Exhibit 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 CONTINUED STRONG
FINANCIAL RESULTS FOR FOURTH QUARTER AND FULL YEAR
FAIRFIELD, OHIO, February 8, 2006 --- Ohio Casualty Corporation
(NASDAQ:OCAS) today announced the following results for its fourth quarter
ended December 31, 2005, compared with the same period of the prior year:
- Net income of $77.3 million, or $1.19 per diluted share, versus $56.9
million, or $0.82 per diluted share;
- All Lines combined ratio (GAAP) of 86.1%, a 9.1 point improvement; and
- Operating income (A) of $67.5 million versus $43.7 million, a $23.8
million or 54.5% increase.
Results for the full year ended 2005 compared with 2004:
- Net income of $212.7 million, or $3.19 per diluted share, versus
$128.4 million, or $1.89 per diluted share;
- All Lines combined ratio (GAAP) of 94.2%, a 5.4 point improvement; and
- Operating income (A) of $171.1 million versus $115.1 million, a $56.0
million or 48.7% increase.
President and Chief Executive Officer Dan Carmichael commented, "I am
extremely pleased with Ohio Casualty's exceptional profitability in both
the fourth quarter and full year 2005, reporting our best annual combined
ratio in decades with substantial increases in operating income in both the
quarter and year. Equally as important, we are continuing to strengthen
our financial position. Our book value per share is up over 8%, and we
were able to improve our capital structure by eliminating the convertible
notes with minimal dilution to earnings per share and book value.
Our shareholders continue to benefit from our 22% increased stock price
in 2005, as well as from the benefits of our share repurchase program and
our restored cash dividend.
Performance like this comes only from careful execution of a sound
strategic plan, and from years of hard work and dedication by our employees
and independent agents. Over the last five years, our progress was the
result of focusing primarily on strengthening our underwriting performance,
reducing our expenses and improving our balance sheet.
Our restored financial strength and profitability now give us some
flexibility to turn more of our attention to expanding our business, both
through innovative marketing techniques and by pursuing growth
opportunities that are in sync with our products and distribution
strategies. However, we will not sacrifice the principles of underwriting
discipline and new efficiencies that got us to where we are today."
The major components of net income are summarized in the table below:
Three months ended Year ended
Summary Income Statement December 31, December 31,
($ in millions, except
share and per share data) 2005 2004 2005 2004
- -------------------------- ---- ---- ---- ----
Premiums and finance charges
earned $363.3 $361.8 $1,453.6 $1,446.6
Investment income less expenses 53.0 57.2 201.4 201.2
Investment gains realized, net 11.2 20.4 47.4 23.0
------ ------ -------- --------
Total revenues $427.5 $439.4 $1,702.4 $1,670.8
Losses and benefits for
policyholders $165.0 $173.8 $ 752.3 $ 777.6
Loss adjustment expenses 29.2 42.1 155.0 158.7
Underwriting expenses 118.8 128.8 462.0 504.8
Corporate and other expenses 9.6 12.2 52.4 43.2
------ ------ -------- --------
Total expenses $322.6 $356.9 $1,421.7 $1,484.3
Income tax expense:
On investment gains realized $ 1.5 $ 7.1 $ 5.9 $ 8.0
On all other income 26.1 18.5 62.1 48.5
----- ----- ------ ------
Total income tax expense $27.6 $25.6 $ 68.0 $ 56.5
Cumulative effect of an
accounting change $ - $ - $ - $ (1.6)
----- ----- ------ ------
Net income $77.3 $56.9 $212.7 $128.4
===== ===== ====== ======
Average shares
outstanding - diluted 64,728,004 71,941,641 67,194,425 71,508,519
Net income, per share - diluted $1.19 $0.82 $3.19 $1.89
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, net income per share-diluted and operating income per share-
diluted have been adjusted for the full year ended December 31, 2005 and
2004 and for the three months ended December 31, 2004.
Consolidated before-tax net investment income decreased $4.2 million in the
quarter primarily as a result of the $7.4 million favorable amortization
adjustment on certain fixed income securities recorded in the fourth
quarter of last year, lower before-tax investment yields in 2005 and our
strategy to invest more in tax-exempt securities. These factors were
partially offset by the continued growth in our investment
portfolio as the insurance operations continue to generate positive cash
flow. On an after-tax basis, investment income increased $1.6 million in
the quarter and $9.7 million in the year, which further reflects the
benefits of our investment in tax-exempt securities.
Operating Results
Premium Revenue
- ---------------
($ in millions) Three months ended Year ended
December 31, December 31,
Gross Premiums Written 2005 2004 % Chg 2005 2004 % Chg
- ---------------------- ---- ---- ----- ---- ---- -----
Commercial Lines $193.3 $199.4 (3.1)% $ 841.0 $ 856.2 (1.8)%
Specialty Lines 50.4 57.4 (12.2)% 210.8 251.5 (16.2)%
Personal Lines 114.8 119.5 (3.9)% 478.2 496.7 (3.7)%
------ ------ -------- --------
All Lines $358.5 $376.3 (4.7)% $1,530.0 $1,604.4 (4.6)%
====== ====== ======== ========
Net Premiums Written
- --------------------
Commercial Lines $189.0 $192.4 (1.8)% $ 823.5 $ 828.2 (0.6)%
Specialty Lines 33.6 32.9 2.1% 150.4 135.5 11.0%
Personal Lines 114.4 117.2 (2.4)% 475.5 490.2 (3.0)%
------ ------ -------- --------
All Lines $337.0 $342.5 (1.6)% $1,449.4 $1,453.9 (0.3)%
====== ====== ======== ========
All Lines gross and net premiums written are down for the quarter, due
primarily to all three operating segments experiencing declines in new
business premium production as a result of increased price competition in
the market. Additionally, for Commercial Lines, while average renewal
price increases including exposure changes remained slightly positive for
the quarter, they continued to decline compared to prior periods due to
increased competition. For Personal Lines, we have been taking rate
reductions in a number of states for both personal auto and homeowners to
respond to the increased competition. We have this pricing flexibility as
a result of our significantly improved profitability. For Specialty Lines,
net premiums increased during the quarter as a result of a decline in ceded
premiums primarily related to higher reinsurance retention limits.
Three months ended Year ended
December 31, December 31,
Combined Ratio 2005 2004 2005 2004
- -------------- ---- ---- ---- ----
Commercial Lines 87.4% 95.9% 101.9% 100.6%
Specialty Lines 94.1% 96.0% 95.3% 96.7%
Personal Lines 81.6% 93.9% 80.8% 98.9%
----- ----- ------ ------
All Lines 86.1% 95.2% 94.2% 99.6%
All three operating segments achieved underwriting profitability in the
fourth quarter, primarily the result of improved loss ratios across all
three segments, resulting in a 9.1 point improvement in the All Lines
combined ratio. Improvements in the loss ratios are primarily the result
of the Group's continued focus on disciplined underwriting quality, lower
claim frequency, lower catastrophe losses and favorable reserve
development. Results for the fourth quarter included $16.5 million of
favorable development in loss and loss adjustment expense reserves for
prior accident years ($8.8 related to loss reserve development and $7.7
related to loss adjustment expense development), compared to favorable
development of $6.0 million in the fourth quarter of 2004 (all related to
loss reserve development).
Both the quarter and full year results were favorably impacted by lower
catastrophe losses than in the same periods of 2004. For the fourth
quarter, catastrophes impacted the combined ratio by $(0.3) million, or
(0.1) point, compared to $5.5 million, or 1.5 points in the same period of
2004. For the full year catastrophe losses were $25.8 million which added
1.8 points to the combined ratio, compared to catastrophe losses of $43.5
million which added 3.0 points in 2004. Losses from Hurricanes Katrina,
Rita and Wilma impacted the full year before-tax results by $0.9 million,
$11.2 million and $1.7 million, respectively.
Other Highlights
Book value per share increased $1.72, or 8.3% to $22.54 at December 31,
2005, compared to $20.82 at December 31, 2004.
On August 18, 2005, the Board of Directors approved a share repurchase
program of up to four million shares of the Corporation's common stock.
During the fourth quarter, the Corporation has repurchased 945,990 shares
at an average cost of $26.30, which brings the total repurchase for the
year to 1,516,105 shares at an average cost of $26.04. Total authorized
shares remaining under the program at December 31, 2005 are 2,483,895.
Supplemental financial information for the fourth quarter and full year
2005 and 2004, respectively, 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 Securities and Exchange Commission. 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.
EST on Thursday, February 9, 2006. 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
May 10, 2006. To listen to call playback by telephone, dial 1-800-642-
1687, then enter ID code 2217823. Call playback begins at 1 p.m. EST on
February 9, 2006 and extends through midnight on February 12, 2006.
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 first quarter of 2006 will start April 1, 2006 extending through
the time of the earnings conference call, tentatively scheduled for April
26, 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 $5.8
billion as of December 31, 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 ended Year ended
December 31, December 31,
($ in millions,
except per share data) 2005 2004 2005 2004
- ---------------------- ---- ---- ---- ----
Operating income $67.5 $43.7 $171.1 $115.1
After-tax net realized gains 9.8 13.2 41.6 14.9
Cumulative effect of accounting
change - - - (1.6)
----- ----- ------ ------
Net income $77.3 $56.9 $212.7 $128.4
===== ===== ====== ======
Operating income
per share - diluted $1.04 $0.64 $ 2.57 $ 1.71
After-tax net realized gains
per share-diluted 0.15 0.18 0.62 0.20
Cumulative effect of accounting
change per share-diluted - - - (0.02)
----- ----- ------ ------
Net income per share - diluted $1.19 $0.82 $ 3.19 $ 1.89
===== ===== ====== ======
As mentioned previously, in connection with the adoption of EITF 04-8 in
the fourth quarter 2004, the Consolidated Corporation was required to
adjust per-share amounts for the full year ended December 31, 2005 and 2004
and for the three months ended December 31, 2004.
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 ended Year ended
December 31, December 31,
($ in millions) 2005 2004 2005 2004
- --------------- ---- ---- ---- ----
Net income $ 77.3 $ 56.9 $ 212.7 $ 128.4
Average shareholders'
equity 1,409.5 1,275.5 1,360.7 1,220.4
Return on equity based on
annualized net income 21.9% 17.8% 15.6% 10.5%
===== ===== ===== =====
Operating income $ 67.5 $ 43.7 $ 171.1 $ 115.1
Adjusted average shareholders'
equity 1,195.4 985.3 1,115.0 935.7
Return on equity based on
annualized operating income 22.6% 17.7% 15.3% 12.3%
===== ===== ===== =====
Average shareholders' equity $1,409.5 $1,275.5 $1,360.7 $1,220.4
Average unrealized gains 214.1 290.2 245.7 284.7
Adjusted average shareholders'
equity $1,195.4 $ 985.3 $1,115.0 $ 935.7
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