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 SECOND QUARTER
FAIRFIELD, OHIO, July 30, 2007 --- Ohio Casualty Corporation (NASDAQ:OCAS)
today announced the following results for its second quarter ended June 30,
2007, compared with the same period of the prior year:
- Net income of $56.6 million, or $0.92 per diluted share, versus $35.6
million, or $0.55 per diluted share;
- All Lines combined ratio (GAAP) of 91.4% versus 99.2%; and
- Operating income (A) of $52.4 million ($0.85 per diluted share) versus
$32.2 million ($0.50 per diluted share).
Results for the six months ended June 30, 2007, compared with the same
period of the prior year:
- Net income of $119.7 million, or $1.95 per diluted share, versus $87.5
million, or $1.35 per diluted share;
- All Lines combined ratio (GAAP) of 90.3% versus 97.0%; and
- Operating income (A) of $110.3 million ($1.79 per diluted share)
versus $74.9 million ($1.16 per diluted share).
President and Chief Executive Officer Dan Carmichael commented, "Our second
quarter operating performance remained strong, improving significantly over
last year, and like the first quarter, all three operating segments
generated an underwriting profit. Our results reflect our successful
efforts to maintain
underwriting discipline in a very competitive market and we continue to
experience substantial favorable development from prior accident years.
Since introducing our first Strategic Plan in the second quarter of 2001,
progress toward achieving consistent solid underwriting performance,
quality claims handling and superior service to our agents has been steady,
enabling us to produce and maintain strong operating results.
In the recent past, Ohio Casualty Corporation has created value for
shareholders by continually improving financial results and delivering
increasingly competitive shareholder returns. During the past six years we
restored underwriting profitability, improved our operating efficiency and
technology capabilities, and also significantly strengthened our capital
position while earning rating upgrades from all major rating agencies.
I deeply appreciate the significant effort and professionalism of our
agents and employees in accomplishing these achievements. We will continue
to deliver on our promise to policyholders and commitment to independent
agents as we transition to new ownership upon the completion of our pending
acquisition by Liberty Mutual Group."
The major components of net income are summarized in the table below:
Three Months Six Months
Summary Income Statement Ended June 30, Ended June 30,
($ in millions, except share data) 2007 2006 2007 2006
- ---------------------------------- ---- ---- ---- ----
Premiums and finance charges earned $339.3 $355.5 $688.9 $713.2
Investment income less expenses 51.9 51.9 103.6 102.8
Investment gains realized, net 6.6 5.3 14.6 19.5
------------------- -------------------
Total revenues 397.8 412.7 807.1 835.5
Losses and benefits for policyholders 157.7 199.3 319.6 388.3
Loss adjustment expenses 35.9 42.7 74.5 79.4
Underwriting expenses 116.5 110.7 228.0 224.5
Corporate and other expenses 9.0 11.2 20.1 21.3
------------------- -------------------
Total expenses 319.1 363.9 642.2 713.5
Income before income taxes 78.7 48.8 164.9 122.0
Income tax expense:
On investment gains realized 2.3 1.9 5.1 6.9
On all other income 19.8 11.3 40.1 27.6
------------------- -------------------
Total income tax expense 22.1 13.2 45.2 34.5
Net income $ 56.6 $ 35.6 $119.7 $ 87.5
=================== ===================
Average shares outstanding - diluted 61,625,551 64,351,335 61,519,908 64,591,888
Net income, per share - diluted $0.92 $0.55 $1.95 $1.35
Operating Results
Premium Revenue
---------------
($ in millions)
Three Months Six Months
Ended June 30, Ended June 30,
2007 2006 % Chg 2007 2006 % Chg
---- ---- ----- ---- ---- ----
Net Premiums Written
Commercial Lines $217.5 $223.9 (2.9)% $426.9 $436.3 (2.2)%
Specialty Lines 34.3 37.3 (8.0)% 68.9 73.1 (5.7)%
Personal Lines 105.6 111.6 (5.4)% 206.9 217.5 (4.9)%
------ ------ ------ ------
All Lines $357.4 $372.8 (4.1)% $702.7 $726.9 (3.3)%
All Lines net premiums written declined for the three and six month periods
ended June 30, 2007, when compared with the same periods of the prior year,
due primarily to a decline in new business premium production across all
three business segments, a decline in premium rates for both Personal and
Commercial Lines, lower Commercial Lines assumed premiums from mandatory
workers' compensation and commercial auto pools as well as lower in-force
policy counts in the Personal Lines segment and commercial umbrella/other
product line. Net premiums written were also reduced by a $7.0 increase in
ceded premium on experience based reinsurance contracts during the second
quarter of 2007. The experience rated reinsurance contracts are for a
funded layer of casualty excess of loss reinsurance coverage. These
declines were partially offset by continued growth in the fidelity and
surety bond product line.
Combined Ratio
--------------
Three Months Six Months
Ended June 30, Ended June 30,
2007 2006 2007 2006
---- ---- ---- ----
Commercial Lines 90.0% 102.4% 92.2% 102.1%
Specialty Lines 95.5% 102.0% 79.0% 88.3%
Personal Lines 92.8% 92.5% 90.3% 90.9%
----- ------ ----- ------
All Lines 91.4% 99.2% 90.3% 97.0%
The improvement in the All Lines combined ratio for the second quarter was
primarily the result of a significant increase in favorable prior year loss
and loss adjustment expense reserve development and a reduction in
catastrophe losses. These improvements were partially offset by increasing
loss cost trends and declining premium rates, as well as an increase in the
underwriting expense ratio. The increase in the underwriting expense ratio
is a result of increased incentive compensation and commissions related to
our improved profitability, as well as the impact of lower premium, as
described above. The above ratios, for both three and six month periods
ended June 30, 2007, were also negatively impacted by the $7.0 increase in
ceded premium on experienced based reinsurance contracts recorded during
the second quarter of 2007. The impact on the combined ratio of this
increase in ceded premium was 1.9 points and 0.9 points for the three and
six month periods, respectively.
Favorable prior year loss and LAE reserve development was $41.4 million
(12.2 points) and $10.8 million (3.0 points) in the second quarter 2007 and
2006, respectively. Reserve development was favorable for almost all
product lines during the second quarter 2007 and is primarily attributable
to actual severity being lower than expected, much of which is occurring in
the casualty lines, a result of our more disciplined underwriting and
improved claims handling practices which commenced in the 2000-2001
timeframe.
Other Highlights
Book value per share increased $1.21 or 4.7% to $27.00 at June 30, 2007,
compared to $25.79 at December 31, 2006.
Supplemental financial information for the second quarter ended June 30,
2007, 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 U.S. generally accepted accounting principles is included in
Item 15 of the Ohio Casualty Corporation's Annual Report on Form 10-K for
the year ended December 31, 2006.
Investors are advised to read the safe harbor statement at the end of this
release.
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 the Ohio Casualty Group, collectively referred to as
the 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 2007). 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 June 30, 2007.
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; 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 premium targets and profitability goals;
failure to consummate the announced merger; 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.
Additional Information and Where to Find It
This communication may be deemed to be solicitation material in respect of
the proposed transaction. In connection with the proposed transaction, a
proxy statement of Ohio Casualty and other materials have been filed with
the SEC. WE URGE INVESTORS TO READ THE PROXY STATEMENT AND THESE OTHER
MATERIALS CAREFULLY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT OHIO
CASUALTY CORPORATION AND THE PROPOSED TRANSACTION. Investors are able to
obtain free copies of the proxy statement as well as other filed documents
containing information about Ohio Casualty on the SEC's website at
http://www.sec.gov. Free copies of Ohio Casualty's SEC filings are also
available from Ohio Casualty Corporation, 9450 Seward Road, Fairfield, Ohio
45014, Attention: Investor Relations.
Participants in the Solicitation
Ohio Casualty and its executive officers, directors, other members of
management, employees and Liberty Mutual may be deemed, under SEC rules, to
be participants in the solicitation of proxies from Ohio Casualty's
shareholders with respect to the proposed transaction. Information
regarding the executive officers and directors of Ohio Casualty is set
forth in its definitive proxy statement for its 2007 annual meeting filed
with the SEC on April 4, 2007. More detailed information regarding the
identity of potential participants, and their direct or indirect interests,
by securities holdings or otherwise, is also set forth in the proxy
statement filed with the SEC in connection with the proposed transaction
and dated June 29, 2007.
(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 Six Months
Ended June 30, Ended June 30,
($ in millions, except per share data) 2007 2006 2007 2006
- -------------------------------------- ---- ---- ---- ----
Operating income $52.4 $32.2 $110.3 $74.9
After-tax net realized gains 4.2 3.4 9.4 12.6
----- ----- ------ -----
Net income $56.6 $35.6 $119.7 $87.5
===== ===== ====== =====
Operating income
per share - diluted $0.85 $0.50 $1.79 $1.16
After-tax net realized gains per
share - diluted 0.07 0.05 0.16 0.19
----- ----- ----- -----
Net income per share - diluted $0.92 $0.55 $1.95 $1.35
===== ===== ===== =====
Reconciliation of Net Income Return on Equity to Operating Income Return on
Equity
Operating income return on equity is a ratio management calculates using
non-GAAP financial measures. It is calculated by dividing the annualized
consolidated operating income (see calculation below) for the most recent
quarter by the adjusted average shareholders' equity for the quarter using
a simple average of beginning and ending balances for the quarter,
excluding from equity after-tax unrealized investment gains and losses.
This ratio provides management with an additional measure to evaluate the
results excluding the unrealized changes in the valuation of the investment
portfolio that can fluctuate between periods. The following table
reconciles operating income return on equity to net income return on
equity, the most directly comparable GAAP measure:
Three Months Six Months
Ended June 30, Ended June 30,
($ in millions) 2007 2006 2007 2006
- --------------- ---- ---- ---- ----
Net income $ 56.6 $ 35.6 $ 119.7 $ 87.5
Average shareholders' equity 1,608.6 1,408.4 1,588.1 1,400.8
Return on equity based on
annualized net income 14.1% 10.1% 15.1% 12.5%
===== ===== ===== =====
Operating income $ 52.4 $ 32.2 $ 110.3 $ 74.9
Adjusted average shareholders' equity 1,434.2 1,257.0 1,412.4 1,231.5
Return on equity based on
annualized operating income 14.6% 10.2% 15.6% 12.2%
===== ===== ===== =====
Average shareholders' equity $1,608.6 $1,408.4 $1,588.1 $1,400.8
Average unrealized gains 174.4 151.4 175.7 169.3
-------- -------- -------- --------
Adjusted average shareholders'
equity $1,434.2 $1,257.0 $1,412.4 $1,231.5
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