Contacts: Analyst contact: Dennis E. McDaniel
Vice President, Financial Accounting and Investor Relations
513-603-2197
dennis.mcdaniel@ocas.com
Media contact: Cindy L. Denney
Assistant Vice President, Corporate Communications
513-603-2074; cell phone: 703-7372
cindy.denney@ocas.com
For Immediate Release
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OHIO CASUALTY GROUP MEMBER COMPANY TRANSFERS
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OBLIGATIONS TO RENEW PRIVATE PASSENGER AUTO BUSINESS
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IN NEW JERSEY
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FAIRFIELD, Ohio, December 19, 2001 - Ohio Casualty Corporation (Nasdaq: OCAS)
(the Corporation) today announced that Ohio Casualty of New Jersey, Inc. (OCNJ)
has transferred its obligations to renew 100% of OCNJ's private passenger
automobile business written in the state of New Jersey to Proformance Insurance
Company (Proformance), Freehold, New Jersey. Ohio Casualty Corporation is the
holding company of The Ohio Casualty Insurance Company (the Company). The
Company, together with Ohio Casualty of New Jersey, Inc. and four other
property-casualty subsidiary companies, make up Ohio Casualty Group. National
Atlantic Holdings Corporation is the parent of Proformance Insurance Company.
Merrill Lynch & Co. advised the Corporation on the transaction and issued a
fairness opinion.
President and CEO Dan Carmichael, CPCU, commented "This transaction to
effectively exit New Jersey private passenger auto business eliminates a major
risk to the successful execution of our Corporate Strategic Plan. Since the
Plan was announced in June, the environment in New Jersey private passenger
auto business has become more unstable for the Corporation due to the inability
to control the volume of writings and profitability of this line of business in
the state. Writing profitable business in the New Jersey private passenger
auto market is not one of our core competencies. Although there is a
significant cost in exiting this market, the New Jersey transaction allows us
to focus on our core competencies and to grow our other lines of business in
New Jersey. It is expected to also lead to improved operating performance in
2002 and beyond. The transaction we are announcing today concludes a
significant effort to evaluate alternatives to reduce or eliminate the risk of
our continued participation in the New
Jersey private passenger auto market. We firmly believe this transaction is
our best course of action."
Under the terms of this transaction, OCNJ will pay Proformance $40.6 million to
assume its obligations of renewal for the New Jersey private passenger auto
policies. OCNJ will also have a contingent liability of up to $15.6 million
(supported by a guarantee from the Company) to be paid to Proformance to
maintain a premiums-to-surplus ratio of 2.5 to 1 on the transferred business if
the premiums-to-surplus ratio increases above 2.5 to 1 during the next 3 years.
OCNJ will cease writing private passenger auto business in New Jersey, but OCNJ
will be retained by the Company as a subsidiary. In addition, the Company or
one of its subsidiary companies will purchase, for $500,000, a 19.99 percent
non-voting equity stake in Proformance's parent, National Atlantic Holdings
Corporation. The Ohio Casualty Group will maintain all of its other lines of
business in New Jersey, including homeowners, standard commercial lines, and
specialty commercial lines.
Elizabeth Riczko, FCAS, MAAA, CPCU, Executive Vice President and COO for
Personal Lines, commented "The New Jersey private passenger auto business has
been losing money and draining valuable resources and was projected to continue
to do so in the future as long as needed price increases were not achieved. We
expect the elimination of New Jersey private passenger auto business to
positively impact the before-tax underwriting results by approximately $14
million and $19 million in 2002 and 2003, respectively, and to a similar degree
for several years thereafter."
The projected impact of the New Jersey transaction on the Corporation for the
years 2001 through 2003 is summarized on the following table.
Projected impact of the New Jersey transaction versus continuing to write New
Jersey private passenger auto business ($ in millions):
2001 2002 2003
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Net Premiums Written $ - $(99) $(127)
Net Premiums Earned - (45) (121)
Losses and Loss Expenses - (45) (120)
Underwriting Expenses (1) 41 (14) (20)
Statutory Underwriting Gain (Loss) (41) 14 19
Operating Income - After Tax (26) 8 12
(1)Underwriting expenses assumes contingent liability is zero
The initial payment of $40.6 million for the transfer of the renewal obligation
for the New Jersey private passenger auto business, to be paid in twelve
installments concurrent with non-renewal of policies by OCNJ, will be accrued
in the fourth quarter of 2001. This will reduce after-tax operating income by
approximately $26 million in the fourth quarter of 2001. Statutory surplus is
also reduced by approximately $26 million subject to deferred tax asset
admissibility limits that could temporarily reduce statutory surplus to a
larger degree until actual payments are made. The reduction in statutory
surplus is not expected to cause any violation of the Corporation's debt
covenants.
On or about March 31, 2002, OCNJ will begin sending required notices of non-
renewal to its existing policyholders, along with notices that offer a
guaranteed option to renew their policies with Proformance. Proformance also
will appoint approximately 200 of OCNJ's agencies.
As of September 30, 2001, OCNJ had approximately 66,000 personal auto policies
in force in New Jersey, with approximately $91 million in net premiums written
year-to-date as of September 30, 2001. All other lines of business in the
state, which are expected to remain near current levels, total approximately
$105 million in net premiums written year-to-date as of September 30, 2001.
Of the approximately 314 claims and underwriting operations employees in New
Jersey, approximately 117 will be impacted by this transaction in the months
ahead as business is transitioned to Proformance. These employees will be
transferred to Proformance and there will be no severance related expenses for
Ohio Casualty Group. The employees impacted are located primarily in OCNJ's
regional office in Voorhees, New Jersey, and in the New Jersey regional claims
office, Mt. Laurel, New Jersey.
Impact on Statutory Property & Casualty Projected Results for Years 2001-2003
In June 2001 the Corporation announced a new Corporate Strategic Plan that
included combined ratio projections for years 2001 through 2003. Through the
third quarter of 2001 the financial performance of the Corporation was on track
to successfully achieve the first fiscal year financial results of the
Corporate Strategic Plan. The elimination of the New Jersey private passenger
auto business is expected to increase the underwriting expense ratio while
lowering the loss and loss adjustment expense ratio by a greater degree over a
period of time.
The Corporation is in the process of reviewing its reinsurance contracts for
2002 and updating its Corporate Strategic Plan. The recent terrorist attacks
are expected to increase reinsurance premium rates while also improving the
pricing environment for new and renewal direct business. The net impact on
premiums cannot yet be determined. In early 2002, the Corporation plans to
revise the 2002 and 2003 forecasted financial results that were reflected in
the Corporate Strategic Plan projections as of June 2001.
Conference Call
The Corporation will conduct a conference call to discuss information included
in this news release and related matters at 10:30 a.m. EST on Wednesday,
December 19, 2001. The conference call will be Webcast simultaneously in a
listen only mode via Investor Broadcast Network's Vcall Website, located at
http://www.vcall.com. To listen to the live call, please go to the Website at
least fifteen minutes early to register, download, and install any necessary
audio software. There is no charge to access the call.
Corporate Profile
Ohio Casualty Corporation is the holding company of The Ohio Casualty Insurance
Company, which is one of six property-casualty subsidiary companies that make
up Ohio Casualty Group. The Ohio Casualty Insurance Company was founded in
1919 and is licensed in 49 states. Ohio Casualty Group is ranked 37th among
U.S. property/casualty insurance groups based on net premiums written (Best's
Review, July 2001). The Group's member companies write auto, home and business
insurance. Ohio Casualty Corporation trades on the NASDAQ Stock Market under
the symbol OCAS and had assets of approximately $4.57 billion as of September
30, 2001.
Forward-looking Statements
The statements contained in this press release that are not historical
information, are forward-looking statements. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 and
the Securities Exchange Act of 1934 for forward-looking statements. The risks
and uncertainties that may affect the operations, performance, development and
results of the Corporation's business include the following: changes in
property and casualty reserves; catastrophe losses; premium and investment
growth; product pricing environment; changes in government regulation;
performance of financial markets; fluctuations in interest rates; availability
and pricing of reinsurance; litigation and administrative proceedings; ability
to achieve targeted expense savings; ability to achieve premium targets and
profitability goals; and general economic and market conditions.
Ohio Casualty Corporation undertakes no obligation to publicly release any
revisions to the forward-looking statements contained in this release, or to
update them to reflect events or circumstances occurring after the date of this
release, or to reflect the occurrence of unanticipated events.
The projected financial results appearing in this press release omit certain
information and disclosures which would be required under the accounting
principles generally accepted in the United States of America (GAAP). Most of
the projected financial results in this press release are prepared on a
statutory basis of accounting as prescribed by regulators of insurance in the
United States of America. For a description of certain of the material
differences between statutory accounting principles and GAAP, see footnote 16
to the Corporation's consolidated financial statements for the fiscal year
ended December 31, 2000, which are included in the Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 2000. The operating
income after tax projection is the best estimate by the Corporation's
management of the GAAP basis net income effect of the transaction described in
this press release.