Ohio Casualty Corporation announced a net loss of $69.9 million, or $1.14 per share, for the third quarter ended September 30, 2002, compared to net income of $44.2 million, or $.73 per share, in the same period last year.
After-tax operating income, which excludes capital gains and losses, was only slightly better at $66.3 million, or $1.08 per share, for the period, compared with an operating loss of $1.9 million, or $.03 per share, for the third quarter of 2001.
The company explained that results for the third quarter 2002 “were negatively impacted by losses and loss adjustment expenses for prior accident years totaling $62.2 million before tax.” The after-tax impact was $40.6 million. The losses and loss adjustment expenses were “largely related to construction defect claims, commercial automobile business, and New Jersey private passenger auto business”, said the announcement.”Construction defect represented approximately 74% of the total adverse development for the quarter.”
President and CEO Dan Carmichael, CPCU stated that, “While we are extremely disappointed in the results for the current quarter, our current year-to-date accident year statutory loss and loss adjustment expense ratio of 72.9% continues to show improvement over the 2001 ratio of 74.6%. This and other strategic factors validate our confidence in our underwriting and pricing strategies. Current accident year ratios measure underwriting profitability on insured events during the current year, while prior accident year ratios relate to insured events during prior years. Although prior accident year related losses and a non-cash charge related to the agent intangible asset have impacted the current period results and our book value per share, the business we have written this year continues to perform well. Furthermore, we remain fully committed to the strategies and long-term vision for the business.”
Ohio Casualty was also hit with a $54.0 million pre-tax impairment write down of its agent relationships intangible asset value “due to changes in estimated future cash flows for certain agents.” The bulletin indicated that this, “negatively impacted after-tax results by $35.2 million, or $.57 per share, compared to $.9 million, or $.01 per share, for the same quarter last year. Together, these two factors impacted the current quarter’s earnings by $1.23 per share.
“Construction defect related losses for prior accident years negatively impacted current results due to increased severity for claims related to certain types of developers and contractors,” Carmichael continued. “Our recent analysis indicates that the severity of these claims that have recently emerged is significantly greater than the severity of construction defect claims previously received.”
The company began reviewing these types of claims in 2000, and consequently has begun to take steps to lessen their impact. It has been continuing its strategy of actively non-renewing certain classes of business that could expose it to severe construction defect claims.
Topics Profit Loss Ohio Construction Casualty
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