-----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, GD/vYAxyga8xilVRs0X92LuM8knphbt/iUndj1lUCtCR5SUo4CLEuba7TVrl45WT HZqcwNGNixAucXE85exzMQ== 0000073952-07-000004.txt : 20070207 0000073952-07-000004.hdr.sgml : 20070207 20070207160739 ACCESSION NUMBER: 0000073952-07-000004 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20061231 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070207 DATE AS OF CHANGE: 20070207 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: 07588229 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 f8k2-7.txt OHIO CASUALTY CORP FORM 8-K, ITEMS 2.02 AND 9.01, 4Q EARNINGS ============================================================================= 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 7, 2007 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 7, 2007, Ohio Casualty Corporation (the "Corporation") issued a press release announcing its earnings for the fourth quarter ended December 31, 2006. The Corporation also issued on February 7, 2007 certain Supplemental Financial Information with respect to its earnings for the fourth quarter ended December 31, 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 February 7, 2007 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 February 7, 2007 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 7, 2007 /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 7, 2007 Exhibit No. Description - ----------- ----------- 99.1 Press release dated February 7, 2007 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 February 7, 2007 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 4Q EARNINGS 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 FOURTH QUARTER AND FULL YEAR 2006 FAIRFIELD, OHIO, February 7, 2007 --- Ohio Casualty Corporation (NASDAQ:OCAS) today announced the following results for its fourth quarter ended December 31, 2006, compared with the same period of the prior year: - Net income of $75.5 million, or $1.22 per diluted share, versus $77.3 million, or $1.19 per diluted share; - All Lines combined ratio (GAAP) of 86.9% versus 86.1%; and - Operating income (A) of $67.3 million ($1.08 per diluted share) versus $67.5 million ($1.04 per diluted share). Results for the full year ended 2006 compared to the same period of 2005: - Net income of $218.3 million, or $3.44 per diluted share, versus $212.7 million, or $3.19 per diluted share; - All Lines combined ratio (GAAP) of 93.7% versus 94.2%; - Operating income (A) of $190.0 million ($3.00 per diluted share) versus $171.1 million ($2.57 per diluted share); and - Increase in book value per share of $3.25 or 14.4%. President and Chief Executive Officer Dan Carmichael commented, "Our results for the fourth quarter and full year 2006 were excellent even when compared with the outstanding performance of last year. Once again we've demonstrated that with discipline and focus, we can achieve profitable underwriting results and shareholder returns consistent with the targets we set, even in a highly competitive market. All three business segments generated an underwriting profit for 2006. That strong operating performance, plus our capital management initiatives, contributed to our 20% operating return on equity for the fourth quarter, and a 14.4% increase in book value per share for the full year. "While we had modest new business growth in both Commercial and Personal Lines last year, long-term, strong premium growth requires an even tighter bond between our Company and our independent agents. Accordingly, and consistent with our recently updated strategic plan, we are working to equip our agents with more efficient online tools, enhanced product offerings and new agent-centric services that will help them grow their businesses and build their position with Ohio Casualty. The investments we're making in our strategic initiatives, our continued focus on profitable underwriting, combined with our strong balance sheet, will make us an even more attractive agency partner while we maintain our equally strong commitment to increasing shareholder value." The major components of net income are summarized in the table below:
Three months ended Year ended Summary Income Statement December 31, December 31, ($ in millions, except share and per share data) 2006 2005 2006 2005 - --------------------------- ---- ---- ---- ---- Premiums and finance charges earned $354.5 $363.3 $1,424.0 $1,453.6 Investment income less expenses 54.6 53.0 208.7 201.4 Investment gains realized, net 12.7 11.2 43.6 47.4 ------ ------ -------- -------- Total revenues 421.8 427.5 1,676.3 1,702.4 Losses and benefits for policyholders 159.4 165.0 736.5 752.3 Loss adjustment expenses 41.8 29.2 157.0 155.0 Underwriting expenses 106.6 118.8 441.4 462.0 Corporate and other expenses 11.3 9.6 40.6 52.4 ----- ----- ------- ------- Total expenses 319.1 322.6 1,375.5 1,421.7 Income before income tax expense 102.7 104.9 300.8 280.7 Income tax expense: On investment gains realized 4.5 1.5 15.3 5.9 On all other income 22.7 26.1 67.2 62.1 ---- ---- ---- ---- Total income tax expense 27.2 27.6 82.5 68.0 Net income $75.5 $77.3 $218.3 $212.7 ===== ===== ====== ====== Average shares outstanding - diluted 61,981,211 64,728,004 63,392,717 67,194,425 Net income, per share - diluted $1.22 $1.19 $3.44 $3.19
Operating Results
Premium Revenue --------------- ($ in millions) Three months ended Year ended December 31, December 31, Net Premiums Written 2006 2005 % Chg 2006 2005 % Chg - -------------------- ---- ---- ----- ---- ---- ----- Commercial Lines $186.0 $189.0 (1.6)% $ 829.7 $ 823.5 0.8% Specialty Lines 34.6 33.6 3.0% 145.3 150.4 (3.4)% Personal Lines 105.2 114.4 (8.0)% 437.2 475.5 (8.1)% ------ ------ -------- -------- All Lines $325.8 $337.0 (3.3)% $1,412.2 $1,449.4 (2.6)% ====== ====== ======== ========
All Lines net premiums written decreased 3.3% during the fourth quarter over the same period last year primarily as a result of lower in force policy counts in the Personal Lines segment and the commercial umbrella product line, rate reductions taken in the Personal Lines segment and lower Commercial Lines assumed premiums from mandatory workers' compensation and commercial auto pools. Specialty Lines net premiums written increased slightly during the quarter, a result of growth in the fidelity/surety product line. For the full year, new business premium production was up 9.3% and 7.4% in Commercial and Personal Lines, respectively, while policy retention was up for those two operating segments as well as for the commercial umbrella product line. This growth was offset by rate reductions and lower assumed premiums from mandatory workers' compensation and commercial auto pools.
Combined Ratio -------------- Three months ended Year ended December 31, December 31, 2006 2005 2006 2005 ---- ---- ---- ---- Commercial Lines 89.9% 87.4% 98.0% 101.9% Specialty Lines 51.3% 94.1% 76.5% 95.3% Personal Lines 93.6% 81.6% 91.8% 80.8% ----- ----- ----- ------ All Lines 86.9% 86.1% 93.7% 94.2%
The All Lines combined ratio for the current year fourth quarter was very strong and was up just slightly when compared with the same period of the prior year. This is the result of a 3.4 point increase in the loss and loss adjustment expense (LAE) ratio, partially offset by a 2.6 point improvement in the underwriting expense ratio. The increase in the loss and LAE ratio is principally the result of increased catastrophe losses, loss cost trends increasing at a rate faster than premium rate increases and favorable reserve development that was lower in the current quarter when compared to the same period of 2005. The improvement in the underwriting expense ratio is primarily the result of recognition of state premium tax refunds related to prior years in the amount of $9.2 million partially offset by an increase in a provision for legal expenses. Favorable prior year loss and LAE reserve development was $14.8 million (4.2 points) and $16.5 (4.5 points) million in fourth quarter 2006 and 2005, respectively. The fourth quarter 2006 reserve development was favorable for most product lines during the quarter with a few exceptions, most notably workers' compensation, which experienced adverse development. For the full year 2006, favorable reserve development was $52.2 million (3.7 points) compared with $20.1 million (1.4 points) in 2005. This year- over-year increase in favorable development is primarily the result of increased favorable development in the commercial umbrella product line and approximately $20 million less adverse development for workers' compensation. For the current year fourth quarter, catastrophe losses increased the combined ratio by $5.8 million (1.6 points) compared with a favorable impact of ($0.3) million (0.1 point) in the same period last year. For the year, catastrophe losses were $32.8 million (2.3 points) compared with $25.8 million (1.8 points) of the prior year. Other Highlights Consolidated pre-tax investment income for the quarter increased $1.6 million compared with the prior year. This increase is primarily related to $3.2 million of interest income on state premium tax refunds related to prior years, which were finalized during the quarter, partially offset by an increased allocation to lower-yielding tax-exempt securities, which now comprise 37.3% of fixed-income securities at December 31, 2006 compared with 33.7% in the prior year. For the year, investment income increased $7.3 million over the prior year. In addition to the above, the increase in investment income is a result of reduced investment related expenses, positive operating cash flows and an improvement in reinvestment yields resulting from the upward movement in interest rates compared with the prior year. During 2006 and 2005, the Corporation repurchased 3,463,396 and 1,516,105 shares of common stock at an average cost of $28.95 and $26.04, respectively, under share repurchase programs authorized by the Board of Directors. As of December 31, 2006, the Corporation has $72.0 million of share repurchase authority remaining. Supplemental financial information for the fourth quarter ended December 31, 2006, including certain financial measures, is available on Ohio Casualty Corporation's website at www.ocas.com and was also filed on Form 8- K with the SEC. A discussion of the differences between statutory accounting principles and accounting principles generally accepted in the United States is included in Item 15 of the Ohio Casualty Corporation's Annual Report on Form 10-K for the year ended December 31, 2005. Investors are advised to read the safe harbor statement at the end of this release. Conference Call Ohio Casualty Corporation will conduct a teleconference call, including a slide presentation, to discuss information included in this news release and related matters at 10:00 a.m. EST on Thursday, February 8, 2007. The call is being webcast by Vcall and can be accessed (as well as the related slides) directly through Ohio Casualty Corporation's website www.ocas.com and Vcall's Investor Calendar website www.investorcalendar.com. The webcast will be available for replay through May 9, 2007. To listen to call playback by telephone, dial 1-800-642-1687, then enter ID code 5099402. Call playback begins at 1 p.m. EST on February 8, 2007 and extends through 11:59 p.m. on February 10, 2007. Quiet Period Ohio Casualty Corporation observes a quiet period and will not comment on financial results or expectations during quiet periods. The quiet period for the first quarter of 2007 will start April 1, 2007 extending through the time of the earnings conference call, tentatively scheduled for April 27, 2007. Corporate Profile Ohio Casualty Corporation is the holding company of The Ohio Casualty Insurance Company, which is one of six property-casualty insurance companies that make up Ohio Casualty Group, collectively referred to as Consolidated Corporation. The Ohio Casualty Insurance Company was founded in 1919 and is licensed in 49 states. Ohio Casualty Group is ranked 50th among U.S. property/casualty insurance groups based on net premiums written (Best's Review, July 2006). The Group's member companies write auto, home and business insurance. Ohio Casualty Corporation trades on the NASDAQ Stock Market under the symbol OCAS and had assets of approximately $5.7 billion as of December 31, 2006. Safe Harbor Statement Ohio Casualty Corporation publishes forward-looking statements relating to such matters as anticipated financial performance, business prospects and plans, regulatory developments and similar matters. The statements contained in this news release that are not historical information, are forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. The operations, performance and development of the Consolidated Corporation's business are subject to risks and uncertainties, which may cause actual results to differ materially from those contained in or supported by the forward-looking statements in this release. The risks and uncertainties that may affect the operations, performance, development and results of the Consolidated Corporation's business include the following: changes in property and casualty reserves; catastrophe losses; premium and investment growth; product pricing environment; availability of credit; changes in government regulation; performance of financial markets; fluctuations in interest rates; availability and pricing of reinsurance; litigation and administrative proceedings; rating agency actions; acts of war and terrorist activities; ability to appoint and/or retain agents; ability to achieve targeted expense savings; ability to achieve premium targets and profitability goals; and general economic and market conditions. Ohio Casualty Corporation undertakes no obligation to publicly release any revisions to the forward-looking statements contained in this release, or to update them to reflect events or circumstances occurring after the date of this release, or to reflect the occurrence of unanticipated events. Investors are also advised to consult any further disclosures made on related subjects in Ohio Casualty Corporation's reports filed with the SEC or in subsequent press releases. (A) Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures Reconciliation of Net Income to Operating Income Management of the Consolidated Corporation believes the significant volatility of realized investment gains and losses limits the usefulness of net income as a measure of current operating performance. Accordingly, management uses the non-GAAP financial measure of operating income to further evaluate current operating performance. Operating income, both in dollar amounts and per share amounts, are reconciled to net income and net income per share in the table below:
Three months ended Year ended December 31, December 31, ($ in millions, except per share data) 2006 2005 2006 2005 - ---------------------- ---- ---- ---- ---- Operating income $67.3 $67.5 $190.0 $171.1 After-tax net realized gains 8.2 9.8 28.3 41.6 ----- ----- ------ ------ Net income $75.5 $77.3 $218.3 $212.7 ===== ===== ====== ====== Operating income per share - diluted $1.08 $1.04 $ 3.00 $ 2.57 After-tax net realized gains per share-diluted 0.14 0.15 0.44 0.62 ----- ----- ------ ------ Net income per share - diluted $1.22 $1.19 $ 3.44 $ 3.19 ===== ===== ====== ======
Reconciliation of Net Income Return on Equity to Operating Income Return on Equity Operating income return on equity is a ratio management calculates using non-GAAP financial measures. It is calculated by dividing the annualized consolidated operating income (see calculation below) for the most recent quarter by the adjusted average shareholders' equity for the quarter using a simple average of beginning and ending balances for the quarter, excluding from equity after-tax unrealized investment gains and losses. This ratio provides management with an additional measure to evaluate the results excluding the unrealized changes in the valuation of the investment portfolio that can fluctuate between periods. The following table reconciles operating income return on equity to net income return on equity, the most directly comparable GAAP measure:
Three months ended Year ended December 31, December 31, ($ in millions) 2006 2005 2006 2005 - --------------- ---- ---- ---- ---- Net income $ 75.5 $ 77.3 $ 218.3 $ 212.7 Average shareholders' equity 1,516.8 1,409.5 1,491.1 1,360.7 Return on equity based on annualized net income 19.9% 21.9% 14.6% 15.6% ===== ===== ===== ===== Operating income $ 67.3 $ 67.5 $ 190.0 $ 171.1 Adjusted average shareholders' equity 1,325.7 1,195.4 1,292.4 1,115.0 Return on equity based on annualized operating income 20.3% 22.6% 14.7% 15.3% ===== ===== ===== ===== Average shareholders' equity $1,516.8 $1,409.5 $1,491.1 $1,360.7 Average unrealized gains 191.1 214.1 198.7 245.7 Adjusted average shareholders' equity $1,325.7 $1,195.4 $1,292.4 $1,115.0 ======== ======== ======== ========
EX-99 3 exh99-2.txt OHIO CASUALTY CORP 4Q SUPPLEMENTAL FINANCIAL INFORMATION Exhibit 99.2 OHIO CASUALTY CORPORATION & SUBSIDIARIES SUPPLEMENTAL FINANCIAL INFORMATION FOR THE PERIODS ENDING DECEMBER 31, 2006 and 2005 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 Page 5 Segment Underwriting Profitability 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) THREE MONTHS AND YEAR ENDED DECEMBER 31, 2006 and 2005 (Data Unaudited)
THREE MONTHS ENDED DEC 31 ------------------------------------------------ CONSOLIDATED 2006 2005 - ---------------------------------------- ----------------------- ----------------------- Premiums and finance charges earned $ 354,511 $ 363,233 Investment income less expenses 54,566 52,935 Investment gains realized, net 12,753 11,232 ----------- ----------- Total revenues 421,830 427,400 Losses 159,398 165,009 Loss adjustment expenses 41,738 29,201 Underwriting expenses 106,755 118,639 Corporate and other expenses 11,271 9,639 ----------- ----------- Total expenses 319,162 322,488 Income before income tax expense 102,668 104,912 Income tax expense: On investment gains realized 4,464 1,470 On all other income 22,677 26,122 ----------- ----------- Total income tax expense 27,141 27,592 Net income $ 75,527 $ 77,320 ============ ============ Average shares outstanding - diluted 61,981 64,728 Net income, per share - diluted $ 1.22 $ 1.19 Net income - return on equity 19.9% 21.9% Operating income* $ 67,238 $ 67,559 Operating income - earnings per share* $ 1.08 $ 1.04 Operating income - return on equity* 20.3% 22.6% Effective tax rate on investment income 24.6% 23.8% KEY PROPERTY AND CASUALTY RATIOS GAAP Statutory GAAP Statutory - --------------------------------------- ------- --------- ------- --------- Losses 45.0% 45.0% 45.4% 45.1% Loss adjustment expenses 11.8% 11.8% 8.0% 8.0% Underwriting expenses 30.1% 32.0% 32.7% 34.7% ------- -------- ------- ------- Combined ratio 86.9% 88.8% 86.1% 87.8% CORPORATE/OTHER - --------------------------------------- Net investment income $ 4,454 $ 4,025 Investment gains/(losses) realized, net 444 4,597 Agent relationships asset expenses 3,778 2,140 Corporate expenses 7,493 7,499
YEAR ----------------------------------------------- CONSOLIDATED 2006 2005 - ---------------------------------------- ----------------------------------------------- Premiums and finance charges earned $ 1,423,982 $ 1,453,568 Investment income less expenses 208,685 201,357 Investment gains realized, net 43,622 47,426 ----------- ----------- Total revenues 1,676,289 1,702,351 Losses 736,488 752,280 Loss adjustment expenses 156,963 155,033 Underwriting expenses 441,430 461,907 Corporate and other expenses 40,602 52,409 ----------- ----------- Total expenses 1,375,483 1,421,629 Income before income tax expense 300,806 280,722 Income tax expense: On investment gains realized 15,268 5,871 On all other income 67,228 62,158 ----------- ----------- Total income tax expense 82,496 68,029 Net income $ 218,310 $ 212,693 ============ ============ Average shares outstanding - diluted 63,393 67,194 Net income, per share - diluted $ 3.44 $ 3.19 Net income - return on equity 14.6% 15.6% Operating income* $ 189,956 $ 171,139 Operating income - earnings per share* $ 3.00 $ 2.57 Operating income - return on equity* 14.7% 15.3% Effective tax rate on investment income 25.7% 27.1% KEY PROPERTY AND CASUALTY RATIOS GAAP Statutory GAAP Statutory - --------------------------------------- -------- --------- -------- --------- Losses 51.7% 51.7% 51.7% 51.7% Loss adjustment expenses 11.0% 11.0% 10.7% 10.7% Underwriting expenses 31.0% 31.8% 31.8% 31.8% -------- ------- ------- ------- Combined ratio 93.7% 94.5% 94.2% 94.2% CORPORATE/OTHER - --------------------------------------- Net investment income $ 16,328 $ 15,071 Investment gains/(losses) realized, net (167) 11,572 Agent relationships asset expenses 12,807 12,268 Corporate expenses 27,795 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 February 7, 2007 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) THREE MONTHS AND YEAR ENDED DECEMBER 31, 2006 and 2005 (Data Unaudited)
THREE MONTHS ENDED DEC 31 ------------------------------------------------- 2006 2005 OPERATING SEGMENTS and ----------------------- ---------------------- SELECTED PRODUCT LINES Net Premiums Combined Net Premiums Combined GAAP BASIS: Earned Ratio Earned Ratio - -------------------------- ------------ -------- ------------ -------- Commercial Lines $ 207,606 89.9% $ 208,971 87.4% Workers' compensation 33,322 117.7% 34,851 139.1% Commercial auto 56,196 82.9% 58,332 72.0% General liability 26,146 108.0% 24,073 97.9% CMP, fire and inland marine 91,942 78.9% 91,715 74.7% Specialty Lines 38,071 51.3% 35,349 94.1% Commercial umbrella/other 23,900 39.9% 21,830 97.5% Fidelity and surety 14,171 70.3% 13,519 88.7% Personal Lines 108,834 93.6% 118,913 81.6% Personal auto incl. personal umbrella 63,840 104.1% 70,024 87.0% Personal property 44,994 78.8% 48,889 73.8% ------------ ------ ------------ ------ Total All Lines $ 354,511 86.9% $ 363,233 86.1% Net Premiums Combined Net Premiums Combined STATUTORY BASIS: Written Ratio Written Ratio - -------------------------- ------------ -------- ------------ -------- Commercial Lines $ 186,005 91.7% $ 188,948 90.7% Workers' compensation 29,782 120.4% 31,262 142.7% Commercial auto 46,994 82.7% 50,607 75.6% General liability 23,432 110.6% 21,674 101.9% CMP, fire and inland marine 85,797 81.2% 85,405 77.6% Specialty Lines 34,556 56.7% 33,636 91.5% Commercial umbrella/other 20,753 47.2% 20,841 91.5% Fidelity and surety 13,803 70.7% 12,795 91.8% Personal Lines 105,171 94.5% 114,366 81.8% Personal auto incl. personal umbrella 62,862 105.4% 67,206 87.4% Personal property 42,309 79.0% 47,160 73.9% ------------ ------ ------------ ------ Total All Lines $ 325,732 88.8% $ 336,950 87.8%
YEAR -------------------------------------------------- 2006 2005 OPERATING SEGMENTS and ----------------------- ----------------------- SELECTED PRODUCT LINES Net Premiums Combined Net Premiums Combined GAAP BASIS: Earned Ratio Earned Ratio - -------------------------- ------------ -------- ------------ -------- Commercial Lines $ 827,868 98.0% $ 827,440 101.9% Workers' compensation 137,247 126.6% 134,510 142.4% Commercial auto 226,113 89.2% 230,471 82.2% General liability 99,130 103.2% 93,308 111.3% CMP, fire and inland marine 365,378 90.6% 369,151 96.9% Specialty Lines 147,396 76.5% 143,151 95.3% Commercial umbrella/other 92,957 78.8% 92,235 101.9% Fidelity and surety 54,439 72.8% 50,916 83.2% Personal Lines 448,718 91.8% 482,977 80.8% Personal auto incl. personal umbrella 263,425 97.4% 288,340 85.8% Personal property 185,293 83.8% 194,637 73.5% ------------ ------ ------------ ------ Total All Lines $ 1,423,982 93.7% $ 1,453,568 94.2% Net Premiums Combined Net Premiums Combined STATUTORY BASIS: Written Ratio Written Ratio - -------------------------- ------------ -------- ------------ -------- Commercial Lines $ 829,707 98.7% $ 823,490 102.3% Workers' compensation 137,490 127.0% 138,582 142.6% Commercial auto 223,422 89.5% 227,702 82.6% General liability 101,079 103.8% 95,680 111.8% CMP, fire and inland marine 367,716 92.1% 361,526 97.6% Specialty Lines 145,269 78.2% 150,423 89.9% Commercial umbrella/other 85,583 80.9% 97,165 94.6% Fidelity and surety 59,686 70.4% 53,258 81.7% Personal Lines 437,181 92.4% 475,494 81.2% Personal auto incl. personal umbrella 259,582 98.0% 283,741 86.3% Personal property 177,599 84.6% 191,753 73.8% ------------ ------ ------------ ------ Total All Lines $ 1,412,157 94.5% $ 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) AT DECEMBER 31, 2006 and 2005 (Data Unaudited)
Dec 31, Dec 31, 2006 2005 Assets ------------- ------------- Investments: U.S. government fixed maturities $ 25,004 $ 25,940 Tax exempt fixed maturities 1,408,275 1,277,318 Taxable fixed maturities: Available-for-sale, at fair value 2,107,487 2,224,456 Held-to-maturity, at amortized cost 235,831 264,422 ------------ ------------ Total fixed maturities 3,776,597 3,792,136 Equity securities, at fair value 430,007 375,079 ------------ ------------ Total investments 4,206,604 4,167,215 Cash and cash equivalents 45,549 54,575 Premiums and other receivables, net of allowance for bad debts of $1,500 and $4,200, respectively 316,041 309,190 Deferred policy acquisition costs 150,211 153,671 Property and equipment, net of accumulated depreciation of $183,041 and $177,239, respectively 80,531 80,079 Reinsurance recoverable, net of allowance of $3,690 633,842 741,800 Agent relationships, net of accumulated amortization of $48,422 and $45,531, respectively 96,919 109,726 Interest and dividends due or accrued 51,181 54,942 Deferred tax asset - 14,846 Other assets 117,684 77,021 ------------ ------------ Total assets $ 5,698,562 $ 5,763,065 ============ ============ Shares outstanding 60,322,692 63,281,136 Book value per share $25.79 $22.54 Unrealized gain component of book value per share* $3.12 $3.13
Dec 31, Dec 31, 2006 2005 Liabilities ------------- ------------- Insurance reserves: Losses $ 2,390,457 $ 2,435,028 Loss adjustment expenses 521,879 511,817 Unearned premiums 662,974 679,601 Debt 199,570 200,401 Reinsurance treaty funds held 117,564 150,367 Deferred tax liability 7,246 - Other liabilities 243,072 359,444 ------------ ------------ Total liabilities 4,142,762 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 25,428 18,810 Accumulated other comprehensive income 194,121 177,992 Retained earnings 1,559,474 1,360,547 Treasury stock, at cost: (Shares: 12,095,652, 9,137,208) (232,275) (139,994) ------------ ------------ Total shareholders' equity 1,555,800 1,426,407 ------------ ------------ Total liabilities and shareholders' equity $ 5,698,562 $ 5,763,065 ============ ============ Statutory Insurance Reserves Losses $ 1,849,179 $ 1,800,683 Loss adjustment expense 473,753 457,843 Unearned premiums 633,755 645,579 Other Statutory Data Statutory policyholders' surplus $ 1,082,718 $ 1,004,545 Ratio of net premiums written to surplus 1.3 to 1.0 1.4 to 1.0
*The unrealized gain component of book value per share excludes $7.8 million and $10.1 million at December 31, 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) THREE MONTHS AND YEAR ENDED DECEMBER 31, 2006 and 2005 (Data Unaudited)
THREE MONTHS ENDED DEC 31 YEAR -------------------------- ------------------------ 2006 2005 2006 2005 ---------- ---------- ---------- ---------- Gross Premiums Written - ---------------------- Commercial Lines $ 191,372 $ 193,292 $ 852,109 $ 840,974 Specialty Lines 46,467 50,414 194,934 210,795 Personal Lines 106,874 114,865 443,181 478,282 ---------- ---------- ---------- ---------- Total 344,713 358,571 1,490,224 1,530,051 New Business Gross Premiums Written - ----------------------------------- Commercial Lines $ 34,050 $ 34,532 $ 157,210 $ 143,800 Commercial umbrella/other 6,735 8,206 28,891 34,835 Personal Lines 9,947 8,872 39,929 37,195 Policy Retention Ratio - ----------------------------------- Commercial Lines 78.6% 76.1% Commercial umbrella/other 73.1% 68.5% Personal Lines 84.4% 83.1% Average Renewal Price Change - ------------------------------ Commercial Lines -0.6% 0.5% -0.3% 1.3% Commercial umbrella/other 1.1% 0.5% 1.4% 3.7% Catastrophe Loss Ratio - ---------------------- Commercial Lines 0.8% -1.2% 1.6% 2.2% Specialty Lines 0.0% 0.0% 0.0% 0.0% Personal Lines 3.8% 1.9% 4.3% 1.5% Total All Lines 1.6% -0.1% 2.3% 1.8% Prior Accident Year Loss & LAE by Segment (GAAP Basis) - ------------------------------------------------------ (Favorable)/Unfavorable Commercial Lines $ (2.8) $ (0.8) $ (7.4) $ 29.1 Specialty Lines (11.3) (5.0) (31.8) (12.3) Personal Lines (0.7) (10.7) (13.0) (36.9) ---------- ---------- ---------- ---------- Total All Lines Accident Year Development (14.8) (16.5) (52.2) (20.1) Prior Accident Year Loss & LAE (GAAP Basis) - ------------------------------------------- (Favorable)/Unfavorable Accident Year 2005 $ (11.4) $ - $ (21.2) $ - Accident Year 2004 (9.9) (11.7) (25.3) (30.8) Accident Year 2003 and Prior 6.5 (4.8) (5.7) 10.7 ---------- ---------- ---------- ---------- Total Accident Year Development (14.8) (16.5) (52.2) (20.1)
4 OHIO CASUALTY CORPORATION & SUBSIDIARIES SEGMENT UNDERWRITING PROFITABILTIY - GAAP BASIS THREE MONTHS AND YEAR ENDED DECEMBER 31, 2006 and 2005 (Data Unaudited)
THREE MONTHS ENDED DEC 31 YEAR -------------------------- -------------------------- 2006 2005 2006 2005 ---------- ---------- ---------- ---------- SEGMENT RESULTS - --------------- Commercial Lines - ---------------- Losses 44.8% 45.9% 53.3% 55.6% Loss adjustment expenses 15.0% 8.5% 12.9% 13.0% Underwriting expenses 30.1% 33.0% 31.8% 33.3% ------- ------- ------- ------- Combined Ratio 89.9% 87.4% 98.0% 101.9% Specialty Lines - ---------------- Losses 10.5% 34.0% 30.8% 42.0% Loss adjustment expenses 3.9% 14.4% 7.1% 9.4% Underwriting expenses 36.9% 45.7% 38.6% 43.9% ------- ------- ------- ------- Combined Ratio 51.3% 94.1% 76.5% 95.3% Personal Lines - -------------- Losses 57.3% 48.0% 55.8% 48.1% Loss adjustment expenses 8.5% 5.4% 8.9% 7.1% Underwriting expenses 27.8% 28.2% 27.1% 25.6% ------- ------- ------- ------- Combined Ratio 93.6% 81.6% 91.8% 80.8%
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