Mr. Carmichael: Ohio Casualty Corporation is the holding company of The Ohio Casualty Insurance Company, which is one of six property-casualty subsidiary companies that make up Ohio Casualty Group. The Ohio Casualty Insurance Company was founded in 1919 in Hamilton, Ohio. Ohio Casualty Group is ranked 37th among US property/casualty insurance groups based on net premiums written (Best's Review, July 2001). We have about $1.5 billion in total revenues, $1.1 billion in stockholders' equity, which averages out to about $18 a share. Our market cap is about $975 million, just under stockholders' equity. We are licensed in 49 states for commercial lines and 22 states for personal lines. There are actually three segments that make up the Group: personal lines, which is family insurance ' auto and home; standard (small, or mid-sized) commercial lines; and then specialty commercial, which is bonds and umbrella or excess policies for commercial liability coverages. As far as concentration, our largest five states are Ohio, Kentucky, Pennsylvania, Illinois and New Jersey. We have good presence throughout the Midwest with strong business also in North Carolina, Oklahoma, Missouri, Wisconsin, Indiana. Over 3,000 agents represent us countrywide. We're coming out of a bit of a sordid past in that in year 2000 we lost $80 million aftertax, and in 2001 through nine months we had $57 million in aftertax net income, so we began a turnaround last year. I was hired in December 2000. Previously I was CEO of a technology company in Greenwich, Connecticut, that is owned by the insurance industry, called IVANS, Inc. It essentially provides a data network for interface between business partners within the insurance industry, so business-to-business e-commerce has been the focus of the company. It's been around since 1983, is very successful and privately held. I was there for about five and a half years. Prior to that I spent over 25 years in the insurance industry. Just before joining IVANS I was chief executive officer, president and chairman of the board of Anthem Casualty Insurance Group, also known as Shelby Insurance Group. This is a company that was started back in the late-1800s. In the early 1980s it got into some serious financial trouble, mostly because of medical malpractice business. We received funding from Alleghany Corporation. I was hired from Crum & Forster, where I had been for 16 years. Beginning in 1987 we put the company back on its feet, received an A rating from A.M. Best Company. The company was then sold in 1992 for about three times what it was worth to the Anthem organization, which has just recently done an IPO. They're in the health insurance business. I stayed with them another four years, during which we acquired another company (Federal Kemper ). In 1995 I joined IVANS. That's my history. We've restructured the senior management team since I arrived at Ohio Casualty. We have three new segment heads. Beth Riczko, our former Chief Actuary, runs the personal lines segment. Jeff Heniewich, who was running our Raleigh Regional Office and was a long-time executive of Great American and Progressive, is running the standard commercial, which is the largest segment. And John Busby, who is a long-time underwriting manager from Ohio Casualty, is running the specialty commercial and is also responsible for reinsurance. We recently recruited a new CFO, Don McKee, who spent a lot of time with Integon Insurance. Don's career goes back to helping with the restructuring of Western Electric as well as a few other companies on the non-insurance side. We've also recruited a new Chief Technology Officer, a new Chief Actuary, a new Treasurer, and essentially put a new management team in place. We developed a new strategy, completed in June of 2001 and announced it to the Street, to our shareholders and to our employees. Fortunately we are realizing good results from it. The essence of it is essentially to refocus the company. As I just indicated by the $80 million loss in 2000, prior to 2001 we were heading in the wrong direction. We had been focusing too much on growth for its own sake, so we have been doing a lot of cleanup, beginning at the end of 2000 and continuing into this year. It's a clean up of unprofitable lines of business, unprofitable agencies and poorly performing territories. Personal lines is a good example. Previously we were active in 40 states. We are now going to be focused on only 22 states in order to be able to get our arms around how we can make money in this business from an underwriting perspective, which we haven't done in quite a few years. We are already down significantly in number of policies written, down 20% over the last two years in a number of risks we insure, but revenues are only down about 2%. The reason for that is that one of the key points of our new strategy is to increase prices. We've been getting 15% increases in standard commercial, 20-25% in specialty commercial, and homeowners policies are up double digit compared to prior year. The market is letting us do this, not only because of the World Trade Center event and the tightening of reinsurance pricing, but because the market was already tightening, beginning at the end of 2000. We're taking advantage of the current market, raising our prices, and, surprisingly, we are retaining the good business that we want to retain, even though we are pushing the price envelope pretty significantly. One of the really key points of our new strategy is the new technology that we're wrapping it around. One of the best things that I found when I arrived was that the company started in 1998 to build a new policy administration system, which is probably one of the most difficult systems and software development projects known to man. They take longer and primarily because our products are not commodities. When you put together a commercial lines policy it has to be customized differently for each customer. They may have different limits of liability, different exposures, a different number of employees, different types of vehicles insured, and the differences go on and on, even for medium and small account business. Each of those differences has to be programmed in. After three years of development, we now have a system that we are putting into production, thanks to our new Chief Technology Officer, that will totally revolutionize how we do business. We have two of the products in production today. One of them has been up for more than six months. We'll get the other commercial lines products up by the end of 2002, and then we'll start pushing it out to our agents. The offices that are receiving this new software system, which we call PARIS ' policy administration rating and issuing system ' are reporting 75% improvements in productivity at the rating and underwriting levels in the company. We know when we push it out to the agents and have them do the entry of the data, it will give us even more significant savings on the expense side, plus, and more importantly, make it easier for our agents to do business with us.
Tickers included in this excerpt: OCAS
For more information call (212) 952 7433. The Wall Street Transcript does not endorse any of the comments made by interviewees, and does not make stock recommendations.