Exhibit 99.1
<Ohio Casualty Corporation Letterhead>
Analyst contact:
Dennis E. McDaniel
Vice President and Controller
513-603-2197
dennis.mcdaniel@ocas.com
Media contact:
Cindy L. 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 SECOND QUARTER 2003 EARNINGS
FAIRFIELD, Ohio, August 7, 2003 --- Ohio Casualty Corporation (Nasdaq:OCAS)
today announced the following results for its second quarter ended June 30,
2003, compared with the second quarter of 2002:
- net income of $11.0 million, or $0.18 per diluted share, versus $13.1
million, or $0.21 per diluted share,
- statutory combined ratio of 106.2%, a 3.1 point improvement despite
higher catastrophe losses, and
- net income before realized gains and losses of $6.6 million versus
$6.9 million (non-GAAP; see Reconciliation of Net Income to Net Income
before Realized Gains and Losses at the end of this press release).
The major components of net income are summarized in the table below:
Three Months Six Months
Summary Income Statement Ended June 30 Ended June 30
($ in millions, except share data) 2003 2002 2003 2002
- ---------------------------------- ---- ---- ---- ----
Premiums and finance charges earned $351.2 $364.7 $700.5 $725.7
Investment income less expenses 51.4 50.7 104.6 101.6
Investment gains realized, net 6.8 9.5 26.1 32.3
------------------- -----------------------
Total revenues $409.4 $424.9 $831.2 $859.6
Losses and benefits for policyholders $213.7 $223.9 $422.5 $435.7
Loss adjustment expenses 41.4 53.6 88.8 105.0
Underwriting expenses 126.4 118.9 254.5 239.0
Corporate and other expenses* 10.7 7.9 18.4 18.2
----------------------------------------------
Total expenses $392.2 $404.3 $784.2 $797.9
Income tax expense:
On investment gains realized $ 2.4 $ 3.3 $ 9.1 $11.3
On all other income 3.8 4.2 7.0 10.5
---------------------------------------------
Total income tax expense $ 6.2 $ 7.5 $16.1 $21.8
Net income $11.0 $13.1 $30.9 $39.9
Average shares outstanding
- diluted 61,169,556 61,495,531 61,067,946 61,287,100
Net income, per share - diluted $0.18 $0.21 $0.51 $0.65
*Amortization and impairment write-downs of the agent relationships asset have
been reclassified from underwriting expenses to corporate and other expenses
for the current and prior periods as management believes these costs do not
reflect current underwriting profitability.
President and Chief Executive Officer Dan Carmichael, CPCU, commented, "I am
pleased with the progress we made in the second quarter against our strategic
plan, both as measured by our quarterly financial results and by our strides
to make Ohio Casualty more efficient and customer-focused. Our reported
operating results for the second quarter were affected by much larger
catastrophe losses than the same period last year, by higher commission costs,
and by our withdrawal from certain markets beginning in 2002. Our homeowners
and specialty product lines improved significantly during the quarter, and
several other product lines are showing strength. We are pleased with our
progress as we drive toward the goal of a competitive underwriting expense
ratio. Our technology investments are beginning to pay off in improved
productivity and better support for agents, including fast, online application
and rating services and we are adding quality agents to our producer force.
Our focus is to continue to execute our strategic plan in order to move Ohio
Casualty Corporation toward stronger financial performance for our
shareholders."
Underwriting expenses and operating results on a GAAP basis were negatively
impacted by commission expenses that were higher on a statutory basis in the
last two quarters of 2002, as previously announced. The GAAP basis expense
was recognized in part during the first two quarters of 2003 as premiums were
earned on business written in 2002.
Second-quarter net investment income increased in 2003 compared with 2002
despite lower average investment yields. The Company has completed its two-
year initiative to reduce equity holdings. This restructuring reduces the
effect on statutory surplus of future stock market volatility.
Amortization and impairment write-downs of the agent relationships intangible
asset were $7.7 million in the second quarter of 2003, compared with $5.1
million in the second quarter of 2002.
Statutory Results
Insurance industry regulators require Ohio Casualty Corporation and its
subsidiaries to report certain financial measures on a statutory accounting
basis. Management also uses statutory financial criteria to analyze property
and casualty results, including loss and loss adjustment expense (LAE) ratios,
underwriting expense ratios, combined ratios, net premiums written and net
premiums earned.
Supplemental financial information for the second quarter, including many of
the statutory financial measures described above, is available on Ohio
Casualty Corporation's website at www.ocas.com and was also filed on Form 8-K
with the Securities and Exchange Commission. A discussion of the differences
between statutory accounting principles and GAAP in the United States is
included in Item 15 of the Corporation's Form 10-K for the year ended December
31, 2002.
Statutory Net Premiums Written
The table below summarizes net premiums written for the operating segments:
Statutory Three Months Six Months
Net Premiums Written Ended June 30 % Ended June 30 %
($ in millions) 2003 2002 Chg 2003 2002 Chg
- -------------------- ---- ---- --- ---- ---- ---
Commercial Lines $209.9 $206.2 1.8 $415.1 $399.0 4.0
Specialty Lines 43.2 45.3 (4.6) 76.1 84.8 (10.3)
Personal Lines 122.8 123.7 (.7) 236.9 266.3 (11.1)
------ ------ ------ ------
All Lines $375.9 $375.2 .2 $728.1 $750.1 (2.9)
Statutory net premiums written were flat for the second quarter, and down
slightly for the first six months. Double-digit price increases and new
business growth in the quarter matched the effects of market withdrawals in
Personal Lines, higher reinsurance costs, stricter commercial underwriting
guidelines and a competitive small to mid-sized commercial market.
Commercial Lines written premium growth was driven by price increases and new
business production, offset in part by competition and also by restrictions
and non-renewals of certain underperforming classes of business. Average
renewal price increases for Commercial Lines were 10.9% in the second quarter
2003. Renewal price increases have declined for four of the last five
consecutive quarters, part of a broad trend as Commercial Lines policies
approach price adequacy and competitive pricing pressures increase. More
conservative underwriting of workers' compensation and certain construction
classes of business continued, which offset some of the benefit of premium
growth for other commercial product lines.
Specialty Lines net premiums written declined from last year's level as a
result of higher reinsurance costs for commercial umbrella. Although second
quarter net premiums written were below last year's levels, Specialty Lines
continued to generate higher average renewal prices and significant levels of
new business production. Specialty Lines premiums before reinsurance
increased 19.1% over second quarter 2002. Higher reinsurance costs in 2003
were driven by the addition of a ceding commission and by increased
reinsurance rates per dollar of premium. The addition of ceding commissions
on the current reinsurance contract causes a corresponding increase to ceded
premiums. Renewal price increases for commercial umbrella insurance, the
largest volume Specialty Lines product, averaged 22.4% for the second quarter
2003, compared to 20.5% and 33.1%, respectively, in the first quarter 2003 and
fourth quarter 2002.
Personal Lines net premiums written declined slightly due to management's
decisions to cancel certain agents and to withdraw from selected markets. The
combined effect of those decisions was an approximate $10.0 million decrease
in net premiums written for the second quarter of 2003 compared to the same
period one year ago. Higher levels of new business production and increased
average rates on homeowners policies offset much of the withdrawal activity.
Market withdrawals are expected to have less impact on Personal Lines written
premiums during the second half of the year.
Statutory Combined Ratio
The statutory combined ratio is a commonly used gauge of underwriting
performance measuring the percentage of premium dollars used to pay insurance
losses and related expenses. The loss and loss adjustment expense ratios
measure losses and LAE as a percentage of net earned premiums and the
underwriting expense ratio measures underwriting expenses as a percentage of
net written premiums. The combined ratio is the sum of the loss ratio, the
LAE ratio, and the underwriting expense ratio. All combined ratio references
in this press release are calculated on a calendar year basis unless specified
as calculated on an accident year basis. All references in this press release
to combined ratio or its components are calculated on a statutory accounting
basis. The table below summarizes combined ratio results by business unit:
Three Months Six Months
Ended June 30 Ended June 30
Statutory Combined Ratio 2003 2002 2003 2002
- ------------------------ ---- ---- ---- ----
Commercial Lines 111.6% 105.6% 111.4% 106.9%
Specialty Lines 76.0% 92.7% 83.8% 88.7%
Personal Lines 107.7% 117.1% 108.9% 112.0%
------ ------ ------ ------
All Lines 106.2% 109.3% 107.5% 107.8%
The All Lines combined ratio improved compared to second quarter last year due
primarily to the Group's exit from the New Jersey Private Passenger Auto
market (NJPPA) and lower personnel related expenses, offset somewhat by higher
catastrophe losses, additional large non-catastrophe losses and increased
technology costs.
Catastrophe losses in the second quarter were significantly above last year
and included the largest tornado event on record - 410 tornadoes during 10
days in early May. Catastrophe losses for the quarter were in line with
previously announced estimates, adding 4.0 points in the second quarter this
year, compared with 2.8 points in the same quarter of 2002. Non-catastrophe
commercial large losses were higher than normal for the quarter; a year
earlier, they were lower than normal. Withdrawal from NJPPA lowered the
combined ratio by 1.9 points compared to last year. Improvements in other
areas, including higher pricing and improved underwriting, contributed to the
improvement in the All Lines combined ratio.
Commercial Lines combined ratio increased 6.0 points for the quarter. Higher
catastrophe losses and other large non-catastrophe property and casualty
losses were principal factors. Hardest hit was commercial multiple peril
while commercial auto and general liability also experienced more large losses
than last year. The loss frequency trend for workers' compensation continued
to improve. Commercial auto had a combined ratio for the quarter of 101.7%
despite the negative effects of an increase in large losses.
The Specialty Lines combined ratio benefited from a significantly improved
loss ratio, which decreased 17.7 points compared to last year because of
favorable development on prior accident years.
Withdrawal from New Jersey personal auto accounted for essentially all of the
9.4 point improvement in the Personal Lines combined ratio for the quarter.
Also contributing to the improvement in the Personal Lines combined ratio for
the quarter was substantial improvement in the loss ratio for homeowners.
Personal auto for states other than New Jersey was negatively impacted by
adverse development on prior accident years, which added 7.2 points to the
combined ratio for the quarter. The accident year 2003 combined ratio for
personal auto in states other than New Jersey was 102.8% for the first six
months of 2003. Lower underwriting costs and lower loss adjustment expense
also contributed, offset in part by higher catastrophe losses in the quarter.
Loss and LAE Development
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.
The table below summarizes the impact of changes in provision for all prior
accident year losses and LAE:
Three Months Six Months
Ended June 30 Ended June 30
($ in millions) 2003 2002 2003 2002
- --------------- ---- ---- ---- ----
Statutory net liabilities, beginning of period $2,095.8 $1,985.0 $2,078.7 $1,982.0
Increase in provision for prior accident
year claims $1.8 $9.1 $4.5 $13.0
Increase in provision for prior accident
year claims as % of premiums earned 0.5% 2.5% 0.6% 1.8%
Other Highlights
For the second quarter of 2003 compared to the second quarter of 2002:
- Catastrophe losses were $13.9 million vs. $10.3 million; the $3.6
million increase added 1.2 points to the All Lines combined ratio.
- LAE ratio improvement reflected previously announced staff reductions
and improved management of claims legal expenses.
- Employee count was down 10.3% to 2,800 at June 30, 2003, which helped
reduce the personnel related expense portion of the underwriting
expense ratio by .9 points, and contributed to a 2.9-point reduction
in the LAE ratio to 11.8%.
- Technology costs expensed in second quarter 2003 for amortization and
maintenance of the P.A.R.I.S.s.m. software added 0.8 points to the
underwriting expense ratio.
- Premiums to surplus ratio improved to 1.8 to 1 from 1.9 to 1, also
improving from last quarter's 1.9 to 1.
- Book value per share of $18.75 has increased 3.5% from second quarter
2002 and 7.6% from fourth quarter 2002.
* * * * * * * *
Looking forward, the Corporation reaffirmed its guidance for calendar year
2003 as follows:
- net premiums written of $1,450 million to $1,550 million,
- statutory calendar year combined ratio of 103.0% to 105.0%
- investment income of $195 million to $215 million, and
- agent relationships intangible asset amortization and write-downs of
approximately $25 million to $35 million.
Additionally, the Corporation expects to achieve significant progress toward
its strategic goals of cost reduction and prudent underwriting, while
improving internal and agent business processes through technology. Past and
future investment in technology is directed at achieving productivity gains
and making it easier for our agents to do business with Ohio Casualty
Corporation. Management of the Corporation is convinced that focused
execution of the strategy will result in continued benefits later this year
and beyond.
Conference Call
The Corporation will conduct a teleconference call to discuss information
included in this news release and related matters at 9:30 a.m. ET on Friday,
August 8, 2003. The call is being webcast by Vcall and can be accessed at
Ohio Casualty Corporation's website at www.ocas.com. The webcast is also
being distributed over PrecisionIR's Investor Distribution network to both
institutional and individual investors. Investors can listen to the call
through PrecisionIR's webcast site at www.vcall.com or by visiting any of the
investor sites in PrecisionIR's Investor Network. The webcast will be
available for replay through November 8, 2003. To listen to call playback by
telephone, dial 1-800-252-6030, then enter ID code 17989382. Call playback
begins at 1 p.m. ET on August 8 and extends through midnight August 12, 2003.
Quiet Period
The Corporation observes a quiet period and will not comment on financial
results or expectations during quiet periods. The quiet period for the third
quarter will start October 1, 2003 extending through the time of the earnings
conference call scheduled for November 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
45th among U.S. property/casualty insurance groups based on net premiums
written (Best's Review, July 2003). 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 $5.0
billion as of June 30, 2003.
Safe Harbor Statement
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. Investors
are also advised to consult any further disclosures made on related subjects
in the Company's reports filed with the Securities and Exchange Commission or
in subsequent press releases.
Reconciliation of Net Income to Net Income before Realized Gains and Losses
Management of the Corporation believes the significant volatility of realized
investment gains and losses limits the usefulness of net income as a measure
of current operating performance. Management uses the non-GAAP financial
measure of net income before realized gains and losses to further evaluate
current operating performance. Net income before realized gains and losses,
both in dollar amount and per share, is reconciled to net income and net
income per share in the table below:
Three Months Six Months
Ended June 30 Ended June 30
($ in millions) 2003 2002 2003 2002
- --------------- ---- ---- ---- ----
Net income before realized gains and losses $ 6.6 $ 6.9 $13.9 $18.9
After-tax realized gains and losses 4.4 6.2 17.0 21.0
----- ----- ----- -----
Net income $11.0 $13.1 $30.9 $39.9
Net income per share - diluted before realized
gains and losses $0.11 $0.11 $0.23 $0.31
After-tax realized gains and losses per
share- diluted 0.07 0.10 0.28 0.34
----- ----- ----- -----
Net income per share - diluted $0.18 $0.21 $0.51 $0.65