-----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, MWMe4Dl7VljdhLn+tO36tsrxhu/wzMGtR6e6ydE9VN6I5NJEY7TpqwhOXZsJYC5p UgeCnY9PAIScLclo1PjUVw== 0000073952-07-000020.txt : 20070730 0000073952-07-000020.hdr.sgml : 20070730 20070730160609 ACCESSION NUMBER: 0000073952-07-000020 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070630 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070730 DATE AS OF CHANGE: 20070730 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: 071009615 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 f8k7-30.txt FORM 8-K, ITEMS 2.02, 9.01 - OHIO CASUALTY CORP EARNINGS JUNE 30, 2007 ============================================================================== 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) July 30, 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 July 30, 2007, Ohio Casualty Corporation (the "Corporation") issued a press release announcing its earnings for the second quarter ended June 30, 2007. The Corporation also issued on July 30, 2007 certain Supplemental Financial Information with respect to its earnings for the second quarter ended June 30, 2007. 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 July 30, 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 July 30, 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) July 30, 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: July 30, 2007 Exhibit No. Description - ---------- ----------- 99.1 Press release dated July 30, 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 July 30, 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 2Q 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 SECOND QUARTER FAIRFIELD, OHIO, July 30, 2007 --- Ohio Casualty Corporation (NASDAQ:OCAS) today announced the following results for its second quarter ended June 30, 2007, compared with the same period of the prior year: - Net income of $56.6 million, or $0.92 per diluted share, versus $35.6 million, or $0.55 per diluted share; - All Lines combined ratio (GAAP) of 91.4% versus 99.2%; and - Operating income (A) of $52.4 million ($0.85 per diluted share) versus $32.2 million ($0.50 per diluted share). Results for the six months ended June 30, 2007, compared with the same period of the prior year: - Net income of $119.7 million, or $1.95 per diluted share, versus $87.5 million, or $1.35 per diluted share; - All Lines combined ratio (GAAP) of 90.3% versus 97.0%; and - Operating income (A) of $110.3 million ($1.79 per diluted share) versus $74.9 million ($1.16 per diluted share). President and Chief Executive Officer Dan Carmichael commented, "Our second quarter operating performance remained strong, improving significantly over last year, and like the first quarter, all three operating segments generated an underwriting profit. Our results reflect our successful efforts to maintain underwriting discipline in a very competitive market and we continue to experience substantial favorable development from prior accident years. Since introducing our first Strategic Plan in the second quarter of 2001, progress toward achieving consistent solid underwriting performance, quality claims handling and superior service to our agents has been steady, enabling us to produce and maintain strong operating results. In the recent past, Ohio Casualty Corporation has created value for shareholders by continually improving financial results and delivering increasingly competitive shareholder returns. During the past six years we restored underwriting profitability, improved our operating efficiency and technology capabilities, and also significantly strengthened our capital position while earning rating upgrades from all major rating agencies. I deeply appreciate the significant effort and professionalism of our agents and employees in accomplishing these achievements. We will continue to deliver on our promise to policyholders and commitment to independent agents as we transition to new ownership upon the completion of our pending acquisition by Liberty Mutual Group." The major components of net income are summarized in the table below:
Three Months Six Months Summary Income Statement Ended June 30, Ended June 30, ($ in millions, except share data) 2007 2006 2007 2006 - ---------------------------------- ---- ---- ---- ---- Premiums and finance charges earned $339.3 $355.5 $688.9 $713.2 Investment income less expenses 51.9 51.9 103.6 102.8 Investment gains realized, net 6.6 5.3 14.6 19.5 ------------------- ------------------- Total revenues 397.8 412.7 807.1 835.5 Losses and benefits for policyholders 157.7 199.3 319.6 388.3 Loss adjustment expenses 35.9 42.7 74.5 79.4 Underwriting expenses 116.5 110.7 228.0 224.5 Corporate and other expenses 9.0 11.2 20.1 21.3 ------------------- ------------------- Total expenses 319.1 363.9 642.2 713.5 Income before income taxes 78.7 48.8 164.9 122.0 Income tax expense: On investment gains realized 2.3 1.9 5.1 6.9 On all other income 19.8 11.3 40.1 27.6 ------------------- ------------------- Total income tax expense 22.1 13.2 45.2 34.5 Net income $ 56.6 $ 35.6 $119.7 $ 87.5 =================== =================== Average shares outstanding - diluted 61,625,551 64,351,335 61,519,908 64,591,888 Net income, per share - diluted $0.92 $0.55 $1.95 $1.35
Operating Results Premium Revenue --------------- ($ in millions) Three Months Six Months Ended June 30, Ended June 30, 2007 2006 % Chg 2007 2006 % Chg ---- ---- ----- ---- ---- ---- Net Premiums Written Commercial Lines $217.5 $223.9 (2.9)% $426.9 $436.3 (2.2)% Specialty Lines 34.3 37.3 (8.0)% 68.9 73.1 (5.7)% Personal Lines 105.6 111.6 (5.4)% 206.9 217.5 (4.9)% ------ ------ ------ ------ All Lines $357.4 $372.8 (4.1)% $702.7 $726.9 (3.3)%
All Lines net premiums written declined for the three and six month periods ended June 30, 2007, when compared with the same periods of the prior year, due primarily to a decline in new business premium production across all three business segments, a decline in premium rates for both Personal and Commercial Lines, lower Commercial Lines assumed premiums from mandatory workers' compensation and commercial auto pools as well as lower in-force policy counts in the Personal Lines segment and commercial umbrella/other product line. Net premiums written were also reduced by a $7.0 increase in ceded premium on experience based reinsurance contracts during the second quarter of 2007. The experience rated reinsurance contracts are for a funded layer of casualty excess of loss reinsurance coverage. These declines were partially offset by continued growth in the fidelity and surety bond product line.
Combined Ratio -------------- Three Months Six Months Ended June 30, Ended June 30, 2007 2006 2007 2006 ---- ---- ---- ---- Commercial Lines 90.0% 102.4% 92.2% 102.1% Specialty Lines 95.5% 102.0% 79.0% 88.3% Personal Lines 92.8% 92.5% 90.3% 90.9% ----- ------ ----- ------ All Lines 91.4% 99.2% 90.3% 97.0%
The improvement in the All Lines combined ratio for the second quarter was primarily the result of a significant increase in favorable prior year loss and loss adjustment expense reserve development and a reduction in catastrophe losses. These improvements were partially offset by increasing loss cost trends and declining premium rates, as well as an increase in the underwriting expense ratio. The increase in the underwriting expense ratio is a result of increased incentive compensation and commissions related to our improved profitability, as well as the impact of lower premium, as described above. The above ratios, for both three and six month periods ended June 30, 2007, were also negatively impacted by the $7.0 increase in ceded premium on experienced based reinsurance contracts recorded during the second quarter of 2007. The impact on the combined ratio of this increase in ceded premium was 1.9 points and 0.9 points for the three and six month periods, respectively. Favorable prior year loss and LAE reserve development was $41.4 million (12.2 points) and $10.8 million (3.0 points) in the second quarter 2007 and 2006, respectively. Reserve development was favorable for almost all product lines during the second quarter 2007 and is primarily attributable to actual severity being lower than expected, much of which is occurring in the casualty lines, a result of our more disciplined underwriting and improved claims handling practices which commenced in the 2000-2001 timeframe. Other Highlights Book value per share increased $1.21 or 4.7% to $27.00 at June 30, 2007, compared to $25.79 at December 31, 2006. Supplemental financial information for the second quarter ended June 30, 2007, including certain financial measures, is available on Ohio Casualty Corporation's website at www.ocas.com and was also filed on Form 8-K with the SEC. A discussion of the differences between statutory accounting principles and U.S. generally accepted accounting principles is included in Item 15 of the Ohio Casualty Corporation's Annual Report on Form 10-K for the year ended December 31, 2006. Investors are advised to read the safe harbor statement at the end of this release. Corporate Profile Ohio Casualty Corporation is the holding company of The Ohio Casualty Insurance Company, which is one of six property-casualty insurance companies that make up the Ohio Casualty Group, collectively referred to as the Consolidated Corporation. The Ohio Casualty Insurance Company was founded in 1919 and is licensed in 49 states. Ohio Casualty Group is ranked 50th among U.S. property/casualty insurance groups based on net premiums written (Best's Review, July 2007). The Group's member companies write auto, home and business insurance. Ohio Casualty Corporation trades on the NASDAQ Stock Market under the symbol OCAS and had assets of approximately $5.7 billion as of June 30, 2007. Safe Harbor Statement Ohio Casualty Corporation publishes forward-looking statements relating to such matters as anticipated financial performance, business prospects and plans, regulatory developments and similar matters. The statements contained in this news release that are not historical information, are forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. The operations, performance and development of the Consolidated Corporation's business are subject to risks and uncertainties, which may cause actual results to differ materially from those contained in or supported by the forward-looking statements in this release. The risks and uncertainties that may affect the operations, performance, development and results of the Consolidated Corporation's business include the following: changes in property and casualty reserves; catastrophe losses; premium and investment growth; product pricing environment; changes in government regulation; performance of financial markets; fluctuations in interest rates; availability and pricing of reinsurance; litigation and administrative proceedings; rating agency actions; acts of war and terrorist activities; ability to appoint and/or retain agents; ability to achieve premium targets and profitability goals; failure to consummate the announced merger; and general economic and market conditions. Ohio Casualty Corporation undertakes no obligation to publicly release any revisions to the forward-looking statements contained in this release, or to update them to reflect events or circumstances occurring after the date of this release, or to reflect the occurrence of unanticipated events. Investors are also advised to consult any further disclosures made on related subjects in Ohio Casualty Corporation's reports filed with the SEC or in subsequent press releases. Additional Information and Where to Find It This communication may be deemed to be solicitation material in respect of the proposed transaction. In connection with the proposed transaction, a proxy statement of Ohio Casualty and other materials have been filed with the SEC. WE URGE INVESTORS TO READ THE PROXY STATEMENT AND THESE OTHER MATERIALS CAREFULLY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT OHIO CASUALTY CORPORATION AND THE PROPOSED TRANSACTION. Investors are able to obtain free copies of the proxy statement as well as other filed documents containing information about Ohio Casualty on the SEC's website at http://www.sec.gov. Free copies of Ohio Casualty's SEC filings are also available from Ohio Casualty Corporation, 9450 Seward Road, Fairfield, Ohio 45014, Attention: Investor Relations. Participants in the Solicitation Ohio Casualty and its executive officers, directors, other members of management, employees and Liberty Mutual may be deemed, under SEC rules, to be participants in the solicitation of proxies from Ohio Casualty's shareholders with respect to the proposed transaction. Information regarding the executive officers and directors of Ohio Casualty is set forth in its definitive proxy statement for its 2007 annual meeting filed with the SEC on April 4, 2007. More detailed information regarding the identity of potential participants, and their direct or indirect interests, by securities holdings or otherwise, is also set forth in the proxy statement filed with the SEC in connection with the proposed transaction and dated June 29, 2007. (A) Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures Reconciliation of Net Income to Operating Income Management of the Consolidated Corporation believes the significant volatility of realized investment gains and losses limits the usefulness of net income as a measure of current operating performance. Accordingly, management uses the non-GAAP financial measure of operating income to further evaluate current operating performance. Operating income, both in dollar amounts and per share amounts, are reconciled to net income and net income per share in the table below:
Three Months Six Months Ended June 30, Ended June 30, ($ in millions, except per share data) 2007 2006 2007 2006 - -------------------------------------- ---- ---- ---- ---- Operating income $52.4 $32.2 $110.3 $74.9 After-tax net realized gains 4.2 3.4 9.4 12.6 ----- ----- ------ ----- Net income $56.6 $35.6 $119.7 $87.5 ===== ===== ====== ===== Operating income per share - diluted $0.85 $0.50 $1.79 $1.16 After-tax net realized gains per share - diluted 0.07 0.05 0.16 0.19 ----- ----- ----- ----- Net income per share - diluted $0.92 $0.55 $1.95 $1.35 ===== ===== ===== =====
Reconciliation of Net Income Return on Equity to Operating Income Return on Equity Operating income return on equity is a ratio management calculates using non-GAAP financial measures. It is calculated by dividing the annualized consolidated operating income (see calculation below) for the most recent quarter by the adjusted average shareholders' equity for the quarter using a simple average of beginning and ending balances for the quarter, excluding from equity after-tax unrealized investment gains and losses. This ratio provides management with an additional measure to evaluate the results excluding the unrealized changes in the valuation of the investment portfolio that can fluctuate between periods. The following table reconciles operating income return on equity to net income return on equity, the most directly comparable GAAP measure:
Three Months Six Months Ended June 30, Ended June 30, ($ in millions) 2007 2006 2007 2006 - --------------- ---- ---- ---- ---- Net income $ 56.6 $ 35.6 $ 119.7 $ 87.5 Average shareholders' equity 1,608.6 1,408.4 1,588.1 1,400.8 Return on equity based on annualized net income 14.1% 10.1% 15.1% 12.5% ===== ===== ===== ===== Operating income $ 52.4 $ 32.2 $ 110.3 $ 74.9 Adjusted average shareholders' equity 1,434.2 1,257.0 1,412.4 1,231.5 Return on equity based on annualized operating income 14.6% 10.2% 15.6% 12.2% ===== ===== ===== ===== Average shareholders' equity $1,608.6 $1,408.4 $1,588.1 $1,400.8 Average unrealized gains 174.4 151.4 175.7 169.3 -------- -------- -------- -------- Adjusted average shareholders' equity $1,434.2 $1,257.0 $1,412.4 $1,231.5 ======== ======== ======== ========
EX-99 3 exh99-2.txt 2Q SUPPLEMENTAL FINANCIAL INFORMATION Exhibit 99.2 OHIO CASUALTY CORPORATION & SUBSIDIARIES SUPPLEMENTAL FINANCIAL INFORMATION FOR THE PERIODS ENDING JUNE 30, 2007 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; 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 premium targets and profitability goals; failure to consummate the announced merger; and general economic and market conditions. Ohio Casualty Corporation undertakes no obligation to publicly release any revisions to the forward-looking statements contained in this release 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. This communication may be deemed to be solicitation material in respect of the proposed transaction. In connection with the proposed transaction, a proxy statement of Ohio Casualty and other materials have been filed with the SEC. WE URGE INVESTORS TO READ THE PROXY STATEMENT AND THESE OTHER MATERIALS CAREFULLY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT OHIO CASUALTY CORPORATION AND THE PROPOSED TRANSACTION. Investors are able to obtain free copies of the proxy statement as well as other filed documents containing information about Ohio Casualty on the SEC's website at http://www.sec.gov. Free copies of Ohio Casualty's SEC filings are also available from Ohio Casualty Corporation, 9450 Seward Road, Fairfield, Ohio 45014, Attention: Investor Relations. Ohio Casualty and its executive officers, directors, other members of management, employees and Liberty Mutual may be deemed, under SEC rules, to be participants in the solicitation of proxies from Ohio Casualty's shareholders with respect to the proposed transaction. Information regarding the executive officers and directors of Ohio Casualty is set forth in its definitive proxy statement for its 2007 annual meeting filed with the SEC on April 4, 2007. More detailed information regarding the identity of potential participants, and their direct or indirect interests, by securities holdings or otherwise, is also set forth in the proxy statement filed with the SEC in connection with the proposed transaction and dated June 29, 2007. OHIO CASUALTY CORPORATION & SUBSIDIARIES SUMMARY INCOME STATEMENT - GAAP BASIS, unless otherwise noted (in thousands, except per share data) SECOND QUARTER, 2007 (Data Unaudited)
THREE MONTHS ENDED JUNE 30, ---------------------------------------------- CONSOLIDATED 2007 2006 - ---------------------------------------- ----------------------- --------------------- Premiums and finance charges earned $ 339,273 $ 355,499 Investment income less expenses 51,878 51,858 Investment gains realized, net 6,553 5,268 ----------- ----------- Total revenues 397,704 412,625 Losses 157,701 199,279 Loss adjustment expenses 35,959 42,733 Underwriting expenses 116,403 110,696 Corporate and other expenses 8,896 11,123 ----------- ----------- Total expenses 318,959 363,831 Income before income taxes 78,745 48,794 Income tax expense: On investment gains realized 2,294 1,843 On all other income 19,787 11,329 ----------- ----------- Total income tax expense 22,081 13,172 Net income $ 56,664 $ 35,622 ============ ============ Average shares outstanding - diluted 61,626 64,351 Net income, per share - diluted $ 0.92 $ 0.55 Net income - return on equity 14.1% 10.1% Operating income* $ 52,405 $ 32,197 Operating income - earnings per share* $ 0.85 $ 0.50 Operating income - return on equity* 14.6% 10.2% Effective tax rate on investment income 25.3% 26.1% KEY PROPERTY AND CASUALTY RATIOS GAAP Statutory GAAP Statutory - --------------------------------------- ------ --------- ------ --------- Losses 46.5% 46.5% 56.1% 56.1% Loss adjustment expenses 10.6% 10.6% 12.0% 12.0% Underwriting expenses 34.3% 34.1% 31.1% 32.0% ------ -------- ------ -------- Combined ratio 91.4% 91.2% 99.2% 100.1% CORPORATE/OTHER - --------------------------------------- Net investment income $ 5,080 $ 4,385 Investment losses realized, net (71) (706) Agent relationships asset expenses 1,422 4,478 Corporate expenses 7,474 6,645
SIX MONTHS ENDED JUNE 30, ----------------------------------------------- CONSOLIDATED 2007 2006 - ---------------------------------------- ----------------------------------------------- Premiums and finance charges earned $ 688,916 $ 713,160 Investment income less expenses 103,554 102,794 Investment gains realized, net 14,557 19,467 ----------- ----------- Total revenues 807,027 835,421 Losses 319,647 388,287 Loss adjustment expenses 74,526 79,416 Underwriting expenses 227,903 224,508 Corporate and other expenses 20,050 21,253 ----------- ----------- Total expenses 642,126 713,464 Income before income taxes 164,901 121,957 Income tax expense: On investment gains realized 5,095 6,813 On all other income 40,090 27,625 ----------- ----------- Total income tax expense 45,185 34,438 Net income $ 119,716 $ 87,519 ============ ============ Average shares outstanding - diluted 61,520 64,592 Net income, per share - diluted $ 1.95 $ 1.35 Net income - return on equity 15.1% 12.5% Operating income* $ 110,254 $ 74,865 Operating income - earnings per share* $ 1.79 $ 1.16 Operating income - return on equity* 15.6% 12.2% Effective tax rate on investment income 25.4% 26.1% KEY PROPERTY AND CASUALTY RATIOS GAAP Statutory GAAP Statutory - --------------------------------------- ------- --------- ------- --------- Losses 46.4% 46.4% 54.4% 54.4% Loss adjustment expenses 10.8% 10.8% 11.1% 11.1% Underwriting expenses 33.1% 33.8% 31.5% 31.7% ------- ------- ------- ------- Combined ratio 90.3% 91.0% 97.0% 97.2% CORPORATE/OTHER - --------------------------------------- Net investment income $ 9,581 $ 8,085 Investment losses realized, net (943) (826) Agent relationships asset expenses 4,956 7,348 Corporate expenses 15,094 13,905
CONSOLIDATED YEAR 2006 - ---------------------------------------- ------------------------ Premiums and finance charges earned $ 1,423,982 Investment income less expenses 208,685 Investment gains realized, net 43,622 ----------- Total revenues 1,676,289 Losses 736,488 Loss adjustment expenses 156,963 Underwriting expenses 441,430 Corporate and other expenses 40,602 ----------- Total expenses 1,375,483 Income before income taxes 300,806 Income tax expense: On investment gains realized 15,268 On all other income 67,228 ----------- Total income tax expense 82,496 Net income $ 218,310 ============ Average shares outstanding - diluted 63,393 Net income, per share - diluted $ 3.44 Net income - return on equity 14.6% Operating income* $ 189,956 Operating income - earnings per share* $ 3.00 Operating income - return on equity* 14.7% Effective tax rate on investment income 25.7% KEY PROPERTY AND CASUALTY RATIOS GAAP Statutory - --------------------------------------- ------- --------- Losses 51.7% 51.7% Loss adjustment expenses 11.0% 11.0% Underwriting expenses 31.0% 31.8% ------- ------- Combined ratio 93.7% 94.5% CORPORATE/OTHER - --------------------------------------- Net investment income $ 16,328 Investment losses realized, net (167) Agent relationships asset expenses 12,807 Corporate expenses 27,795
*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 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 July 30, 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) SECOND QUARTER, 2007 (Data Unaudited)
THREE MONTHS ENDED JUNE 30, ------------------------------------------------ 2007 2006 OPERATING SEGMENTS and ----------------------- ----------------------- SELECTED PRODUCT LINES Net Premiums Combined Net Premiums Combined GAAP BASIS: Earned Ratio Earned Ratio - -------------------------- ------------ -------- ------------ -------- Commercial Lines $ 200,440 90.0% $ 206,462 102.4% Workers' compensation 30,403 146.7% 34,877 116.7% Commercial auto 56,231 83.4% 56,536 92.4% General liability 24,468 71.0% 24,002 93.7% CMP, fire and inland marine 89,338 80.0% 91,047 105.3% Specialty Lines 34,288 95.5% 35,860 102.0% Commercial umbrella/other 19,892 108.5% 22,732 121.5% Fidelity and surety 14,396 77.5% 13,128 68.9% Personal Lines 104,545 92.8% 113,177 92.5% Personal auto incl. personal umbrella 61,040 94.6% 66,333 92.6% Personal property 43,505 90.1% 46,844 92.5% ------------ ------ ------------ ------ Total All Lines $ 339,273 91.4% $ 355,499 99.2% Net Premiums Combined Net Premiums Combined STATUTORY BASIS: Written Ratio Written Ratio - -------------------------- ------------ -------- ------------ -------- Commercial Lines $ 217,531 88.8% $ 223,926 102.3% Workers' compensation 30,381 145.2% 37,562 115.8% Commercial auto 67,593 82.9% 61,535 92.4% General liability 26,698 69.2% 27,549 93.0% CMP, fire and inland marine 92,859 78.6% 97,280 105.6% Specialty Lines 34,319 97.2% 37,348 102.1% Commercial umbrella/other 17,668 111.7% 21,861 121.6% Fidelity and surety 16,651 73.2% 15,487 65.1% Personal Lines 105,613 93.6% 111,569 95.2% Personal auto incl. personal umbrella 60,235 95.9% 64,513 97.3% Personal property 45,378 90.3% 47,056 92.4% ------------ ------ ------------ ------ Total All Lines $ 357,463 91.2% $ 372,843 100.1%
SIX MONTHS ENDED JUNE 30, ----------------------------------------------- 2007 2006 OPERATING SEGMENTS and ----------------------- ---------------------- SELECTED PRODUCT LINES Net Premiums Combined Net Premiums Combined GAAP BASIS: Earned Ratio Earned Ratio - -------------------------- ------------ -------- ------------ -------- Commercial Lines $ 405,801 92.2% $ 411,102 102.1% Workers' compensation 63,450 140.8% 68,869 128.8% Commercial auto 112,295 90.9% 113,406 88.8% General liability 49,301 74.5% 47,577 109.2% CMP, fire and inland marine 180,755 80.9% 181,250 97.5% Specialty Lines 70,983 79.0% 73,123 88.3% Commercial umbrella/other 42,507 83.2% 46,925 98.5% Fidelity and surety 28,476 72.5% 26,198 70.3% Personal Lines 212,132 90.3% 228,935 90.9% Personal auto incl. personal umbrella 124,327 93.8% 134,416 95.5% Personal property 87,805 85.4% 94,519 84.3% ------------ ------ ------------ ------ Total All Lines $ 688,916 90.3% $ 713,160 97.0% Net Premiums Combined Net Premiums Combined STATUTORY BASIS: Written Ratio Written Ratio - -------------------------- ------------ -------- ------------ -------- Commercial Lines $ 426,928 92.2% $ 436,288 101.8% Workers' compensation 62,188 140.8% 73,363 127.8% Commercial auto 129,704 91.3% 120,572 88.7% General liability 51,687 73.7% 52,463 108.2% CMP, fire and inland marine 183,349 80.8% 189,890 98.4% Specialty Lines 68,911 81.5% 73,132 88.5% Commercial umbrella/other 37,749 86.9% 43,908 98.7% Fidelity and surety 31,162 69.7% 29,224 67.0% Personal Lines 206,901 91.7% 217,491 91.8% Personal auto incl. personal umbrella 124,599 95.1% 131,370 95.8% Personal property 82,302 87.1% 86,121 86.0% ------------ ------ ------------ ------ Total All Lines $ 702,740 91.0% $ 726,911 97.2%
YEAR 2006 OPERATING SEGMENTS and ---------------------- SELECTED PRODUCT LINES Net Premiums Combined GAAP BASIS: Earned Ratio - -------------------------- ------------ -------- Commercial Lines $ 827,868 98.0% Workers' compensation 137,247 126.6% Commercial auto 226,113 89.2% General liability 99,130 103.2% CMP, fire and inland marine 365,378 90.6% Specialty Lines 147,396 76.5% Commercial umbrella/other 92,957 78.8% Fidelity and surety 54,439 72.8% Personal Lines 448,718 91.8% Personal auto incl. personal umbrella 263,425 97.4% Personal property 185,293 83.8% ------------ ------ Total All Lines $ 1,423,982 93.7% Net Premiums Combined STATUTORY BASIS: Written Ratio - -------------------------- ------------ -------- Commercial Lines $ 829,707 98.7% Workers' compensation 137,490 127.0% Commercial auto 223,422 89.5% General liability 101,079 103.8% CMP, fire and inland marine 367,716 92.1% Specialty Lines $ 145,269 78.2% Commercial umbrella/other 85,583 80.9% Fidelity and surety 59,686 70.4% Personal Lines $ 437,181 92.4% Personal auto incl. personal umbrella 259,582 98.0% Personal property 177,599 84.6% ------------ ------ Total All Lines $ 1,412,157 94.5%
-2- OHIO CASUALTY CORPORATION & SUBSIDIARIES CONSOLIDATED BALANCE SHEET DATA AND RELATED INFORMATION (in thousands, except share and per share data) SECOND QUARTER, 2007 (2007 Data Unaudited)
June 30, December 31, 2007 2006 Assets --------- ------------ Investments: U.S. government fixed maturities $ 24,657 $ 25,004 Tax exempt fixed maturities 1,442,696 1,408,275 Taxable fixed maturities: Available-for-sale, at fair value 2,032,918 2,078,977 Held-to-maturity, at amortized cost 226,723 235,831 ------------ ------------ Total fixed maturities 3,726,994 3,748,087 Equity securities, at fair value 486,557 458,517 ------------ ------------ Total investments 4,213,551 4,206,604 Cash and cash equivalents 39,021 45,549 Premiums and other receivables, net of allowance for bad debts of $1,305 and $1,500, respectively 331,045 316,041 Deferred policy acquisition costs 154,860 150,211 Property and equipment, net of accumulated depreciation of $179,886 and $183,041, respectively 82,796 80,531 Reinsurance recoverable, net of allowance of $3,690 618,964 633,842 Agent relationships, net of accumulated amortization of $50,192 and $48,422, respectively 91,962 96,919 Interest and dividends due or accrued 50,587 51,181 Deferred tax asset 22,260 - Other assets 99,958 117,684 ------------ ------------ Total assets $ 5,705,004 $ 5,698,562 ============ ============ Shares outstanding 60,030,818 60,322,692 Book value per share $27.00 $25.79 Unrealized gain component of book value per share* $2.56 $3.12
June 30, December 31, 2007 2006 Liabilities --------- ------------ Insurance reserves: Losses $ 2,385,309 $ 2,390,457 Loss adjustment expenses 520,378 521,879 Unearned premiums 673,684 662,974 Debt 199,389 199,570 Reinsurance treaty funds held 106,225 117,564 Deferred tax liability - 7,246 Other liabilities 199,510 243,072 ------------ ------------ Total liabilities 4,084,495 4,142,762 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 32,155 25,428 Accumulated other comprehensive income 159,517 194,121 Retained earnings 1,663,599 1,559,474 Treasury stock, at cost: (Shares: 12,387,526; 12,095,652) (243,814) (232,275) ------------ ------------ Total shareholders' equity 1,620,509 1,555,800 ------------ ------------ Total liabilities and shareholders' equity $ 5,705,004 $ 5,698,562 ============ ============ Statutory Insurance Reserves Losses $ 1,845,783 $ 1,849,179 Loss adjustment expense 475,066 473,753 Unearned premiums 647,580 633,755 Other Statutory Data Statutory policyholders' surplus $ 1,111,379 $ 1,082,718 Ratio of net premiums written to surplus 1.3 to 1.0 1.3 to 1.0
*The unrealized gain component of book value per share excludes $6.9 million and $7.8 million at June 30, 2007 and December 31, 2006, 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) SECOND QUARTER, 2007 (Data Unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, -------------------------- -------------------------- 2007 2006 2007 2006 ---------- ---------- ---------- ---------- Gross Premiums Written - ---------------------- Commercial Lines $ 226,479 $ 229,909 $ 441,700 $ 447,960 Specialty Lines 47,364 51,084 93,009 98,579 Personal Lines 109,173 113,028 211,762 220,223 ---------- ---------- ---------- ---------- Total 383,016 394,021 746,471 766,762 New Business Gross Premiums Written - ----------------------------------- Commercial Lines $ 43,927 $ 44,815 $ 80,693 $ 87,307 Commercial umbrella/other 4,848 7,399 10,965 14,844 Personal Lines 9,385 10,156 18,843 19,104 Policy Retention Ratio - ----------------------------------- Commercial Lines - - 78.0% 78.9% Specialty Lines - - 71.2% 72.9% Personal Lines - - 85.4% 84.0% Average Renewal Price Change - ------------------------------ Commercial Lines -1.3% 3.1% -1.0% 1.7% Commercial umbrella/other 2.1% 0.2% 2.6% 0.8% Catastrophe Loss Ratio - ---------------------- Commercial Lines 1.9% 3.7% 1.5% 2.3% Specialty Lines 0.0% -0.2% 0.0% -0.1% Personal Lines 3.0% 7.6% 2.9% 4.5% Total All Lines 2.0% 4.5% 1.8% 2.8% Prior Accident Year Loss & LAE by Segment (GAAP Basis) - ------------------------------------------------------ (Favorable)/Unfavorable Commercial Lines $ (29.6) $ (2.3) $ (45.9) $ (1.8) Specialty Lines (2.3) (1.4) (14.8) (11.2) Personal Lines (9.5) (7.1) (18.4) (10.7) ---------- ---------- ---------- ---------- Total All Lines Accident Year Development (41.4) (10.8) (79.1) (23.7) Prior Accident Year Loss & LAE (GAAP Basis) - ------------------------------------------- (Favorable)/Unfavorable Accident Year 2006 $ (19.2) $ - $ (24.4) $ - Accident Year 2005 (18.3) (1.7) (30.4) (4.5) Accident Year 2004 and Prior (3.9) (9.1) (24.3) (19.2) ---------- ---------- ---------- ---------- Total Accident Year Development (41.4) (10.8) (79.1) (23.7)
YEAR 2006 ---------- Gross Premiums Written - ---------------------- Commercial Lines $ 852,109 Specialty Lines 194,934 Personal Lines 443,181 ---------- Total 1,490,224 New Business Gross Premiums Written - ----------------------------------- Commercial Lines $ 157,319 Commercial umbrella/other 28,891 Personal Lines 39,929 Policy Retention Ratio - ----------------------------------- Commercial Lines 78.6% Specialty Lines 73.1% Personal Lines 84.4% Average Renewal Price Change - ------------------------------ Commercial Lines -0.3% Commercial umbrella/other 1.4% Catastrophe Loss Ratio - ---------------------- Commercial Lines 1.6% Specialty Lines 0.0% Personal Lines 4.3% Total All Lines 2.3% Prior Accident Year Loss & LAE by Segment (GAAP Basis) - ----------------------------------------------------- (Favorable)/Unfavorable Commercial Lines $ (7.4) Specialty Lines (31.8) Personal Lines (13.0) ---------- Total All Lines Accident Year Development (52.2) Prior Accident Year Loss & LAE (GAAP Basis) - ------------------------------------------- (Favorable)/Unfavorable Accident Year 2006 $ - Accident Year 2005 (21.2) Accident Year 2004 and Prior (31.0) ---------- Total Accident Year Development (52.2)
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