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 NET INCOME
UP 14.0% FOR THE THIRD QUARTER 2004
------------------------------------
FAIRFIELD, OHIO, November 2, 2004 --- Ohio Casualty Corporation (Nasdaq:OCAS)
today announced the following results for its third quarter ended September
30, 2004, compared with the same period of the prior year:
- Net income of $19.6 million, or $0.31 per diluted share, versus $17.2
million, or $0.28 per diluted share,
- All Lines statutory combined ratio of 99.4%; a 5.3 point improvement, and
- Operating income (A) of $22.4 million versus $13.4 million, a $9.0
million or 67.2% increase.
President and Chief Executive Officer Dan Carmichael, commented, "I am very
pleased with our financial results. Our third quarter and year-to-date
statutory combined ratios are the best results for those periods since 1981.
We continue to demonstrate that our strategic initiatives are working and
improving shareholder value. While the industry experienced the worst
catastrophe quarter in history, our third quarter combined ratio of 99.4%,
with a 67% increase in operating income is reflective of the quality of
our core book of business. The continued improvement in financial results
for the third quarter was made despite catastrophe losses of $23 million,
primarily related to hurricane activity, that were $7 million higher than
third quarter last year.
Our improved financial results were driven by our statutory loss ratio, which
improved 3.5 points over third quarter last year despite the impact of
increased catastrophe losses. We also had an improved underwriting expense
ratio that was a result of our Cost Structure Efficiency (CSE)
Initiative and the impact of non-recurring premium tax and assessment related
accrual reductions. For the quarter, development on prior year losses was
also slightly favorable at $3.1 million.
Our CSE Initiative has improved customer service levels while simultaneously
increasing staff productivity and lowering operating costs. Although our
staff reduction goal from the CSE Initiative was achieved in the second
quarter, we continue to review our processes and procedures in order to gain
further operating efficiencies."
The major components of net income are summarized in the table below:
Three Months Nine Months
Summary Income Statement Ended Sept 30 Ended Sept 30
($ in millions, except share data) 2004 2003 2004 2003
- ---------------------------------- ---- ---- ---- ----
Premiums and finance charges earned $356.8 $360.4 $1,085.1 $1,060.9
Investment income less expenses 44.9 51.0 144.0 155.6
Investment gains (losses) realized, net (4.3) 5.9 2.6 32.0
------------------- -------------------------
Total revenues $397.4 $417.3 $1,231.7 $1,248.5
Losses and benefits for policyholders $205.5 $220.0 $ 603.8 $ 642.5
Loss adjustment expenses 38.2 39.4 116.6 128.2
Underwriting expenses 113.9 126.1 376.3 380.6
Corporate and other expenses 12.7 5.9 31.0 24.3
------------------- ------------------------
Total expenses $370.3 $391.4 $1,127.7 $1,175.6
Income tax (benefit) expense:
On investment gains (losses) realized $(1.5) $2.1 $ 0.9 $11.2
On all other income 9.0 6.6 30.0 13.6
------ ---- ----- -----
Total income tax expense $ 7.5 $8.7 $30.9 $24.8
Cumulative effect of an accounting
change $ - $ - $(1.6) $ -
Net income $19.6 $17.2 $71.5 $48.1
================== =====================
Average shares outstanding - diluted 62,781,223 61,413,662 62,463,454 61,181,263
Net income, per share - diluted $0.31 $0.28 $1.14 $0.79
Consolidated before tax net investment income declined in the third quarter as
reinvestment yields remain below our average portfolio yield and we continue to
reinvest more of our portfolio into tax exempt bonds. This shift in the
investment portfolio will reduce before tax investment income; however, it will
correspondingly lower the Corporation's effective tax rate, therefore
maximizing its after-tax income.
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 improved policy renewal rates. Commercial and Personal
Lines both had improved statutory combined
ratios due to lower claim frequency, higher pricing and improved risk profiles.
Specialty Lines net written premiums and combined ratio were adversely
impacted by a $6.1 million increased ceded premium accrual on the commercial
umbrella product line, related to years 1999 through 2001, which impacted the
combined ratio by 18.3 points for the quarter. In addition, Specialty Lines
net written premium also declined for the quarter due to higher reinsurance
costs and lower gross written premiums as a result of increased competitive
pressures in the commercial umbrella product line, which was partially offset
by growth in the fidelity and surety product line.
Supplemental financial information for the third quarter, including many of
the statutory financial measures described above, is available on Ohio
Casualty Corporation's website at www.ocas.com and was also filed on Form 8-K
with the Securities and Exchange Commission. A discussion of the differences
between statutory accounting principles and accounting principals generally
accepted in the United States is included in Item 15 of the Corporation's Form
10-K for the year ended December 31, 2003.
Statutory Net Premiums Written
The table below summarizes net premiums written for the operating segments:
Statutory Three Months Nine Months
Net Premiums Written Ended Sept 30 % Ended Sept 30 %
($ in millions) 2004 2003 Chg 2004 2003 Chg
- -------------------- ---- ---- --- ---- ---- ---
Commercial Lines $203.3 $196.8 3.3 $ 635.8 $ 611.9 3.9
Specialty Lines 28.7 48.4 (40.7) 102.6 124.5 (17.6)
Personal Lines 128.7 127.1 1.3 373.0 364.0 2.5
------ ------ -------- --------
All Lines $360.7 $372.3 (3.1) $1,111.4 $1,100.4 1.0
Statutory Combined Ratio
The statutory combined ratio is a commonly used gauge of underwriting
performance measuring the percentage of premium dollars used to pay insurance
losses and related expenses. The loss and LAE ratios measure losses and LAE
as a percentage of net earned premiums and the underwriting expense ratio
measures underwriting expenses as a percentage of net premiums written. The
combined ratio is the sum of the loss ratio, the LAE ratio, and the
underwriting expense ratio. All combined ratio references in this press
release are calculated on a calendar year basis unless specified as calculated
on an accident year basis. Furthermore, these references to combined ratio or
its components are calculated on a statutory accounting basis. The table
below summarizes combined ratio results by business unit:
Three Months Nine Months
Ended Sept 30 Ended Sept 30
Statutory Combined Ratio 2004 2003 2004 2003
- ------------------------ ---- ---- ---- ----
Commercial Lines 101.4% 107.6% 100.4% 110.1%
Specialty Lines 108.6% 82.2% 97.8% 83.0%
Personal Lines 94.9% 107.8% 99.1% 108.4%
All Lines 99.4% 104.7% 99.5% 106.6%
Loss and LAE Development
The loss and LAE ratio component of the accident year combined ratio measures
losses and LAE arising from insured events that occurred in the respective
accident year. The current accident year excludes losses and LAE for insured
events that occurred in prior accident years.
The table below summarizes the impact of changes in provision for all prior
accident year losses and LAE:
Three Months Nine Months
Ended Sept 30 Ended Sept 30
($ in millions) 2004 2003 2004 2003
- --------------- ---- ---- ---- ----
Statutory net liabilities,
beginning of period $2,168.8 $2,102.9 $2,128.9 $2,078.7
Increase/(decrease) in
provision for prior accident
year claims $(3.1) $5.2 $(15.8) $9.7
Increase/(decrease) in provision
for prior accident year claims
as % of premiums earned (0.9)% 1.4% (1.5)% 0.9%
Other Highlights
For the third quarter of 2004 compared to the third quarter of 2003:
- Catastrophe losses increased to $23.3 million from $16.2 million.
- Employee count was down 20.2% to approximately 2,200 at September 30,
2004.
- GAAP book value per share of $20.32 increased 8.6%.
- Premiums to surplus ratio improved to 1.6 to 1 from 1.8 to 1.
Looking forward, the Corporation is affirming guidance for calendar year 2004
as follows:
- Net premiums written will grow in the low single digits, and,
- Statutory calendar year combined ratio of 98.0% to 101.0%.
Also looking forward, the Corporation is revising guidance for calendar year
2004 as follows:
- Net investment income of approximately $190 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. EST on
Wednesday, November 3, 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 February 3, 2005. To listen to call playback by
telephone, dial 1-800-252-6030, then enter ID code 26659269. Call playback
begins at 5 p.m. EST on November 3, 2004 and extends through midnight on
November 5, 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 fourth
quarter will start January 1, 2005 extending through the time of the earnings
conference call scheduled for February 10, 2005.
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 $5.7 billion as of September 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. Accordingly, 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 amount,
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) 2004 2003 2004 2003
- --------------- ---- ---- ---- ----
Operating income $22.4 $13.4 $71.4 $27.3
After-tax net realized gains
(losses) (2.8) 3.8 1.7 20.8
Cumulative effect of accounting
change - - (1.6) -
----- ----- ------ -----
Net income $19.6 $17.2 $71.5 $48.1
Operating income
per share - diluted $0.36 $0.22 $1.14 $0.45
After-tax net realized gains
(losses) per share- diluted (0.05) 0.06 0.03 0.34
Cumulative effect of accounting
change per share - diluted - - (0.03) -
----- ----- ------ -----
Net income per share - diluted $0.31 $0.28 $1.14 $0.79