-----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, QYU2dUukLVT8BV2HAtQZnbs8/Cw/ibP3hQZxIT6mwagNLGZDRJBUsvi5fOGJNc+7 Fn0Bv4qvXuyOI3lCddJ5FA== 0000073952-05-000011.txt : 20050209 0000073952-05-000011.hdr.sgml : 20050209 20050209160853 ACCESSION NUMBER: 0000073952-05-000011 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20041231 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050209 DATE AS OF CHANGE: 20050209 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: 05588832 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 f8k2-9.txt OHIO CASUALTY CORP - FORM 8-K ITEMS 2.02 AND 9.01 ============================================================================= UNITED STATES 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 9, 2005 ---------------- OHIO CASUALTY CORPORATION (Exact name of registrant as specified in its charter) OHIO 0-5544 31-0783294 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 9450 Seward Road, Fairfield, Ohio 45014 (Address of principal executive offices)(Zip Code) (513) 603-2400 (Registrant's telephone number, including area code) Not Applicable (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule l4a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Page 1 of 3 ============================================================================= ITEM 2.02. Results of Operations and Financial Condition - --------- (a) On February 9, 2005, Ohio Casualty Corporation (the "Corporation") issued a press release announcing its earnings for the fourth quarter and year ended December 31, 2004. The Corporation also issued on February 9, 2005 certain Supplemental Financial Information with respect to its earnings for the fourth quarter and year ended December 31, 2004. The press release and the Supplemental Financial Information were posted on the Corporation's website at http://www.ocas.com and are attached hereto as Exhibits 99.1 and 99.2, respectively, and hereby incorporated by reference. ITEM 9.01. Financial Statements and Exhibits. - --------- (c) Exhibits Exhibit No. Description ---------- ----------- 99.1 Press release dated February 9, 2005 issued by Ohio Casualty Corporation and posted on the Corporation's website at http://www.ocas.com. 99.2 Supplemental Financial Information issued by Ohio Casualty Corporation on February 9, 2005 and posted on the Corporation's website at http://www.ocas.com. 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 9, 2005 /s/Debra K. Crane ---------------------------------- Debra K. Crane, Senior Vice President, General Counsel and Secretary Page 2 of 3 Exhibit Index ------------- Current Report on Form 8-K Dated February 9, 2005 Exhibit No. Description - ---------- ----------- 99.1 Press release dated February 9, 2005 issued by Ohio Casualty Corporation and posted on the Corporation's website at http://www.ocas.com. 99.2 Supplemental Financial Information issued by Ohio Casualty Corporation on February 9, 2005 and posted on the Corporation's website at http://www.ocas.com. Page 3 of 3 EX-99 2 exh99-1.txt OHIO CASUALTY CORP - PRESS RELEASE 4TH QUARTER RESULTS Exhibit 99.1 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 NET INCOME UP 105% FOR THE FOURTH QUARTER FAIRFIELD, OHIO, February 9, 2005 --- Ohio Casualty Corporation (NASDAQ:OCAS) today announced the following results for its fourth quarter ended December 31, 2004, compared with the same period of the prior year: - Net income of $56.9 million, or $0.82 per diluted share, versus $27.7 million, or $0.42 per diluted share; - All Lines statutory combined ratio of 95.0%, a 9.7 point improvement; and - Operating income (A) of $43.7 million versus $25.2 million, an $18.5 million or 73.4% increase. Results for the full year ended 2004 compared with 2003 included: - Net income of $128.4 million, or $1.89 per diluted share, versus $75.8 million, or $1.18 per diluted share; - All Lines statutory combined ratio of 98.4%, a 7.7 point improvement; and - Operating income (A) of $115.1 million versus $52.5 million, a $62.6 million or 119.2% increase. President and Chief Executive Officer Dan Carmichael commented, "I am extremely pleased with our financial results for both the fourth quarter and full year 2004. Our operating income is up 73.4% and 119.2%, respectively, and our statutory combined ratio for each period is our best since 1980. This improvement, including increased shareholder value, is the result of the success of our strategic initiatives and the hard work and dedication of our staff and independent agents. Our improved financial results were driven by significantly improved loss experience, including lower loss adjustment costs as a result of our cost reduction programs, which are continuing in 2005. The improved loss experience is the result of our disciplined underwriting and the enhanced pricing methodologies we continue to develop. In addition, we have continued to experience favorable prior years reserve development at $5.9 million for the fourth quarter. While we have made great strides in lowering our underwriting expense ratio, the fourth quarter includes additional incentive compensation expense related to our overall profitability improvements and a $5.6 million increase in the surplus guarantee accrual on the sale of our New Jersey personal auto business to Proformance Insurance Company (Proformance). These two items raised the fourth quarter underwriting ratio by 2.8 points. I remain very thankful to our agents and employees for the hard work and excellent results." The major components of net income are summarized in the table below:
Three Months Year Summary Income Statement Ended Dec 31 Ended Dec 31 ($ in millions, except share data) 2004 2003 2004 2003 - ---------------------------------- ---- ---- ---- ---- Premiums and finance charges earned $361.7 $363.5 $1,446.8 $1,424.4 Investment income less expenses 57.2 53.1 201.2 208.7 Investment gains realized, net 20.4 3.9 23.0 35.9 ------ ------ -------- -------- Total revenues $439.3 $420.5 $1,671.0 $1,669.0 Losses and benefits for policyholders $173.8 $210.0 $ 777.6 $ 852.5 Loss adjustment expenses 42.1 46.7 158.7 174.9 Underwriting expenses 128.5 122.6 504.8 503.2 Corporate and other expenses 12.4 6.5 43.4 30.8 ------ ------ -------- -------- Total expenses $356.8 $385.8 $1,484.5 $1,561.4 Income tax expense: On investment gains realized $ 7.1 $ 1.4 $ 8.0 $ 12.6 On all other income 18.5 5.6 48.5 19.2 ------ ------ -------- -------- Total income tax expense $ 25.6 $ 7.0 $ 56.5 $ 31.8 Cumulative effect of an accounting change $ - $ - $ (1.6) $ - ------ ------ -------- -------- Net income $ 56.9 $ 27.7 $ 128.4 $ 75.8 ====== ====== ========= ======== Average shares outstanding - diluted 71,941,641 70,633,323 71,508,519 70,224,196 Net income, per share - diluted $0.82 $0.42 $1.89 $1.18
In connection with the adoption of Emerging Issues Task Force ("EITF") Consensus 04-8 "The Effect of Contingently Convertible Debt on Diluted Earnings per Share" in the fourth quarter 2004, the Company has restated the average shares outstanding-diluted and net income per share-diluted for the three months and full year ended December 31, 2003. The net effect of this restatement reduced net income per share-diluted by $0.03 and $0.06, for the three months and full year ended December 31, 2003, respectively. The effect on net income per share of this restatement and for current year presentation was determined using the "if-converted" methodology prescribed in SFAS No. 128. Consolidated before-tax net investment income for the fourth quarter 2004 increased $4.1 million over the same period in 2003. This increase is a result of a $7.4 million favorable amortization adjustment on certain fixed income securities, with $4.3 million of this adjustment representing a reclassification from realized gains. This favorable adjustment was partially offset by reinvestment yields that are below our average portfolio yield and our portfolio shift into tax exempt securities. This shift in the investment portfolio will reduce before-tax net investment income; however, it correspondingly lowers the Corporation's effective tax rate, therefore maximizing its after-tax income. 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. Statutory net written premiums for our Commercial Lines segment increased for the quarter driven by improved pricing and higher policy renewal rates. Specialty Lines net written premiums declined in the fourth quarter as commercial umbrella market pricing fell below acceptable levels resulting in lower new business production. In addition, underwriting actions led to lower renewal rates in the commercial umbrella line. These declines were partially offset by growth in the fidelity and surety product line. Personal Lines net written premiums also declined for the quarter, primarily as a result of a $2 million return of premium related to a North Carolina rate case settlement. All three operating segments achieved underwriting profitability in the fourth quarter with improvements concentrated in their loss ratios and driven by underwriting and pricing actions. Commercial and Personal Lines were significantly more profitable over the same period last year due to improved underwriting quality, higher pricing adequacy and slightly favorable reserve development compared with significant adverse reserve development in 2003. The significant improvement in Personal Lines was made despite a 4.2 point increase in catastrophe losses and the 4.8 point charge related to the Proformance surplus guarantee accrual. The maximum amount that may be required under the Proformance agreement has now been accrued. The Specialty Lines result was very strong at a 95.1% combined ratio for the quarter, including 5.3 points of favorable prior year reserve development compared to 21.9 points of favorable development in the same period last year. Based upon the nature of the Specialty Line business and our premium volumes for this segment, the Specialty Line combined ratio is subject to more volatility compared to our other product lines. Supplemental financial information for the fourth quarter and full year 2004 and 2003, respectively, including many of the statutory financial measures described above, is available on Ohio Casualty Corporation's website at www.ocas.com and was also filed on Form 8-K with the Securities and Exchange Commission. A discussion of the differences between statutory accounting principles and accounting principals generally accepted in the United States is included in Item 15 of the Corporation's Form 10-K for the year ended December 31, 2003. Statutory Net Premiums Written The table below summarizes net premiums written for the operating segments:
Statutory Three Months Year Net Premiums Written Ended Dec 31 % Ended Dec 31 % ($ in millions) 2004 2003 Chg 2004 2003 Chg - -------------------- ---- ---- --- ---- ---- --- Commercial Lines $192.4 $180.7 6.5 $ 828.2 $ 792.6 4.5 Specialty Lines 32.9 40.3 (18.4) 135.5 164.9 (17.8) Personal Lines 117.2 120.1 (2.4) 490.2 484.1 1.3 ------ ------ -------- -------- All Lines $342.5 $341.1 0.4 $1,453.9 $1,441.6 0.8
Statutory Combined Ratio The statutory combined ratio is a commonly used gauge of underwriting performance measuring the percentage of premium dollars used to pay insurance losses and related expenses. The loss and LAE ratios measure losses and LAE as a percentage of net earned premiums and the underwriting expense ratio measures underwriting expenses as a percentage of net premiums written. The combined ratio is the sum of the loss ratio, the LAE ratio, and the underwriting expense ratio. All combined ratio references in this press release are calculated on a calendar year basis unless specified as calculated on an accident year basis. Furthermore, these references to combined ratio or its components are calculated on a statutory accounting basis. The table below summarizes combined ratio results by business unit:
Three Months Year Ended Dec 31 Ended Dec 31 Statutory Combined Ratio 2004 2003 2004 2003 - ------------------------ ---- ---- ---- ---- Commercial Lines 96.2% 119.0% 99.3% 112.3% Specialty Lines 95.1% 60.9% 97.2% 77.2% Personal Lines 93.3% 97.0% 97.6% 105.6% ----- ------ ----- ------ All Lines 95.0% 104.7% 98.4% 106.1%
Loss and LAE Development The loss and LAE ratio component of the accident year combined ratio measures losses and LAE arising from insured events that occurred in the respective accident year. The current accident year excludes losses and LAE for insured events that occurred in prior accident years. The table below summarizes the impact of changes in provision for all prior accident year losses and LAE:
Three Months Year Ended Dec 31 Ended Dec 31 ($ in millions) 2004 2003 2004 2003 - --------------- ---- ---- ---- ---- Statutory net liabilities, beginning of period $2,188.7 $2,118.3 $2,128.9 $2,078.7 Increase/(decrease) in provision for prior accident year claims $(5.9) $24.4 $(21.7) $34.1 Increase/(decrease) in provision for prior accident year claims as % of premiums earned (1.6)% 6.7% (1.4)% 2.4%
Other Highlights For the fourth quarter of 2004 compared to the fourth quarter of 2003: - Catastrophe losses increased to $5.4 million from $2.6 million. - Employee count was down 17.9% to approximately 2,200 at December 31, 2004. - GAAP book value per share of $20.82 increased 10.7%. - Premiums to surplus ratio improved to 1.5 to 1 from 1.7 to 1. For the full year 2004 compared to 2003: - Catastrophe losses decreased slightly to $43.5 million from $43.8 million. Guidance Looking forward, the Corporation reaffirms its long-term goals, which are to achieve above market premium growth and to operate within a 96% to 98% all- lines statutory combined ratio, with continued focus on gaining greater operational expense efficiencies. In the short term, however, we expect that increasing competitive pressures in all lines of business will affect our premium growth. The Corporation also anticipates that before-tax net investment income will decline in 2005 due to the full year impact of the shift in the investment portfolio to a higher percentage of tax-exempt securities. 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 9:00 a.m. EST on Thursday, February 10, 2005. 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 9, 2005. To listen to call playback by telephone, dial 1-800-252-6030, then enter ID code 35247929. Call playback begins at 5 p.m. EST on February 10, 2005 and extends through midnight on February 12, 2005. 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, 2005 extending through the time of the earnings conference call scheduled for April 27, 2005. 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 48th among U.S. property/casualty insurance groups based on net premiums written (Best's Review, July 2004). 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, 2004. 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 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. (A) Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures Reconciliation of Net Income to Operating Income 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. Accordingly, management uses the non-GAAP financial measure of operating income to further evaluate current operating performance. Operating income, both in dollar amount and per share amount, 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) 2004 2003 2004 2003 - --------------- ---- ---- ---- ---- Operating income $43.7 $25.2 $115.1 $52.5 After-tax net realized gains 13.2 2.5 14.9 23.3 Cumulative effect of accounting change - - (1.6) - ----- ----- ------- ----- Net income $56.9 $27.7 $128.4 $75.8 Operating income per share - diluted $0.64 $0.38 $ 1.71 $0.84 After-tax net realized gains per share- diluted 0.18 0.04 0.20 0.34 Cumulative effect of accounting change per share - diluted - - (0.02) - ----- ----- ------- ----- Net income per share - diluted $0.82 $0.42 $ 1.89 $1.18
As mentioned previously, in connection with the adoption of EITF 04-8 in the fourth quarter 2004, the Company has restated the above table's per share amounts for the three months and full year ended December 31, 2003. The net income and operating income per share-diluted effect of this restatement and for current year presentation was determined using the "if-converted" methodology prescribed by SFAS No. 128. Reconciliation of Net Income Return on Equity to Operating Income Return on Equity Operating income return on equity is a ratio management calculates using non- GAAP financial measures. It is calculated by dividing the annualized consolidated operating income (see calculation below) for the most recent quarter by the average shareholders' equity for the quarter using a simple average of beginning and ending balances for the quarter, excluding from equity after-tax unrealized investment gains and losses. This ratio provides management with an additional measure to evaluate the results excluding the unrealized changes in the valuation of the investment portfolio that can fluctuate between periods. The following table reconciles operating income return on equity to net income return on equity, the most directly comparable GAAP measure:
Three Months Year Ended Dec 31 Ended Dec 31 ($ in millions) 2004 2003 2004 2003 - --------------- ---- ---- ---- ---- Net income $ 56.9 $ 27.7 $ 128.4 $ 75.8 Average shareholders' equity 1,275.5 1,142.6 1,220.4 1,102.3 Return on equity based on annualized net income 17.8% 9.7% 10.5% 6.9% ===== ==== ===== ==== Operating income $ 43.7 $ 25.2 $ 115.1 $ 52.5 Average shareholders' equity 985.3 857.9 935.7 832.8 Return on equity based on annualized operating income 17.7% 11.8% 12.3% 6.3% ===== ===== ===== ==== Average shareholders' equity $1,275.5 $1,142.6 $1,220.4 $1,102.3 Average unrealized gains 290.2 284.7 284.7 269.5 -------- -------- -------- -------- Adjusted average shareholders' equity $ 985.3 $ 857.9 $ 935.7 $ 832.8 ======== ======== ======== ========
EX-99 3 exh99-2.txt OHIO CASUALTY CORP - 4TH QUARTER SUPPLEMENTAL FINANCIAL INFORMATION Exhibit 99.2 OHIO CASUALTY CORPORATION SUPPLEMENTAL FINANCIAL INFORMATION FOR THE PERIOD ENDING DECEMBER 31, 2004 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 within the meaning of The Private Securities Litigation Reform Act of 1995. 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 Corporation'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, 2004 (Data Unaudited)
Three Months Ended Dec 31 ------------------------------------------------ CONSOLIDATED 2004 2003 - ---------------------------------------- ---------------------- ------------------------ Premiums and finance charges earned $ 361,743 $ 363,457 Investment income less expenses 57,230 53,170 Investment gains realized, net 20,327 3,861 ----------- ----------- Total revenues 439,300 420,488 Losses 173,725 209,935 Loss adjustment expenses 42,059 46,650 Underwriting expenses 128,555 122,629 Corporate and other expenses 12,471 6,596 ----------- ----------- Total expenses 356,810 385,810 Income tax expense: On investment gains realized 7,115 1,351 On all other income 18,495 5,559 ----------- ----------- Total income tax expense 25,610 6,910 Cumulative effect of an accounting change - - ------------ ------------ Net income $ 56,880 $ 27,768 ============ ============ Average shares outstanding - diluted* 71,942 70,633 Net income, per share - diluted* $ 0.82 $ 0.42 Ratio to Ratio to Premiums Premiums PROPERTY AND CASUALTY Earned Earned - --------------------------------------- -------- -------- Premiums and finance charges earned $ 361,743 $ 363,457 Investment income less expenses 57,552 52,390 Investment gains realized, net 18,284 4,632 Losses 173,725 48.0% 209,935 57.8% Loss adjustment expenses 42,059 11.6% 46,650 12.8% Underwriting expenses 128,555 35.5% 122,629 33.7% ----------- ------- ----------- ------- Total expenses 344,339 95.1% 379,214 104.3% Effective tax rate on investment income 31.0% 33.1% CORPORATE/OTHER - --------------------------------------- Investment income less expense $ (322) $ 780 Investment gains (losses) realized, net 2,043 (771) Agent relationships asset expenses 4,071 3,278 Corporate expenses 8,400 3,318
Year ------------------------------------------------ CONSOLIDATED 2004 2003 - ---------------------------------------- ----------------------- ----------------------- Premiums and finance charges earned $ 1,446,839 $ 1,424,353 Investment income less expenses 201,244 208,723 Investment gains realized, net 22,920 35,872 ----------- ----------- Total revenues 1,671,003 1,668,948 Losses 777,580 852,474 Loss adjustment expenses 158,697 174,896 Underwriting expenses 504,812 503,194 Corporate and other expenses 43,429 30,809 ----------- ----------- Total expenses 1,484,518 1,561,373 Income tax expense: On investment gains realized 8,022 12,555 On all other income 48,442 19,176 ----------- ----------- Total income tax expense 56,464 31,731 Cumulative effect of an accounting change (1,648) - ------------ ------------ Net income $ 128,373 $ 75,844 ============ ============ Average shares outstanding - diluted* 71,508 70,224 Net income, per share - diluted* $ 1.89 $ 1.18 Ratio to Ratio to Premiums Premiums PROPERTY AND CASUALTY Earned Earned - --------------------------------------- -------- -------- Premiums and finance charges earned $ 1,446,839 $ 1,424,353 Investment income less expenses 196,921 204,874 Investment gains realized, net 19,201 35,026 Losses 777,580 53.7% 852,474 59.8% Loss adjustment expenses 158,697 11.0% 174,896 12.3% Underwriting expenses 504,812 34.9% 503,194 35.3% ----------- ------- ----------- ------- Total expenses 1,441,089 99.6% 1,530,564 107.4% Effective tax rate on investment income 31.5% 33.7% CORPORATE/OTHER - ---------------------------------------- Investment income less expense $ 4,323 $ 3,849 Investment gains (losses) realized, net 3,719 846 Agent relationships asset expenses 20,640 18,690 Corporate expenses 22,789 12,119
*Average diluted shares outstanding and net income per share amounts have been restated, as required, in accordance with Emerging Issues Task Force (EITF) 04-8 "The Effect of Contingently Convertible Debt on Diluted Earnings Per Share." This EITF requires all prior period earnings per share amounts to be restated since the issuance of the convertible notes in March 2002 using the "if-converted" method. The "if-converted" method gives effect to the add back to net income of interest expense and amortization of debt issuance costs, net of tax, associated with the convertible instruments. -1- OHIO CASUALTY CORPORATION PROPERTY AND CASUALTY INSURANCE DATA - STATUTORY BASIS (in thousands, except ratio data) FOURTH QUARTER, 2004 (Data Unaudited)
THREE MONTHS ENDED DEC 31 ------------------------------------------------- 2004 2003 OPERATING SEGMENTS and ----------------------- ---------------------- SELECTED PRODUCT LINES or Net Premiums Combined Net Premiums Combined MARKETS Written Ratio Written Ratio - -------------------------- ------------ -------- ------------ -------- Commercial Lines $ 192,411 96.2% $ 180,663 119.0% Workers' compensation 30,149 119.2% 27,531 137.6% Commercial auto 51,864 79.8% 51,113 108.3% General liability 20,149 117.3% 18,582 128.2% CMP, fire and inland marine 90,249 93.2% 83,437 116.8% Specialty Lines $ 32,887 95.1% $ 40,311 60.9% Commercial umbrella 21,234 101.4% 29,745 56.4% Fidelity and surety 11,653 82.0% 10,566 74.2% Personal Lines $ 117,207 93.3% $ 120,144 97.0% Personal auto incl. personal umbrella 69,347 107.7% 72,541 104.8% Personal property 47,860 72.3% 47,603 84.9% ------------ ------ ------------ ------ Total All Lines $ 342,505 95.0% $ 341,118 104.7% ALL LINES RESULTS Ratio Ratio - --------------------- ----- ----- Premiums written $ 342,505 $ 341,118 Premiums earned 361,853 363,335 Losses incurred 174,098 48.1% 208,512 57.4% Loss adjustment expenses 42,059 11.6% 46,650 12.8% Underwriting expenses 120,804 35.3% 117,554 34.5% ------------ ------ ------------ ------ Underwriting gain/(loss) 24,892 95.0% (9,381) 104.7% ====== ====== Investment income 45,812 52,133 Investment gains realized 14,683 4,174 Federal income tax expense 32,130 11,543 ------------ ------------ Net income $ 53,257 $ 35,383 ============ ============ Included above: Dividends to policyholders 168 0.0% 165 0.0% Paid loss & loss adjustment expense 221,010 244,589
YEAR -------------------------------------------------- 2004 2003 OPERATING SEGMENTS and ----------------------- ----------------------- SELECTED PRODUCT LINES or Net Premiums Combined Net Premiums Combined MARKETS Written Ratio Written Ratio - -------------------------- ------------ -------- ------------ -------- Commercial Lines $ 828,216 99.3% $ 792,587 112.3% Workers' compensation 132,932 115.4% 132,358 123.0% Commercial auto 233,539 90.3% 228,333 105.5% General liability 89,457 105.0% 83,448 122.6% CMP, fire and inland marine 372,288 97.5% 348,448 109.7% Specialty Lines $ 135,499 97.2% $ 164,851 77.2% Commercial umbrella 87,124 103.8% 120,943 80.5% Fidelity and surety 48,375 78.9% 43,908 68.1% Personal Lines $ 490,235 97.6% $ 484,112 105.6% Personal auto incl. personal umbrella 294,114 104.7% 296,845 107.0% Personal property 196,121 86.8% 187,267 103.3% ------------ ------ ------------ ------ Total All Lines $ 1,453,950 98.4% $ 1,441,550 106.1% ALL LINES RESULTS Ratio Ratio - --------------------- ----- ----- Premiums written $ 1,453,950 $ 1,441,550 Premiums earned 1,446,624 1,424,349 Losses incurred 777,698 53.8% 850,550 59.7% Loss adjustment expenses 154,626 10.7% 174,896 12.3% Underwriting expenses 492,672 33.9% 491,241 34.1% ------------ ------ ------------ ------ Underwriting gain/(loss) 21,628 98.4% (92,338) 106.1% ====== ====== Investment income 185,181 204,874 Investment gains realized 14,049 31,870 Federal income tax expense 57,141 25,289 ------------ ------------ Net income $ 163,717 $ 119,117 ============ ============ Included above: Dividends to policyholders 1,229 0.1% 796 0.1% Paid loss & loss adjustment expense 877,363 975,319
-2- OHIO CASUALTY CORPORATION PROPERTY AND CASUALTY ACCIDENT YEAR DATA (in thousands, except ratio data) FOURTH QUARTER, 2004 (Data Unaudited)
STATUTORY COMBINED RATIO ---------------------------------------------------- Earned Accident Accident Accident Premium Twelve Year 2004(A) Year 2003(A) Year 2003(A) OPERATING SEGMENTS and Twelve Months Months Measured Measured Measured SELECTED PRODUCT LINES Ended Ended as of as of as of or MARKETS Dec 31, 2004 Dec 31, 2004 Dec 2004 Dec 2003 Dec 2004 - ---------------------- ------------ ------------ ------------ ------------ ------------ Commercial Lines $ 807,925 99.3% 101.1% 107.1% 103.7% Workers' compensation 132,625 115.4% 112.3% 115.9% 111.8% Commercial auto 229,629 90.3% 98.2% 104.6% 101.1% General liability 86,563 105.0% 105.6% 114.4% 109.5% CMP, fire and inland marine 359,108 97.5% 97.7% 103.3% 100.8% Specialty Lines 150,262 97.2% 103.3% 90.3% 88.5% Commercial umbrella 105,089 103.8% 108.7% 93.3% 92.6% Fidelity and surety 45,173 78.9% 88.1% 81.1% 76.0% Personal Lines 488,437 97.6% 97.2% 102.7% 101.4% Personal auto, incl. personal umbrella 295,774 104.7% 103.3% 103.4% 102.8% Personal property 192,663 86.8% 87.6% 101.3% 98.9% ----------- ------- ------- ------- ------- Total All Lines $1,446,624 98.4% 99.8% 103.7% 101.2%
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 2004 as of Dec 31, 2004 measures insured events for the twelve months of 2004. Accident year 2003 as of Dec 31, 2003 measures insured events for the twelve months of 2003 with related outstanding liabilities estimated as of Dec 31, 2003. Accident year 2003 as of Dec 31, 2004 measures insured events for the twelve months of 2003 with remaining related liabilities estimated as of Dec 31, 2004. 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, 2004 (Data Unaudited)
THREE MONTHS PRIOR ACCIDENT YEAR LOSS & LAE ENDED DEC 31 YEAR by SEGMENT 2004 2003 2004 2003 - ------------------------------ ----------------------- ----------------------- Commercial Lines $ (2.8) $ 26.9 $(15.0) $ 41.0 Specialty Lines (1.9) (9.2) (9.3) (21.3) Personal Lines (1.2) 6.7 2.6 14.4 ------- ------- ------- ------- Total All Lines Accident Year Development (5.9) 24.4 (21.7) 34.1 PRIOR ACCIDENT YEAR LOSS & LAE - ------------------------------ Accident Year 2003 $ (3.8) $ - $(35.1) $ - Accident Year 2002 (3.5) (5.5) (11.6) (39.0) Accident Year 2001 and Prior 1.4 29.9 25.0 73.1 ------- ------- ------- ------- Total Accident Year Development (5.9) 24.4 (21.7) 34.1 CATASTROPHE LOSS RATIO - ------------------------------ Commercial Lines 0.2% 1.4% 2.4% 2.6% Specialty Lines 0.0% -0.1% 0.0% 0.0% Personal Lines 4.2% -0.1% 4.9% 4.8% Homeowners 10.5% -1.7% 11.8% 11.8% Total All Lines 1.5% 0.7% 3.0% 3.1%
-4- OHIO CASUALTY CORPORATION CONSOLIDATED BALANCE SHEET DATA AND RELATED INFORMATION (in thousands, except share data) FOURTH QUARTER, 2004 (2004 Data Unaudited)
December 31, December 31, 2004 2003 ASSETS ------------- ------------- Investments: U.S. government fixed maturities $ 30,823 $ 43,260 Tax exempt fixed maturities 1,036,697 79,137 Taxable fixed maturities: Available for sale, at fair value 2,278,588 2,899,793 Held-to-maturity, at amortized cost 301,367 356,100 ------------ ------------ Total fixed maturities 3,647,475 3,378,290 Equity securities, at fair value 357,458 329,049 Short-term investments, at fair value 239,105 40,448 ------------ ------------ Total investments 4,244,038 3,747,787 Cash 13,461 16,494 Premiums and other receivables, net of allowance for bad debts of $4,300 and $4,200, respectively 350,761 347,863 Deferred policy acquisition costs 159,849 169,351 Property and equipment, net of accumulated depreciation of $167,362 and $152,905, respectively 82,946 89,212 Reinsurance recoverable, net of allowance of $2,336 and $2,454, respectively 666,501 592,688 Agent relationships, net of accumulated amortization of $41,438 and $39,093, respectively 121,994 142,634 Interest and dividends due or accrued 49,859 47,489 Other assets 25,607 15,393 ------------ ------------ Total assets $ 5,715,016 $ 5,168,911 ============ ============ Shares outstanding 62,209,129 60,957,043 Book value per share $20.82 $18.80 FAS 115 component of book value per share $1.90 $1.96
December 31, December 31, 2004 2003 Liabilities ------------- ------------- Insurance reserves: Losses $ 2,269,565 $ 2,163,720 Loss adjustment expenses 486,767 464,134 Unearned premiums 715,486 703,015 Debt 383,266 198,042 Reinsurance treaty funds held 195,015 150,512 Deferred income taxes 21,950 12,763 Other liabilities 348,024 330,891 ------------ ------------ Total liabilities 4,420,073 4,023,077 Shareholders' Equity Common stock, $.125 par value Authorized: 150,000,000 Issued shares: 72,418,344; 72,418,344 9,052 9,052 Accumulated other comprehensive income 259,131 254,654 Retained earnings 1,161,510 1,033,404 Treasury stock, at cost: (Shares: 10,209,215; 11,461,301) (134,750) (151,276) ------------ ------------ Total shareholders' equity 1,294,943 1,145,834 ------------ ------------ Total liabilities and shareholders' equity $ 5,715,016 $ 5,168,911 ============ ============
-5- OHIO CASUALTY CORPORATION SUPPLEMENTAL INFORMATION (in thousands, except employee count and ratio data) FOURTH QUARTER, 2004 (Data Unaudited)
THREE MONTHS ENDED DEC 31 YEAR ------------------------- ---------------------- 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Gross Premiums Written Commercial Lines $ 199,401 $ 188,349 $ 856,212 $ 824,398 Specialty Lines 57,441 67,366 251,505 271,884 Personal Lines 119,559 121,217 496,758 494,143 ---------- ---------- ---------- ---------- Total 376,401 376,932 1,604,475 1,590,425 New Business Gross Premiums Written Commercial Lines 43,346 43,373 182,291 187,905 Commercial Umbrella 10,693 16,991 49,982 72,027 Personal Lines 9,491 11,054 41,322 43,939 Average Renewal Price Increase Commercial Lines 2.5% 7.7% 5.0% 11.4% Commercial Umbrella 6.5% 14.5% 8.0% 18.1% Amortization of Deferred Acquisition Costs 89,638 92,470 365,202 383,976 Agent Relationships Asset Expenses Write-down 2,412 1,454 13,737 11,244 Amortization 1,659 1,824 6,903 7,446 ---------- ---------- ---------- ---------- Total 4,071 3,278 20,640 18,690 - --------------------------------------------------------------------------------------------
DEC 31, 2004 DEC 31, 2003 ------------ ------------ Statutory Insurance Reserves: Unearned premiums $ 649,740 $ 642,414 Losses 1,739,709 1,690,454 Loss adjustment expense 444,102 438,396 Statutory policyholders' surplus 972,040 867,627 Ratio of net premiums written to statutory surplus 1.5 to 1.0 1.7 to 1.0 Employee Count 2,190 2,669
Note: For further information on differences between statutory accounting principles and generally accepted accounting principles (GAAP), refer to Item 15 on pages 73 and 74 of the Corporation's Form 10-K for the year ended December 31, 2003. -6- -----END PRIVACY-ENHANCED MESSAGE-----