Fitch Ratings announced that it has affirmed the ‘BBB-‘ senior debt rating and ‘BBB-‘ long-term issuer rating of Ohio Casualty Corporation with a “stable” outlook.
“The rating reflects Ohio Casualty’s increased strategic focus on underwriting, improving accident year underwriting results and conservative financial leverage,” said Fitch. “Weighted against these positives are recent poor operating performance [See IJ Website Oct.31] driven by adverse reserve development for prior years’ losses, and continued inadequate profitability in the workers’ compensation and personal lines markets.”
On Monday Ohio Casualty issued a bulletin stating that A.M. Best had informed the company that there would “be no changes at this time” in its ratings. Best reaffirmed the company’s ‘A-‘ (Excellent) rating in September.
Fitch noted the company’s commitment to its plan to return to sound profitable results, “following a failed growth-oriented strategy under the previous senior management.” A new management team has made progress in the right direction. Fitch noted that “The statutory combined ratio improved from 119.2% in 2000 to 115.3% in 2001 and 107.8% through the first half of 2002.” However reults in the third quarter were a lot worse, with the combined ratio jumping to 128.5% for the period and increasing to 114.6% for the first nine months of 2002.
As the company indicated in its earnings report, the primary cause of the losses were charges it took in relation to construction defect claims in certain Western states, including Washington, Colorado, and Arizona, and costs relating to its exit from the New Jersey private auto market, as well as additional reserve strengthening.
Fitch said it “expects Ohio Casualty’s operating results to improve in the fourth quarter 2002 and into 2003 due to continued improvement in its current business as a result of aggressive price increases and efforts made to reduce expense levels.” It also said that at the current rating level, which was first assigned in March 2002, “the company is able to absorb the charges taken in the third quarter 2002.”
“However,” it warned that “going forward rating concerns could develop in the event of any additional sizable charges for reserve development, intangibles impairment, restructuring, or other operating items that could negatively impact calendar year results.”
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