Ohio Casualty (NASDAQ:OCAS)
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Ohio Casualty Corporation (NASDAQ:OCAS) today announced the following
results for its first quarter ended March 31, 2007, compared with the
same period of the prior year:
Net income of $63.1 million, or $1.03 per diluted share, versus
$51.9 million, or $0.80 per diluted share;
All Lines combined ratio (GAAP) of 89.2% versus 94.9%; and
Operating income (A) of $57.9 million ($0.94 per diluted share)
versus $42.7 million ($0.66 per diluted share).
President and Chief Executive Officer Dan Carmichael commented, “In
2007, we are off to another great start, with an All Lines combined
ratio below 90%. Once again all three business segments are generating
an underwriting profit. Our performance reflects substantial favorable
development from prior accident years, as we continue to maintain our
long-term commitment to underwriting discipline and expense management.
We also re-confirmed our commitment to shareholders by raising our
quarterly dividend 44% and continued our share repurchase program, while
growing book value per share.”
“Still, competition continues to pressure our
premium volume as new business premiums written declined. We have
commenced implementation of our agency management and product
development initiatives as outlined in our Strategic Plan. We will be
sharing more details of these initiatives, as well as the agent centric
services initiatives, as the year progresses and results develop.”
The major components of net income are summarized in the table below:
Three months
Summary Income Statement
ended March 31,
($ in millions, except share data)
2007
2006
Premiums and finance charges earned
$349.6
$357.7
Investment income less expenses
51.7
50.9
Investment gains realized, net
8.0
14.2
Total revenues
409.3
422.8
Losses and benefits for policyholders
161.9
189.0
Loss adjustment expenses
38.6
36.7
Underwriting expenses
111.5
113.8
Corporate and other expenses
11.1
10.1
Total expenses
323.1
349.6
Income before income tax expense
86.2
73.2
Income tax expense:
On investment gains realized
2.8
5.0
On all other income
20.3
16.3
Total income tax expense
23.1
21.3
Net income
$63.1
$51.9
Average shares outstanding - diluted
61,343,139
64,836,502
Net income, per share - diluted
$1.03
$0.80
Operating Results
Premium Revenue
($ in millions)
Three months ended March 31,
2007
2006
% Chg
Net Premiums Written
Commercial Lines
$209.4
$ 212.4
(1.4)%
Specialty Lines
34.6
35.8
(3.4)%
Personal Lines
101.3
105.9
(4.3)%
All Lines
$345.3
$ 354.1
(2.5)%
All Lines net premiums written declined for the three month period ended
March 31, 2007 when compared with the same period of the prior year, due
primarily to a decline in new business premium production in the
Commercial Lines segment and the commercial umbrella/other product line,
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. This decline was partially offset by continued growth in
the fidelity and surety bond product line; improved retention rates in
the Personal Lines segment and commercial umbrella/other product line
and a substantially unchanged retention rate for Commercial Lines
segment when compared to the same period of the prior year.
Combined Ratio
Three months ended
March 31,
2007
2006
Commercial Lines
94.4%
101.8%
Specialty Lines
63.6%
75.2%
Personal Lines
87.9%
89.2%
All Lines
89.2%
94.9%
The improvement in the All Lines combined ratio for the first quarter is
the result of a 5.8 point improvement in the loss and LAE ratio driven
by a significant increase in favorable prior year reserve development
partially offset by increased catastrophe losses and margin compression
caused by increasing loss costs and declining prices. Catastrophe losses
for the first quarter 2007 were $5.2 compared to $3.6 in the first
quarter 2006.
Favorable prior year loss and LAE reserve development was $37.7 million
(10.8 points) and $12.9 million (3.6 points) in the first quarter 2007
and 2006, respectively. Reserve development was favorable for almost all
product lines during the first quarter 2007 and is primarily
attributable to actual severity being lower than expected, much of which
is occurring in the casualty product 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 $0.86 or 3.3% to $26.65 at March 31,
2007, compared to $25.79 at December 31, 2006.
During the first quarter of 2007, the Corporation repurchased 578,604
shares of its common stock at an average cost of $29.63. As of March 31,
2007, the Corporation has $54.9 million of share repurchase authority
remaining.
On March 20, 2007, A.M. Best Company announced that it had upgraded the
financial strength rating to A for the Ohio Casualty Group and its
subsidiaries and upgraded the senior unsecured debt rating to bbb from
bbb-. The rating outlook is stable.
Supplemental financial information for the first quarter ended March 31,
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.
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. EDT on Tuesday, May 1, 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 August 2, 2007. To
listen to call playback by telephone, dial 1-800-642-1687, then enter ID
code 4846210. Call playback begins at 1 p.m. EDT on May 1, 2007 and
extends through 11:59 p.m. on May 3, 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 second quarter will start July 1, 2007 extending through
the time of the earnings conference call, tentatively scheduled for July
31, 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 the 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 March 31, 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; 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 March 31,
($ in millions, except per share data)
2007
2006
Operating income
$57.9
$42.7
After-tax net realized gains
5.2
9.2
Net income
$63.1
$51.9
Operating income per share - diluted
$0.94
$0.66
After-tax net realized gains per share- diluted
0.09
0.14
Net income per share - diluted
$1.03
$0.80
Reconciliation of Net Income Return on Equity to Operating Income
Return on Equity
Operating income return on equity is a ratio management calculates using
non-GAAP financial measures. It is calculated by dividing the annualized
consolidated operating income (see calculation below) for the most
recent quarter by the adjusted average shareholders' equity for the
quarter using a simple average of beginning and ending balances for the
quarter, excluding from equity after-tax unrealized investment gains and
losses. This ratio provides management with an additional measure to
evaluate the results excluding the unrealized changes in the valuation
of the investment portfolio that can fluctuate between periods. The
following table reconciles operating income return on equity to net
income return on equity, the most directly comparable GAAP measure:
Three months
ended March 31,
($ in millions)
2007
2006
Net income
$63.1
$51.9
Average shareholders' equity
1,576.3
1,434.1
Return on equity based on annualized net income
16.0%
14.5%
Operating income
$57.9
$42.7
Adjusted average shareholders' equity
1,385.4
1,246.7
Return on equity based on annualized operating income
16.7%
13.7%
Average shareholders' equity
$1,576.3
$1,434.1
Average unrealized gains
190.9
187.4
Adjusted average shareholders' equity
$1,385.4
$1,246.7