Ohio Casualty Corporation announced net income of $29.1 million, or $.48 per share, for the three months ended December 31, 2002. The net income for the fourth quarter of 2001 was $41.8 million, or $.69 per share.
After-tax operating income, which differs from net income by the exclusion of realized investment gains (losses), for the fourth quarter 2002 was $17.1 million, or $.28 per share, compared with an operating loss of $11.3 million, or $.19 per share, for the three months ended December 31, 2001. The fourth quarter 2001 was impacted by a one time charge of $26.8 million after tax, or $.45 per share, for the transfer of the renewal obligation of New Jersey private passenger auto business. The fourth quarter 2001 operating loss also included the negative impact of $9.2 million after tax, or $.15 per share, for loss and loss adjustment expense reserve increases for estimated asbestos claims.
President and CEO Dan Carmichael, noted, “Our fourth quarter results, especially current calendar and accident year loss ratios, demonstrate that we are on the right path and with continued execution of our strategy we will produce improved performance.”
Net loss for the year ended December 31, 2002, totaled $.9 million, or $.01 per share, compared with net income of $98.6 million, or $1.64 per share, for 2001. After-tax operating loss for the year 2002 was $30.3 million, or $.49 per share, compared with an after-tax operating loss of $36.4 million, or $.61 per share, for the twelve months ended Dec. 31, 2001. After- tax realized capital gains for the year were $29.4 million, compared with $135.0 million of capital gains in the same period of 2001.
Personal Lines 2002 net premiums written declined as expected, driven by management decisions to cancel certain agents and withdraw from New Jersey private passenger auto and other selected markets. These actions caused a $31.1 million decrease in personal lines net premiums written in the fourth quarter of 2002 and a decrease of $134.6 million for the year, accounting for most of the year over year decrease. The Group’s exit from the New Jersey private passenger auto market, which began in March 2002, made up $29.9 million of the decrease in the fourth quarter and $96.2 million of the decrease in the full year 2002.
The Commercial Lines combined ratio for the year 2002 improved slightly compared to the year 2001 as the positive impact of renewal price increases and improved underwriting was offset by the negative impact of increased losses on prior year’s business.
The Specialty Lines combined ratio for the year 2002 was profitable and was slightly higher than the combined ratio for the year 2001 due primarily to more conservative estimates of reserves for future losses for the commercial umbrella product line.
The Personal Lines 2002 combined ratio excluding the impact of the reallocation of loss adjustment expense reserve noted above and excluding New Jersey private passenger auto results improved by 5.6 points to 106.2 percent over 2001. This improvement was offset by poor results for New Jersey private passenger auto which added 6.2 points to the Personal Lines combined ratio, compared to 1.1 points for the year 2001, excluding the year 2001 negative impact of 6.3 points for the New Jersey renewal obligation transfer fee.
The New Jersey private passenger auto business negatively impacted the 2002 All Lines combined ratio results by 2.5 points. In 2001, excluding the 2.7 points negative impact on 2001 results from the renewal obligation fee, this impact was .4 points. The negative impact of the poor New Jersey private passenger auto results offset much of the improvement in the Commercial Lines results.
Loss and loss adjustment expense (LAE) ratios were impacted negatively in 2002 by adjustments to estimated losses related to prior years’ business. The loss and LAE ratio component of the accident year combined ratio measures losses and LAE arising from insured events that occurred in the respective accident year. The current accident year excludes losses and LAE for insured events that occurred in prior accident years. In total, this increase in provisions for prior accident years’ losses and LAE recognized during the year 2002 was $84.4 million before tax, of which $9.2 million was recognized in the fourth quarter.
The combined ratio impact of this adverse development for prior accident years’ losses and LAE was 5.8 points for the year 2002 and 2.5 points for the fourth quarter. For the year 2002, this was concentrated in the general liability and commercial auto product lines of the Commercial Lines operating segment and in the personal auto product line of the Personal Lines operating segment. For the fourth quarter 2002, the concentration was in the personal auto and commercial auto product lines. Prior year losses and LAE for construction defect related claims, which were significant in the third quarter 2002, were within the range expected for the fourth quarter 2002.
The comparable amount of provision for prior years’ losses and LAE recognized during the year 2001 was $58.5 million before tax and was concentrated in the workers’ compensation product line and the general liability product line of the Commercial Lines operating segment. The total provision for prior years’ losses and LAE of $84.4 million recognized during the year 2002 represents 4.3 percent of loss and loss adjustment expense reserves as of year-end 2001.
The combined ratio for accident year 2002 was 106.9 percent. The combined ratio for the year 2002 of 112.8 percent reflects losses and LAE recorded during 2002 for all accident years in aggregate and is therefore 5.8 points higher than the combined ratio for accident year 2002 of 106.9 percent. The combined ratio for accident year 2002 compares favorably, .8 points lower, to the 107.7 percent combined ratio for accident year 2001, excluding the 2.7 point impact of the New Jersey renewal obligation transfer fee, based on accident year data as of December 31, 2002.
Excluding the impact of New Jersey private passenger auto business that the Corporation is in the process of non-renewing, the 2002 and 2001 accident year numbers would have been 105.2 percent and 107.6 percent, respectively, an improvement of 2.4 points.
Catastrophe losses in 2002 were $20.8 million, a decrease of $13.8 million from 2001. The 2001 catastrophe losses included $3.0 million before-tax and net of reinsurance losses related to the September 11, 2001 terrorist attacks in New York. Catastrophe losses added 1.4 points to the combined ratio in 2002, below the 2.3 point catastrophe impact in 2001. Catastrophe losses of $3.5 million and $1.9 million added 1.0 point and .5 points to the combined ratio for the fourth quarter of 2002 and 2001, respectively.
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