Ohio Casualty Corporation announced the following results for its first quarter ended March 31, 2004, compared with the same period of the prior year:
* net income of $19.2 million, or $.31 per diluted share, versus $19.9 million, or $.33 per diluted share,
* All Lines statutory combined ratio of 100.7 percent, an 8.1 point improvement, and
* net income before net realized gains of $16.8 million versus $7.4 million, a $9.4 million or 127 percent increase.
President and CEO Dan Carmichael, commented, “I am very pleased with our first quarter results, which positively reflect the significant underwriting actions we have taken over the last three years to improve profitability. We have seen significant improvement over last year’s results in both net income before net realized gains and statutory combined ratios, which are in-line with our full year guidance. In fact, our quarterly statutory combined ratio of 100.7 percent is our best since the fourth quarter of 1996. Our loss and loss adjustment expense ratio improved 8.6 points as a result of a decline in claim frequency, fewer large claims and a better priced book of business. The reduced claim frequency was favorably impacted by fewer weather-related and catastrophe losses and the underwriting actions taken over the last three years.
“In addition, we recently announced results of our Cost Structure Efficiency (CSE) Initiative designed to improve productivity and customer service. Company-wide, processes are being analyzed and efficiencies and/or technology advances are being implemented to reduce operating costs and improve the level of service provided to our policyholders and agents. The CSE initiative is expected to reduce staff by a total of 400 to 500 positions during 2004. Through March, we have implemented 322 staff reductions with another 62 reductions implemented in April. First quarter results include severance and other related costs of $5.6 million. Efficiencies implemented to date are projected to reduce operating expenses by $5.5 million in 2004, net of costs, with projected annualized savings of $19.7 million in 2005.”
First quarter included a before-tax $9.0 million contingent liability accrual related to a surplus guarantee associated with the 2001 sale of the New Jersey private passenger auto renewal rights to Proformance Insurance Company (Proformance). The surplus guarantee, which is capped at $15.6 million, is effective through December 2004. The contingent liability was estimated based on preliminary information provided by Proformance; however, the Corporation has requested additional information from Proformance in order to determine the actual amount of the liability.
Consolidated before-tax net investment income declined in the first quarter as reinvestment market yields for the maturing fixed securities remain below the average portfolio yield and due to favorable recognition in 2003 of a $1.3 million settlement on the termination of an investment management agreement.
From an operating segment perspective, all three operating segments, Commercial, Personal and Specialty Lines, had low single digit statutory net written premium growth that was driven by price increases and higher retention rates. In addition, the Commercial and Personal Lines segments both had improved statutory combined ratios due to lower claim frequency, improved risk profiles and higher pricing levels. The Specialty Lines combined ratio, while increasing slightly over the first quarter of 2003, remained very favorable at 93.6 percent.
All three operating segments were impacted by the severance and related costs associated with the CSE initiative offset by a related statutory pension gain of $8.0 million. The contingent liability accrual related to the Proformance transaction impacted the Personal Lines combined ratio by 7.7 points.
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