-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F3CRH+Xd7h/NUrkQ3PlcbG2cSotrBikfggLH9/88NseLtDO/Cfrw5XfrOuqB/aMA qWXLPPXP0NTsSlFq7ibQfw== 0000073952-04-000005.txt : 20040211 0000073952-04-000005.hdr.sgml : 20040211 20040211163535 ACCESSION NUMBER: 0000073952-04-000005 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040211 ITEM INFORMATION: ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OHIO CASUALTY CORP CENTRAL INDEX KEY: 0000073952 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 310783294 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-05544 FILM NUMBER: 04586785 BUSINESS ADDRESS: STREET 1: 9450 SEWARD ROAD CITY: FAIRFIELD STATE: OH ZIP: 45014 BUSINESS PHONE: 5136032400 MAIL ADDRESS: STREET 1: 9450 SEWARD ROAD CITY: FAIRFIELD STATE: OH ZIP: 45014 8-K 1 f8k2-11.txt OHIO CASUALTY CORP FORM 8-K - ============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) February 11, 2004 ----------------- Commission File Number 0-5544 OHIO CASUALTY CORPORATION (Exact name of registrant as specified in its charter) OHIO (State or other jurisdiction of incorporation or organization) 31-0783294 (I.R.S. Employer Identification No.) 9450 Seward Road, Fairfield, Ohio (Address of principal executive offices) 45014 (Zip Code) (513) 603-2400 (Registrant's telephone number) Not Applicable (Former name or former address, if changed since last report) Page 1 of 3 Pages ============================================================================== ITEM 5. Other Events - ------ On February 11, 2004, Ohio Casualty Corporation (the "Company") issued a press release announcing the results of a company-wide process re-engineering initiative. The press release is attached hereto as Exhibit 99.1 and hereby incorporated by reference. ITEM 7. Financial Statements and Exhibits - ------ (c) Exhibits 99.1 Press release dated February 11, 2004 issued by Ohio Casualty Corporation and posted on its website at www.ocas.com. 99.2 Press release dated February 11, 2004 issued by Ohio Casualty Corporation and posted on its website at www.ocas.com. 99.3 Supplemental Financial Information issued by Ohio Casualty Corporation on February 11, 2004 and posted on its website at www.ocas.com. ITEM 12. Results of Operations and Financial Condition - ------- On February 11, 2004, Ohio Casualty Corporation issued a press release announcing its fourth quarter 2003 earnings which was posted on its website at www.ocas.com. A copy of the press release is attached hereto as Exhibit 99.2 and hereby incorporated by reference. On February 11, 2004, Ohio Casualty Corporation issued certain Supplemental Financial Information with respect to its fourth quarter 2003 earnings which was posted on its website at www.ocas.com. A copy of the supplemental financial information is attached hereto as Exhibit 99.3 and hereby incorporated by reference. Exhibit Index - ------------- 99.1 Press release dated February 11, 2004 issued by Ohio Casualty Corporation and posted on its website at www.ocas.com. 99.2 Press release dated February 11, 2004 issued by Ohio Casualty Corporation and posted on its website at www.ocas.com. 99.3 Supplemental Financial Information issued by Ohio Casualty Corporation on February 11 2004 and posted on its website at www.ocas.com. Page 2 of 3 Pages SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OHIO CASUALTY CORPORATION ------------------------- (Registrant) February 11, 2004 /s/Debra K. Crane -------------------------- Debra K. Crane, Senior Vice President, General Counsel and Secretary Page 3 of 3 Pages EX-99 3 exh99-1.txt EXH 99-1 OHIO CASUALTY CORP PRESS RELEASE 2-11-04 Exhibit 99.1 (Ohio Casualty Corporation Letterhead) Analyst contact: Dennis E. McDaniel Vice President of Strategic Planning and 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 OHIO CASUALTY CORPORATION ANNOUNCES RESULTS OF PROCESS RE-ENGINEERING INITIATIVE FAIRFIELD, Ohio, February 11, 2004 --- Ohio Casualty Corporation (Nasdaq: OCAS) today announced the results of the first phase of an intense company- wide process re-engineering initiative, which is a key aspect of the long-term cost structure efficiency effort to reduce expenses that the company has undertaken. The initiative has resulted in an initial reduction of approximately 260 staff and managerial positions in its eight major field Claims and Commercial Lines underwriting operations around the country, as well as at its Home Office location in Fairfield, Ohio. An additional 150-250 positions are expected to be reduced company-wide before the end of 2nd quarter 2004 as other areas of the company complete their review of processes and implement improvements. "We sincerely regret the impact of these reductions on employees and would have preferred to adjust staffing through normal attrition," said President and Chief Executive Officer Dan R. Carmichael, CPCU. Other aspects of the initiative: - The process re-engineering initiative represents actions taken to improve productivity and customer service. - These initial reductions are the result of continued advances in technology, productivity efficiencies achieved through process improvements, and shifts in business needs. -- Specifically, the Commercial Lines Division has leveraged technological advances to enhance its abilities to centralize some backroom processing transactions for Commercial Lines underwriting. Commercial Lines processing will be transferred from one branch location to other offices; similar actions had been taken in two other branch locations this past year. Process improvements have been implemented in its remaining field offices, resulting in staff reductions in all these locations. -- In the Claims Department, the reductions are primarily in response to a continued decrease in the number of claims handled, as well as process improvements. In February of 2003, the department began the process by reducing claims staff based on a declining claims count, which has continued. "We are systematically streamlining workflows in every functional area, which improves productivity while maintaining or enhancing the quality of service to agents and policyholders," said Mr. Carmichael. "While we are reducing the size of many field offices, we are maintaining a strong underwriting, marketing ,and claims presence in all locations that currently provide services to agents and policyholders. We began the streamlining process in our Commercial Lines and Claims field operations. The process improvement initiative is continuing in all functional areas, with estimated further reductions based on our re-engineering experience thus far." Outside the process re-engineering effort, the company has made progress the past two years in improving its cost structure and reducing expenses. In addition to the Commercial Lines underwriting and Claims Department actions outlined above, the Company has: - addressed its loss adjustment expenses by reducing claims litigation costs; - reduced expenses through the centralization of its Personal Lines Division; - improved procurement practices, including a reduction in telecommunications expenses; - leveraged emerging technology to streamline, simplify and speed up processes; and - steadily reduced its employee count and personnel-related expenses. Today's announced reduction of approximately 260 positions will result in a net savings of approximately $5.5 million in 2004, which includes a 1st quarter 2004 charge of approximately $4.6 million for severance pay and other related expenses. This reduction is expected to result in approximately $14.9 million in annual savings beginning in 2005, with approximately 60% of the savings reflected in the underwriting expense ratio and approximately 40% reflected in the loss adjustment expense ratio. Added Mr. Carmichael: "We needed to take assertive actions to arrive at proper staffing levels to provide improved customer service and achieve expense objectives. We are determined to achieve our expense reduction goals to make us more competitive, increase the company's financial strength in the market, enhance the ability to profitably grow our business, continue to deliver quality services to customers and provide value to shareholders." Corporate Profile Ohio Casualty Corporation is the holding company of The Ohio Casualty Insurance Company, which is one of six property-casualty subsidiary companies that make up Ohio Casualty Group. The Ohio Casualty Insurance Company was founded in 1919 and is licensed in 49 states. Ohio Casualty Group is ranked 45th among U.S. property/casualty insurance groups based on net premiums written (Best's Review, July 2003). 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 $5.2 billion as of December 31, 2003. 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. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements. The operations, performance and development of the 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 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 the Company's reports filed with the Securities and Exchange Commission or in subsequent press releases. EX-99 4 exh99-2.txt EXH 99-2 OHIO CASUALTY CORP EARNINGS RELEASE 2-11-04 Exhibit 99.2 (Ohio Casualty Corporation Letterhead) Analyst contact: Dennis E. McDaniel Vice President of Strategic Planning and 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 FOURTH QUARTER AND FULL YEAR 2003 EARNINGS FAIRFIELD, Ohio, February 11, 2004 --- Ohio Casualty Corporation (Nasdaq:OCAS) today announced the following results for its fourth quarter ended December 31, 2003, compared with the same period of the prior year: - net income of $27.7 million, or $.45 per diluted share, versus $29.1 million, or $.48 per diluted share, - All Lines statutory combined ratio of 104.7%, a 2.8 point improvement, and - net income before realized gains and losses of $25.2 million versus net income before realized gains and losses of $17.1 million (non- GAAP; see Reconciliation of Net Income to Net Income before Realized Gains and Losses at the end of this press release). Results for the full year ended 2003, compared with 2002 included: - net income of $75.8 million, or $1.24 per diluted share, versus a net loss of $.9 million, or $.01 per diluted share, - All Lines statutory combined ratio of 106.1%, a 6.7 point improvement, and - net income before realized gains and losses of $52.5 million versus a net loss before realized gains and losses of $30.3 million (non-GAAP; see Reconciliation of Net Income to Net Income before Realized Gains and Losses at the end of this press release). The major components of net income are summarized in the table below:
Three Months Year Summary Income Statement Ended Dec 31 Ended Dec 31 ($ in millions, except share data) 2003 2002 2003 2002 - ---------------------------------- ---- ---- ---- ---- Premiums and finance charges earned $363.5 $367.8 $1,424.4 $1,450.5 Investment income less expenses 53.1 53.8 208.7 207.1 Investment gains realized, net 3.9 18.4 35.9 45.2 ------ ------ -------- -------- Total revenues $420.5 $440.0 $1,669.0 $1,702.8 Losses and benefits for policyholders $210.0 $216.8 $852.5 $ 902.7 Loss adjustment expenses 46.7 48.4 174.9 227.1 Underwriting expenses 122.6 123.0 503.2 489.5 Corporate and other expenses* 6.5 12.5 30.8 90.2 ------ ------ -------- -------- Total expenses $385.8 $400.7 $1,561.4 $1,709.5 Income tax expense: On investment gains realized $1.4 $6.5 $12.6 $ 15.8 On all other income (loss) 5.6 3.7 19.2 (21.6) ---- ----- ----- -------- Total income tax expense (benefit) $7.0 $10.2 $31.8 $ (5.8) Net income (loss) $27.7 $29.1 $75.8 $ (0.9) ===== ===== ===== ======== Average shares outstanding - diluted 61,735,819 61,125,091 61,326,692 61,284,255 Net income per share - diluted $0.45 $0.48 $1.24 $(0.01)
*Amortization and impairment write-downs of the agent relationships asset have been reclassified from underwriting expenses to corporate and other expenses for the current and prior periods as management believes these costs do not reflect current underwriting profitability. President and Chief Executive Officer Dan Carmichael, CPCU, commented, "I am pleased with the continued improvement in our financial results. Improvements to the combined ratio during the fourth quarter confirm that we are making progress toward achieving our strategic objectives. The statutory combined ratio was 104.7% for the fourth quarter 2003, a 2.8 point improvement over the fourth quarter of 2002, and results for our Personal Lines operating segment, at a 97.0% combined ratio, and our Specialty Lines operating segment, at a 60.9% combined ratio, were very strong. We would have achieved underwriting profitability for the quarter, if we had not increased reserves for environmental claims. Although full year 2003 premiums are below last year's levels, we have a better priced book of business, we continue to realize double-digit price increases in certain lines, we saw our Personal Lines new business gross premiums written increase 27.0% , and we improved our risk profile. In 2004, much of our focus will be on driving operational efficiencies and expense reductions through the organization. We will also continue to improve our loss ratio through better leveraging of technology, continued focus on obtaining an adequate price for all risks and conservative underwriting. Our statutory expense ratios for the quarter continued to show improvement as a result of our expense initiatives but we intend to make even more progress, including the steps we are announcing today, with the goal of achieving an underwriting profit while simultaneously delivering high quality services to our customers. We ended the year with a strong capital position on our balance sheet and the highest level of statutory policyholders' surplus since 1999." Investment income declined slightly, resulting from lower market yields of new investments. The fourth quarter 2003 investment income was $53.1 million, a decrease of $0.7 million over the fourth quarter of 2002. Federal income tax expense was favorably impacted by approximately $4.0 million for the fourth quarter 2003 due to a reduction in deferred income taxes payable. This reduction was due primarily to lowering deferred taxes on invested assets. The Corporation today issued a separate press release regarding significant staff reductions in February of 2004 related to the re-engineering of numerous processes. Statutory Results Insurance industry regulators require subsidiaries of Ohio Casualty Corporation to report certain financial measures on a statutory accounting basis. Management also uses statutory financial criteria to analyze property and casualty results, including loss and loss adjustment expense (LAE) ratios, underwriting expense ratios, combined ratios, net premiums written and net premiums earned. Supplemental financial information for the fourth quarter, including many of the statutory financial measures described above, is available on Ohio Casualty Corporation's website at www.ocas.com and was also filed on Form 8-K with the Securities and Exchange Commission. A discussion of the differences between statutory accounting principles and GAAP in the United States is included in Item 15 of the Corporation's Form 10-K for the year ended December 31, 2002. Statutory Net Premiums Written The table below summarizes net premiums written for the operating segments:
Statutory Three Months Year Net Premiums Written Ended Dec 31 % Ended Dec 31 % ($ in millions) 2003 2002 Chg 2003 2002 Chg - -------------------- ---- ---- --- ---- ---- --- Commercial Lines $180.7 $182.3 (0.9) $ 792.6 $ 762.2 4.0 Specialty Lines 40.3 47.2 (14.6) 164.9 179.9 (8.3) Personal Lines 120.1 118.3 1.5 484.1 506.5 (4.4) ------ ------ -------- -------- All Lines $341.1 $347.8 (1.9) $1,441.6 $1,448.6 (0.5)
Net premiums written for the fourth quarter were impacted by strict underwriting guidelines for Commercial Lines, Personal Lines cancellation/withdrawal activity, last year's $5.3 million increase for a return of ceded premium in our bond business and higher reinsurance ceded premiums, especially in Specialty Lines. These quarter-over-quarter declines were partially offset by growth in Personal Lines of 1.5%, despite a negative impact from cancellation/withdrawal activity of approximately $10 million. The declines were further offset as Specialty Lines written premiums before reinsurance grew 15.6% during the quarter. The decline in statutory net premiums written for the full year reflects the Group's restructured risk profile as Personal Lines cancellation/withdrawal activity reduced net written premiums by approximately $61 million. In addition, net premiums written declined as Commercial Lines implemented stricter underwriting guidelines, including the non-renewal of certain construction defect related risks along with the impact of higher reinsurance costs. Commercial Lines net written premiums declined for the quarter due to conservative underwriting of workers' compensation, commercial auto and certain construction classes of business and increased competition for small to mid-sized commercial accounts, which affected new business production. The Commercial Lines risk profile has improved over the past year with the non- renewal of certain underperforming classes of business and improved pricing on the book of business. Renewal price increases continued to experience downward pressure in the fourth quarter as part of a broad trend indicating that Commercial Lines policies are approaching price adequacy and competitive pricing pressures are increasing. The average renewal price increase for Commercial Lines was 7.7% in the fourth quarter 2003 compared to 10.1% in the third quarter. For the year 2003, average renewal price increases were 11.4% compared to 16.3% for the year 2002. Specialty Lines fourth quarter net premiums written declined 14.6% as a result of high reinsurance premiums. Higher reinsurance premiums in 2003 were driven by the addition of a ceding commission and by increased reinsurance rates per dollar of premium. The addition of ceding commissions on the current reinsurance contract causes a corresponding increase to ceded premiums. Specialty Lines premiums before reinsurance increased 15.6% over fourth quarter 2002 to $67.4 million as a result of higher average renewal pricing and retention rates, offset in part by lower levels of new business production. Net premiums written for the year 2003 were below last year due to higher reinsurance premiums for commercial umbrella and $5.3 million return of ceded premium in the bond business that occurred in the prior year. Average renewal price increases for commercial umbrella, the largest volume Specialty Line product, averaged 14.5% for the fourth quarter 2003, compared to 22.4% and 15.7% in the second and third quarters of 2003, respectively. For the year 2003, average renewal price increases were 18.1% compared to 37.6% for the year 2002. Personal Lines net premiums written were up 1.5% for the fourth quarter while down 4.4% for the full year 2003. Higher renewal rates for all Personal Lines, increased new business production for personal auto and rate increases for homeowners led to the growth in the fourth quarter, despite the run-off of business related to cancelled agents and withdrawal from several states. The combined effect of cancelled agents and withdrawal states represents approximately $10 million and offset most of the increase in net premiums written for the fourth quarter of 2003 compared to the fourth quarter of 2002. Statutory Combined Ratio The statutory combined ratio is a commonly used gauge of underwriting performance measuring the percentage of premium dollars used to pay insurance losses and related expenses. The loss and loss adjustment expense ratios measure losses and LAE as a percentage of net earned premiums and the underwriting expense ratio measures underwriting expenses as a percentage of net written premiums. The combined ratio is the sum of the loss ratio, the LAE ratio, and the underwriting expense ratio. All combined ratio references in this press release are calculated on a calendar year basis unless specified as calculated on an accident year basis. Furthermore, these references to combined ratio or its components are calculated on a statutory accounting basis. The table below summarizes combined ratio results by business unit:
Three Months Year Ended Dec. 31 Ended Dec. 31 Statutory Combined Ratio 2003 2002 2003 2002 - ------------------------ ---- ---- ---- ---- Commercial Lines 119.0% 106.9% 112.3% 115.1% Specialty Lines 60.9% 77.0% 77.2% 94.0% Personal Lines 97.0% 119.1% 105.6% 114.1% ------ ------ ------ ------ All Lines 104.7% 107.5% 106.1% 112.8%
Improved underwriting expenses, lower losses and lower LAE contributed to the All Lines combined ratio improvement for the fourth quarter and full year compared to the same periods in 2002. Personal Lines business generated an underwriting profit in the fourth quarter 2003 and Specialty Lines continued to post solid results. Losses for the full year 2002 were negatively impacted by prior accident year reserve adjustments primarily related to construction defect claims and higher costs associated with New Jersey private passenger auto (NJPPA). The fourth quarter loss and LAE ratios for 2003 included $16.0 million additional expense for prior accident year reserve development on environmental claims which added 4.4 points to the All Lines combined ratio. Catastrophe losses for the fourth quarter 2003 were 0.7 points of the combined ratio compared to 1.0 point in the fourth quarter of 2002. For the year 2003, catastrophe losses were 3.1 points of the combined ratio, 1.7 points higher than last year. In 2002, the Group recognized adverse development on prior accident years' losses and LAE, which impacted full year 2002 by 5.8 points, primarily for construction defect claims. In 2003, All Lines adverse development on prior accident years totaled 2.4 points. Improvements in other areas, including higher pricing, stricter underwriting, and lower sales expense, contributed to the improvement in the All Lines combined ratio. The Commercial Lines combined ratio increased 12.1 points in the fourth quarter 2003 compared to the same quarter a year ago and improved 2.8 points for the full year compared to 2002. Prior accident year adverse reserve development of $11.1 million for environmental claims added 5.6 points to the fourth quarter Commercial Lines combined ratio and prior accident year development on other claims added another 7.4 points, primarily in the workers' compensation product line and liability coverage of the commercial multiple peril product line. Results for full year 2003 included higher than expected catastrophe losses and large non-catastrophe losses compared to last year. Catastrophe losses added 2.6 points to 2003 Commercial Lines combined ratio compared to .5 points for 2002. The combined ratio for 2003 included 5.3 points compared to 10.2 points in 2002 for reserve development on prior accident years. Last year's reserve adjustments were primarily construction defect related and were concentrated in the general liability and commercial multi-peril product lines. Specialty Lines continued to show strong performance with a combined ratio improvement of 16.1 points and 16.8 points for the quarter and year to date, respectively, compared to 2002. The fourth quarter of 2003 Specialty Lines combined ratio reflected 21.9 points of favorable development on prior accident year loss and LAE reserves due mostly to a reduction in estimated future costs for commercial umbrella claims adjuster related expenses. The improvement in the combined ratio for the full year 2003 was due primarily to overall favorable development on prior accident year loss and LAE reserves in the commercial umbrella product line. Personal Lines demonstrated significant improvement with a combined ratio of 97.0% in the fourth quarter of 2003, a 22.1 point improvement over the same period last year while the full year improved 8.5 points. Every product line in the Personal Lines operating segment registered an improved combined ratio in both the fourth quarter and the year 2003 compared to 2002. The fourth quarter and full year improvement was driven by the withdrawal from NJPPA, premium rate increases, a significant improvement in the non-catastrophe experience for homeowners, and a decline in the underwriting expense ratio. Catastrophe losses were 1.7 points higher for full year 2003 than in 2002, which indicates that the 2003 non-catastrophe related Personal Lines performance was more than 10 combined ratio points better than last year. Loss and LAE Development The loss and LAE ratio component of the accident year combined ratio measures losses and LAE arising from insured events that occurred in the respective accident year. The current accident year excludes losses and LAE for insured events that occurred in prior accident years. The table below summarizes the impact of changes in provision for all prior accident year losses and LAE:
Three Months Year Ended Dec 31 Ended Dec 31 ($ in millions) 2003 2002 2003 2002 - --------------- ---- ---- ---- ---- Statutory net liabilities, beginning of period $2,118.3 $2,074.2 $2,078.7 $1,982.0 Increase in provision for prior accident year claims $24.4 $9.2 $34.1 $84.4 Increase in provision for prior accident year claims as % of premiums earned 6.7% 2.5% 2.4% 5.8%
Other Highlights For the fourth quarter of 2003 compared to the fourth quarter of 2002: - Catastrophe losses decreased to $2.6 million from $3.5 million. - Employee count was down 11.2% to 2,669 at December 31, 2003, which helped reduce the personnel related expense portion of the underwriting expense ratio by .3 points, and contributed to the .4 point reduction in the LAE ratio to 12.8%. - Book value per share of $18.80 has increased 7.9% from fourth quarter 2002. - Premiums to surplus ratio improved to 1.7 to 1 from 2.0 to 1. Looking forward, the Corporation is providing guidance for calendar year 2004 as follows: - Net premiums written will be flat compared to 2003 or will grow in the low single digits, - Statutory calendar year combined ratio of 101.0% to 104.0%, assuming a catastrophe loss impact of 2% to 2.5%, and - Investment income of approximately $200 million. Investors are advised to read the safe harbor statement at the end of this release. Conference Call The Corporation will conduct a teleconference call to discuss information included in this news release and related matters at 9:30 a.m. ET on Thursday, February 12, 2004. The call is being webcast by Vcall and can be accessed at Ohio Casualty Corporation's website at www.ocas.com. The webcast is also being distributed over PrecisionIR's Investor Distribution network to both institutional and individual investors. Investors can listen to the call through PrecisionIR's webcast site at www.vcall.com or by visiting any of the investor sites in PrecisionIR's Investor Network. The webcast will be available for replay through May 15, 2004. To listen to call playback by telephone, dial 1-800-252-6030, then enter ID code 21286827. Call playback begins at 5 p.m. ET on February 12 and extends through midnight February 16, 2004. Quiet Period The Corporation observes a quiet period and will not comment on financial results or expectations during quiet periods. The quiet period for the first quarter will start April 1, 2004 extending through the time of the earnings conference call scheduled for May 5, 2004. Corporate Profile Ohio Casualty Corporation is the holding company of The Ohio Casualty Insurance Company, which is one of six property-casualty subsidiary companies that make up Ohio Casualty Group. The Ohio Casualty Insurance Company was founded in 1919 and is licensed in 49 states. Ohio Casualty Group is ranked 45th among U.S. property/casualty insurance groups based on net premiums written (Best's Review, July 2003). 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 $5.2 billion as of December 31, 2003. 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. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements. The operations, performance and development of the 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 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 the Company's reports filed with the Securities and Exchange Commission or in subsequent press releases. Reconciliation of Net Income to Net Income before Realized Gains and Losses Management of the Corporation believes the significant volatility of realized investment gains and losses limits the usefulness of net income as a measure of current operating performance. Management uses the non-GAAP financial measure of net income before realized gains and losses to further evaluate current operating performance. Net income before realized gains and losses, both in dollar amount and per share, is reconciled to net income and net income per share in the table below:
Three Months Year Ended Dec 31 Ended Dec 31 ($ in millions) 2003 2002 2003 2002 - --------------- ---- ---- ---- ---- Net income (loss) before realized gains and losses $25.2 $17.1 $52.5 $(30.3) After-tax realized gains and losses 2.5 12.0 23.3 29.4 ----- ----- ----- ------- Net income (loss) $27.7 $29.1 $75.8 $ (0.9) Net income (loss) per share - diluted before realized gains and losses $0.41 $0.28 $0.86 $(0.49) After-tax realized gains and losses per share- diluted 0.04 0.20 0.38 0.48 ----- ----- ----- ------- Net income (loss) per share - diluted $0.45 $0.48 $1.24 $(0.01)
-30- EX-99 5 exh99-3.txt EXH 99-3 OHIO CASUALTY CORP SUPPLEMENTAL FINANCIAL INFORMATION Exhbit 99.3 OHIO CASUALTY CORPORATION SUPPLEMENTAL FINANCIAL INFORMATION FOR THE PERIOD ENDING DECEMBER 31, 2003 Contents: Page 1 GAAP Income Statement Data Page 2 Statutory P&C Data Page 3 P&C Accident Year Data Page 4 Additional P&C Accident Year Data Page 5 Consolidated Balance Sheet Data and Related Information Page 6 Supplemental Information 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 release that are not historical information, are forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements. The operations, performance and development of the 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 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 the Company's reports filed with the Securities and Exchange Commission or in subsequent releases. OHIO CASUALTY CORPORATION SUMMARY INCOME STATEMENT - GAAP BASIS (in thousands, except per share data) FOURTH QUARTER, 2003 (2003 Data Unaudited)
Three Months Ended Dec 31 ------------------------------------------------ CONSOLIDATED 2003 2002 - ---------------------------------------- ---------------------- ------------------------ Premiums and finance charges earned $ 363,457 $ 367,793 Investment income less expenses 53,170 53,764 Investment gains realized, net 3,861 18,409 ----------- ----------- Total revenues 420,488 439,966 Losses 209,935 216,751 Loss adjustment expenses 46,650 48,459 Underwriting expenses 122,629 122,997 Corporate and other expenses 6,596 12,502 ----------- ----------- Total expenses 385,810 400,709 Income tax (benefit) expense: On investment gains realized 1,351 6,443 On all other income (loss) 5,559 3,707 ----------- ----------- Total income tax (benefit) expense 6,910 10,150 Net income (loss) $ 27,768 $ 29,107 ============ ============ Average shares outstanding - diluted 61,736 61,125 Net income (loss), per share - diluted $ 0.45 $ 0.48 Ratio to Ratio to Premiums Premiums PROPERTY AND CASUALTY Earned Earned - --------------------------------------- -------- -------- Premiums and finance charges earned $ 363,457 $ 367,793 Investment income less expenses 52,390 53,217 Investment gains realized, net 4,632 18,410 Losses 209,935 57.8% 216,751 58.9% Loss adjustment expenses 46,650 12.8% 48,459 13.2% Underwriting expenses 122,629 33.7% 122,997 33.4% ----------- ------- ----------- ------- Total expenses 379,214 104.3% 388,207 105.5% Effective tax rate on investment income 33.1% 35.7% CORPORATE/OTHER - --------------------------------------- Investment income less expense $ 780 $ 547 Investment gains (losses) realized, net (771) (1) Agent relationships asset expenses 3,278 9,920 Corporate expenses 3,318 2,582
Year ------------------------------------------------ CONSOLIDATED 2003 2002 - ---------------------------------------- ----------------------- ----------------------- Premiums and finance charges earned $ 1,424,353 $ 1,450,467 Investment income less expenses 208,723 207,133 Investment gains realized, net 35,872 45,192 ----------- ----------- Total revenues 1,668,948 1,702,792 Losses 852,474 902,731 Loss adjustment expenses 174,896 227,081 Underwriting expenses 503,194 489,465 Corporate and other expenses 30,809 90,221 ----------- ----------- Total expenses 1,561,373 1,709,498 Income tax (benefit) expense: On investment gains realized 12,555 15,817 On all other income (loss) 19,176 (21,632) ----------- ----------- Total income tax (benefit) expense 31,731 (5,815) Net income (loss) $ 75,844 $ (891) ============ ============ Average shares outstanding - diluted 61,327 61,284 Net income (loss), per share - diluted $ 1.24 $ (0.01) Ratio to Ratio to Premiums Premiums PROPERTY AND CASUALTY Earned Earned - --------------------------------------- -------- -------- Premiums and finance charges earned $ 1,424,353 $ 1,450,467 Investment income less expenses 204,874 205,794 Investment gains realized, net 35,026 45,371 Losses 852,474 59.8% 902,731 62.2% Loss adjustment expenses 174,896 12.3% 227,081 15.7% Underwriting expenses 503,194 35.3% 489,465 33.7% ----------- ------- ----------- ------- Total expenses 1,530,564 107.4% 1,619,277 111.6% Effective tax rate on investment income 33.7% 33.9% CORPORATE/OTHER - ---------------------------------------- Investment income less expense $ 3,849 $ 1,339 Investment gains (losses) realized, net 846 (179) Agent relationships asset expenses 18,690 79,699 Corporate expenses 12,119 10,522
-1- OHIO CASUALTY CORPORATION PROPERTY AND CASUALTY INSURANCE DATA - STATUTORY BASIS (in thousands) FOURTH QUARTER, 2003 (2003 Data Unaudited)
THREE MONTHS ENDED DEC 31 ------------------------------------------------- 2003 2002 OPERATING SEGMENTS and ----------------------- ---------------------- SELECTED PRODUCT LINES or Net Premiums Combined Net Premiums Combined MARKETS Written Ratio Written Ratio - -------------------------- ------------ -------- ------------ -------- Commercial Lines $ 180,663 119.0% $ 182,266 106.9% Workers' compensation 27,531 137.6% 31,984 130.2% Commercial auto 51,113 108.3% 48,231 111.8% General liability 18,582 128.2% 18,924 96.9% CMP, BOP, fire and inland marine 83,437 116.8% 83,127 95.6% Specialty Lines 40,311 60.9% 47,208 77.0% Commercial umbrella 29,745 56.4% 31,911 87.8% Fidelity and surety 10,566 74.2% 15,298 52.5% Personal Lines 120,144 97.0% 118,335 119.1% New Jersey personal auto (40) 5964.5% (708) 251.6% Other personal lines 120,184 95.0% 119,043 113.9% Other personal auto 71,692 103.0% 71,076 125.3% Homeowners 39,876 86.1% 39,689 97.4% ------------ ------ ------------ ------ Total All Lines $ 341,118 104.7% $ 347,809 107.5% ALL LINES RESULTS Ratio Ratio - --------------------- ----- ----- Premiums written $ 341,118 $ 347,809 Premiums earned 363,335 367,764 Losses incurred 208,512 57.4% 216,695 58.9% Loss adjustment expenses 46,650 12.8% 48,459 13.2% Underwriting expenses 117,554 34.5% 123,198 35.4% ------ ------ Underwriting loss (9,381) 104.7% (20,588) 107.5% ====== ====== Investment income 52,133 53,217 Investment gains realized 4,174 25,736 Other income/expense - - Federal income tax expense (benefit) 11,543 1,136 ------------ ------------ Net income $ 35,383 $ 57,229 ============ ============ Included above: Dividends to policyholders 165 0.0% (3,009) -0.9% Paid loss & loss adjustment expense 244,589 260,665
YEAR -------------------------------------------------- 2003 2002 OPERATING SEGMENTS and ----------------------- ----------------------- SELECTED PRODUCT LINES or Net Premiums Combined Net Premiums Combined MARKETS Written Ratio Written Ratio - -------------------------- ------------ -------- ------------ -------- Commercial Lines $ 792,587 112.3% $ 762,189 115.1% Workers' compensation 132,358 123.0% 143,911 129.2% Commercial auto 228,333 105.5% 213,364 110.2% General liability 83,448 122.6% 84,474 171.3% CMP, BOP, fire and inland marine 348,448 109.7% 320,440 95.8% Specialty Lines 164,851 77.2% 179,879 94.0% Commercial umbrella 120,943 80.5% 132,655 97.7% Fidelity and surety 43,908 68.1% 45,599 81.7% Personal Lines 484,112 105.6% 506,560 114.1% New Jersey personal auto (1,095) 648.1% 24,172 154.8% Other personal lines 485,207 104.0% 482,388 107.9% Other personal auto 293,820 105.2% 297,117 107.1% Homeowners 157,184 106.9% 153,678 110.3% ------------ ------ ------------ ------ Total All Lines $ 1,441,550 106.1% $ 1,448,628 112.8% ALL LINES RESULTS Ratio Ratio - --------------------- ----- ----- Premiums written $ 1,441,550 $ 1,448,628 Premiums earned 1,424,349 1,450,377 Losses incurred 850,550 59.7% 902,201 62.2% Loss adjustment expenses 174,896 12.3% 227,081 15.7% Underwriting expenses 491,241 34.1% 506,204 34.9% ------ ------ Underwriting loss (92,338) 106.1% (185,109) 112.8% ====== ====== Investment income 204,874 205,794 Investment gains realized 31,870 53,011 Other income/expense - (7,707) Federal income tax expense (benefit) 25,289 (9,159) ------------ ------------ Net income $ 119,117 $ 75,148 ============ ============ Included above: Dividends to policyholders 796 0.1% (3,868) -0.3% Paid loss & loss adjustment expense 975,319 1,032,544
-2- OHIO CASUALTY CORPORATION PROPERTY AND CASUALTY ACCIDENT YEAR DATA FOURTH QUARTER, 2003 (Data Unaudited)
STATUTORY COMBINED RATIO ------------------------------------------------------- Accident Accident Accident Earned Prem Year 2003(A) Year 2002(A) Year 2002(A) OPERATING SEGMENTS and Twelve Months Twelve Months Measured Measured Measured SELECTED PRODUCT LINES Ended Ended as of as of as of or MARKETS Dec 31, 2003 Dec 31, 2003 Dec 2003 Dec 2002 Dec 2003 - ---------------------- ------------ ------------ ------------ ------------ ------------ Commercial Lines $ 777,365 112.3% 107.1% 104.9% 101.3% Workers' compensation 134,730 123.0% 115.9% 123.0% 116.1% Commercial auto 221,085 105.5% 104.6% 101.7% 99.0% General liability 84,379 122.6% 114.4% 113.4% 108.8% CMP, BOP, fire and inland marine 337,171 109.7% 103.3% 96.1% 93.8% Specialty Lines 162,666 77.2% 90.3% 95.4% 89.4% Commercial umbrella 120,546 80.5% 93.3% 98.8% 94.5% Fidelity and surety 41,837 68.1% 81.1% 84.4% 74.2% Personal Lines 484,322 105.6% 102.7% 111.8% 111.2% New Jersey personal auto 1,231 648.1% 257.3% 136.5% 138.3% Other personal lines 483,091 104.0% 102.1% 107.9% 107.1% Other personal auto 295,157 105.2% 102.6% 108.0% 106.7% Homeowners 154,578 106.9% 105.8% 111.3% 111.4% ----------- ------- ------- ------- ------- Total All Lines $1,424,353 106.1% 103.7% 106.9% 104.2%
Note: (A) The loss and LAE ratio component of the accident year combined ratio measures losses and LAE arising from insured events that occurred in the respective accident year. The current accident year excludes losses and LAE for insured events that occurred in prior accident years. Accident year 2003 as of Dec 31, 2003 measures insured events for the twelve months of 2003. Accident year 2002 as of Dec 31, 2002 measures insured events for the twelve months of 2002 with related outstanding liabilities estimated as of Dec 31, 2002. Accident year 2002 as of Dec 31, 2003 measures insured events for the twelve months of 2002 with remaining related liabilities estimated as of Dec 31, 2003. Partial and complete accident periods may not be comparable due to seasonality, claim reporting and development patterns, claim settlement rates and other factors. -3- OHIO CASUALTY CORPORATION ADDITIONAL PROPERTY AND CASUALTY ACCIDENT YEAR AND CATASTROPHE DATA (in millions, except ratio data) FOURTH QUARTER, 2003 (Data Unaudited)
THREE MONTHS PRIOR ACCIDENT YEAR LOSS & LAE ENDED DEC 31 YEAR by SEGMENT 2003 2002 2003 2002 - ------------------------------ ----------------------- ----------------------- Commercial Lines $ 26.9 $ 9.1 $ 41.0 $ 73.9 Specialty Lines (9.2) (7.5) (21.3) (2.2) Personal Lines 6.7 7.6 14.4 12.7 ------- ------- ------- ------- Total All Lines Accident Year Development 24.4 9.2 34.1 84.4
PRIOR ACCIDENT YEAR LOSS & LAE - ------------------------------ Accident Year 2002 $ (5.5) $(39.0) Accident Year 2001 1.9 $ 5.6 8.0 $(15.8) Accident Year 2000 and Prior 28.0 3.6 65.1 100.2 ------- ------- ------- ------- Total Accident Year Development 24.4 9.2 34.1 84.4
CATASTROPHE LOSS RATIO - ------------------------------ Commercial Lines 1.4% 0.6% 2.6% 0.5% Specialty Lines -0.1% -1.9% 0.0% -0.2% Personal Lines -0.1% 2.6% 4.8% 3.1% Homeowners -1.7% 6.8% 11.8% 8.7% Total All Lines 0.7% 1.0% 3.1% 1.4%
-4- OHIO CASUALTY CORPORATION CONSOLIDATED BALANCE SHEET DATA AND RELATED INFORMATION (in thousands, except share data) FOURTH QUARTER, 2003 (2003 Data Unaudited)
December 31, December 31, 2003 2002 ASSETS ------------- ------------- Investments: U.S. government fixed maturities $ 43,260 $ 29,082 Tax exempt fixed maturities 79,137 46,788 Taxable fixed maturities: Available for sale, at fair value 2,899,793 3,063,904 Held-to-maturity, at amortized cost 356,100 - ------------ ------------ Total fixed maturities 3,378,290 3,139,774 Equity securities, at fair value 329,049 312,537 Short-term investments, at fair value 40,448 49,839 ------------ ------------ Total investments 3,747,787 3,502,150 Cash 16,494 12,384 Premiums and other receivables, net of allowance for bad debts of $4,200 and $4,300, respectively 347,863 324,759 Deferred policy acquisition costs 169,351 181,276 Property and equipment, net of accumulated depreciation of $152,905 and $145,863, respectively 89,212 97,798 Reinsurance recoverable 592,688 419,870 Agent relationships, net of accumulated amortization of $39,093 and $34,100, respectively 142,634 161,323 Interest and dividends due or accrued 47,489 45,961 Deferred income taxes - 2,411 Other assets 15,393 31,062 ------------ ------------ Total assets $ 5,168,911 $ 4,778,994 ============ ============ Shares outstanding 60,957,043 60,725,368 Book value per share $18.80 $17.43 FAS 115 component of book value per shar $1.96 $1.76
December 31, December 31, 2003 2002 Liabilities ------------- ------------- Insurance reserves: Losses $ 2,163,720 $ 1,978,743 Loss adjustment expenses 464,134 454,907 Unearned premiums 703,015 668,707 Debt 198,042 198,288 Reinsurance treaty funds held 150,512 129,403 Deferred income taxes 12,763 - Other liabilities 330,891 290,243 ------------ ------------ Total liabilities 4,023,077 3,720,291 Shareholders' Equity Common stock, $.125 par value Authorized: 150,000,000 Issued shares: 72,418,344; 72,418,344 9,052 9,052 Common stock purchase warrants - 21,138 Accumulated other comprehensive income 254,654 246,160 Retained earnings 1,033,404 936,687 Treasury stock, at cost: (Shares: 11,461,301; 11,692,976) (151,276) (154,334) ------------ ------------ Total shareholders' equity 1,145,834 1,058,703 ------------ ------------ Total liabilities and shareholders' equity $ 5,168,911 $ 4,778,994 ============ ============
-5- OHIO CASUALTY CORPORATION SUPPLEMENTAL INFORMATION (in thousands, except employee count and ratio data) FOURTH QUARTER, 2003 (2003 Data Unaudited)
THREE MONTHS ENDED DEC 31 YEAR ------------------------- ---------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Gross Premiums Written Commercial Lines $ 188,349 $ 189,249 $ 824,398 $ 796,579 Specialty Lines 67,366 58,265 271,884 235,236 Personal Lines 121,217 118,328 494,143 520,591 ---------- ---------- ---------- ---------- Total 376,932 365,842 1,590,425 1,552,406 New Business Gross Premiums Written Commercial Lines 43,373 47,942 187,905 186,165 Commercial Umbrella 16,991 19,354 72,027 78,858 Personal Lines 11,054 10,093 43,939 34,593 Average Renewal Price Increase Commercial Lines 7.7% 14.2% 11.4% 16.3% Commercial Umbrella 14.5% 29.3% 18.1% 37.6% Amortization of Deferred Acquisition Costs 92,470 96,792 383,976 376,223 Agent Relationships Asset Expenses Write-down 1,454 7,881 11,244 69,510 Amortization 1,824 2,039 7,446 10,189 ---------- ---------- ---------- ---------- Total 3,278 9,920 18,690 79,699
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DEC 31, 2003 DEC 31, 2002 ------------ ------------ Statutory Insurance Reserves: Unearned premiums $ 642,414 $ 625,310 Losses 1,690,454 1,647,343 Loss adjustment expense 438,396 431,380 Statutory policyholders' surplus 867,627 725,748 Ratio of net premiums written to statutory surplus 1.7 to 1.0 2.0 to 1.0 Employee Count 2,669 3,004
Note: For further information on differences between statutory accounting principles and generally accepted accounting principles (GAAP), refer to item 15 on pages 67 and 68 of the Corporation's Form 10-K for the year ended December 31, 2002. -6- -----END PRIVACY-ENHANCED MESSAGE-----