Sunday, March 25, 2001

Ohio Casualty being steered for a turnaround

New president makes some tough decisions

By By Jeff McKinney
The Cincinnati Enquirer

        Only three months into his job as Ohio Casualty Corp.'s new skipper, Dan Carmichael understands if investors are irked.

        The Fairfield-based property and casualty insurer's market capitalization has dropped about $465 million since last March, when the stock was worth about $18 a share. It closed Friday at $8.94.

[photo] Dan Carmichael, president and chief executive of Ohio Casualty Corp.
        The drop comes a month after Ohio Casualty decided to not shell out a first-quarter dividend of $7.2 million, opting instead to help its financial position, which included a loss of $79.2 million for 2000.

        “I'm sure investors are upset; and I would be, too, because they have lost a lot of money,” Mr. Carmichael said. “The only way we can regain investors' confidence back is to increase profits.”

        But Mr. Carmichael, a 55-year-old insurance veteran who Ohio Casualty hired in December as its president and chief executive after an eight-month search, knows the sailing won't be easy.

        Known for having a strong operational background, Mr. Carmichael said his goal at Ohio Casualty is to reap annual profits of at least 12 percent, a level the insurer has not hit in a decade.

        Most recent problems for the $4.5 billion insurance company have been tied to its inability to generate underwriting profits, a continued need to cut expenses, and determining what lines of business offer the most potential for revenue growth.

        Ohio Casualty in June plans to offer a detailed strategic report to its board, its 3,470 employees and Wall Street analysts about how the company plans to turn around its operations.

    • Business: A national property and casualty insurer. The company provides coverage for personal auto, commercial, property and homeowners, as well as workers compensation.
    • Headquarters: Fairfield.
    • Chief executive: Dan Carmichael.
    • Employees: 3,470.
    • Ticker/market: OCAS/Nasdaq Stock Market.
    • Friday's close: $8.94.
    • 52-week high/low: $17.87 (March 31)/$6.12 (Sept. 29).
        In an interview with the Enquirer, Mr. Carmichael provided a glimpse of what the strategy might include:

        • Making the company's 7,000 independent agents its primary sales force, meaning that it will no longer sell personal auto policies directly to individuals.

        • Establishing stricter underwriting guidelines in all of its personal and commercial lines in an attempt to increase profitability.

        • Boosting rates in all businesses, primarily commercial lines including worker's compensation and, to a lesser degree, personal coverage including auto and homeowners insurance. The increases could range from 1 percent to 20 percent.

        • Focusing more on improving the company's combined loss ratio, one of the primary ways insurers make money. For example, 70 cents out of every $1 premium Ohio Casualty collects is used to pay claims. That compares with an industry average of 65 cents — and 60 cents for the industry's top performing companies.

        Ohio Casualty plans to reduce its ratio to 60 cents, primarily by better handling of claims to cut its expenses and reduce fraud.

        In terms of revenue growth, Mr. Carmichael said Ohio Casualty will look at all businesses by state and territory to determine where it will add products or sell fewer products, particularly business insurance. Business insurance offers Ohio Casualty the most growth potential.

        “A good example is that the restaurant business has not been profitable, yet the artisan contracting business have been very good,” he said. “So we'll closely examine them all and look for the greatest opportunities for growth.”

        Industry analysts say it's too early to determine whether Mr. Carmichael's efforts will work at Ohio Casualty, but that his early moves appear to be positive.

        Nancy Benacci of McDonald Investments in Cleveland said Mr. Carmichael is taking correct actions to turn the company around.

        Although she and other analysts have not seen the company's strategic plan, Ms. Benacci said Mr. Carmichael appears to be reviewing all businesses and strategies and determining which ones will stay or go.

        She said Mr. Carmichael's action to eliminate Ohio Casualty's dividend — particularly given its long history of paying a quarterly dividend — is a major indication that he is moving fast.

        “That shows he is taking some aggressive action and is serious about turning this company around,” Ms. Benacci said.

        Mr. Carmichael has a track record.

        From 1987 to 1996, he was president of Anthem Casualty Insurance Group, formerly Shelby Insurance. Under Mr. Carmichael's tenure, Shelby Insurance premiums grew to $365 million from $110 million.

        And Mr. Carmichael said he's receiving feedback from agents that the company's new direction is a good one.

        “Agents have expressed verbally they can see that things are changing,” he said. “Despite the rough waters we've carried them through, they seem to be more optimistic going forward.”

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