-----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, SPSCcSIF/Ib0MWx1cou1Jjrv+bJ3QV3uamkNdOymFU9v+aV9I43PjTFftg0+WsfW 6Nq8U4ZkFe5wWtXvWHHpSQ== 0000073952-06-000055.txt : 20061101 0000073952-06-000055.hdr.sgml : 20061101 20061101160811 ACCESSION NUMBER: 0000073952-06-000055 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20061101 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20061101 DATE AS OF CHANGE: 20061101 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: 061178977 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 f8k11-01.txt OHIO CASUALTY CORP - FORM 8-K, ITEMS 2.02, 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) November 1, 2006 ---------------- 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 November 1, 2006, Ohio Casualty Corporation (the "Corporation") issued a press release announcing its earnings for the third quarter ended September 30, 2006. The Corporation also issued on November 1, 2006 certain Supplemental Financial Information with respect to its earnings for the third quarter ended September 30, 2006. 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 November 1 2006 issued by Ohio Casualty Corporation and posted on the Corporation's website at http://www.ocas.com. 99.2 Financial Information issued by Ohio Casualty Corporation on November 1, 2006 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) November 1, 2006 /s/Debra S. Crane ---------------------------------------- Debra K. Crane, Senior Vice President, General Counsel and Secretary Page 2 of 3 Exhibit Index ------------- Current Report on Form 8-K Dated: November 1, 2006 Exhibit No. Description - ---------- ----------- 99.1 Press release dated November 1, 2006 issued by Ohio Casualty Corporation and posted on the Corporation's website at http://www.ocas.com. 99.2 Financial Information issued by Ohio Casualty Corporation on November 1, 2006 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 3Q FINANCIAL RESULTS PRESS RELEASE Exhibit 99.1 Analyst contact: Dennis E. McDaniel Vice President, Investor Relations 513-603-2197 dennis.mcdaniel@ocas.com Media contact: Cindy L. Denney Assistant Vice President, Corporate Communications 513-603-2074 (ofc.), 513-703-7372 (cell) cindy.denney@ocas.com For Immediate Release OHIO CASUALTY CORPORATION REPORTS FINANCIAL RESULTS FOR THIRD QUARTER FAIRFIELD, OHIO, November 1, 2006 --- Ohio Casualty Corporation (NASDAQ:OCAS) today announced the following results for its third quarter ended September 30, 2006, compared with the same period of the prior year: - Net income of $55.3 million, or $0.89 per diluted share, versus $55.5 million, or $0.85 per diluted share; - All Lines combined ratio (GAAP) of 93.9% versus 99.5%; and - Operating income (A) of $47.8 million ($0.77 per diluted share) versus $32.7 million ($0.50 per diluted share). Results for the nine months ended September 30, 2006, compared with the same period of the prior year: - Net income of $142.8 million, or $2.24 per diluted share, versus $135.4 million, or $2.02 per diluted share; - All Lines combined ratio (GAAP) of 96.1% versus 96.9%; and - Operating income (A) of $122.7 million ($1.92 per diluted share) versus $103.6 million ($1.55 per diluted share). President and Chief Executive Officer Dan Carmichael commented, "We are pleased to deliver strong operating results across all segments for the third quarter through a combination of disciplined underwriting, lower catastrophe losses, efficiency gains and the benefit of favorable loss frequency and prior accident year development trends. While we remain focused on profitable, disciplined underwriting, good opportunities for growth are harder to find in the increasingly competitive market, however, I am encouraged by the acceptance of our new technology applications and the increase in production of new business by our agents. Last quarter's results support our positive outlook for our future, including our ability to maintain solid underwriting results in a softening market and creating more value for our shareholders. Rating agencies have expressed similar confidence in our company through their actions during the quarter. With Standard & Poor's upgrading its rating of us, now all four of the rating agencies that assess our financial strength have assigned investment grade ratings with Fitch subsequently upgrading their existing investment grade rating by one notch. Finally, the Board's decision in September to approve a second, $100 million share repurchase program reaffirms our commitment to maximize shareholder value as our overall financial strength continues to grow." The major components of net income are summarized in the table below:
Three Months Nine Months Summary Income Statement Ended Sept 30, Ended Sept 30, ($ in millions, except share data) 2006 2005 2006 2005 - ---------------------------------- ---- ---- ---- ---- Premiums and finance charges earned $356.3 $362.5 $1,069.5 $1,090.3 Investment income less expenses 51.3 51.4 154.1 148.4 Investment gains realized, net 11.4 22.4 30.9 36.2 ------------------- --------------------- Total revenues 419.0 436.3 1,254.5 1,274.9 Losses and benefits for policyholders 188.8 204.5 577.1 587.3 Loss adjustment expenses 35.8 42.5 115.2 125.8 Underwriting expenses 110.3 113.7 334.8 343.2 Corporate and other expenses 8.0 9.2 29.3 42.8 ------------------- --------------------- Total expenses 342.9 369.9 1,056.4 1,099.1 Income before income taxes 76.1 66.4 198.1 175.8 Income tax expense/(benefit): On investment gains realized 3.9 (0.4) 10.8 4.4 On all other income 16.9 11.3 44.5 36.0 ------------------ ------------------- Total income tax expense 20.8 10.9 55.3 40.4 Net income $55.3 $55.5 $142.8 $135.4 ================== =================== Average shares outstanding - diluted 62,441,227 65,656,774 63,868,978 68,012,120 Net income, per share - diluted $0.89 $0.85 $2.24 $2.02
Net premiums written decreased 2.6% over the same quarter last year primarily as a result of lower in-force policy counts and rate reductions in Personal Lines. These decreases were partially offset by increased new business premium production in Personal and Commercial Lines, which is a positive reflection of the new marketing, sales and product initiatives launched this year to profitably grow the business. Results for the third quarter included $13.7 million of favorable development in loss and loss adjustment expense reserves for prior accident years, compared with unfavorable development of $3.1 million in the third quarter of 2005. Reserve development was favorable for most product lines during the third quarter 2006 with the exception of a couple product lines, most notably workers' compensation, which experienced adverse development. Consolidated pre-tax net investment income for the quarter remained relatively flat compared with the prior year. However, after giving consideration in both three and nine month periods ending September 30, 2005 of the $2.5 million of interest income related to federal income tax settlements with the Internal Revenue Service which was finalized during the third quarter of 2005, investment income increased 4.9% and 5.6%, respectively. The increase in investment income is a result of reduced investment related expenses, positive operating cash flows and an improvement in reinvestment yields resulting from the upward movement in interest rates compared with the prior year. During the third quarter of 2005, settlements with the Internal Revenue Service for tax years 1996 through 2001 were favorably concluded. The result of these settlements was an increase to net income for the quarter and nine months ended September 30, 2005 of $16.8 million ($0.26 per share for the quarter and $0.25 per share for the nine-months). The effect on operating income, which excludes that portion of the settlement applicable to taxes on realized capital gains and losses, was an increase of $6.1 million, or $0.09 per share for both the third quarter and nine months ended September 30, 2005. The above-referenced items had the effect of lowering the overall effective income tax rate for the nine months ended September 30, 2005 by 6.6 points. Book value per share increased $1.60, or 7.1% to $24.14 at September 30, 2006, compared to $22.54 at December 31, 2005. During the third quarter of 2006, the Corporation repurchased 249,186 shares of its common stock at an average cost of $25.87. These repurchases complete the previous share repurchase program which was authorized by the Corporation's Board of Directors in the third quarter of 2005. Under this program, four million shares were repurchased at an average cost of $27.94. On September 28, 2006, the Board of Directors authorized another share repurchase program with the ability to repurchase up to $100 million of the Corporation's common stock. Purchases may be made in the open market or in privately negotiated transactions. As of October 31, 2006, the Corporation has repurchased 227,200 shares under the new share repurchase program at an average cost of $27.19. On July 26, 2006, Standard and Poor's (S&P) announced that it had upgraded the senior unsecured debt rating of the Corporation to BBB- and the insurance financial strength rating of its operating subsidiaries to A-. In this same action, S&P changed the outlook on ratings to stable. In addition, during the third quarter, Fitch, Inc. (Fitch) announced that it has upgraded our financial strength rating to A from A- and upgraded the Corporation's issuer default rating to BBB+ from BBB. At the same time, Fitch upgraded the outstanding debt rating to BBB from BBB- and changed the outlook from positive to stable. For a more detailed discussion of the financial condition and the results of operations at September 30, 2006, please see the Quarterly Report on Form 10-Q for this period, filed with the Securities and Exchange Commission (SEC). Supplemental financial information for the third quarter ended September 30, 2006, including certain financial measures, is available on Ohio Casualty Corporation's website at www.ocas.com and was also filed on Form 8- K with the SEC. A discussion of the differences between statutory accounting principles and accounting principles generally accepted in the United States is included in Item 15 of the Ohio Casualty Corporation's Annual Report on Form 10-K for the year ended December 31, 2005. Investors are advised to read the safe harbor statement at the end of this release. Conference Call Ohio Casualty Corporation will conduct a teleconference call to discuss information included in this news release and related matters at 10:00 a.m. EST on Thursday, November 2, 2006. The call is being webcast by Vcall and can be accessed directly through Ohio Casualty Corporation's website www.ocas.com and Vcall's Investor Calendar website www.investorcalendar.com. The webcast will be available for replay through February 3, 2007. To listen to call playback by telephone, dial 1- 800-642-1687, then enter ID code 7349656. Call playback begins at 1 p.m. EST on November 2, 2006 and extends through 11:59 p.m. on November 4, 2006. Quiet Period Ohio Casualty Corporation observes a quiet period and will not comment on financial results or expectations during quiet periods. The quiet period for the fourth quarter will start January 1, 2007 extending through the time of the earnings conference call, tentatively scheduled for February 8, 2007. Corporate Profile Ohio Casualty Corporation is the holding company of The Ohio Casualty Insurance Company, which is one of six property-casualty insurance companies that make up Ohio Casualty Group, collectively referred to as Consolidated Corporation. The Ohio Casualty Insurance Company was founded in 1919 and is licensed in 49 states. Ohio Casualty Group is ranked 50th among U.S. property/casualty insurance groups based on net premiums written (Best's Review, July 2006). The Group's member companies write auto, home and business insurance. Ohio Casualty Corporation trades on the NASDAQ Stock Market under the symbol OCAS and had assets of approximately $5.8 billion as of September 30, 2006. Safe Harbor Statement Ohio Casualty Corporation publishes forward-looking statements relating to such matters as anticipated financial performance, business prospects and plans, regulatory developments and similar matters. The statements contained in this news release that are not historical information, are forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. The operations, performance and development of the Consolidated Corporation's business are subject to risks and uncertainties, which may cause actual results to differ materially from those contained in or supported by the forward-looking statements in this release. The risks and uncertainties that may affect the operations, performance, development and results of the Consolidated Corporation's business include the following: changes in property and casualty reserves; catastrophe losses; premium and investment growth; product pricing environment; availability of credit; changes in government regulation; performance of financial markets; fluctuations in interest rates; availability and pricing of reinsurance; litigation and administrative proceedings; rating agency actions; acts of war and terrorist activities; ability to appoint and/or retain agents; ability to achieve targeted expense savings; ability to achieve premium targets and profitability goals; and general economic and market conditions. Ohio Casualty Corporation undertakes no obligation to publicly release any revisions to the forward-looking statements contained in this release, or to update them to reflect events or circumstances occurring after the date of this release, or to reflect the occurrence of unanticipated events. Investors are also advised to consult any further disclosures made on related subjects in Ohio Casualty Corporation's reports filed with the SEC or in subsequent press releases. (A) Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures Reconciliation of Net Income to Operating Income Management of the Consolidated Corporation believes the significant volatility of realized investment gains and losses limits the usefulness of net income as a measure of current operating performance. Accordingly, management uses the non-GAAP financial measure of operating income to further evaluate current operating performance. Operating income, both in dollar amounts and per share amounts, are reconciled to net income and net income per share in the table below:
Three Months Nine Months Ended Sept 30, Ended Sept 30, ($ in millions,except per share data) 2006 2005 2006 2005 - ------------------------------------- ---- ---- ---- ---- Operating income $47.8 $32.7 $122.7 $103.6 After-tax net realized gains 7.5 22.8 20.1 31.8 ----- ----- ------ ------ Net income $55.3 $55.5 $142.8 $135.4 ===== ===== ====== ====== Operating income per share - diluted $0.77 $0.50 $1.92 $1.55 After-tax net realized gains per share - diluted 0.12 0.35 0.32 0.47 ----- ----- ------ ------ Net income per share - diluted $0.89 $0.85 $2.24 $2.02 ===== ===== ====== ======
As noted above, results for the third quarter and nine months ended September 30, 2005, include the effect of settlements with the Internal Revenue Service related to tax years 1996 through 2001. The settlements increased net income by $16.8 million ($0.26 per share for the third quarter, $0.25 per share for the nine months), and operating income by $6.1 million, or $0.09 per share for quarter and nine months. Reconciliation of Net Income Return on Equity to Operating Income Return on Equity Operating income return on equity is a ratio management calculates using non-GAAP financial measures. It is calculated by dividing the annualized consolidated operating income (see calculation below) for the most recent quarter by the adjusted average shareholders' equity for the quarter using a simple average of beginning and ending balances for the quarter, excluding from equity after-tax unrealized investment gains and losses. This ratio provides management with an additional measure to evaluate the results excluding the unrealized changes in the valuation of the investment portfolio that can fluctuate between periods. The following table reconciles operating income return on equity to net income return on equity, the most directly comparable GAAP measure:
Three Months Nine Months Ended Sept 30, Ended Sept 30, ($ in millions) 2006 2005 2006 2005 - --------------- ---- ---- ---- ---- Net income $ 55.3 $ 55.5 $ 142.8 $ 135.4 Average shareholders' equity 1,426.4 1,401.6 1,452.1 1,343.8 Return on equity based on annualized net income 15.5% 15.8% 13.1% 13.4% ===== ===== ===== ===== Operating income $ 47.8 $ 32.7 $ 122.7 $ 103.6 Adjusted average shareholders' equity 1,264.7 1,149.4 1,254.5 1,089.3 Return on equity based on annualized operating income 15.1% 11.4% 13.0% 12.7% ===== ===== ===== ===== Average shareholders' equity $1,426.4 $1,401.6 $1,452.1 $1,343.8 Average unrealized gains 161.7 252.2 197.6 254.5 -------- -------- -------- -------- Adjusted average shareholders' equity $1,264.7 $1,149.4 $1,254.5 $1,089.3 ======== ======== ======== ========
EX-99 3 exh99-2.txt OHIO CASUALTY CORP 3Q SUPPLEMENTAL FINANCIAL INFORMATION Exhibit 99.2 OHIO CASUALTY CORPORATION & SUBSIDIARIES SUPPLEMENTAL FINANCIAL INFORMATION FOR THE PERIODS ENDING SEPTEMBER 30, 2006 Contents: Page 1 GAAP Summary Income Statement Data Page 2 Property and Casualty Insurance Data Page 3 Consolidated Balance Sheet Data and Related Information Page 4 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 and supplemental financial information that are not historical information, are forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. The operations, performance and development of the Consolidated Corporation's business are subject to risks and uncertainties, which may cause actual results to differ materially from those contained in or supported by the forward-looking statements in this release and supplemental financial information. The risks and uncertainties that may affect the operations, performance, development and results of the Consolidated Corporation's business include the following: changes in property and casualty reserves; catastrophe losses; premium and investment growth; product pricing environment; availability of credit, change in government regulation; performance of financial markets; fluctuations in interest rates; availabiltiy 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 and supplemental financial information, or to update them to reflect events or circumstances occurring after the date of this release and supplemental financial information, or to reflect the occurrence of unanticipated events. Investors are also advised to consult any further disclosures made on related subjects in the Ohio Casualty Corporation's reports filed with the Securities and Exchange Commission or in subsequent releases. OHIO CASUALTY CORPORATION & SUBSIDIARIES SUMMARY INCOME STATEMENT - GAAP BASIS, unless otherwise noted (in thousands, except per share data) THIRD QUARTER, 2006 (Data Unaudited)
THREE MONTHS ENDED SEPT 30 ------------------------------------------------ CONSOLIDATED 2006 2005 - ---------------------------------------- ----------------------- ----------------------- Premiums and finance charges earned $ 356,311 $ 362,483 Investment income less expenses 51,325 51,454 Investment gains realized, net 11,402 22,404 ----------- ----------- Total revenues 419,038 436,341 Losses 188,803 204,446 Loss adjustment expenses 35,809 42,556 Underwriting expenses 110,167 113,756 Corporate and other expenses 8,078 9,165 ----------- ----------- Total expenses 342,857 369,923 Income before income taxes 76,181 66,418 Income tax expense (benefit): On investment gains realized 3,991 (426) On all other income 16,926 11,315 ----------- ----------- Total income tax expense 20,917 10,889 Net income $ 55,264 $ 55,529 ============ ============ Average shares outstanding - diluted 62,441 65,657 Net income, per share - diluted $ 0.89 $ 0.85 Operating income* $ 47,853 $ 32,699 Operating income - earnings per share* $ 0.77 $ 0.50 Operating income - return on equity* 15.1% 11.4% Effective tax rate on investment income 25.5% 29.0% KEY PROPERTY AND CASUALTY RATIOS GAAP Statutory GAAP Statutory - --------------------------------------- -------- --------- -------- --------- Losses 53.0% 53.0% 56.4% 56.4% Loss adjustment expenses 10.0% 10.0% 11.7% 11.7% Underwriting expenses 30.9% 31.9% 31.4% 32.1% -------- ------- -------- ------- Combined ratio 93.9% 94.9% 99.5% 100.2% CORPORATE/OTHER - --------------------------------------- Net investment income $ 3,789 $ 3,836 Investment gains/(losses) realized, net 215 2,034 Agent relationships asset expenses 1,681 2,438 Corporate expenses 6,397 6,727
NINE MONTHS ENDED SEPT 30 ----------------------------------------------- CONSOLIDATED 2006 2005 - ---------------------------------------- ----------------------------------------------- Premiums and finance charges earned $ 1,069,471 $ 1,090,335 Investment income less expenses 154,119 148,422 Investment gains realized, net 30,869 36,194 ----------- ----------- Total revenues 1,254,459 1,274,951 Losses 577,090 587,271 Loss adjustment expenses 115,225 125,832 Underwriting expenses 334,675 343,268 Corporate and other expenses 29,331 42,770 ----------- ----------- Total expenses 1,056,321 1,099,141 Income before income taxes 198,138 175,810 Income tax expense (benefit): On investment gains realized 10,804 4,401 On all other income 44,551 36,036 ----------- ----------- Total income tax expense 55,355 40,437 Net income $ 142,783 $ 135,373 ============ ============ Average shares outstanding - diluted 63,869 68,012 Net income, per share - diluted $ 2.24 $ 2.02 Operating income* $ 122,718 $ 103,580 Operating income - earnings per share* $ 1.92 $ 1.55 Operating income - return on equity* 13.0% 12.7% Effective tax rate on investment income 25.9% 27.8% KEY PROPERTY AND CASUALTY RATIOS GAAP Statutory GAAP Statutory - --------------------------------------- -------- --------- -------- --------- Losses 54.0% 54.0% 53.9% 53.9% Loss adjustment expenses 10.8% 10.8% 11.5% 11.5% Underwriting expenses 31.3% 31.8% 31.5% 31.0% -------- ------- --------- ------- Combined ratio 96.1% 96.6% 96.9% 96.4% CORPORATE/OTHER - --------------------------------------- Net investment income $ 11,874 $ 11,046 Investment gains/(losses) realized, net (611) 6,975 Agent relationships asset expenses 9,029 10,128 Corporate expenses 20,302 32,642
CONSOLIDATED YEAR 2005 - ---------------------------------------- ------------------------ Premiums and finance charges earned $ 1,453,568 Investment income less expenses 201,357 Investment gains realized, net 47,426 ----------- Total revenues 1,702,351 Losses 752,280 Loss adjustment expenses 155,033 Underwriting expenses 461,907 Corporate and other expenses 52,409 ----------- Total expenses 1,421,629 Income before income taxes 280,722 Income tax expense (benefit): On investment gains realized 5,871 On all other income 62,158 ----------- Total income tax expense 68,029 Net income $ 212,693 ============ Average shares outstanding - diluted 67,194 Net income, per share - diluted $ 3.19 Operating income* $ 171,139 Operating income - earnings per share* $ 2.57 Operating income - return on equity* 15.3% Effective tax rate on investment income 27.1% KEY PROPERTY AND CASUALTY RATIOS GAAP Statutory - --------------------------------------- -------- --------- Losses 51.7% 51.7% Loss adjustment expenses 10.7% 10.7% Underwriting expenses 31.8% 31.8% -------- ------- Combined ratio 94.2% 94.2% CORPORATE/OTHER - --------------------------------------- Net investment income $ 15,071 Investment gains/(losses) realized, net 11,572 Agent relationships asset expenses 12,268 Corporate expenses 40,141
*Management of the Consolidated Corporation believes the significant volatility of realized investment gains and losses limits the usefulness of net income as a measure of current operating performance. Accordingly, management uses the non-GAAP financial measure of operating income to further evaluate current operating performance. Operating income return on equity is calculated by dividing the annualized consolidated operating income 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. See press release dated November 1, 2006 for reconciliation of operating income both in dollar amounts and per share amounts and operating income return on equity to net income, net income per share and net income return on equity, respectively. -1- OHIO CASUALTY CORPORATION & SUBSIDIARIES PROPERTY AND CASUALTY INSURANCE DATA (in thousands, except ratio data) THIRD QUARTER, 2006 (Data Unaudited)
THREE MONTHS ENDED SEPT 30 ------------------------------------------------ 2006 2005 OPERATING SEGMENTS and ----------------------- ----------------------- SELECTED PRODUCT LINES Net Premiums Combined Net Premiums Combined GAAP BASIS: Earned Ratio Earned Ratio - -------------------------- ------------ -------- ------------ -------- Commercial Lines $ 209,160 97.6% $ 206,077 111.2% Workers' compensation 35,056 130.6% 34,304 133.6% Commercial auto 56,511 96.5% 57,175 86.0% General liability 25,407 87.5% 23,698 115.4% CMP, fire and inland marine 92,186 88.6% 90,900 117.5% Specialty Lines 36,202 79.2% 36,266 95.2% Commercial umbrella/other 22,132 78.2% 23,533 100.6% Fidelity and surety 14,070 80.2% 12,733 85.0% Personal Lines 110,949 91.8% 120,140 80.8% Personal auto incl. personal umbrella 65,169 94.7% 71,819 90.5% Personal property 45,780 87.7% 48,321 66.4% ------------ ------ ------------ ------ Total All Lines $ 356,311 93.9% $ 362,483 99.5% Net Premiums Combined Net Premiums Combined STATUTORY BASIS: Written Ratio Written Ratio - ---------------- ------------ -------- ------------ -------- Commercial Lines $ 207,414 99.1% $ 207,121 112.5% Workers' compensation 34,345 131.6% 35,861 136.6% Commercial auto 55,856 97.6% 57,487 87.2% General liability 25,184 88.9% 24,069 117.0% CMP, fire and inland marine 92,029 90.5% 89,704 118.3% Specialty Lines 37,581 80.2% 37,968 93.9% Commercial umbrella/other 20,922 79.8% 23,061 98.6% Fidelity and surety 16,659 76.8% 14,907 81.9% Personal Lines 114,519 91.8% 123,968 81.3% Personal auto incl. personal umbrella 65,350 95.1% 70,755 91.1% Personal property 49,169 87.1% 53,213 66.5% ------------ ------ ------------ ------ Total All Lines $ 359,514 94.9% $ 369,057 100.2%
NINE MONTHS ENDED SEPT 30 ------------------------------------------------ 2006 2005 OPERATING SEGMENTS and ----------------------- ----------------------- SELECTED PRODUCT LINES Net Premiums Combined Net Premiums Combined GAAP BASIS: Earned Ratio Earned Ratio - -------------------------- ------------ -------- ------------ -------- Commercial Lines $ 620,262 100.6% $ 618,469 106.7% Workers' compensation 103,925 129.5% 99,659 143.6% Commercial auto 169,917 91.3% 172,139 85.6% General liability 72,984 101.6% 69,235 115.9% CMP, fire and inland marine 273,436 94.5% 277,436 104.2% Specialty Lines 109,325 85.2% 107,802 95.6% Commercial umbrella/other 69,057 92.0% 70,405 103.3% Fidelity and surety 40,268 73.8% 37,397 81.2% Personal Lines 339,884 91.3% 364,064 80.6% Personal auto incl. personal umbrella 199,585 95.3% 218,316 85.4% Personal property 140,299 85.5% 145,748 73.4% ------------ ------ ------------ ------ Total All Lines $ 1,069,471 96.1% $ 1,090,335 96.9% Net Premiums Combined Net Premiums Combined STATUTORY BASIS: Written Ratio Written Ratio - -------------------------- ------------ -------- ------------ -------- Commercial Lines $ 643,702 100.9% $ 634,542 106.4% Workers' compensation 107,708 129.2% 107,320 142.8% Commercial auto 176,428 91.6% 177,095 85.1% General liability 77,647 101.4% 74,006 115.4% CMP, fire and inland marine 281,919 95.8% 276,121 104.3% Specialty Lines 110,713 85.7% 116,787 89.7% Commercial umbrella/other 64,830 92.7% 76,324 95.7% Fidelity and surety 45,883 70.4% 40,463 78.4% Personal Lines 332,010 91.8% 361,128 81.1% Personal auto incl. personal umbrella 196,720 95.6% 216,535 85.9% Personal property 135,290 86.5% 144,593 73.8% ------------ ------ ------------ ------ Total All Lines $ 1,086,425 96.6% $ 1,112,457 96.4%
YEAR 2005 OPERATING SEGMENTS and ---------------------- SELECTED PRODUCT LINES Net Premiums Combined GAAP BASIS: Earned Ratio - -------------------------- ------------ -------- Commercial Lines $ 827,440 101.9% Workers' compensation 134,510 142.4% Commercial auto 230,471 82.2% General liability 93,308 111.3% CMP, fire and inland marine 369,151 96.9% Specialty Lines 143,151 95.3% Commercial umbrella/other 92,235 101.9% Fidelity and surety 50,916 83.2% Personal Lines 482,977 80.8% Personal auto incl. personal umbrella 288,340 85.8% Personal property 194,637 73.5% ------------ ------ Total All Lines $ 1,453,568 94.2% Net Premiums Combined STATUTORY BASIS: Written Ratio - --------------- ------------ -------- Commercial Lines $ 823,490 102.3% Workers' compensation 138,582 142.6% Commercial auto 227,702 82.6% General liability 95,680 111.8% CMP, fire and inland marine 361,526 97.6% Specialty Lines 150,423 89.9% Commercial umbrella/other 97,165 94.6% Fidelity and surety 53,258 81.7% Personal Lines 475,494 81.2% Personal auto incl. personal umbrella 283,741 86.3% Personal property 191,753 73.8% ------------ ------ Total All Lines $ 1,449,407 94.2% ============ ======
-2- OHIO CASUALTY CORPORATION & SUBSIDIARIES CONSOLIDATED BALANCE SHEET DATA AND RELATED INFORMATION (in thousands, except share and per share data) THIRD QUARTER, 2006 (2006 Data Unaudited)
September 30, December 31, 2006 2005 ASSETS ------------- ------------- Investments: U.S. government fixed maturities $ 27,221 $ 25,940 Tax exempt fixed maturities 1,423,292 1,277,318 Taxable fixed maturities: Available-for-sale, at fair value 2,102,783 2,224,456 Held-to-maturity, at amortized cost 250,661 264,422 ------------ ------------ Total fixed maturities 3,803,957 3,792,136 Equity securities, at fair value 404,372 375,079 ------------ ------------ Total investments 4,208,329 4,167,215 Cash and cash equivalents 18,634 54,575 Premiums and other receivables, net of allowance for bad debts of $1,800 and $4,200, respectively 338,503 309,190 Deferred policy acquisition costs 155,360 153,671 Property and equipment, net of accumulated depreciation of $184,068 and $177,239, respectively 79,285 80,079 Reinsurance recoverable, net of allowance of $3,690 703,660 741,800 Agent relationships, net of accumulated amortization of $48,096 and $45,531, respectively 100,697 109,726 Interest and dividends due or accrued 47,388 54,942 Deferred tax asset 14,182 14,846 Other assets 125,577 77,021 ------------ ------------ Total assets $ 5,791,615 $ 5,763,065 ============ ============ Shares outstanding 61,204,073 63,281,136 Book value per share $24.14 $22.54 Unrealized gain component of book value per share* $3.03 $3.13
September 30, December 31, 2006 2005 LIABILITIES ------------- ------------- Insurance reserves: Losses $ 2,459,170 $ 2,435,028 Loss adjustment expenses 519,586 511,817 Unearned premiums 693,059 679,601 Debt 199,661 200,401 Reinsurance treaty funds held 121,896 150,367 Other liabilities 320,511 359,444 ------------ ------------ Total liabilities 4,313,883 4,336,658 SHAREHOLDERS' EQUITY Common stock, $.125 par value Authorized: 150,000,000 Issued shares: 72,418,344; 72,418,344 9,052 9,052 Additional paid-in capital 22,599 18,810 Accumulated other comprehensive income 162,835 177,992 Retained earnings 1,489,382 1,360,547 Treasury stock, at cost: (Shares: 11,214,271; 9,137,208) (206,136) (139,994) ------------ ------------ Total shareholders' equity 1,477,732 1,426,407 ------------ ------------ Total liabilities and shareholders' equity $ 5,791,615 $ 5,763,065 ============ ============ Statutory Insurance Reserves Losses $ 1,858,315 $ 1,800,683 Loss adjustment expense 467,067 457,843 Unearned premiums 662,533 645,579 Other Statutory Data Statutory policyholders' surplus 1,030,468 1,004,545 Ratio of net premiums written to surplus 1.4 to 1.0 1.4 to 1.0
*The unrealized gain component of book value per share excludes $8.7 million and $10.1 million at September 30, 2006 and December 31, 2005, respectively, which relates to the unrealized holding period gain on the transfer of fixed maturity securities from the available-for-sale classification to the held-to-maturity classification. -3- OHIO CASUALTY CORPORATION & SUBSIDIARIES SUPPLEMENTAL INFORMATION (in thousands, except ratios and accident year data) THIRD QUARTER, 2006 (Data Unaudited)
THREE MONTHS ENDED SEPT 30 NINE MONTHS ENDED SEPT 30 -------------------------- -------------------------- 2006 2005 2006 2005 ---------- ---------- ---------- ---------- Gross Premiums Written - ---------------------- Commercial Lines $ 212,777 $ 212,541 $ 660,737 $ 647,682 Specialty Lines 49,888 52,980 148,467 160,381 Personal Lines 116,084 125,317 336,307 363,417 ---------- ---------- ---------- ---------- Total 378,749 390,838 1,145,511 1,171,480 New Business Gross Premiums Written - ----------------------------------- Commercial Lines $ 36,040 $ 33,888 $ 123,160 $ 109,268 Commercial umbrella/other 7,302 8,530 22,146 26,631 Personal Lines 10,878 9,881 29,982 28,323 Average Renewal Price Change - ------------------------------ Commercial Lines -0.1% 1.5% 0.5% 2.3% Commercial umbrella/other 1.9% 2.9% 1.2% 5.0% Catastrophe Loss Ratio - ---------------------- Commercial Lines 1.2% 8.2% 1.9% 3.4% Specialty Lines 0.1% 0.0% 0.0% 0.0% Personal Lines 4.4% 0.8% 4.5% 1.3% Total All Lines 2.1% 4.9% 2.5% 2.4% Prior Accident Year Loss & LAE by Segment (GAAP Basis) - ------------------------------------------------------ Commercial Lines $ (2.8) $ 12.7 $ (4.6) $ 29.9 Specialty Lines (9.3) (3.0) (20.5) (7.3) Personal Lines (1.6) (6.6) (12.3) (26.2) ---------- ---------- ---------- ---------- Total All Lines Accident Year Development (13.7) 3.1 (37.4) (3.6) Prior Accident Year Loss & LAE (GAAP Basis) - ------------------------------------------- Accident Year 2005 $ (5.3) $ - $ (9.8) $ - Accident Year 2004 (2.3) (3.2) (15.4) (19.1) Accident Year 2003 and Prior (6.1) 6.3 (12.2) 15.5 ---------- ---------- ---------- ---------- Total Accident Year Development (13.7) 3.1 (37.4) (3.6)
YEAR 2005 ---------- Gross Premiums Written - ---------------------- Commercial Lines $ 840,974 Specialty Lines 210,795 Personal Lines 478,282 ---------- Total 1,530,051 New Business Gross Premiums Written - ----------------------------------- Commercial Lines $ 143,470 Commercial umbrella/other 34,836 Personal Lines 37,195 Average Renewal Price Change - ------------------------------ Commercial Lines 2.0% Commercial umbrella/other 3.7% Catastrophe Loss Ratio - ---------------------- Commercial Lines 2.2% Specialty Lines 0.0% Personal Lines 1.5% Total All Lines 1.8% Prior Accident Year Loss & LAE by Segment (GAAP Basis) - ------------------------------------------------------ Commercial Lines $ 29.1 Specialty Lines (12.3) Personal Lines (36.9) ---------- Total All Lines Accident Year Development (20.1) Prior Accident Year Loss & LAE (GAAP Basis) - ------------------------------------------- Accident Year 2005 $ - Accident Year 2004 (30.8) Accident Year 2003 and Prior 10.7 ---------- Total Accident Year Development (20.1)
-4- -----END PRIVACY-ENHANCED MESSAGE-----