Exhibit 99.1
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 IMPROVED
SECOND QUARTER 2004 EARNINGS
FAIRFIELD, Ohio, August 3, 2004 --- Ohio Casualty Corporation (Nasdaq:OCAS)
today announced the following results for its second quarter ended June 30,
2004, compared with the same period of the prior year:
- net income of $32.7 million, or $0.52 per diluted share, versus $11.0
million, or $0.18 per diluted share,
- All Lines statutory combined ratio of 98.2% for second quarter and 99.5%
for the six months ended June 30, 2004 - both are 8.0 point improvements
over the same period last year, and
- Operating income (A) of $30.6 million versus $6.6 million, a $24.0
million or 363.6% increase.
President and Chief Executive Officer Dan Carmichael, commented, "We had
significant improvement in the second quarter, the result of good execution
of our strategic plan and a big step forward to achieving consistently
high quality operating earnings. Our 98.2% statutory combined ratio is our
best second quarter ratio since 1988 and our quarterly operating income of
$30.6 million is our best result since fourth quarter 1997. We continue to
see good improvement over last year's results in both net income and combined
ratio, giving us increased confidence in our strategic plan, leading to
revised combined ratio guidance.
The improved financial results were primarily driven by our statutory loss
and loss adjustment expense ratio, which was 7.5 points better than last
year's second quarter due to a decline in claim frequency, fewer large
claims, favorable prior year reserve development and a better priced book of
business. Net premiums written grew modestly in the quarter, as we continue
to see increasing competition in the market.
We continue to make gains in our expense ratio objectives, with our Cost
Structure Efficiency (CSE) Initiative improving customer service levels while
simultaneously lowering operating costs and increasing staff productivity.
We achieved our goal in staff reductions, as previously announced, with
reductions of approximately 450 positions through June. As a result,
operating expenses, after severance and related costs, will be reduced by
$4.0 million in 2004, with projected annualized savings of $24.5 million in
2005. We expect the expense ratio to continue to improve through the
remainder of the year given expected lower operating expenses and a reduction
in costs associated with the CSE Initiative.
As previously announced in June, we completed a $200.0 million senior notes
offering. The proceeds from the offering will be used to repay a portion of
our $201.3 million aggregate principal convertible notes, which are callable
in March 2005, or to repurchase shares in an amount up to the equivalent
number of shares to be issued if holders of the convertible notes elect to
convert in accordance with their terms. Initially the proceeds will be
invested in short term securities, which will deteriorate earnings in the
near term because of the negative spread between the rate on the senior
notes and the yield on the short-term securities. However, the repayment of
the convertible notes reduces the potential for significant future share and
earnings dilution."
The major components of net income are summarized in the table below:
Three Months
Summary Income Statement Ended June 30
($ in millions, except share data) 2004 2003
- ---------------------------------- ---- ----
Premiums and finance charges earned $367.2 $351.2
Investment income less expenses 48.6 51.4
Investment gains realized, net 3.2 6.8
-------------------
Total revenues $419.0 $409.4
Losses and benefits for policy-
holders $203.1 $213.7
Loss adjustment expenses 40.1 41.4
Underwriting expenses 121.0 126.4
Corporate and other expenses 7.8 10.7
-------------------
Total expenses $372.0 $392.2
Income tax expense:
On investment gains realized $ 1.1 $ 2.4
On all other income 13.2 3.8
------------------
Total income tax expense $14.3 $ 6.2
Cumulative effect of an
accounting change $ - $ -
Net income $32.7 $11.0
===================
Average shares outstanding
- diluted 62,474,082 61,169,556
Net income, per share - diluted $0.52 $0.18
Six Months
Summary Income Statement Ended June 30
($ in millions, except share data) 2004 2003
- ---------------------------------- ---- ----
Premiums and finance charges earned $728.3 $700.5
Investment income less expenses 99.1 104.6
Investment gains realized, net 6.9 26.1
-------------------
Total revenues $834.3 $831.2
Losses and benefits for policy-
holders $398.3 $422.5
Loss adjustment expenses 78.4 88.8
Underwriting expenses 262.5 254.5
Corporate and other expenses 18.2 18.4
-------------------
Total expenses $757.4 $784.2
Income tax expense:
On investment gains realized $ 2.4 $ 9.1
On all other income 21.0 7.0
------------------
Total income tax expense $23.4 $16.1
Cumulative effect of an
accounting change $(1.6) $ -
Net income $51.9 $30.9
==================
Average shares outstanding
- diluted 62,306,935 61,067,946
Net income, per share - diluted $0.83 $0.51
Consolidated before tax net investment income declined in the second quarter
as reinvestment yields remain below our average portfolio yield. As the
Corporation continues to deliver improved financial results, proceeds from
current investments will be reinvested into tax exempt fixed maturity
securities. This shift in the investment portfolio will reduce before tax
investment income; however, it will improve after-tax investment yields and
lower the Corporation's effective tax rate.
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.
From an operating segment perspective, Commercial and Personal Lines
continued to have low single digit statutory net written premium growth that
was driven by price increases and strong retention rates. Specialty Lines
net written premiums declined for the quarter due to higher reinsurance costs
and increased competitive pressures for commercial umbrella, which was
partially offset by good growth in the fidelity and surety product line.
Commercial and Personal Lines both had improved statutory combined ratios due
to lower claim frequency, higher pricing and improved risk profiles. The
Specialty Lines combined ratio, while increasing over the second quarter of
2003, remained very favorable at 94.0% for the quarter.
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, 2003.
Statutory Net Premiums Written
The table below summarizes net premiums written for the operating segments:
Statutory Three Months
Net Premiums Written Ended June 30 %
($ in millions) 2004 2003 Chg
- -------------------- ---- ---- ---
Commercial Lines $220.3 $209.9 5.0
Specialty Lines 39.1 43.2 (9.4)
Personal Lines 127.3 122.8 3.7
------ ------
All Lines $386.7 $375.9 2.9
Statutory Six Months
Net Premiums Written Ended June 30 %
($ in millions) 2004 2003 Chg
- -------------------- ---- ---- ---
Commercial Lines $432.5 $415.1 4.2
Specialty Lines 73.9 76.1 (2.9)
Personal Lines 244.3 236.9 3.1
------ ------
All Lines $750.7 $728.1 3.1
Statutory Combined Ratio
The statutory combined ratio is a commonly used gauge of underwriting
performance measuring the percentage of premium dollars used to pay insurance
losses and related expenses. The loss and LAE ratios measure losses and
LAE as a percentage of net earned premiums and the underwriting expense ratio
measures underwriting expenses as a percentage of net premiums written. The
combined ratio is the sum of the loss ratio, the LAE ratio, and the
underwriting expense ratio. All combined ratio references in this press
release are calculated on a calendar year basis unless specified as calculated
on an accident year basis. Furthermore, these references to combined ratio
or its components are calculated on a statutory accounting basis. The table
below summarizes combined ratio results by business unit:
Three Months Six Months
Ended June 30 Ended June 30
Statutory Combined Ratio 2004 2003 2004 2003
- ------------------------ ---- ---- ---- ----
Commercial Lines 100.7% 111.6% 99.8% 111.4%
Specialty Lines 94.0% 76.0% 93.6% 83.8%
Personal Lines 95.5% 107.7% 101.3% 108.9%
All Lines 98.2% 106.2% 99.5% 107.5%
Loss and LAE Development
The loss and LAE ratio component of the accident year combined ratio measures
losses and LAE arising from insured events that occurred in the respective
accident year. The current accident year excludes losses and LAE for insured
events that occurred in prior accident years.
The table below summarizes the impact of changes in provision for all prior
accident year losses and LAE:
Three Months
Ended June 30
($ in millions) 2004 2003
- --------------- ---- ----
Statutory net liabilities,
beginning of period $2,141.9 $2,095.8
Increase/(decrease) in provision
for prior accident year claims $(10.2) $1.8
Increase/(decrease) in provision
for prior accident year claims
as % of premiums earned (2.8)% 0.5%
Six Months
Ended June 30
($ in millions) 2004 2003
- --------------- ---- ----
Statutory net liabilities,
beginning of period $2,128.9 $2,078.7
Increase/(decrease) in provision
for prior accident year claims $(12.7) $4.5
Increase/(decrease) in provision
for prior accident year claims
as % of premiums earned (1.7)% 0.6%
Other Highlights
For the second quarter of 2004 compared to the second quarter of 2003:
- Catastrophe losses decreased to $11.7 million from $13.9 million.
- Employee count was down 20.5% to approximately 2,200 at June 30, 2004.
- GAAP book value per share of $19.21 increased 2.5%.
- Premiums to surplus ratio improved to 1.6 to 1 from 1.8 to 1.
Looking forward, the Corporation is revising guidance for calendar year 2004
as follows:
- Net premiums written will grow in the low single digits,
- Statutory calendar year combined ratio of 98.0% to 101.0%, assuming a
catastrophe loss impact of 2% to 2.5%, and
- Net investment income of approximately $195 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 1:30 p.m. EDT on
Wednesday, August 4, 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 November 4, 2004. To listen to call playback by
telephone, dial 1-800-252-6030, then enter ID code 24952527. Call playback
begins at 5 p.m. EDT on August 4, 2004 and extends through midnight on
August 6, 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 third
quarter will start October 1, 2004 extending through the time of the earnings
conference call scheduled for November 3, 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
48th among U.S. property/casualty insurance groups based on net premiums
written (Best's Review, July 2004). 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 $5.6
billion as of June 30, 2004.
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 within the meaning of The Private Securities Litigation Reform Act
of 1995. 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.
(A) Reconciliation of Net Income to Operating Income
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 operating income to further evaluate current operating performance.
Operating income, 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) 2004 2003 2004 2003
- --------------- ---- ---- ---- ----
Operating income $30.6 $ 6.6 $49.0 $13.9
After-tax net realized gains 2.1 4.4 4.5 17.0
Cumulative effect of
accounting change - - (1.6) -
----- ----- ----- -----
Net income $32.7 $11.0 $51.9 $30.9
Operating income
per share - diluted $0.49 $0.11 $0.79 $0.23
After-tax net realized gains
per share- diluted 0.03 0.07 0.07 0.28
Cumulative effect of accounting
change per share - diluted - - (0.03) -
----- ----- ------ -----
Net income per share - diluted $0.52 $0.18 $0.83 $0.51