Exhibit 99.1
Analyst contact:
Dennis E. McDaniel
Vice President and Controller
513-603-2197
dennis.mcdaniel@ocas.com
Media contact:
Cindy Denney
Assistant Vice President, Corporate Communications
513-603-2074 (ofc.), 513-703-7372 (cell)
cindy.denney@ocas.com
For Immediate Release
- ---------------------
OHIO CASUALTY CORPORATION
-------------------------
REPORTS FOURTH QUARTER 2002 EARNINGS
------------------------------------
FAIRFIELD, Ohio, February 5, 2003 --- Ohio Casualty Corporation (Nasdaq:OCAS)
today announced net income of $29.1 million, or $.48 per share, for the three
months ended December 31, 2002. The net income for the fourth quarter of 2001
was $41.8 million, or $.69 per share.
After-tax operating income, which differs from net income by the exclusion of
realized investment gains (losses), for the fourth quarter 2002 was $17.1
million, or $.28 per share, compared with an operating loss of $11.3 million,
or $.19 per share, for the three months ended December 31, 2001. The fourth
quarter 2001 was impacted by a one time charge of $26.8 million after tax, or
$.45 per share, for the transfer of the renewal obligation of New Jersey
private passenger auto business. The fourth quarter 2001 operating loss also
included the negative impact of $9.2 million after tax, or $.15 per share,
for loss and loss adjustment expense reserve increases for estimated asbestos
claims.
President and Chief Executive Officer Dan Carmichael, CPCU commented, "Our
fourth quarter results, especially current calendar and accident year loss
ratios, demonstrate that we are on the right path and with continued
execution of our strategy we will produce improved performance."
Consolidated after-tax realized capital gains amounted to $12.0 million, or
$.20 per share, for the quarter ended December 31, 2002. For the quarter
ended December 31, 2001, after-tax realized capital gains were $53.1 million,
or $.88 per share. Significant appreciation in the equity holdings sold, as
part of reallocation of the Corporation's equity portfolio to
investment grade fixed maturity securities, contributed to the capital gains
in 2001. The fourth quarter 2001 realized capital gains included a
non-recurring tax benefit of $16.1 million related to the sale of a minority
interest in stock of the Ohio Casualty of New Jersey, Inc. subsidiary.
Consolidated before-tax net investment income for the fourth quarter of 2002
was $53.8 million, compared with $55.9 million, in the fourth quarter of 2001.
Amortization and impairment write-down of the Corporation's agent
relationships intangible asset for the fourth quarter 2002 totaled $9.9
million before tax, which consisted of $2.0 million for amortization and $7.9
million for impairment. This compares with $5.2 million before tax in the
fourth quarter of 2001, consisting of $2.8 million for amortization and
$2.4 million for impairment. This asset is related to the acquisition of the
commercial lines business from Great American Insurance Company in 1998 and
the amortization and impairment write-down of such assets are non-cash
charges.
At December 31, 2002, statutory surplus was $724.0 million, a decrease of
5.7% or $43.5 million from December 31, 2001. The decrease was primarily
attributable to the decline in equity investment portfolio values year over
year offset by statutory income and other surplus changes. During the
fourth quarter 2002, statutory surplus increased $44.1 million from the
September 30, 2002 balance of $679.9 million due primarily to positive
operating results and market value increases in the equity investment
portfolio.
Year Results
Net loss for the year ended December 31, 2002, totaled $.9 million, or $.01
per share, compared with net income of $98.6 million, or $1.64 per share, for
2001. After-tax operating loss for the year 2002 was $30.3 million, or $.49
per share, compared with an after-tax operating loss of $36.4 million, or
$.61 per share, for the twelve months ended December 31, 2001. After-tax
realized capital gains for the year were $29.4 million, compared with $135.0
million of capital gains in the same period of 2001. Consolidated before-tax
net investment income was $207.1 million in the current year, a decrease of
$5.3 million over the same period of 2001. Before-tax amortization and
write-down of the agent relationships intangible asset for the year totaled
$79.7 million compared with $22.3 million for the year 2001. The remaining
value of this asset is $161.3 million with an estimated remaining useful life
of 21 years.
Property-Casualty Operations
The table below summarizes the statutory net premiums written by operating
segment:
Statutory Fourth
Net Premiums Written Quarter % Year Year %
($ in millions) 2002 2001 Chg 2002 2001 Chg
- --------------------- ------------------------- --------------------------
Commercial Lines $182.3 $160.7 13.4 $ 762.2 $ 689.6 10.5
Specialty Lines 47.2 30.6 54.2 179.9 136.1 32.2
Personal Lines 118.3 152.3 (22.3) 506.5 646.5 (21.7)
------ ------ -------- --------
All Lines $347.8 $343.6 1.2 $1,448.6 $1,472.2 (1.6)
Renewal price increases had a positive impact on net premiums written during
the year. The 2002 average renewal price increase of 16.3% for the Commercial
Lines operating segment was an increase from the 15.2% average renewal price
increase in 2001. The fourth quarter 2002 average renewal price increase was
14.2% versus an increase of 13.8% in the fourth quarter of 2001. For
commercial umbrella business in the Specialty Lines operating segment, average
renewal price increases were 37.2% for 2002, compared with 20.3% for 2001.
Fourth quarter 2002 average renewal price increases for commercial umbrella
business increased to 28.1% from 23.4% in the fourth quarter of 2001. During
the fourth quarter 2002 there was a return of ceded premium of $5.3 million
before tax for the bond business in the Specialty Lines operating segment.
This return of ceded premium was due to the exercise of a contractual option
on the bond reinsurance treaty based on highly favorable bond combined ratios
over the past fourteen years.
Personal Lines 2002 net premiums written declined as expected, driven by
management decisions to cancel certain agents and withdraw from New Jersey
private passenger auto and other selected markets. These actions caused a
$31.1 million decrease in personal lines net premiums written in the fourth
quarter of 2002 and a decrease of $134.6 million for the year, accounting for
most of the year over year decrease. The Group's exit from the New Jersey
private passenger auto market, which began in March 2002, made up $29.9
million of the decrease in the fourth quarter and $96.2 million of the
decrease in the full year 2002.
The combined ratio measures the percentage of premium dollars used to pay
insurance losses and related expenses. It is a commonly used property and
casualty insurance industry gauge of statutory underwriting performance. The
combined ratio is the sum of the loss ratio, the loss adjustment expense
ratio, and the underwriting expense ratio. All references in this press
release to combined ratio or its components are calculated on a statutory
accounting basis. All combined ratio references in this press release are
calculated on a calendar year basis unless specified as calculated on an
accident year basis. The combined ratios and all component ratios presented
for the quarter ended December 31, 2002 and for the year 2002 exclude a $7.3
million before-tax charge for the statutory additional minimum pension
liability related to the underfunded status of the retirement plan. The
table below summarizes the combined ratio results by operating segment for
recent periods:
Fourth Quarter Year Year
Statutory Combined Ratio 2002 2001 2002 2001
- ------------------------ ---- ---- ---- ----
Commercial Lines 106.9% 105.5% 115.1% 116.2%
Specialty Lines 77.0% 122.2% 94.0% 90.8%
Personal Lines (a) 119.1% 111.5% 114.1% 112.9%
All Lines (b) 107.5% 109.7% 112.8% 112.6%
Personal Lines excl. NJ (c) 113.9% 109.2% 107.9% 111.8%
All Lines excl. NJ (c) 105.5% 108.6% 110.3% 112.1%
(a) Fourth quarter 2001 and Year 2001 excludes 26.6 point and 6.3 point
impact, respectively, of New Jersey renewal obligation transfer fee.
(b) Fourth quarter 2001 and Year 2001 excludes 11.8 point and 2.7 point
impact, respectively, of New Jersey renewal obligation transfer fee.
(c) New Jersey private passenger auto results are excluded for all periods
shown.
The 2002 combined ratio includes a reallocation of loss adjustment expense
reserve estimates related to claims adjuster salaries, benefits and similar
costs from Commercial Lines and Specialty Lines to Personal Lines. This
increased the Personal Lines 2002 combined ratio by 1.5 points and decreased
the Commercial Lines combined ratio by .6 points and decreased the Specialty
Lines combined ratio by 2.4 points. This reallocation had similar effects
for the fourth quarter showing an increase in the Personal Lines combined
ratio of 6.4 points and a decrease to the combined ratio for Commercial
Lines and Specialty Lines of 2.4 and 7.9 points, respectively.
The Commercial Lines combined ratio for the year 2002 improved slightly
compared to the year 2001 as the positive impact of renewal price increases
and improved underwriting was offset by the negative impact of increased
losses on prior year's business.
The Specialty Lines combined ratio for the year 2002 was profitable and was
slightly higher than the combined ratio for the year 2001 due primarily to
more conservative estimates of reserves for future losses for the commercial
umbrella product line.
The Personal Lines 2002 combined ratio excluding the impact of the
reallocation of loss adjustment expense reserve noted above and excluding New
Jersey private passenger auto results improved by 5.6 points to 106.2% over
2001. This improvement was offset by poor results for New Jersey private
passenger auto which added 6.2 points to the Personal Lines combined ratio,
compared to 1.1 points for the year 2001, excluding the year 2001 negative
impact of 6.3 points for the New Jersey renewal obligation transfer fee.
The New Jersey private passenger auto business negatively impacted the 2002
All Lines combined ratio results by 2.5 points. In 2001, excluding the 2.7
points negative impact on 2001 results from the renewal obligation fee, this
impact was .4 points. The negative impact of the poor New Jersey private
passenger auto results offset much of the improvement in the Commercial Lines
results.
The loss and loss adjustment expense (LAE) ratios, which measure losses and
LAE as a percentage of net earned premiums, were impacted negatively in 2002
by adjustments to estimated losses related to prior years' business. The
loss and LAE ratio component of the accident year combined ratio measures
losses and LAE arising from insured events that occurred in the respective
accident year. The current accident year excludes losses and LAE for insured
events that occurred in prior accident years. In total, this increase in
provisions for prior accident years' losses and LAE recognized during the
year 2002 was $84.4 million before tax, of which $9.2 million was recognized
in the fourth quarter.
The table below summarizes the impact of changes in provision for all prior
accident year losses and LAE:
(in millions) Fourth Quarter Year Year
Including NJ private
passenger auto: 2002 2001 2002 2001
- --------------------- ---- ---- ---- ----
Statutory net liabilities,
beginning of period $2,074.2 $1,984.0 $1,982.0 $1,907.3
Increase (decrease) in
provision for prior
accident year claims $9.2 $30.8 $84.4 $58.5
Increase (decrease) in
provision for prior
accident year claims
as % of premiums earned 2.5% 8.3% 5.8% 3.9%
The combined ratio impact of this adverse development for prior accident
years' losses and LAE was 5.8 points for the year 2002 and 2.5 points for the
fourth quarter. For the year 2002, this was concentrated in the general
liability and commercial auto product lines of the Commercial Lines operating
segment and in the personal auto product line of the Personal Lines operating
segment. For the fourth quarter 2002, the concentration was in the personal
auto and commercial auto product lines. Prior year losses and LAE for
construction defect related claims, which were significant in the third
quarter 2002, were within the range expected for the fourth quarter 2002.
The comparable amount of provision for prior years' losses and LAE recognized
during the year 2001 was $58.5 million before tax and was concentrated in the
workers' compensation product line and the general liability product line of
the Commercial Lines operating segment. The total provision for prior years'
losses and LAE of $84.4 million recognized during the year 2002 represents
4.3% of loss and loss adjustment expense reserves as of year-end 2001.
The table below summarizes combined ratio data by accident year on an all
lines basis:
Year Year Improvement/
Including NJ private
passenger auto: 2002 2001 (Deterioration)
---- ---- ---------------
Accident year combined
ratio measured as of
December 31, 2002 106.9% 107.7% 0.8%
Impact of changes in
provision for prior
accident year losses
and LAE 5.8%
------
Calendar year combined
ratio 112.8%
Year Year Improvement/
Excluding NJ private
passenger auto: 2002 2001 (Deterioration)
---- ---- ---------------
Accident year combined
ratio measured as of
December 31, 2002 105.2% 107.6% 2.4%
Impact of changes in
provision for prior
accident year losses
and LAE 5.1%
------
Calendar year combined
ratio 110.3%
Note: Year 2001 ratios in table above exclude the 2.7 point impact of New
Jersey private passenger auto renewal obligation transfer fee.
The combined ratio for accident year 2002 was 106.9%. The combined ratio for
the year 2002 of 112.8% reflects losses and LAE recorded during 2002 for all
accident years in aggregate and is therefore 5.8 points higher than the
combined ratio for accident year 2002 of 106.9%. The combined ratio for
accident year 2002 compares favorably, .8 points lower, to the 107.7% combined
ratio for accident year 2001, excluding the 2.7 point impact of the New Jersey
renewal obligation transfer fee, based on accident year data as of December 31,
2002. Excluding the impact of New Jersey private passenger auto business that
the Corporation is in the process of non-renewing, the 2002 and 2001 accident
year numbers would have been 105.2% and 107.6%, respectively, an improvement
of 2.4 points.
Catastrophe losses in 2002 were $20.8 million, a decrease of $13.8 million
from 2001. The 2001 catastrophe losses included $3.0 million before-tax and
net of reinsurance losses related to the September 11, 2001 terrorist attacks
in New York. Catastrophe losses added 1.4 points to the combined ratio in
2002, below the 2.3 point catastrophe impact in 2001. Catastrophe losses of
$3.5 million and $1.9 million added 1.0 point and .5 points to the combined
ratio for the fourth quarter of 2002 and 2001, respectively.
The 2002 underwriting expense ratio, which measures underwriting expenses as
a percentage of net written premiums, was 34.9%, compared with 35.4% in 2001.
The year 2001 underwriting expense ratio included a one-time charge of $40.6
million before tax, or 2.7 points, for the transfer of the renewal obligation
of New Jersey private passenger auto business. As previously reported, the
underwriting expense ratio for the year 2002 was expected to be impacted
negatively by approximately 1.6 points when compared to the year 2001, after
excluding the 2.7 point impact of the New Jersey transfer fee. This is due
to the non-renewal of the New Jersey private passenger auto business, which
had lower commission rates and lower variable processing costs than most
other lines of business, and due to the elimination of ceding commissions
received in previous years on umbrella premiums ceded to reinsurers. The
year 2002 underwriting expense ratio was in line with management's
expectations except for the commission expense ratio component of 17.8%. The
commission expense ratio increased 1.2 points due to higher than expected
umbrella net premiums written, which has a relatively high commission rate on
a net of reinsurance basis, and more importantly, due to higher than expected
accruals for agent bonus commissions, as certain agents were more profitable
than expected. This higher commission expense reflects the improved loss
ratio for 2002, which at 62.2% for the year 2002 was 4.3 points improvement
over the year 2001 of 66.5%.
The table below summarizes the underwriting expense ratio:
Year
2001
----
Commission expense ratio 16.1%
New Jersey private passenger auto renewal
obligation transfer fee 2.7%
All other underwriting expense ratio 16.6%
------
Total underwriting expense ratio 35.4%
Adjustment for elimination of NJ renewal
obligation transfer fee -2.7%
Adjustment for elimination of NJ lower
variable costs and elimination of
ceding commission on umbrella premium
ceded to reinsurers 1.6%
------
Adjusted 2001 underwriting expense ratio 34.3%
Year
2002
----
Commission expense ratio-expected 16.6%
Commission expense ratio-variance due to
higher than expected umbrella
premiums written and agent bonus
commission accruals 1.2%
------
Total commission expense ratio 17.8%
All other underwriting expense ratio 17.1%
------
Total underwriting expense ratio 34.9%
Underwriting expense ratio for 2002 ratio
adjusted for variance of 1.2 points 33.7%
The fourth quarter 2002 underwriting expense ratio was 35.4%, compared with
46.7% for the same period of 2001 and improving over the third quarter 2002
expense ratio of 37.9%. The fourth quarter 2002 included a commission
expense ratio of 18.3%, which was higher than expected due to year end
accruals for agent bonus commissions related to continued improved
profitability of certain agents. This increase was offset somewhat by lower
than expected workers' compensation dividends expense. The fourth quarter
2002 expense ratio benefited from this lower than expected workers'
compensation dividends expense by $3.0 million before tax, or .9 points.
The fourth quarter 2001 underwriting expense ratio included the one-time
charge of $40.6 million before tax, or 11.8 points, for the transfer of the
renewal obligation of New Jersey private passenger auto business, $2.0
million before tax, or .6 points, in expenses for fees for the removal of
certain obligations related to assigned private passenger auto policies in
New York, $2.3 million before tax, or .7 points in expenses related to
exposure to guaranty fund assessments primarily for the Reliance Insurance
Company insolvency, along with other year-end accruals. The fourth quarter
underwriting expense ratio for both years also reflects the seasonal decrease
in the net premiums written component of the ratio.
The number of employees declined to approximately 3,000 at December 31, 2002
from 3,034 at September 30, 2002 and 3,365 at December 31, 2001.
Assets, Investments and Shareholders' Equity
Consolidated assets increased to $4.78 billion at December 31, 2002 compared
to $4.52 billion at December 31, 2001. Investments in securities were $3.12
billion at cost, with an estimated fair market value of $3.50 billion at
December 31, 2002, compared with $2.95 billion at cost, with an estimated
fair market value of $3.32 billion at December 31, 2001. Shareholders'
equity decreased to $1.06 billion, compared with $1.08 billion at December 31,
2001. Book value per share at December 31, 2002 was $17.43, compared with
$17.97 at December 31, 2001. Book value per share excluding the agent
relationships identifiable intangible asset at December 31, 2002 was $14.78,
compared with $13.96 at December 31, 2001.
Conference Call
The Corporation will conduct a conference call to discuss information included
in this news release and related matters at 1:30 p.m. EST on Wednesday,
February 5, 2003. The conference call will be Webcast simultaneously in a
listen only mode via WILink'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. The conference call will be archived on this
Website for 90 days following the call. To listen to call playback by
telephone, dial 1-800-252-6030, then enter ID code 15014240. Call playback
begins at 5 p.m. EST on February 5 and extends through midnight on February 7,
2003.
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
40th among U.S. property/casualty insurance groups based on net premiums
written (Best's Review, July 2002). 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 $4.8
billion as of December 31, 2002.
Ohio Casualty Corporation publishes forward-looking statements relating to
such matters as anticipated financial performance, business prospects and
plans, regulatory developments and similar matters. The statements contained
in this news 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 operations, performance and
development of the Corporation's business are subject to risks and
uncertainties which may cause actual results to differ materially from those
contained in or supported by the forward looking statements in this release.
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; availability of credit;
changes in government regulation; performance of financial markets;
fluctuations in
interest rates; availability and pricing of reinsurance; litigation and
administrative proceedings; rating agency actions; acts of war and terrorist
activities; ability of Ohio Casualty to retain business acquired from the
Great American Insurance Company; 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.
(Table Follows)
OHIO CASUALTY CORPORATION
EARNINGS FOR THE FOURTH QUARTER OF 2002
(in thousands)
(2002 Data Unaudited)
Three Months Ended
December 31
2002 2001
--------------------------
Premiums and finance charges earned $ 367,793 $ 372,281
Investment income less expenses,
before tax $ 53,764 $ 55,917
Investment gain (loss) realized $ 18,409 $ 56,875
Total Revenues $ 439,966 $ 485,073
Operating income (loss), after tax $ 17,142 $ (11,273)
Per share $ 0.28 $ (0.19)
Investment gain (loss) realized,
after tax $ 11,965 $ 53,069
Per share $ 0.20 $ 0.88
Net income (loss), after tax $ 29,107 $ 41,796
Per share $ 0.48 $ 0.69
Average shares outstanding - Diluted 61,125 60,589
Stautory property and casualty:
Net premium written $ 347,809 $ 343,626
Combined ratio 107.5% 121.5%
Twelve Months Ended
December 31
2002 2001
--------------------------
Premiums and finance charges earned $1,450,467 $1,506,678
Investment income less expenses,
before tax $ 207,133 $ 212,385
Investment gain (loss) realized $ 45,192 $ 182,940
Total Revenues $1,702,792 $1,902,003
Operating income (loss), after tax $ (30,266) $ (36,431)
Per share $ (0.49) $ (0.61)
Investment gain (loss) realized, $ 29,375 $ 135,011
after tax
Per share $ 0.48 $ 2.25
Net income (loss), after tax $ (891) $ 98,580
Per share $ (0.01) $ 1.64
Average shares outstanding - Diluted 61,284 60,209
Statutory property and casualty:
Net premium written $1,448,628 $1,472,184
Combined ratio 112.8% 115.3%
Supplemental Information as of December 31
Total assets $4,778,994 $4,524,619
Investments in securities $3,502,150 $3,315,877
Agent relationships asset $ 161,324 $ 241,022
Total liabilities $3,720,291 $3,444,587
Loss & loss adj expense reserves $2,433,650 $2,150,722
Notes payable $ 198,288 $ 210,173
Total shareholders' equity $1,058,703 $1,080,032
Number of common shares outstanding 60,725 60,106
Statutory policyholders' surplus $ 723,968 $ 767,503
For more information and financial supplements, visit our
home page at www.ocas.com
Contact: Ohio Casualty Corporation
Fairfield, Ohio
Analyst contact:
Dennis E. McDaniel (513)603-2197
Vice President and Controller,
Financial Accounting and
Investor Relations
dennis.mcdaniel@ocas.com
Media contact:
Cindy Denney (513)603-2074 (ofc.)
.... (513)703-7372 (cell)
Assistant Vice President, Corporate
Communications
cindy.denney@ocas.com