Fitch Assigns ‘A-‘ IFS Rating to Ohio Casualty; Affirms ‘BBB-‘ Debt Ratings

Fitch Ratings has assigned an insurer financial strength rating of ‘A-‘ to Ohio Casualty Group’s intercompany pool members.

In addition, Fitch has affirmed the ‘BBB-‘ senior debt rating and ‘BBB-‘ long-term issuer rating of Ohio Casualty Corporation. The Rating Outlook is Stable. The ratings reflect Ohio Casualty’s increased strategic focus on profitability, generally improving accident year underwriting results and reasonable financial leverage. Weighted against these positives are poor operating results in recent years, driven by adverse reserve development for prior years’ losses and a high operating expense ratio relative to peers and the industry.

Since 2000, Ohio Casualty has been focused on a turnaround plan to restore profitability to the company, following a failed growth-oriented strategy under the previous senior management. As part of this effort, new management instituted a more disciplined underwriting philosophy and implemented cost reduction initiatives to improve operating results.

Profitability improvement has thus far been slower than anticipated as the company has posted significant amounts of prior year adverse reserve development, most notably in the 1999 and 2000 accident years, and has suffered from poor results in the recently discontinued New Jersey private passenger automobile line.

Nevertheless, the combined ratio has improved steadily from 119.2 percent in 2000 to 115.3 percent in 2001, 112.8 percent in 2002, and 106.6 percent through the first nine months of 2003 as the company has benefited from price increases across almost all lines of business and better risk selection in core geographies and product areas.

Going forward, Ohio Casualty needs to maintain its focus on underwriting discipline, particularly as the market softens, while continuing to improve its competitive position. The company is also continuing initiatives to achieve a more efficient cost structure and operate at a more competitive expense ratio in line with peer and industry averages. Fitch expects Ohio Casualty’s combined ratio to improve in 2004 to a level closer to 100 percent.

Ohio Casualty Corporation’s capital structure is prudent with the capital mix consisting of 15 percent debt and 85 percent common equity at Sept. 30, 2003. The company’s debt primarily consists of $201.3 million aggregate principal of 20-year convertible notes that were issued in March 2002 to replace $205 million of outstanding notes payable under a 1997 bank facility.