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 NET INCOME
UP 105% FOR THE FOURTH QUARTER
FAIRFIELD, OHIO, February 9, 2005 --- Ohio Casualty Corporation (NASDAQ:OCAS)
today announced the following results for its fourth quarter ended December
31, 2004, compared with the same period of the prior year:
- Net income of $56.9 million, or $0.82 per diluted share, versus $27.7
million, or $0.42 per diluted share;
- All Lines statutory combined ratio of 95.0%, a 9.7 point improvement;
and
- Operating income (A) of $43.7 million versus $25.2 million, an $18.5
million or 73.4% increase.
Results for the full year ended 2004 compared with 2003 included:
- Net income of $128.4 million, or $1.89 per diluted share, versus $75.8
million, or $1.18 per diluted share;
- All Lines statutory combined ratio of 98.4%, a 7.7 point improvement;
and
- Operating income (A) of $115.1 million versus $52.5 million, a $62.6
million or 119.2% increase.
President and Chief Executive Officer Dan Carmichael commented, "I am
extremely pleased with our financial results for both the fourth quarter and
full year 2004. Our operating income is up 73.4% and 119.2%, respectively,
and our statutory combined ratio for each period is our best
since 1980. This improvement, including increased shareholder value, is the
result of the success of our strategic initiatives and the hard work and
dedication of our staff and independent agents.
Our improved financial results were driven by significantly improved loss
experience, including lower loss adjustment costs as a result of our cost
reduction programs, which are continuing in 2005. The improved loss
experience is the result of our disciplined underwriting and the enhanced
pricing methodologies we continue to develop. In addition, we have continued
to experience favorable prior years reserve development at $5.9 million for
the fourth quarter.
While we have made great strides in lowering our underwriting expense ratio,
the fourth quarter includes additional incentive compensation expense related
to our overall profitability improvements and a $5.6 million increase in the
surplus guarantee accrual on the sale of our New Jersey personal auto business
to Proformance Insurance Company (Proformance). These two items raised the
fourth quarter underwriting ratio by 2.8 points.
I remain very thankful to our agents and employees for the hard work and
excellent results."
The major components of net income are summarized in the table below:
Three Months Year
Summary Income Statement Ended Dec 31 Ended Dec 31
($ in millions, except share data) 2004 2003 2004 2003
- ---------------------------------- ---- ---- ---- ----
Premiums and finance charges earned $361.7 $363.5 $1,446.8 $1,424.4
Investment income less expenses 57.2 53.1 201.2 208.7
Investment gains realized, net 20.4 3.9 23.0 35.9
------ ------ -------- --------
Total revenues $439.3 $420.5 $1,671.0 $1,669.0
Losses and benefits for policyholders $173.8 $210.0 $ 777.6 $ 852.5
Loss adjustment expenses 42.1 46.7 158.7 174.9
Underwriting expenses 128.5 122.6 504.8 503.2
Corporate and other expenses 12.4 6.5 43.4 30.8
------ ------ -------- --------
Total expenses $356.8 $385.8 $1,484.5 $1,561.4
Income tax expense:
On investment gains realized $ 7.1 $ 1.4 $ 8.0 $ 12.6
On all other income 18.5 5.6 48.5 19.2
------ ------ -------- --------
Total income tax expense $ 25.6 $ 7.0 $ 56.5 $ 31.8
Cumulative effect of an
accounting change $ - $ - $ (1.6) $ -
------ ------ -------- --------
Net income $ 56.9 $ 27.7 $ 128.4 $ 75.8
====== ====== ========= ========
Average shares outstanding - diluted 71,941,641 70,633,323 71,508,519 70,224,196
Net income, per share - diluted $0.82 $0.42 $1.89 $1.18
In connection with the adoption of Emerging Issues Task Force ("EITF")
Consensus 04-8 "The Effect of Contingently Convertible Debt on Diluted
Earnings per Share" in the fourth quarter 2004, the Company has restated the
average shares outstanding-diluted and net income per share-diluted for the
three months and full year ended December 31, 2003. The net effect of this
restatement reduced net income per share-diluted by $0.03 and $0.06, for the
three months and full year ended December 31, 2003, respectively. The effect
on net income per share of this
restatement and for current year presentation was determined using the
"if-converted" methodology prescribed in SFAS No. 128.
Consolidated before-tax net investment income for the fourth quarter 2004
increased $4.1 million over the same period in 2003. This increase is a
result of a $7.4 million favorable amortization adjustment on certain fixed
income securities, with $4.3 million of this adjustment representing a
reclassification from realized gains. This favorable adjustment was partially
offset by reinvestment yields that are below our average portfolio yield and
our portfolio shift into tax exempt securities. This shift in the investment
portfolio will reduce before-tax net investment income; however, it
correspondingly lowers 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.
Statutory net written premiums for our Commercial Lines segment increased for
the quarter driven by improved pricing and higher policy renewal rates.
Specialty Lines net written premiums declined in the fourth quarter as
commercial umbrella market pricing fell below acceptable levels resulting in
lower new business production. In addition, underwriting actions led to lower
renewal rates in the commercial umbrella line. These declines were partially
offset by growth in the fidelity and surety product line. Personal Lines net
written premiums also declined for the quarter, primarily as a result of a $2
million return of premium related to a North Carolina rate case settlement.
All three operating segments achieved underwriting profitability in the fourth
quarter with improvements concentrated in their loss ratios and driven by
underwriting and pricing actions. Commercial and Personal Lines were
significantly more profitable over the same period last year due to improved
underwriting quality, higher pricing adequacy and slightly favorable reserve
development compared with significant adverse reserve development in 2003.
The significant improvement in Personal Lines was made despite a 4.2 point
increase in catastrophe losses and the 4.8 point charge related to the
Proformance surplus guarantee accrual. The maximum amount that may be
required under the Proformance agreement has now been accrued. The Specialty
Lines result was very strong at a 95.1% combined ratio for the quarter,
including 5.3 points of favorable prior year reserve development compared to
21.9 points of favorable development in the same period last year. Based upon
the nature of the Specialty Line business and our premium volumes for this
segment, the Specialty Line combined ratio is subject to more volatility
compared to our other product lines.
Supplemental financial information for the fourth quarter and full year 2004
and 2003, respectively, including many of the statutory financial measures
described above, is available on Ohio Casualty Corporation's website at
www.ocas.com and was also filed on Form 8-K with the Securities and Exchange
Commission. A discussion of the differences between statutory accounting
principles and accounting principals generally accepted in the United States
is included in Item 15 of the Corporation's Form 10-K for the year ended
December 31, 2003.
Statutory Net Premiums Written
The table below summarizes net premiums written for the operating segments:
Statutory Three Months Year
Net Premiums Written Ended Dec 31 % Ended Dec 31 %
($ in millions) 2004 2003 Chg 2004 2003 Chg
- -------------------- ---- ---- --- ---- ---- ---
Commercial Lines $192.4 $180.7 6.5 $ 828.2 $ 792.6 4.5
Specialty Lines 32.9 40.3 (18.4) 135.5 164.9 (17.8)
Personal Lines 117.2 120.1 (2.4) 490.2 484.1 1.3
------ ------ -------- --------
All Lines $342.5 $341.1 0.4 $1,453.9 $1,441.6 0.8
Statutory Combined Ratio
The statutory combined ratio is a commonly used gauge of underwriting
performance measuring the percentage of premium dollars used to pay insurance
losses and related expenses. The loss and LAE ratios measure losses and LAE
as a percentage of net earned premiums and the underwriting expense ratio
measures underwriting expenses as a percentage of net premiums written. The
combined ratio is the sum of the loss ratio, the LAE ratio, and the
underwriting expense ratio. All combined ratio references in this press
release are calculated on a calendar year basis unless specified as calculated
on an accident year basis. Furthermore, these references to combined ratio or
its components are calculated on a statutory accounting basis.
The table below summarizes combined ratio results by business unit:
Three Months Year
Ended Dec 31 Ended Dec 31
Statutory Combined Ratio 2004 2003 2004 2003
- ------------------------ ---- ---- ---- ----
Commercial Lines 96.2% 119.0% 99.3% 112.3%
Specialty Lines 95.1% 60.9% 97.2% 77.2%
Personal Lines 93.3% 97.0% 97.6% 105.6%
----- ------ ----- ------
All Lines 95.0% 104.7% 98.4% 106.1%
Loss and LAE Development
The loss and LAE ratio component of the accident year combined ratio measures
losses and LAE arising from insured events that occurred in the respective
accident year. The current accident year excludes losses and LAE for insured
events that occurred in prior accident years.
The table below summarizes the impact of changes in provision for all prior
accident year losses and LAE:
Three Months Year
Ended Dec 31 Ended Dec 31
($ in millions) 2004 2003 2004 2003
- --------------- ---- ---- ---- ----
Statutory net liabilities,
beginning of period $2,188.7 $2,118.3 $2,128.9 $2,078.7
Increase/(decrease) in provision
for prior accident year claims $(5.9) $24.4 $(21.7) $34.1
Increase/(decrease) in provision
for prior accident year claims
as % of premiums earned (1.6)% 6.7% (1.4)% 2.4%
Other Highlights
For the fourth quarter of 2004 compared to the fourth quarter of 2003:
- Catastrophe losses increased to $5.4 million from $2.6 million.
- Employee count was down 17.9% to approximately 2,200 at December 31, 2004.
- GAAP book value per share of $20.82 increased 10.7%.
- Premiums to surplus ratio improved to 1.5 to 1 from 1.7 to 1.
For the full year 2004 compared to 2003:
- Catastrophe losses decreased slightly to $43.5 million from $43.8 million.
Guidance
Looking forward, the Corporation reaffirms its long-term goals, which are to
achieve above market premium growth and to operate within a 96% to 98% all-
lines statutory combined ratio, with continued focus on gaining greater
operational expense efficiencies. In the short term, however, we expect that
increasing competitive pressures in all lines of business will affect our
premium growth. The Corporation also anticipates that before-tax net
investment income will decline in 2005 due to the full year impact of the
shift in the investment portfolio to a higher percentage of tax-exempt
securities.
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 9:00 a.m. EST on
Thursday, February 10, 2005. 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 9, 2005. To listen to call playback by
telephone, dial 1-800-252-6030, then enter ID code 35247929. Call playback
begins at 5 p.m. EST on February 10, 2005 and extends through midnight on
February 12, 2005.
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, 2005 extending through the time of the earnings
conference call scheduled for April 27, 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 December 31, 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 Non-GAAP Financial Measures to GAAP Financial Measures
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 Year
Ended Dec 31 Ended Dec 31
($ in millions) 2004 2003 2004 2003
- --------------- ---- ---- ---- ----
Operating income $43.7 $25.2 $115.1 $52.5
After-tax net realized gains 13.2 2.5 14.9 23.3
Cumulative effect of accounting
change - - (1.6) -
----- ----- ------- -----
Net income $56.9 $27.7 $128.4 $75.8
Operating income
per share - diluted $0.64 $0.38 $ 1.71 $0.84
After-tax net realized gains
per share- diluted 0.18 0.04 0.20 0.34
Cumulative effect of accounting
change per share - diluted - - (0.02) -
----- ----- ------- -----
Net income per share - diluted $0.82 $0.42 $ 1.89 $1.18
As mentioned previously, in connection with the adoption of EITF 04-8 in the
fourth quarter 2004, the Company has restated the above table's per share
amounts for the three months and full year ended December 31, 2003. The net
income and operating income per share-diluted effect of
this restatement and for current year presentation was determined using the
"if-converted" methodology prescribed by SFAS No. 128.
Reconciliation of Net Income Return on Equity to Operating Income Return on
Equity
Operating income return on equity is a ratio management calculates using non-
GAAP financial measures. It is calculated by dividing the annualized
consolidated operating income (see calculation below) for the most recent
quarter by the average shareholders' equity for the quarter using a simple
average of beginning and ending balances for the quarter, excluding from
equity after-tax unrealized investment gains and losses. This ratio provides
management with an additional measure to evaluate the results excluding the
unrealized changes in the valuation of the investment portfolio that can
fluctuate between periods. The following table reconciles operating income
return on equity to net income return on equity, the most directly comparable
GAAP measure:
Three Months Year
Ended Dec 31 Ended Dec 31
($ in millions) 2004 2003 2004 2003
- --------------- ---- ---- ---- ----
Net income $ 56.9 $ 27.7 $ 128.4 $ 75.8
Average shareholders' equity 1,275.5 1,142.6 1,220.4 1,102.3
Return on equity based on
annualized net income 17.8% 9.7% 10.5% 6.9%
===== ==== ===== ====
Operating income $ 43.7 $ 25.2 $ 115.1 $ 52.5
Average shareholders' equity 985.3 857.9 935.7 832.8
Return on equity based on
annualized operating income 17.7% 11.8% 12.3% 6.3%
===== ===== ===== ====
Average shareholders' equity $1,275.5 $1,142.6 $1,220.4 $1,102.3
Average unrealized gains 290.2 284.7 284.7 269.5
-------- -------- -------- --------
Adjusted average shareholders'
equity $ 985.3 $ 857.9 $ 935.7 $ 832.8
======== ======== ======== ========