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 THIRD QUARTER 2003 EARNINGS
FAIRFIELD, Ohio, November 6, 2003 --- Ohio Casualty Corporation (Nasdaq:OCAS)
today announced the following results for its third quarter ended September
30, 2003, compared with the same period of the prior year:
- net income of $17.2 million, or $.28 per diluted share, versus a net
loss of $69.9 million, or $1.15 per diluted share,
- All Lines statutory combined ratio of 104.7%, a 23.8 point improvement,
and
- net income before realized gains and losses of $13.4 million versus a
net loss before realized gains and losses of $66.3 million (non-GAAP;
see Reconciliation of Net Income to Net Income before Realized Gains
and Losses at the end of this press release).
The major components of net income are summarized in the table below:
Three Months Nine Months
Summary Income Statement Ended Sept 30 Ended Sept 30
($ in millions, except share data) 2003 2002 2003 2002
- ----------------------------------- ---- ---- ---- ----
Premiums and finance charges earned $360.4 $357.0 $1,060.9 $1,082.7
Investment income less expenses 51.0 51.7 155.6 153.3
Investment gains (losses)
realized, net 5.9 (5.5) 32.0 26.8
------------------------ -----------------------
Total revenues $417.3 $403.2 $1,248.5 $1,262.8
Losses and benefits for policyholders $220.0 $250.3 $ 642.5 $ 686.0
Loss adjustment expenses 39.4 73.6 128.2 178.6
Underwriting expenses 126.1 127.5 380.6 366.5
Corporate and other expenses* 5.9 59.5 24.3 77.7
------------------------ -----------------------
Total expenses $391.4 $510.9 $1,175.6 $1,308.8
Income tax expense:
On investment gains realized $2.1 $ (1.9) $11.2 $ 9.4
On all other income 6.6 (35.9) 13.6 (25.4)
------------------------ -----------------------
Total income tax expense
(benefit) $8.7 $(37.8) $24.8 $(16.0)
Net income (loss) $17.2 $(69.9) $48.1 $(30.0)
======================== =======================
Average shares outstanding
- diluted 61,413,662 60,642,919 61,181,263 60,425,065
Net income per share - diluted $0.28 $(1.15) $0.79 $(0.50)
*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 third quarter financial results. Improvements in both net
income and the combined ratio confirm that we are making progress toward
achieving our strategic objectives. Net income was significantly above last
year's third quarter, which included the negative impact of reserve increases
for prior years' construction defect claims. In addition, third quarter 2002
included a $54.0 million pre-tax impairment charge for the Corporation's agent
relationships intangible asset. The combined ratio was 104.7% for the
quarter, including a 2.6 point impact related to Hurricane Isabel. Despite
the negative effects of Hurricane Isabel, the quarterly combined ratio was our
best in over five years. I am also pleased with our revenue growth as net
premiums written increased 6.2% over third quarter 2002 levels.
Going forward, we will continue to drive operational efficiencies and expense
reductions through the organization and further improve our loss ratio through
prudent and conservative underwriting practices and improved pricing. Our
expense ratios for the quarter were much improved as our expense initiatives
are producing very positive results. We believe our expense, underwriting and
pricing efforts will continue to make Ohio Casualty a leading, super regional
P&C insurer.
Strategic plans were announced at a September 12th investor presentation and
include objectives to: return to underwriting profitability; generate above-
market real growth with existing and new agents; produce loss ratios more
favorable than most well managed competitors; create a competitive and
efficient expense structure; improve credit ratings; and achieve industry
average price/book ratio."
Investment income declined slightly when compared to third quarter 2002 due to
declining market yields on new investments. Investment income for the
quarter included $5.3 million of interest received on a federal income tax
settlement, largely offset by a $4.9 million change in accounting estimate for
amortization relating primarily to interest only mortgage-backed securities
and asset-backed securities. This change in accounting estimate is part of
a conversion to a new investment accounting system.
Statutory Results
Insurance industry regulators require subsidiaries of Ohio Casualty
Corporation to report certain financial measures on a statutory accounting
basis. Management also uses statutory financial criteria to analyze property
and casualty results, including loss and loss adjustment expense (LAE) ratios,
underwriting expense ratios, combined ratios, net premiums written and net
premiums earned.
Supplemental financial information for the third quarter, including many of
the statutory financial measures described above, is available on Ohio
Casualty Corporation's website at www.ocas.com and was also filed on Form 8-K
with the Securities and Exchange Commission. A discussion of the differences
between statutory accounting principles and GAAP in the United States is
included in Item 15 of the Corporation's Form 10-K for the year ended December
31, 2002.
Statutory Net Premiums Written
The table below summarizes net premiums written for the operating segments:
Statutory Three Months Nine Months
Net Premiums Written Ended Sept 30 % Ended Sept 30 %
($ in millions) 2003 2002 Chg 2003 2002 Chg
- -------------------- ---- ---- --- ---- ---- ---
Commercial Lines $196.8 $180.9 8.8 $ 611.9 $ 579.9 5.5
Specialty Lines 48.4 47.9 1.0 124.5 132.7 (6.2)
Personal Lines 127.1 121.9 4.3 364.0 388.2 (6.2)
------ ------ -------- --------
All Lines $372.3 $350.7 6.2 $1,100.4 $1,100.8 0.0
Statutory net premiums written grew over the third quarter last year while
remaining flat for the first nine months of 2003. Double-digit price
increases, higher levels of new customers acquired, and $5.0 million of return
ceded premium on experience based reinsurance contracts related to prior years
contributed to the growth in the quarter. The experience rated reinsurance
contracts are for a funded layer of casualty excess of loss reinsurance
coverage. These growth components as well as stronger renewal rates more than
offset the decline in premium related to the market withdrawals in Personal
Lines, higher reinsurance costs, stricter underwriting guidelines and a more
competitive pricing in the small to mid-sized commercial market.
Commercial Lines written premium growth was driven by price increases and new
business production, partially offset by competition and non-renewals of
certain underperforming classes of business. Average renewal price increases
for Commercial Lines was 10.1% in the third quarter 2003. Renewal price
increases continued to experience downward pressure in the third quarter as
part of a broad trend indicating that Commercial Lines policies are
approaching price adequacy and competitive pricing pressures are increasing.
Conservative underwriting of workers' compensation, commercial auto and
certain construction classes of business in the third quarter offset some of
the benefits of premium growth for other commercial product lines.
Specialty Lines net premiums written for the quarter increased slightly over
the same period last year despite higher reinsurance costs for commercial
umbrella. Third quarter net premiums written continued to experience higher
average renewal pricing and retention rates, offset in part
by lower levels of new business production. Specialty Lines premiums before
reinsurance increased 14.7% over third quarter 2002 to $75.9 million. 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,
the largest volume Specialty Line product, averaged 15.7% for the third
quarter 2003, compared to 20.5% and 22.4% in the first and second quarters
of 2003, respectively.
Rate increases, higher renewal rates and increased new business production led
to the growth in Personal Lines premiums written for the third quarter of 2003
when compared to the prior period despite the run-off of business related to
cancelled agents and withdrawal from several states. The combined effect of
cancelled agents and withdrawal states negatively impacted net premiums
written by approximately $12.1 million for the third quarter of 2003 compared
to the third quarter of 2002. Annualized homeowner rate increases of over 20%
during 2003 have not had a significant impact on renewal and retention ratios
as these ratios continue to perform better than last 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. Furthermore, these references 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 Nine Months
Ended Sept 30 Ended Sept 30
Statutory Combined Ratio 2003 2002 2003 2002
- ------------------------ ---- ---- ---- ----
Commercial Lines 107.6% 139.9% 110.1% 118.0%
Specialty Lines 82.2% 121.9% 83.0% 101.4%
Personal Lines 107.8% 114.2% 108.4% 112.6%
------ ------ ------ ------
All Lines 104.7% 128.5% 106.6% 114.6%
The All Lines combined ratio for the third quarter and year to date improved
from 2002 as the prior year was negatively impacted primarily by reserve
adjustments related to construction defect claims and higher costs associated
with New Jersey private passenger auto (NJPPA). The Group exited from the
NJPPA market, but liability for claims incurred prior to the transfer of NJPPA
policy renewal obligations, which was completed in the first quarter of 2003,
will remain for several years until all such claims are settled.
Catastrophe losses negatively impacted the combined ratio by 4.5 points in the
third quarter, driven by the impact of Hurricane Isabel, and were 3.5 points
higher than third quarter 2002. In 2002, the Group recognized adverse
development on prior years' losses and loss adjustment expense, primarily for
construction defect claims, which impacted third quarter 2002 by 17.4 points
and year-to-date September 2002 by 6.9 points. Improvements in other areas,
including higher pricing, improved underwriting, and lower sales expense,
contributed to the improvement in the All Lines combined ratio.
The Commercial Lines combined ratio improved for the third quarter 2003, as
2002 third quarter results included 27.7 points related to reserve development
on prior year's losses. The third quarter 2002's reserve adjustments were
primarily construction defect related and were concentrated in the general
liability and commercial multi-peril product lines. Commercial Lines
experienced 3.2 points of catastrophe losses in the third quarter, mostly from
Hurricane Isabel, and continued to see higher than expected large
non-catastrophe losses compared to last year. The loss frequency trend for
the workers' compensation product line continued to show improvement in the
third quarter.
The Specialty Lines combined ratio improved for the third quarter 2003, which
was also due primarily to prior year's construction defect reserve development
in the commercial umbrella product line. The third quarter of 2003 also saw
improvements to loss adjustment expenses and to loss reserves on prior
accident years.
The Personal Lines combined ratio in the third quarter of 2003 also saw a 6.4
point improvement over the same period last year. This improvement is notable
given the high volume of catastrophe losses in the quarter which added 8.2
points to the combined ratio in the third quarter 2003 compared to 1.9 points
in the prior year. The improvement was driven by the withdrawal from NJPPA, a
significant improvement in the non-catastrophe experience for homeowners, and
a decline in the underwriting expense ratio. These improvements were
partially offset by adverse development for personal auto other than New
Jersey, which added 2.4 points to the combined ratio for Personal Lines for
the third quarter 2003.
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 Nine Months
Ended Sept 30 Ended Sept 30
($ in millions) 2003 2002 2003 2002
- --------------- ---- ---- ---- ----
Statutory net liabilities, beginning of period $2,102.9 $2,002.9 $2,078.7 $1,982.0
Increase in provision for prior accident
year claims $5.2 $62.2 $9.7 $75.2
Increase in provision for prior accident
year claims as % of premiums earned 1.4% 17.4% 0.9% 6.9%
Other Highlights
For the third quarter of 2003 compared to the third quarter of 2002:
- Catastrophe losses were $16.2 million vs. $3.7 million; the $12.5
million increase added 3.5 points to the All Lines combined ratio.
- Employee count was down 9.1% to 2,757 at September 30, 2003, which
helped reduce the personnel related expense portion of the
underwriting expense ratio by 1.7 points, and contributed to the 9.7
point reduction in the LAE ratio to 10.9%.
- Book value per share of $18.71 has increased 8.6% from third quarter
2002 and 7.3% from fourth quarter 2002.
- Technology costs expensed in third 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 2.1 to 1.
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,
November 7, 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 February 7, 2004. To listen to call playback by
telephone, dial 1-800-252-6030, then enter ID code 19646697. Call playback
begins at 1 p.m. ET on November 7 and extends through midnight November 10,
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 fourth
quarter will start January 1, 2004 extending through the time of the earnings
conference call scheduled for February 12, 2004.
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 $5.1
billion as of September 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 Nine Months
Ended Sept 30 Ended Sept 30
($ in millions) 2003 2002 2003 2002
- --------------- ---- ---- ---- ----
Net income (loss) before realized
gains and losses $13.4 $(66.3) $27.3 $(47.4)
After-tax realized gains and losses 3.8 (3.6) 20.8 17.4
----- ------- ----- -------
Net income (loss) $17.2 $(69.9) $48.1 $(30.0)
Net income (loss) per share - diluted
before realized gains and losses $0.22 $(1.09) $0.45 $(0.78)
After-tax realized gains and losses per
share- diluted 0.06 (0.06) 0.34 0.28
----- ------- ----- -------
Net income (loss) per share - diluted $0.28 $(1.15) $0.79 $(0.50)
-30-