Best Affirms Ohio Casualty

A.M. Best Co. has affirmed Cincinnati-based Ohio Casualty Group’s financial strength rating of “A-” (excellent).

Best also affirmed the debt rating of “bbb-” of Ohio Casualty Corp.’s convertible notes issued March 19, 2002. Best has also assigned indicative ratings of “bbb-” senior unsecured debt, “bb+” subordinated debt, “bb” preferred stock to Ohio Casualty Corp. and “bb” trust preferred securities to Ohio Casualty Capital Trust I and II, which are associated with the $500 million universal shelf registration announced by Ohio Casualty Corporation on May 8, 2003. All ratings have been assigned stable outlooks.

The financial strength rating affirmation is based on the Group’s supportive capitalization, diversified product offerings and geographic spread of risk, as well as its strong brand name recognition and long-standing relationships with its independent agency distribution force.

Also, in an effort to rebound from several years of weak operating performance, the new management team has been proactive in implementing various initiatives, including an aggressive expense containment policy, re-underwriting of all product lines and strengthening underwriting guidelines, which has contributed to the group’s restored operating profitability.

Furthermore, the parent, Ohio Casualty Corp., closed a convertible note private offering in March 2002. The proceeds from the sale, which amounted to $201 million, were used to retire the Ohio Casualty Corp.’s existing bank debt, which contained several onerous covenants that jeopardized the group’s historically sound balance sheet strength.

Offsetting these positive rating factors is the group’s below average return measures and decline in statutory surplus driven by poor underwriting experience. The group’s poor underwriting experience coupled with dividend payments to Ohio Casualty Corporation has led to a marked deterioration in statutory surplus and rise in underwriting leverage measures over the last five years, Best said.

Although the group has reduced its sizable common stock portfolio to roughly 40 percent of statutory surplus, it remains at a level that is above that of the commercial casualty peer composite. This risk is partially mitigated by the group’s solid overall capitalization and the financial flexibility of its publicly traded parent.