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
FINANCIAL RESULTS FOR THIRD QUARTER
FAIRFIELD, OHIO, November 1, 2006 --- Ohio Casualty Corporation
(NASDAQ:OCAS) today announced the following results for its third quarter
ended September 30, 2006, compared with the same period of the prior year:
- Net income of $55.3 million, or $0.89 per diluted share, versus $55.5
million, or $0.85 per diluted share;
- All Lines combined ratio (GAAP) of 93.9% versus 99.5%; and
- Operating income (A) of $47.8 million ($0.77 per diluted share) versus
$32.7 million ($0.50 per diluted share).
Results for the nine months ended September 30, 2006, compared with the
same period of the prior year:
- Net income of $142.8 million, or $2.24 per diluted share, versus
$135.4 million, or $2.02 per diluted share;
- All Lines combined ratio (GAAP) of 96.1% versus 96.9%; and
- Operating income (A) of $122.7 million ($1.92 per diluted share)
versus $103.6 million ($1.55 per diluted share).
President and Chief Executive Officer Dan Carmichael commented, "We are
pleased to deliver strong operating results across all segments for the
third quarter through a combination of disciplined underwriting, lower
catastrophe losses, efficiency gains and the benefit of favorable loss
frequency and
prior accident year development trends. While we remain focused on
profitable, disciplined underwriting, good opportunities for growth are
harder to find in the increasingly competitive market, however, I am
encouraged by the acceptance of our new technology applications and the
increase in production of new business by our agents.
Last quarter's results support our positive outlook for our future,
including our ability to maintain solid underwriting results in a softening
market and creating more value for our shareholders. Rating agencies have
expressed similar confidence in our company through their actions during
the quarter. With Standard & Poor's upgrading its rating of us, now all
four of the rating agencies that assess our financial strength have
assigned investment grade ratings with Fitch subsequently upgrading their
existing investment grade rating by one notch. Finally, the Board's
decision in September to approve a second, $100 million share repurchase
program reaffirms our commitment to maximize shareholder value as our
overall financial strength continues to grow."
The major components of net income are summarized in the table below:
Three Months Nine Months
Summary Income Statement Ended Sept 30, Ended Sept 30,
($ in millions, except share data) 2006 2005 2006 2005
- ---------------------------------- ---- ---- ---- ----
Premiums and finance charges earned $356.3 $362.5 $1,069.5 $1,090.3
Investment income less expenses 51.3 51.4 154.1 148.4
Investment gains realized, net 11.4 22.4 30.9 36.2
------------------- ---------------------
Total revenues 419.0 436.3 1,254.5 1,274.9
Losses and benefits for policyholders 188.8 204.5 577.1 587.3
Loss adjustment expenses 35.8 42.5 115.2 125.8
Underwriting expenses 110.3 113.7 334.8 343.2
Corporate and other expenses 8.0 9.2 29.3 42.8
------------------- ---------------------
Total expenses 342.9 369.9 1,056.4 1,099.1
Income before income taxes 76.1 66.4 198.1 175.8
Income tax expense/(benefit):
On investment gains realized 3.9 (0.4) 10.8 4.4
On all other income 16.9 11.3 44.5 36.0
------------------ -------------------
Total income tax expense 20.8 10.9 55.3 40.4
Net income $55.3 $55.5 $142.8 $135.4
================== ===================
Average shares outstanding
- diluted 62,441,227 65,656,774 63,868,978 68,012,120
Net income, per share - diluted $0.89 $0.85 $2.24 $2.02
Net premiums written decreased 2.6% over the same quarter last year primarily
as a result of lower in-force policy counts and rate reductions in Personal
Lines. These decreases were partially offset by increased new business
premium production in Personal and Commercial Lines, which is a positive
reflection of the new marketing, sales and product initiatives launched this
year to profitably grow the business.
Results for the third quarter included $13.7 million of favorable
development in loss and loss adjustment expense reserves for prior accident
years, compared with unfavorable development of $3.1 million in the third
quarter of 2005. Reserve development was favorable for most product lines
during the third quarter 2006 with the exception of a couple product lines,
most notably workers' compensation, which experienced adverse development.
Consolidated pre-tax net investment income for the quarter remained
relatively flat compared with the prior year. However, after giving
consideration in both three and nine month periods ending September 30,
2005 of the $2.5 million of interest income related to federal income tax
settlements with the Internal Revenue Service which was finalized during
the third quarter of 2005, investment income increased 4.9% and 5.6%,
respectively. The increase in investment income is a result of reduced
investment related expenses, positive operating cash flows and an
improvement in reinvestment yields resulting from the upward movement in
interest rates compared with the prior year.
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 $1.60, or 7.1% to $24.14 at September 30,
2006, compared to $22.54 at December 31, 2005.
During the third quarter of 2006, the Corporation repurchased 249,186
shares of its common stock at an average cost of $25.87. These repurchases
complete the previous share repurchase program which was authorized by the
Corporation's Board of Directors in the third quarter of 2005. Under this
program, four million shares were repurchased at an average cost of $27.94.
On September 28, 2006, the Board of Directors authorized another share
repurchase program with the ability to repurchase up to $100 million of the
Corporation's common stock. Purchases may be made in the open market or in
privately negotiated transactions. As of October 31, 2006, the Corporation
has repurchased 227,200 shares under the new share repurchase program at
an average cost of $27.19.
On July 26, 2006, Standard and Poor's (S&P) announced that it had upgraded
the senior unsecured debt rating of the Corporation to BBB- and the
insurance financial strength rating of its operating subsidiaries to A-.
In this same action, S&P changed the outlook on ratings to stable. In
addition, during the third quarter, Fitch, Inc. (Fitch) announced that it
has upgraded our financial strength rating to A from A- and upgraded the
Corporation's issuer default rating to BBB+ from BBB. At the same time,
Fitch upgraded the outstanding debt rating to BBB from BBB- and changed the
outlook from positive to stable.
For a more detailed discussion of the financial condition and the results
of operations at September 30, 2006, 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 ended September
30, 2006, 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
Annual Report on Form 10-K for the year ended December 31, 2005.
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, November 2, 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 February 3, 2007. To listen to call playback by telephone, dial 1-
800-642-1687, then enter ID code 7349656. Call playback begins at 1 p.m.
EST on November 2, 2006 and extends through 11:59 p.m. on November 4, 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 fourth quarter will start January 1, 2007 extending through the
time of the earnings conference call, tentatively scheduled for February 8,
2007.
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 50th
among U.S. property/casualty insurance groups based on net premiums written
(Best's Review, July 2006). 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 September 30, 2006.
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 SEC
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,except per share data) 2006 2005 2006 2005
- ------------------------------------- ---- ---- ---- ----
Operating income $47.8 $32.7 $122.7 $103.6
After-tax net realized gains 7.5 22.8 20.1 31.8
----- ----- ------ ------
Net income $55.3 $55.5 $142.8 $135.4
===== ===== ====== ======
Operating income
per share - diluted $0.77 $0.50 $1.92 $1.55
After-tax net realized gains per
share - diluted 0.12 0.35 0.32 0.47
----- ----- ------ ------
Net income per share - diluted $0.89 $0.85 $2.24 $2.02
===== ===== ====== ======
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 $0.09 per share for quarter and nine months.
Reconciliation of Net Income Return on Equity to Operating Income Return on
Equity
Operating income return on equity is a ratio management calculates using
non-GAAP financial measures. It is calculated by dividing the annualized
consolidated operating income (see calculation below) for the most recent
quarter by the adjusted average shareholders' equity for the quarter using
a simple average of beginning and ending balances for the quarter,
excluding from equity after-tax unrealized investment gains and losses.
This ratio provides management with an additional measure to evaluate the
results excluding the unrealized changes in the valuation of the investment
portfolio that can fluctuate between periods. The following table
reconciles operating income return on equity to net income return on
equity, the most directly comparable GAAP measure:
Three Months Nine Months
Ended Sept 30, Ended Sept 30,
($ in millions) 2006 2005 2006 2005
- --------------- ---- ---- ---- ----
Net income $ 55.3 $ 55.5 $ 142.8 $ 135.4
Average shareholders' equity 1,426.4 1,401.6 1,452.1 1,343.8
Return on equity based on
annualized net income 15.5% 15.8% 13.1% 13.4%
===== ===== ===== =====
Operating income $ 47.8 $ 32.7 $ 122.7 $ 103.6
Adjusted average shareholders' equity 1,264.7 1,149.4 1,254.5 1,089.3
Return on equity based on
annualized operating income 15.1% 11.4% 13.0% 12.7%
===== ===== ===== =====
Average shareholders' equity $1,426.4 $1,401.6 $1,452.1 $1,343.8
Average unrealized gains 161.7 252.2 197.6 254.5
-------- -------- -------- --------
Adjusted average shareholders'
equity $1,264.7 $1,149.4 $1,254.5 $1,089.3
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