Ohio Casualty (NASDAQ:OCAS)
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Ohio Casualty Corporation (NASDAQ:OCAS) today announced
the following results for its second quarter ended June 30, 2006,
compared with the same period of the prior year:
-- Net income of $35.6 million, or $0.55 per diluted share,
versus $42.1 million, or $0.63 per diluted share;
-- All Lines combined ratio (GAAP) of 99.2% versus 95.5%; and
-- Operating income (A) of $32.2 million versus $33.2 million.
Results for the six months ended June 30, 2006, compared with the
same period of the prior year:
-- Net income of $87.5 million, or $1.35 per diluted share,
versus $79.8 million, or $1.18 per diluted share;
-- All Lines combined ratio (GAAP) of 97.0% versus 95.5%; and
-- Operating income (A) of $74.9 million versus $70.9 million.
President and Chief Executive Officer Dan Carmichael commented,
"Our second quarter operating results reflected both a highly
competitive marketplace, a higher, more normal pattern of catastrophe
losses and our determination not to compromise our underwriting
standards to chase marginal opportunities. Our two primary challenges
continue to be the monitoring and controlling of expenses and finding
more opportunities to grow with adequately priced business. We remain
confident that our strategy will continue to optimize results and
produce superior benefits for policyholders, independent agents and
our shareholders."
The major components of net income are summarized in the table
below:
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Summary Income Statement Three Months Six Months
($ in millions, except Ended June 30, Ended June 30,
share data) 2006 2005 2006 2005
------------------------ ---- ---- ---- ----
Premiums and finance
charges earned $355.5 $365.5 $713.2 $727.8
Investment income less
expenses 51.9 48.6 102.8 97.0
Investment gains
realized, net 5.3 13.8 19.5 13.8
------------------ ------------------
Total revenues 412.7 427.9 835.5 838.6
Losses and benefits for
policyholders 199.3 191.7 388.3 382.8
Loss adjustment expenses 42.7 40.4 79.4 83.3
Underwriting expenses 110.7 117.4 224.5 229.5
Corporate and other
expenses 11.2 18.7 21.3 33.6
------------------ ------------------
Total expenses 363.9 368.2 713.5 729.2
Income before income
taxes 48.8 59.7 122.0 109.4
Income tax expense:
On investment gains
realized 1.9 4.8 6.9 4.8
On all other income 11.3 12.8 27.6 24.8
------------------ ------------------
Total income tax
expense 13.2 17.6 34.5 29.6
Net income $35.6 $42.1 $87.5 $79.8
================== ==================
Average shares
outstanding - diluted 64,351,335 66,997,317 64,591,888 69,327,993
Net income, per share
- diluted $0.55 $0.63 $1.35 $1.18
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Results for the second quarter included $10.8 million of favorable
development in loss and loss adjustment expense reserves for prior
accident years, compared with favorable development of $2.9 million in
the second quarter of 2005. Reserve development was favorable for most
product lines during the second quarter 2006 with the exception of a
couple product lines which experienced adverse development.
Consolidated pre-tax net investment income increased $3.3 million
in the quarter as a result of a modest improvement in reinvestment
yields resulting from the upward movement in interest rates and
positive operating cash flows.
Book value per share decreased $0.15, or 0.7% to $22.39 at June
30, 2006, compared to $22.54 at December 31, 2005.
During the second quarter, the Corporation repurchased 2,197,929
shares of its common stock at an average cost of $29.48 per share,
which brings the total shares repurchased under the program to
3,750,814 at an average cost of $28.08. Total authorized shares
remaining under the program at June 30, 2006 is 249,186.
In addition, Moody's Investors Service announced that it has
affirmed the Baa3 senior debt rating of Ohio Casualty Corporation and
the A3 insurance financial strength rating of its operating
subsidiaries. In the same rating action, Moody's changed the outlook
on the ratings to positive from stable.
For a more detailed discussion of the financial condition and the
results of operations at June 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 second quarter ended
June 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. EDT on Thursday, July 27, 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 October 27, 2006. To listen to call playback by
telephone, dial 1-800-642-1687, then enter ID code 2055088. Call
playback begins at 1 p.m. EDT on July 27, 2006 and extends through
11:59 p.m. on July 29, 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 third quarter will start October 1, 2006
extending through the time of the earnings conference call,
tentatively scheduled for November 2, 2006.
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 June
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 Securities and Exchange
Commission or in subsequent press releases.
(A) Reconciliation of Non-GAAP Financial Measures to GAAP
Financial Measures
Reconciliation of Net Income to Operating Income
Management of the 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:
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Three Months Six Months
Ended June 30, Ended June 30,
($ in millions, except per share data) 2006 2005 2006 2005
-------------------------------------- ---- ---- ---- ----
Operating income $32.2 $33.2 $74.9 $70.9
After-tax net realized gains 3.4 8.9 12.6 8.9
----- ----- ----- -----
Net income $35.6 $42.1 $87.5 $79.8
===== ===== ===== =====
Operating income
per share - diluted $0.50 $0.50 $1.16 $1.05
After-tax net realized gains per
share - diluted 0.05 0.13 0.19 0.13
----- ----- ----- -----
Net income per share - diluted $0.55 $0.63 $1.35 $1.18
===== ===== ===== =====
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Reconciliation of Net Income Return on Equity to Operating Income
Return on Equity
Operating income return on equity is a ratio management calculates
using non-GAAP financial measures. It is calculated by dividing the
annualized consolidated operating income (see calculation below) for
the most recent quarter by the adjusted average shareholders' equity
for the quarter using a simple average of beginning and ending
balances for the quarter, excluding from equity after-tax unrealized
investment gains and losses. This ratio provides management with an
additional measure to evaluate the results excluding the unrealized
changes in the valuation of the investment portfolio that can
fluctuate between periods. The following table reconciles operating
income return on equity to net income return on equity, the most
directly comparable GAAP measure:
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Three Months Six Months
Ended June 30, Ended June 30,
($ in millions) 2006 2005 2006 2005
--------------- ---- ---- ---- ----
Net income $35.6 $42.1 $87.5 $79.8
Average shareholders' equity 1,408.4 1,351.2 1,400.8 1,352.8
Return on equity based on
annualized net income 10.1% 12.5% 12.5% 11.8%
==== ==== ==== ====
Operating income $32.2 $33.2 $74.9 $70.9
Adjusted average shareholders'
equity 1,257.0 1,090.2 1,231.5 1,069.0
Return on equity based on
annualized operating income 10.2% 12.2% 12.2% 13.3%
==== ==== ==== ====
Average shareholders' equity $1,408.4 $1,351.2 $1,400.8 $1,352.8
Average unrealized gains 151.4 261.0 169.3 283.8
-------- -------- -------- --------
Adjusted average shareholders'
equity $1,257.0 $1,090.2 $1,231.5 $1,069.0
======== ======== ======== ========
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