Exibit 99-1
Analyst contact:
Dennis E. McDaniel
Vice President, 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
FINANCIAL RESULTS FOR THIRD QUARTER
FAIRFIELD, OHIO, October 25, 2005 --- Ohio Casualty Corporation
(NASDAQ:OCAS) today announced the following results for its third quarter
ended September 30, 2005, compared with the same period of the prior year:
- Net income of $55.5 million, or $0.85 per diluted share, versus $19.6
million, or $0.30 per diluted share;
- All Lines combined ratio (GAAP) of 99.5%, a 0.8 point improvement; and
- Operating income (A) of $32.7 million versus $22.4 million, a $10.3
million or 46.0% increase.
Results for the nine months ended September 30, 2005, compared with the
same period of the prior year:
- Net income of $135.4 million, or $2.02 per diluted share, versus $71.5
million, or $1.07 per diluted share;
- All Lines combined ratio (GAAP) of 96.9%, a 4.2 point improvement; and
- Operating income (A) of $103.6 million versus $71.4 million, a $32.2
million or 45.1% increase.
President and Chief Executive Officer Dan Carmichael commented, "It's
remarkable that in a quarter in which our country experienced the worst
ever natural catastrophe our agents and staff produced another positive
underwriting result; it was the twelfth quarter in a row of operating
profitability. I'm also pleased that we were able to promptly serve our
policyholders and independent agents who were affected by the Gulf Coast
storms. As we previously announced, our net catastrophe losses for the
current quarter
were approximately $11.6 million on an after tax basis, with approximately
$9.8 million related to damage incurred from Hurricane Rita and $1.4 million
from Hurricane Katrina. The total catastrophe loss impact added 4.9 points
to the combined ratio for the current quarter. When these catastrophe results
are viewed relative to the industry results for these same storms, it is
evidence that our disciplined underwriting and risk management approach is
clearly paying off in enhanced profitability. We will continue to focus on
improving our already strong profitability through our pricing strategies,
our disciplined underwriting standards, and a continuing effort to manage
expenses."
The major components of net income are summarized in the table below:
Three Months Nine Months
Summary Income Statement Ended Sept 30 Ended Sept 30
($ in millions, except share data) 2005 2004 2005 2004
- ---------------------------------- ---- ---- ---- ----
Premiums and finance charges
earned $362.5 $356.5 $1,090.3 $1,084.8
Investment income less expenses 51.4 44.9 148.4 144.0
Investment gains/(losses)
realized, net 22.4 (4.3) 36.2 2.6
------------------- ---------------------
Total revenues $436.3 $397.1 $1,274.9 $1,231.4
Losses and benefits for
policyholders $204.5 $205.5 $ 587.3 $ 603.8
Loss adjustment expenses 42.5 38.2 125.8 116.6
Underwriting expenses 113.3 113.6 343.0 376.0
Corporate and other expenses 9.6 12.7 43.0 31.0
------------------- ---------------------
Total expenses $369.9 $370.0 $1,099.1 $1,127.4
Income tax expense/(benefit):
On investment gains/(losses)
realized $(0.4) $(1.5) $ 4.4 $ 0.9
On all other income 11.3 9.0 36.0 30.0
------------------- ---------------------
Total income tax expense $10.9 $ 7.5 $ 40.4 $30.9
Cumulative effect of an
accounting change $ - $ - $ - $(1.6)
------------------- ---------------------
Net income $55.5 $19.6 $135.4 $71.5
=================== =====================
Average shares outstanding
- diluted 65,656,774 71,678,727 68,012,120 71,360,958
Net income, per share - diluted $0.85 $0.30 $2.02 $1.07
Results for the third quarter included $3.1 million of unfavorable
development in loss and loss adjustment expense reserves for prior accident
years, compared with favorable development of $3.1 million in the third
quarter of 2004.
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, average shares outstanding-
diluted and net income per share-diluted were restated for the three and
nine months ended September 30, 2004. The restatement lowered net income
per share-diluted by $0.01 and $0.07, respectively, for the three and nine
months ended September 30, 2004.
Consolidated before-tax net investment income increased $6.5 million in the
quarter as a result of continued growth in our investment portfolio, as the
insurance operations continue to generate positive cash flows. In
addition, we recognized $2.5 million of interest income related to federal
income tax settlements with the Internal Revenue Service, which were
finalized in the third quarter of 2005. These increases were somewhat
offset by lower before-tax investment yields in 2005 and our strategy to
invest more in tax-exempt securities. On an after-tax basis, investment
income increased $5.1 million in the quarter, which further reflects the
benefits of our investment in tax-exempt securities.
During the third quarter of 2005, settlements with the Internal Revenue
Service for tax years 1996 through 2001 were favorably concluded. The
result of these settlements was an increase to net income for the quarter
and nine months ended September 30, 2005 of $16.8 million ($0.26 per share
for the quarter and $0.25 per share for the nine-months). The effect on
operating income, which excludes that portion of the settlement applicable
to taxes on realized capital gains and losses, was an increase of $6.1
million, or $0.09 per share for both the third quarter and nine months
ended September 30, 2005. The above-referenced items had the effect of
lowering the overall effective income tax rate for the nine months ended
September 30, 2005 by 6.6 points.
Book value per share increased $0.93, or 4.5% to $21.75 at September 30,
2005, compared to $20.82 at December 31, 2004.
On August 18, 2005, the Board of Directors approved a share repuchase
program of up to four million shares of the Corporation's common stock.
During the third quarter, the Corporation has repurchased 570,115 shares
at an average cost of $25.61. For the period October 1, 2005 through
October 24, 2005, the Corporation has repurchased an additional 618,270
shares of its common stock at an average price per share of $25.95. Total
authorized shares remaining under the program are 2,811,615.
For a more detailed discussion of the financial condition and the results
of operations at September 30, 2005 and for the three and nine month
periods then ended, please see the Quarterly Report on Form 10-Q for this
period, filed with the Securities and Exchange Commission (SEC).
Supplemental financial information for the third quarter and nine months
ended September 30, 2005, including certain financial measures, is
available on Ohio Casualty Corporation's website at www.ocas.com and was
also filed on Form 8-K with the SEC. A discussion of the differences
between statutory accounting principles and accounting principles generally
accepted in the United States is included in Item 15 of the Ohio Casualty
Corporation's Form 10-K for the year ended December 31, 2004.
Investors are advised to read the safe harbor statement at the end of this
release.
Conference Call
Ohio Casualty Corporation will conduct a teleconference call to discuss
information included in this news release and related matters at 10:00 a.m.
EDT on Wednesday, October 26, 2005. The call is being webcast by Vcall and
can be accessed directly through Ohio Casualty Corporation's website
www.ocas.com and Vcall's Investor Calendar website
www.investorcalendar.com. The webcast will be available for replay through
January 26, 2006. To listen to call playback by telephone, dial 1-800-252-
6030, then enter ID code 44695260. Call playback begins at 5 p.m. EDT on
October 26, 2005 and extends through midnight on October 28, 2005.
Quiet Period
Ohio Casualty 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, 2006 extending through the
time of the earnings conference call, tentatively scheduled for February 2,
2006.
Corporate Profile
Ohio Casualty Corporation is the holding company of The Ohio Casualty
Insurance Company, which is one of six property-casualty insurance
companies that make up Ohio Casualty Group, collectively referred to as
Consolidated Corporation. The Ohio Casualty Insurance Company was founded
in 1919 and is licensed in 49 states. Ohio Casualty Group is ranked 47th
among U.S. property/casualty insurance groups based on net premiums written
(Best's Review, July 2005). 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, 2005.
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 Consolidated 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 Consolidated 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 Ohio Casualty Corporation'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 Consolidated 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 amounts and per share amounts, are 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) 2005 2004 2005 2004
- --------------- ---- ---- ---- ----
Operating income $32.7 $22.4 $103.6 $ 71.4
After-tax net realized
gains/(losses) 22.8 (2.8) 31.8 1.7
Cumulative effect of accounting
change - - - (1.6)
----- ----- ------ ------
Net income $55.5 $19.6 $135.4 $ 71.5
===== ===== ====== ======
Operating income
per share - diluted $0.50 $0.34 $1.55 $ 1.07
After-tax net realized
gains/(losses) per
share-diluted 0.35 (0.04) 0.47 0.02
Cumulative effect of accounting
change per share-diluted - - - (0.02)
----- ----- ----- ------
Net income per share - diluted $0.85 $0.30 $2.02 $ 1.07
===== ===== ===== ======
As noted above, results for the third quarter and nine months ended
September 30, 2005, include the effect of settlements with the Internal
Revenue Service related to tax years 1996 through 2001. The settlements
increased net income by $16.8 million ($0.26 per share for the third
quarter, $0.25 per share for the nine months), and operating income by $6.1
million, or $0.09 per share for quarter and nine months.
Also, as mentioned previously, in connection with the adoption of EITF 04-8
in the fourth quarter 2004, the Consolidated Corporation was required to
restate per-share amounts for the three months and nine months ended
September 30, 2004. The restatement lowered net income per share-diluted,
by $0.01 and $0.07 for the three and nine months ended September 30, 2004,
respectively.
Reconciliation of Net Income Return on Equity to Operating Income Return
on Equity
Operating income return on equity is a ratio management calculates using
non-GAAP financial measures. It is calculated by dividing the annualized
consolidated operating income (see calculation below) for the most recent
quarter by the adjusted average shareholders' equity for the quarter using
a simple average of beginning and ending balances for the quarter,
excluding from equity after-tax unrealized investment gains and losses.
This ratio provides management with an additional measure to evaluate the
results excluding the unrealized changes in the valuation of the investment
portfolio that can fluctuate between periods. The following table
reconciles operating income return on equity to net income return on
equity, the most directly comparable GAAP measure:
Three Months Nine Months
Ended Sept 30 Ended Sept 30
($ in millions) 2005 2004 2005 2004
- --------------- ---- ---- ---- ----
Net income $ 55.5 $ 19.6 $ 135.4 $ 71.5
Average shareholders' equity 1,401.6 1,218.0 1,343.8 1,200.9
Return on equity based on
annualized net income 15.8% 6.4% 13.4% 7.9%
===== ==== ===== ====
Operating income $ 32.7 $ 22.4 $ 103.6$ 71.4
Adjusted average shareholders'
equity 1,149.4 949.1 1,089.3 912.2
Return on equity based on
annualized operating income 11.4% 9.4% 12.7% 10.4%
===== ==== ===== =====
Average shareholders' equity $1,401.6 $1,218.0 $1,343.8 $1,200.9
Average unrealized gains 252.2 268.9 254.5 288.7
Adjusted average shareholders'
equity $1,149.4 $ 949.1 $1,089.3 $ 912.2
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