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, 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 November 2, 1995, 7,219,780 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 September 30, 1995 and December 31, 1994.......... 4 Unaudited Consolidated Statements of Operations - Three Months Ended September 30, 1995 and 1994....................... 5 Unaudited Consolidated Statements of Operations - Nine Months Ended September 30, 1995 and 1994....................... 6 Unaudited Consolidated Statements of Cash Flows - Nine Months Ended September 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 September 30, 1995, and the related consolidated statements of operations for the three-month and nine-month periods ended September 30, 1995 and 1994, and the consolidated statements of cash flows for the nine-month periods ended September 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, November 2, 1995
4 <TABLE> <CAPTION> UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1995 AND DECEMBER 31, 1994 _____________________________________________________________________________________________________ 1995 1994 UNAUDITED Audited _____________________________________________________________________________________________________ <S> <C> <C> ASSETS INVESTMENTS: Fixed maturities (market value $675,557,339 in 1995 and $571,306,514 in 1994) . . . . . . . . . . . . . . . . . . . . .$655,424,754 $593,637,794 Equity securities (cost $25,039,173 in 1995 and $24,913,743 in 1994). . . . . . . . . . . . . . . . . . 71,472,530 56,196,670 Mortgage loans. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,061,095 3,120,093 Policy loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,047,233 6,802,227 Other long-term investments (cost $7,313,314 in 1995 and $6,556,845 in 1994) . . . . . . . . . . . . . . . . . . 7,966,607 7,071,898 Short-term investments. . . . . . . . . . . . . . . . . . . . . . . 11,378,106 9,954,637 _____________________________________________________________________________________________________ 756,350,325 676,783,319 CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . . . 6,229,313 10,254,892 ACCRUED INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . . 11,063,630 10,410,792 ACCOUNTS RECEIVABLE. . . . . . . . . . . . . . . . . . . . . . . . . . 42,217,206 33,864,498 DEFERRED POLICY ACQUISITION COSTS. . . . . . . . . . . . . . . . . . . 52,192,309 47,544,519 PROPERTY AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . . . . . 12,948,788 12,737,712 REINSURANCE RECEIVABLES. . . . . . . . . . . . . . . . . . . . . . . . 16,674,160 24,222,444 PREPAID REINSURANCE PREMIUMS . . . . . . . . . . . . . . . . . . . . . 3,958,413 3,033,531 INTANGIBLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,691,171 1,882,196 INCOME TAXES RECEIVABLE. . . . . . . . . . . . . . . . . . . . . . . . 406,751 -- OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,438,626 7,391,810 _____________________________________________________________________________________________________ TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$910,170,692 $828,125,713 ===================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY _____________________________________________________________________________________________________ LIABILITIES: Future policy benefits and losses, claims and settlement expenses Property and casualty insurance . . . . . . . . . . . . . . . . .$200,923,268 $203,910,747 Life insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 384,433,829 344,095,937 Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . 96,922,113 83,450,394 Accrued expenses and other liabilities. . . . . . . . . . . . . . . 21,885,733 22,323,899 Postretirement benefits other than pensions . . . . . . . . . . . . 2,770,778 2,366,492 Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . -- 826,379 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 7,039,698 498,437 _____________________________________________________________________________________________________ TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . .$713,975,419 $657,472,285 _____________________________________________________________________________________________________ STOCKHOLDERS' EQUITY: Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 24,065,947 $ 24,066,490 Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . 12,038,946 12,048,856 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 129,336,250 113,616,829 Net unrealized appreciation, net of applicable income taxes of $16,303,716 in 1995 and $11,009,092 in 1994 . . . . 30,754,130 20,921,253 _____________________________________________________________________________________________________ TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . .$196,195,273 $170,653,428 _____________________________________________________________________________________________________ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . .$910,170,692 $828,125,713 ===================================================================================================== The Notes to Unaudited Consolidated Financial Statements are an integral part of these statements. </TABLE>
5 <TABLE> <CAPTION> UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 ___________________________________________________________________________________________________ 1995 1994 ___________________________________________________________________________________________________ <S> <C> <C> Revenues: Premiums earned . . . . . . . . . . . . . . . . . . . . . . . . $ 52,382,055 $ 48,156,713 Investment income, net . . . . . . . . . . . . . . . . . . . . 13,542,081 11,984,846 Realized investment gains . . . . . . . . . . . . . . . . . . . 520,837 138,020 Commission and policy fee income. . . . . . . . . . . . . . . . 456,596 489,884 ___________________________________________________________________________________________________ $ 66,901,569 $ 60,769,463 ___________________________________________________________________________________________________ Benefits, Losses and Expenses: Losses and settlement expenses. . . . . . . . . . . . . . . . . $ 31,916,998 $ 35,011,072 Increase in liability for future policy benefits. . . . . . . . 2,594,558 1,231,280 Amortization of deferred policy acquisition costs . . . . . . . 10,456,515 11,586,982 Other underwriting expenses . . . . . . . . . . . . . . . . . . 7,891,779 4,420,730 Interest on policyholders' accounts . . . . . . . . . . . . . . 4,973,964 4,258,146 ___________________________________________________________________________________________________ $ 57,833,814 $ 56,508,210 ___________________________________________________________________________________________________ Income before income taxes. . . . . . . . . . . . . . . . . . . $ 9,067,755 $ 4,261,253 Federal income taxes . . . . . . . . . . . . . . . . . . . . . 2,506,969 778,259 ___________________________________________________________________________________________________ Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,560,786 $ 3,482,994 =================================================================================================== Net income per common share . . . . . . . . . . . . . . . . . . $ .91 $ .48 =================================================================================================== Weighted average common shares outstanding . . . . . . . . . . . . 7,219,842 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. </TABLE>
6 <TABLE> <CAPTION> UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 ___________________________________________________________________________________________________ 1995 1994 ___________________________________________________________________________________________________ <S> <C> <C> Revenues: Premiums earned . . . . . . . . . . . . . . . . . . . . . . . . $153,661,885 $135,203,041 Investment income, net . . . . . . . . . . . . . . . . . . . . 39,366,001 33,630,455 Realized investment gains . . . . . . . . . . . . . . . . . . . 1,433,264 636,920 Commission and policy fee income. . . . . . . . . . . . . . . . 1,395,476 1,457,948 ___________________________________________________________________________________________________ $195,856,626 $170,928,364 ___________________________________________________________________________________________________ Benefits, Losses and Expenses: Losses and settlement expenses. . . . . . . . . . . . . . . . . $ 92,830,561 $ 91,833,818 Increase in liability for future policy benefits. . . . . . . . 7,304,352 3,988,127 Amortization of deferred policy acquisition costs . . . . . . . 30,321,087 26,443,612 Other underwriting expenses . . . . . . . . . . . . . . . . . . 24,054,911 20,516,531 Interest on policyholders' accounts . . . . . . . . . . . . . . 14,880,012 12,420,926 ___________________________________________________________________________________________________ $169,390,923 $155,203,014 ___________________________________________________________________________________________________ Income before income taxes. . . . . . . . . . . . . . . . . . . $ 26,465,703 $ 15,725,350 Federal income taxes . . . . . . . . . . . . . . . . . . . . . 6,413,612 2,784,838 ___________________________________________________________________________________________________ Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,052,091 $ 12,940,512 =================================================================================================== Net income per common share . . . . . . . . . . . . . . . . . . $ 2.78 $ 1.79 =================================================================================================== Weighted average common shares outstanding . . . . . . . . . . . . 7,219,909 7,219,943 =================================================================================================== Cash dividends declared per common share . . . . . . . . . . . . . $ .60 $ . 54 =================================================================================================== The Notes to Unaudited Consolidated Financial Statements are an integral part of these statements. </TABLE>
7 <TABLE> <CAPTION> UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 _____________________________________________________________________________________________________ 1995 1994 _____________________________________________________________________________________________________ <S> <C> <C> Cash Flows From Operating Activities: Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,052,091 $ 12,940,512 _____________________________________________________________________________________________________ Adjustments to reconcile net income to net cash provided by operating activities: Net bond discount accretion . . . . . . . . . . . . . . . . . . . . (685,484) (247,453) Depreciation and amortization . . . . . . . . . . . . . . . . . . . 1,043,787 1,846,273 Realized gains on sales and calls of investments. . . . . . . . . . (1,433,264) (636,920) Changes in: Accrued investment income . . . . . . . . . . . . . . . . . . . . (652,838) 408,391 Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . (8,352,708) (6,248,685) Deferred policy acquisition costs . . . . . . . . . . . . . . . . (4,647,790) (3,571,170) Reinsurance receivables . . . . . . . . . . . . . . . . . . . . . 7,548,284 (4,626,338) Prepaid reinsurance premiums. . . . . . . . . . . . . . . . . . . (924,882) (99,069) Income taxes receivable . . . . . . . . . . . . . . . . . . . . . (406,751) (853,156) Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 953,184 378,611 Future policy benefits and losses, claims and settlement expenses . . . . . . . . . . . . . . . . . . . . . . . 6,567,299 21,318,774 Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . 13,471,719 10,264,538 Accrued expenses and other liabilities. . . . . . . . . . . . . . 1,005,823 (787,685) Postretirement benefits other than pensions . . . . . . . . . . . 404,286 423,195 Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . (826,379) -- Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 1,246,637 (1,473,833) _____________________________________________________________________________________________________ Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,310,923 $ 16,095,473 _____________________________________________________________________________________________________ Net cash provided by operating activities . . . . . . . . . . . . . $ 34,363,014 $ 29,035,985 _____________________________________________________________________________________________________ Cash Flows From Investing Activities: Proceeds from sale of available-for-sale investments. . . . . . . . $ 1,344,627 $ 196,217 Proceeds from call and maturity of held-to-maturity investments . . 19,186,787 45,582,994 Proceeds from call and maturity of available-for-sale investments . 3,205,191 1,595,230 Proceeds from sale of other investments . . . . . . . . . . . . . . 7,276,603 16,396,576 Purchase of investments held-to-maturity. . . . . . . . . . . . . . (80,472,978) (90,709,090) Purchase of investments available-for-sale. . . . . . . . . . . . . (3,218,442) (854,401) Purchase of other investments . . . . . . . . . . . . . . . . . . . (9,642,545) (26,418,438) Proceeds from sale of property and equipment. . . . . . . . . . . . 889,126 32,070 Purchase of property and equipment. . . . . . . . . . . . . . . . . (1,952,964) (1,075,603) _____________________________________________________________________________________________________ Net cash used in investing activities . . . . . . . . . . . . . . . $(63,384,595) $(55,254,445) _____________________________________________________________________________________________________ Cash Flows From Financing Activities: Policyholders' account balances Deposits to investment and universal life type contracts. . . . . $ 65,985,538 $ 45,266,189 Withdrawals from investment and universal life type contracts . . (35,202,424) (20,657,830) Purchase and retirement of common stock . . . . . . . . . . . . . . (10,453) -- Payment of cash dividends . . . . . . . . . . . . . . . . . . . . . (5,776,659) (5,198,517) _____________________________________________________________________________________________________ Net cash provided by financing activities . . . . . . . . . . . . . $ 24,996,002 $ 19,409,842 _____________________________________________________________________________________________________ Decrease in Cash and Cash Equivalents . . . . . . . . . . . . . . . $ (4,025,579) $ (6,808,618) Cash and Cash Equivalents at Beginning of Year. . . . . . . . . . . 10,254,892 13,704,164 _____________________________________________________________________________________________________ Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . $ 6,229,313 $ 6,895,546 ===================================================================================================== The Notes to Unaudited Consolidated Financial Statements are an integral part of these statements. </TABLE>
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 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, 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 September 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 nine months ended September 30, 1995 and 1994 were $6,400,000, and $4,650,000, respectively. There were no significant payments of interest through September 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 September 30, 1995 is reported on the next page.
10 <TABLE> <CAPTION> UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS _____________________________________________________________________________________________________ SEPTEMBER 30, 1995 Gross Gross Amortized Unrealized Unrealized Fair TYPE OF INVESTMENT Cost Appreciation Depreciation Value _____________________________________________________________________________________________________ <S> <C> <C> <C> <C> HELD-TO-MATURITY Fixed Maturities Bonds U.S. Government, government agencies and authorities Collateralized mortgage obligations $ 94,327,085 $ 2,259,364 $ 1,453,781 $ 95,132,668 Mortgage-backed securities 29,696,145 2,172,349 2,729 31,865,765 All others 2,236,689 349,119 6,912 2,578,896 States, municipalities and political subdivisions 183,447,383 9,815,157 665,063 192,597,477 Foreign 6,859,461 296,960 -- 7,156,421 Public utilities 47,159,267 386,840 698,488 46,847,619 Corporate bonds Collateralized mortgage obligations 103,602,758 2,497,993 2,153,644 103,947,107 All other corporate bonds 186,765,724 7,918,952 583,532 194,101,144 _____________________________________________________________________________________________________ Total held-to-maturity $654,094,512 $ 25,696,734 $ 5,564,149 $674,227,097 _____________________________________________________________________________________________________ AVAILABLE-FOR-SALE Fixed Maturities Bonds U.S. Government, government agencies and authorities Mortgage-backed securities $ 77,577 $ 5,058 $ -- $ 82,635 All others 326,274 957 7,228 320,003 Public utilities 206,000 -- 28,000 178,000 Corporate bonds 749,195 15,714 15,305 749,604 _____________________________________________________________________________________________________ Total fixed maturities $ 1,359,046 $ 21,729 $ 50,533 $ 1,330,242 _____________________________________________________________________________________________________ Equity Securities Common stocks Public Utilities $ 3,561,403 $ 4,305,442 $ -- $ 7,866,845 Banks, trust and insurance companies 11,964,375 26,838,411 102,081 38,700,705 All other common stocks 8,609,780 15,643,237 313,628 23,939,389 Nonredeemable preferred stocks 903,615 76,976 15,000 965,591 _____________________________________________________________________________________________________ Total equity securities $ 25,039,173 $ 46,864,066 $ 430,709 $ 71,472,530 _____________________________________________________________________________________________________ Total available-for-sale $ 26,398,219 $ 46,885,795 $ 481,242 $ 72,802,772 ===================================================================================================== Other long-term investments $ 7,313,314 $ 804,527 $ 151,234 $ 7,966,607 ===================================================================================================== </TABLE>
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 September 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. <TABLE> <CAPTION> ____________________________________________________________________________________________________ Held-to-maturity Available-for-sale ____________________________________________________________________________________________________ Amortized Cost Fair Value Amortized Cost Fair Value ____________________________________________________________________________________________________ <S> <C> <C> <C> <C> Due in one year or less $ 6,537,247 $ 6,622,063 $ 100,413 $ 101,052 Due after one year through five years 63,922,507 66,936,601 530,261 525,325 Due after five years through ten years 169,065,860 177,173,448 650,795 621,230 Due after ten years 186,942,910 192,549,445 -- -- Mortgage-backed securities 29,696,145 31,865,765 77,577 82,635 Collateralized mortgage obligations 197,929,843 199,079,775 -- -- ____________________________________________________________________________________________________ $ 654,094,512 $ 674,227,097 $ 1,359,046 $ 1,330,242 ==================================================================================================== </TABLE>
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 investments in fixed maturities increased by 10.4% or $61,787,000 through September 30, 1995. Approximately 30% 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 $46,433,000 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 $8,353,000 or 24.7% is largely the result of three factors. The property and casualty segment has experienced growth in its direct and assumed premium writings. In addition, many insureds opt to utilize the Company's deferred billing plan, which has the effect of increasing the agents accounts receivable. The third 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. By December 31 of each year, these premiums are earned, so the deposit in accounts receivable is eliminated.
13 UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION AND LIQUIDITY (CONTINUED) 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. Reinsurance receivables are ceded losses, expenses and reserves that are due the Company from reinsurers. The balance in this asset decreased $7,548,000 or 31.2% due primarily to the settlement of a large claim during the first quarter of 1995, and losses paid in connection with the 1994 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 $2,987,000 or 1.5% between September 30, 1995 and December 31, 1994. Gross reserves relating to the Northridge earthquake were $3,935,000 through September 30, 1995, compared to $6,144,000 at September 30, 1994. Net reserves related to the hurricanes of 1995 total less than $65,000. 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 $438,000 or 2.0%. The Company establishes accruals for expenses such as contingent commissions and state premium taxes and it is typical for these accruals to be greater at the end of the year than at any other time of the year. The major contributing factor to the growth of $6,541,000 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 $18,459,000 or 13.7% over the same nine month period in 1994. The property and casualty segment has experienced growth in its direct and assumed business, with much of the direct increase coming from five midwestern states. The line of business showing the greatest direct premium increase is workers compensation. In addition to direct and assumed growth, the Company has had to pay less for its ceded protection due to a decrease in ceded premium rates. Investment income increased 17.1% over September 30, 1994, which is attributable to a larger fixed maturity portfolio. Investment yields for September 30, 1995 and 1994 were 7.3% and 7.2%, respectively. Realized gains increased $796,000, most of which was due to the sale of an available-for-sale preferred stock holding. Losses and settlement expenses increased 1.1% or $997,000 between years. An absence of significant exposure to catastrophes and a reduction in loss expenses have contributed to the Company's favorable results. Gross losses incurred related to the Northridge earthquake were $3,477,000 for the first nine months of 1995, compared to $7,259,000 at September 30, 1994. Ceded losses incurred related to the Northridge earthquake were $2,068,000 for the first nine months of 1995, compared to $2,512,000 at September 30, 1994. The Company has incurred just $44,000 on a net basis in connection with the Kobe earthquake, and anticipates minimal additional exposure. The active hurricane season of the past few months has resulted in net losses incurred by the Company of $156,000. Amortization of deferred acquisition costs increased by $3,877,000 or 14.7% over September 30, 1994 due to growth in premium writings. 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) NOVEMBER 2, 1995 _____________________________________ (DATE) /S/ SCOTT MCINTYRE, JR. _____________________________________ SCOTT MCINTYRE, JR. CHAIRMAN AND CHIEF EXECUTIVE 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 <TABLE> <CAPTION> _________________________________________________________________________________________________ Weighted Average Net Net Income per Number of Shares Income Common Share Outstanding _________________________________________________________________________________________________ Three months ended September 30: <S> <C> <C> <C> 1995 . . . . . . . . . . 7,219,842 $ 6,560,786 $ .91 1994 . . . . . . . . . . 7,219,943 3,482,994 .48 Nine months ended September 30: 1995 . . . . . . . . . . 7,219,909 $20,052,091 $ 2.78 1994 . . . . . . . . . . 7,219,943 12,940,512 1.79 </TABLE> Computation of weighted average number of common and common equivalent shares: <TABLE> <CAPTION> ____________________________________________________________________ Three Months Ended September 30, Nine Months Ended September 30, 1995 1994 1995 1994 ____________________________________________________________________ <S> <C> <C> <C> <C> Common shares outstanding beginning of the period . . . . . . . . 7,219,943 7,219,943 7,219,943 7,219,943 Weighted average of treasury shares purchased and retired. . . . . . (101) -- (34) -- __________ __________ __________ __________ Weighted average number of common shares . . . . . . . . . . . . . 7,219,842 7,219,943 7,219,909 7,219,943 ========== ========== ========== ========== </TABLE>