Exhibit 99.2
(Ohio Casualty Corporation Letterhead)
Analyst contact:
Dennis E. McDaniel
Vice President of Strategic Planning and Investor Relations
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
FOURTH QUARTER AND FULL YEAR 2003 EARNINGS
FAIRFIELD, Ohio, February 11, 2004 --- Ohio Casualty Corporation
(Nasdaq:OCAS) today announced the following results for its fourth quarter
ended December 31, 2003, compared with the same period of the prior year:
- net income of $27.7 million, or $.45 per diluted share, versus $29.1
million, or $.48 per diluted share,
- All Lines statutory combined ratio of 104.7%, a 2.8 point improvement,
and
- net income before realized gains and losses of $25.2 million versus
net income before realized gains and losses of $17.1 million (non-
GAAP; see Reconciliation of Net Income to Net Income before Realized
Gains and Losses at the end of this press release).
Results for the full year ended 2003, compared with 2002 included:
- net income of $75.8 million, or $1.24 per diluted share, versus a net
loss of $.9 million, or $.01 per diluted share,
- All Lines statutory combined ratio of 106.1%, a 6.7 point improvement,
and
- net income before realized gains and losses of $52.5 million versus a
net loss before realized gains and losses of $30.3 million (non-GAAP;
see Reconciliation of Net Income to Net Income before Realized Gains
and Losses at the end of this press release).
The major components of net income are summarized in the table below:
Three Months Year
Summary Income Statement Ended Dec 31 Ended Dec 31
($ in millions, except share data) 2003 2002 2003 2002
- ---------------------------------- ---- ---- ---- ----
Premiums and finance charges earned $363.5 $367.8 $1,424.4 $1,450.5
Investment income less expenses 53.1 53.8 208.7 207.1
Investment gains realized, net 3.9 18.4 35.9 45.2
------ ------ -------- --------
Total revenues $420.5 $440.0 $1,669.0 $1,702.8
Losses and benefits for policyholders $210.0 $216.8 $852.5 $ 902.7
Loss adjustment expenses 46.7 48.4 174.9 227.1
Underwriting expenses 122.6 123.0 503.2 489.5
Corporate and other expenses* 6.5 12.5 30.8 90.2
------ ------ -------- --------
Total expenses $385.8 $400.7 $1,561.4 $1,709.5
Income tax expense:
On investment gains realized $1.4 $6.5 $12.6 $ 15.8
On all other income (loss) 5.6 3.7 19.2 (21.6)
---- ----- ----- --------
Total income tax expense (benefit) $7.0 $10.2 $31.8 $ (5.8)
Net income (loss) $27.7 $29.1 $75.8 $ (0.9)
===== ===== ===== ========
Average shares outstanding
- diluted 61,735,819 61,125,091 61,326,692 61,284,255
Net income per share - diluted $0.45 $0.48 $1.24 $(0.01)
*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 continued improvement in our financial results. Improvements
to the combined ratio during the fourth quarter confirm that we are making
progress toward achieving our strategic objectives. The statutory combined
ratio was 104.7% for the fourth quarter 2003, a 2.8 point improvement over the
fourth quarter of 2002, and results for our Personal Lines operating segment,
at a 97.0% combined ratio, and our Specialty Lines operating segment, at a
60.9% combined ratio, were very strong. We would have achieved underwriting
profitability for the quarter, if we had not increased reserves for
environmental claims. Although full year 2003 premiums are below last year's
levels, we have a better priced book of business, we continue to realize
double-digit price increases in certain lines, we saw our Personal Lines new
business gross premiums written increase 27.0% , and we improved our risk
profile.
In 2004, much of our focus will be on driving operational efficiencies and
expense reductions through the organization. We will also continue to improve
our loss ratio through better leveraging of technology, continued focus on
obtaining an adequate price for all risks and conservative underwriting. Our
statutory expense ratios for the quarter continued to show improvement as a
result of our expense initiatives but we intend to make even more progress,
including the steps we are announcing today, with the goal of achieving an
underwriting profit while simultaneously delivering high quality services to
our customers. We ended the year with a strong capital position on our
balance sheet and the highest level of statutory policyholders' surplus since
1999."
Investment income declined slightly, resulting from lower market yields of new
investments. The fourth quarter 2003 investment income was $53.1 million, a
decrease of $0.7 million over the fourth quarter of 2002.
Federal income tax expense was favorably impacted by approximately $4.0
million for the fourth quarter 2003 due to a reduction in deferred income
taxes payable. This reduction was due primarily to lowering deferred taxes on
invested assets.
The Corporation today issued a separate press release regarding significant
staff reductions in February of 2004 related to the re-engineering of numerous
processes.
Statutory Results
Insurance industry regulators require subsidiaries of Ohio Casualty
Corporation to report certain financial measures on a statutory accounting
basis. Management also uses statutory financial criteria to analyze property
and casualty results, including loss and loss adjustment expense (LAE) ratios,
underwriting expense ratios, combined ratios, net premiums written and net
premiums earned.
Supplemental financial information for the fourth quarter, including many of
the statutory financial measures described above, is available on Ohio
Casualty Corporation's website at www.ocas.com and was also filed on Form 8-K
with the Securities and Exchange Commission. A discussion of the differences
between statutory accounting principles and GAAP in the United States is
included in Item 15 of the Corporation's Form 10-K for the year ended December
31, 2002.
Statutory Net Premiums Written
The table below summarizes net premiums written for the operating segments:
Statutory Three Months Year
Net Premiums Written Ended Dec 31 % Ended Dec 31 %
($ in millions) 2003 2002 Chg 2003 2002 Chg
- -------------------- ---- ---- --- ---- ---- ---
Commercial Lines $180.7 $182.3 (0.9) $ 792.6 $ 762.2 4.0
Specialty Lines 40.3 47.2 (14.6) 164.9 179.9 (8.3)
Personal Lines 120.1 118.3 1.5 484.1 506.5 (4.4)
------ ------ -------- --------
All Lines $341.1 $347.8 (1.9) $1,441.6 $1,448.6 (0.5)
Net premiums written for the fourth quarter were impacted by strict
underwriting guidelines for Commercial Lines, Personal Lines
cancellation/withdrawal activity, last year's $5.3 million increase for a
return of ceded premium in our bond business and higher reinsurance ceded
premiums, especially in Specialty Lines. These quarter-over-quarter declines
were partially offset by growth in Personal Lines of 1.5%, despite a negative
impact from cancellation/withdrawal activity of approximately $10 million.
The declines were further offset as Specialty Lines written premiums before
reinsurance grew 15.6% during the quarter. The decline in statutory net
premiums written for the full year reflects the Group's restructured risk
profile as Personal Lines cancellation/withdrawal activity reduced net
written premiums by approximately $61 million. In addition, net premiums
written declined as Commercial Lines implemented stricter underwriting
guidelines, including the non-renewal of certain construction defect
related risks along with the impact of higher reinsurance costs.
Commercial Lines net written premiums declined for the quarter due to
conservative underwriting of workers' compensation, commercial auto and
certain construction classes of business and increased competition for small
to mid-sized commercial accounts, which affected new business production. The
Commercial Lines risk profile has improved over the past year with the non-
renewal of certain underperforming classes of business and improved pricing on
the book of business. Renewal price increases continued to experience
downward pressure in the fourth quarter as part of a broad trend indicating
that Commercial Lines policies are approaching price
adequacy and competitive pricing pressures are increasing. The average
renewal price increase for Commercial Lines was 7.7% in the fourth quarter
2003 compared to 10.1% in the third quarter. For the year 2003, average
renewal price increases were 11.4% compared to 16.3% for the year 2002.
Specialty Lines fourth quarter net premiums written declined 14.6% as a result
of high reinsurance premiums. Higher reinsurance premiums 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.
Specialty Lines premiums before reinsurance increased 15.6% over fourth
quarter 2002 to $67.4 million as a result of higher average renewal pricing
and retention rates, offset in part by lower levels of new business
production. Net premiums written for the year 2003 were below last year due
to higher reinsurance premiums for commercial umbrella and $5.3 million return
of ceded premium in the bond business that occurred in the prior year.
Average renewal price increases for commercial umbrella, the largest volume
Specialty Line product, averaged 14.5% for the fourth quarter 2003, compared
to 22.4% and 15.7% in the second and third quarters of 2003, respectively.
For the year 2003, average renewal price increases were 18.1% compared to
37.6% for the year 2002.
Personal Lines net premiums written were up 1.5% for the fourth quarter while
down 4.4% for the full year 2003. Higher renewal rates for all Personal
Lines, increased new business production for personal auto and rate increases
for homeowners led to the growth in the fourth quarter, despite the run-off of
business related to cancelled agents and withdrawal from several states. The
combined effect of cancelled agents and withdrawal states represents
approximately $10 million and offset most of the increase in net premiums
written for the fourth quarter of 2003 compared to the fourth quarter of 2002.
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 Year
Ended Dec. 31 Ended Dec. 31
Statutory Combined Ratio 2003 2002 2003 2002
- ------------------------ ---- ---- ---- ----
Commercial Lines 119.0% 106.9% 112.3% 115.1%
Specialty Lines 60.9% 77.0% 77.2% 94.0%
Personal Lines 97.0% 119.1% 105.6% 114.1%
------ ------ ------ ------
All Lines 104.7% 107.5% 106.1% 112.8%
Improved underwriting expenses, lower losses and lower LAE contributed to the
All Lines combined ratio improvement for the fourth quarter and full year
compared to the same periods in 2002. Personal Lines business generated an
underwriting profit in the fourth quarter 2003 and Specialty Lines continued
to post solid results. Losses for the full year 2002 were negatively impacted
by prior accident year reserve adjustments primarily related to construction
defect claims and higher costs associated with New Jersey private passenger
auto (NJPPA).
The fourth quarter loss and LAE ratios for 2003 included $16.0 million
additional expense for prior accident year reserve development on
environmental claims which added 4.4 points to the All Lines combined ratio.
Catastrophe losses for the fourth quarter 2003 were 0.7 points of the combined
ratio compared to 1.0 point in the fourth quarter of 2002. For the year 2003,
catastrophe losses were 3.1 points of the combined ratio, 1.7 points higher
than last year. In 2002, the Group recognized adverse development on prior
accident years' losses and LAE, which impacted full year 2002 by 5.8 points,
primarily for construction defect claims. In 2003, All Lines adverse
development on prior accident years totaled 2.4 points. Improvements in other
areas, including higher pricing, stricter underwriting, and lower sales
expense, contributed to the improvement in the All Lines combined ratio.
The Commercial Lines combined ratio increased 12.1 points in the fourth
quarter 2003 compared to the same quarter a year ago and improved 2.8 points
for the full year compared to 2002. Prior accident year adverse reserve
development of $11.1 million for environmental claims added 5.6 points to the
fourth quarter Commercial Lines combined ratio and prior accident year
development on other claims added another 7.4 points, primarily in the
workers' compensation product line and liability coverage of the commercial
multiple peril product line. Results for full year 2003 included higher than
expected catastrophe losses and large non-catastrophe losses compared to last
year. Catastrophe losses added 2.6 points to 2003 Commercial Lines combined
ratio compared to .5 points for 2002. The combined ratio for 2003 included
5.3 points compared to 10.2 points in 2002 for reserve development on prior
accident years. Last year's reserve adjustments were primarily construction
defect related and were concentrated in the general liability and commercial
multi-peril product lines.
Specialty Lines continued to show strong performance with a combined ratio
improvement of 16.1 points and 16.8 points for the quarter and year to date,
respectively, compared to 2002. The fourth quarter of 2003 Specialty Lines
combined ratio reflected 21.9 points of favorable development on prior
accident year loss and LAE reserves due mostly to a reduction in estimated
future costs for commercial umbrella claims adjuster related expenses. The
improvement in the combined ratio for the full year 2003 was due primarily to
overall favorable development on prior accident year loss and LAE reserves in
the commercial umbrella product line.
Personal Lines demonstrated significant improvement with a combined ratio of
97.0% in the fourth quarter of 2003, a 22.1 point improvement over the same
period last year while the full year improved 8.5 points. Every product line
in the Personal Lines operating segment registered an improved combined ratio
in both the fourth quarter and the year 2003 compared to 2002. The fourth
quarter and full year improvement was driven by the withdrawal from NJPPA,
premium rate increases, a significant improvement in the non-catastrophe
experience for homeowners, and a decline in the underwriting expense ratio.
Catastrophe losses were 1.7 points higher for full year 2003 than in 2002,
which indicates that the 2003 non-catastrophe related Personal Lines
performance was more than 10 combined ratio points better than last year.
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 Year
Ended Dec 31 Ended Dec 31
($ in millions) 2003 2002 2003 2002
- --------------- ---- ---- ---- ----
Statutory net liabilities,
beginning of period $2,118.3 $2,074.2 $2,078.7 $1,982.0
Increase in provision for prior
accident year claims $24.4 $9.2 $34.1 $84.4
Increase in provision for prior
accident year claims as %
of premiums earned 6.7% 2.5% 2.4% 5.8%
Other Highlights
For the fourth quarter of 2003 compared to the fourth quarter of 2002:
- Catastrophe losses decreased to $2.6 million from $3.5 million.
- Employee count was down 11.2% to 2,669 at December 31, 2003, which
helped reduce the personnel related expense portion of the
underwriting expense ratio by .3 points, and contributed to the .4
point reduction in the LAE ratio to 12.8%.
- Book value per share of $18.80 has increased 7.9% from fourth quarter
2002.
- Premiums to surplus ratio improved to 1.7 to 1 from 2.0 to 1.
Looking forward, the Corporation is providing guidance for calendar year 2004
as follows:
- Net premiums written will be flat compared to 2003 or will grow in the
low single digits,
- Statutory calendar year combined ratio of 101.0% to 104.0%, assuming a
catastrophe loss impact of 2% to 2.5%, and
- Investment income of approximately $200 million.
Investors are advised to read the safe harbor statement at the end of this
release.
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 Thursday,
February 12, 2004. 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 May 15, 2004. To listen to call playback by
telephone, dial 1-800-252-6030, then enter ID code 21286827. Call playback
begins at 5 p.m. ET on February 12 and extends through midnight February 16,
2004.
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 first
quarter will start April 1, 2004 extending through the time of the earnings
conference call scheduled for May 5, 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 $5.2
billion as of December 31, 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 to appoint and/or retain agents; 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 Year
Ended Dec 31 Ended Dec 31
($ in millions) 2003 2002 2003 2002
- --------------- ---- ---- ---- ----
Net income (loss) before realized
gains and losses $25.2 $17.1 $52.5 $(30.3)
After-tax realized gains and losses 2.5 12.0 23.3 29.4
----- ----- ----- -------
Net income (loss) $27.7 $29.1 $75.8 $ (0.9)
Net income (loss) per share - diluted
before realized gains and losses $0.41 $0.28 $0.86 $(0.49)
After-tax realized gains and losses per
share- diluted 0.04 0.20 0.38 0.48
----- ----- ----- -------
Net income (loss) per share - diluted $0.45 $0.48 $1.24 $(0.01)
-30-