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 FOURTH QUARTER AND FULL YEAR 2006
FAIRFIELD, OHIO, February 7, 2007 --- Ohio Casualty Corporation
(NASDAQ:OCAS) today announced the following results for its fourth quarter
ended December 31, 2006, compared with the same period of the prior year:
- Net income of $75.5 million, or $1.22 per diluted share, versus $77.3
million, or $1.19 per diluted share;
- All Lines combined ratio (GAAP) of 86.9% versus 86.1%; and
- Operating income (A) of $67.3 million ($1.08 per diluted share) versus
$67.5 million ($1.04 per diluted share).
Results for the full year ended 2006 compared to the same period of 2005:
- Net income of $218.3 million, or $3.44 per diluted share, versus
$212.7 million, or $3.19 per diluted share;
- All Lines combined ratio (GAAP) of 93.7% versus 94.2%;
- Operating income (A) of $190.0 million ($3.00 per diluted share)
versus $171.1 million ($2.57 per diluted share); and
- Increase in book value per share of $3.25 or 14.4%.
President and Chief Executive Officer Dan Carmichael commented, "Our
results for the fourth quarter and full year 2006 were excellent even when
compared with the outstanding performance of last year. Once again we've
demonstrated that with discipline and focus, we can achieve profitable
underwriting results and shareholder returns consistent with the targets we
set, even in a highly competitive market. All three business segments
generated an underwriting profit for 2006. That strong operating
performance, plus our capital management initiatives, contributed to our
20% operating return on equity for the fourth quarter, and a 14.4% increase
in book value per share for the full year.
"While we had modest new business growth in both Commercial and Personal
Lines last year, long-term, strong premium growth requires an even tighter
bond between our Company and our independent agents. Accordingly, and
consistent with our recently updated strategic plan, we are working to
equip our agents with more efficient online tools, enhanced product
offerings and new agent-centric services that will help them grow their
businesses and build their position with Ohio Casualty. The investments
we're making in our strategic initiatives, our continued focus on
profitable underwriting, combined with our strong balance sheet, will make
us an even more attractive agency partner while we maintain our equally
strong commitment to increasing shareholder value."
The major components of net income are summarized in the table below:
Three months ended Year ended
Summary Income Statement December 31, December 31,
($ in millions, except
share and per share data) 2006 2005 2006 2005
- --------------------------- ---- ---- ---- ----
Premiums and finance charges earned $354.5 $363.3 $1,424.0 $1,453.6
Investment income less expenses 54.6 53.0 208.7 201.4
Investment gains realized, net 12.7 11.2 43.6 47.4
------ ------ -------- --------
Total revenues 421.8 427.5 1,676.3 1,702.4
Losses and benefits for policyholders 159.4 165.0 736.5 752.3
Loss adjustment expenses 41.8 29.2 157.0 155.0
Underwriting expenses 106.6 118.8 441.4 462.0
Corporate and other expenses 11.3 9.6 40.6 52.4
----- ----- ------- -------
Total expenses 319.1 322.6 1,375.5 1,421.7
Income before income tax expense 102.7 104.9 300.8 280.7
Income tax expense:
On investment gains realized 4.5 1.5 15.3 5.9
On all other income 22.7 26.1 67.2 62.1
---- ---- ---- ----
Total income tax expense 27.2 27.6 82.5 68.0
Net income $75.5 $77.3 $218.3 $212.7
===== ===== ====== ======
Average shares outstanding
- diluted 61,981,211 64,728,004 63,392,717 67,194,425
Net income, per share - diluted $1.22 $1.19 $3.44 $3.19
Operating Results
Premium Revenue
---------------
($ in millions) Three months ended Year ended
December 31, December 31,
Net Premiums Written 2006 2005 % Chg 2006 2005 % Chg
- -------------------- ---- ---- ----- ---- ---- -----
Commercial Lines $186.0 $189.0 (1.6)% $ 829.7 $ 823.5 0.8%
Specialty Lines 34.6 33.6 3.0% 145.3 150.4 (3.4)%
Personal Lines 105.2 114.4 (8.0)% 437.2 475.5 (8.1)%
------ ------ -------- --------
All Lines $325.8 $337.0 (3.3)% $1,412.2 $1,449.4 (2.6)%
====== ====== ======== ========
All Lines net premiums written decreased 3.3% during the fourth quarter
over the same period last year primarily as a result of lower in force
policy counts in the Personal Lines segment and the commercial umbrella
product line, rate reductions taken in the Personal Lines segment and lower
Commercial Lines assumed premiums from mandatory workers' compensation and
commercial auto pools. Specialty Lines net premiums written increased
slightly during the quarter, a result of growth in the fidelity/surety
product line. For the full year, new business premium production was up
9.3% and 7.4% in Commercial and Personal Lines, respectively, while policy
retention was up for those two operating segments as well as for the
commercial umbrella product line. This growth was offset by rate
reductions and lower assumed premiums from mandatory workers' compensation
and commercial auto pools.
Combined Ratio
--------------
Three months ended Year ended
December 31, December 31,
2006 2005 2006 2005
---- ---- ---- ----
Commercial Lines 89.9% 87.4% 98.0% 101.9%
Specialty Lines 51.3% 94.1% 76.5% 95.3%
Personal Lines 93.6% 81.6% 91.8% 80.8%
----- ----- ----- ------
All Lines 86.9% 86.1% 93.7% 94.2%
The All Lines combined ratio for the current year fourth quarter was very
strong and was up just slightly when compared with the same period of the
prior year. This is the result of a 3.4 point increase in the loss and
loss adjustment expense (LAE) ratio, partially offset by a 2.6 point
improvement in the underwriting expense ratio. The increase in the loss
and LAE ratio is principally the result of increased catastrophe losses,
loss cost trends increasing at a rate faster than premium rate increases
and favorable reserve development that was lower in the current quarter
when compared to the same period of 2005. The improvement in the
underwriting expense ratio is primarily the result of recognition of state
premium tax refunds related to prior years in the amount of $9.2 million
partially offset by an increase in a provision for legal expenses.
Favorable prior year loss and LAE reserve development was $14.8 million
(4.2 points) and $16.5 (4.5 points) million in fourth quarter 2006 and
2005, respectively. The fourth quarter 2006 reserve development was
favorable for most product lines during the quarter with a few exceptions,
most notably workers' compensation, which experienced adverse development.
For the full year 2006, favorable reserve development was $52.2 million
(3.7 points) compared with $20.1 million (1.4 points) in 2005. This year-
over-year increase in favorable development is primarily the result of
increased favorable development in the commercial umbrella product line and
approximately $20 million less adverse development for workers'
compensation.
For the current year fourth quarter, catastrophe losses increased the
combined ratio by $5.8 million (1.6 points) compared with a favorable
impact of ($0.3) million (0.1 point) in the same period last year. For the
year, catastrophe losses were $32.8 million (2.3 points) compared with
$25.8 million (1.8 points) of the prior year.
Other Highlights
Consolidated pre-tax investment income for the quarter increased $1.6
million compared with the prior year. This increase is primarily related
to $3.2 million of interest income on state premium tax refunds related to
prior years, which were finalized during the quarter, partially offset by
an increased allocation to lower-yielding tax-exempt securities, which now
comprise 37.3% of fixed-income securities at December 31, 2006 compared
with 33.7% in the prior year. For the year, investment income increased
$7.3 million over the prior year. In addition to the above, 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 2006 and 2005, the Corporation repurchased 3,463,396 and 1,516,105
shares of common stock at an average cost of $28.95 and $26.04,
respectively, under share repurchase programs authorized by the Board of
Directors. As of December 31, 2006, the Corporation has $72.0 million of
share repurchase authority remaining.
Supplemental financial information for the fourth quarter ended December
31, 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, including a
slide presentation, to discuss information included in this news release
and related matters at 10:00 a.m. EST on Thursday, February 8, 2007. The
call is being webcast by Vcall and can be accessed (as well as the related
slides) 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 9, 2007. To listen to
call playback by telephone, dial 1-800-642-1687, then enter ID code
5099402. Call playback begins at
1 p.m. EST on February 8, 2007 and extends through 11:59 p.m. on February
10, 2007.
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 2007 will start April 1, 2007 extending through
the time of the earnings conference call, tentatively scheduled for April
27, 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 $5.7
billion as of December 31, 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 ended Year ended
December 31, December 31,
($ in millions, except
per share data) 2006 2005 2006 2005
- ---------------------- ---- ---- ---- ----
Operating income $67.3 $67.5 $190.0 $171.1
After-tax net realized gains 8.2 9.8 28.3 41.6
----- ----- ------ ------
Net income $75.5 $77.3 $218.3 $212.7
===== ===== ====== ======
Operating income
per share - diluted $1.08 $1.04 $ 3.00 $ 2.57
After-tax net realized gains per
share-diluted 0.14 0.15 0.44 0.62
----- ----- ------ ------
Net income per share - diluted $1.22 $1.19 $ 3.44 $ 3.19
===== ===== ====== ======
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) 2006 2005 2006 2005
- --------------- ---- ---- ---- ----
Net income $ 75.5 $ 77.3 $ 218.3 $ 212.7
Average shareholders' equity 1,516.8 1,409.5 1,491.1 1,360.7
Return on equity based on
annualized net income 19.9% 21.9% 14.6% 15.6%
===== ===== ===== =====
Operating income $ 67.3 $ 67.5 $ 190.0 $ 171.1
Adjusted average shareholders'
equity 1,325.7 1,195.4 1,292.4 1,115.0
Return on equity based on
annualized operating income 20.3% 22.6% 14.7% 15.3%
===== ===== ===== =====
Average shareholders' equity $1,516.8 $1,409.5 $1,491.1 $1,360.7
Average unrealized gains 191.1 214.1 198.7 245.7
Adjusted average shareholders'
equity $1,325.7 $1,195.4 $1,292.4 $1,115.0
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