. The Company does not anticipate
collection problems with regard to any of its reinsurance receivables.
LIABILITIES
The property and casualty segment's gross reserves before ceded reinsurance
for losses and settlement expenses increased $22,756,000 or 11% between 1996 and
1995. The largest catastrophe reserve continues to be the Northridge earthquake,
with gross reserves remaining of $5,323,000, compared to $3,733,000 at December
31, 1995.
FINANCIAL CONDITION AND LIQUIDITY
The Company is not aware of any significant environmental liabilities.
Because the Company writes property coverage, there does exist the potential for
exposure to environmental pollution and asbestos claims. The Company's
underwriters are
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13
UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
aware of these exposures and use limited riders or endorsements to limit
exposure.
The liability for future policy benefits and interest on policyholders'
accounts saw an increase of $18,091,000 for the nine months ended September 30,
1996. During the third quarter, $9,500,000 of this increase is in the deferred
annuity line of business. Surrenders in this line were offset by $15,000,000 in
premiums received for the three months ended September 30, 1996. Single premium
whole life experienced an increase of $1,300,000 in the third quarter compared
to $1,900,000 in the first six months. This, combined with normal increases in
other lines of business offset the full fund withdrawal of one block of
universal life business totaling $15,600,000 during the first quarter.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
PROPERTY AND CASUALTY OPERATIONS
Property and casualty premiums earned increased 14%, or $19,944,000 through
September 30, 1996, when compared to September 30, 1995. Much of the growth came
from our direct business and was concentrated in four midwestern states. In
addition, ceded premium rates remain flat, which has the effect of increasing
net premiums written.
Loss and settlement expenses incurred by the property and casualty segment
for the third quarter of 1996 increased 52% or $15,617,000 over 1995 due to
general growth, and a few large commercial auto liability losses. Winter storms
occurring during the first two months and wind and hail storms occurring during
the second quarter adversely affected our nine month results.
The increase in the property and casualty segments' other underwriting
expenses, (including amortization of deferred acquisition costs) of $7,242,000
or 16%, resulted primarily from an increase in commissions incurred.
LIFE OPERATIONS
The decrease of $1,109,000 in premiums earned is attributed to a decrease in
collected traditional life premiums. The change in interest credited increased
by only $528,000 compared to $2,459,000 at September 30, 1995. Even though the
liability for future benefits increased for the deferred annuity block of
business, the average interest rate being credited on this block is lower than
it was during 1995. This is partially due to lower market rates and partially
due to annuity contracts that were receiving guaranteed interest rates from 7.5%
to 8% which have reached the end of the guaranteed period and are being
exchanged for quarantees of 5.5% to 6% during 1996. Also, the withdrawal of one
block of universal life business totaling $15,600,000 during the first quarter
has resulted in less interest being credited this year. We anticipate a similar
comparison throughout 1996.
INVESTMENT RESULTS
Investment income rose 8% in 1996, over 1995, which is largely attributable
to a growing fixed income portfolio. In the first half of 1996, the Company took
advantage of market conditions and sold a few of its available-for-sale fixed
income securities, contributing to the realized gain increase of $3,984,000. In
addition, the settlement of a Federal income tax Revenue Agent Review for
previous tax years resulted in the receipt of $2,057,000 in interest, which is
included in realized investment gains and other income.
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14
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 13)
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)
OCTOBER 30, 1996
- -----------------------------------------------------------------------
(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
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