Ohio Casualty Corp.

1919–1994

Ohio Casualty Corp., which celebrated its 75th anniversary in 1994, ranks as one of the United States's top 35 stock insurance holding companies, with $3.8 billion in assets. The vast majority (97 percent) of the firm's business is in property-casualty insurance, including private passenger auto, homeowners, inland marine, workers' compensation, commercial auto, and general liability. Although Ohio Casualty had $5.3 billion in life insurance in force as of 1993, life insurance products constituted a very small segment of the corporation's business. All policies are sold and serviced through a combination of 4,000 independent agents and branch offices in 38 states. The insurer has chalked up nearly a half-century of consecutive annual dividend increases in spite of formidable obstacles in the early 1990s.

The Ohio Casualty Insurance Company was established in Hamilton, Ohio, a small industrial town located between Dayton and Cincinnati. Howard L. Sloneker, Sr., Samuel M. Goodman, and Ben D. Lecklider, all of whom were in the auto insurance business before World War I, opened an office in the Rentschler Building in November 1919. The new firm became Ohio's first stock insurance company to offer full coverage automobile policies--including allowances for property damage, personal liability, fire, theft, and tornado damage--and auto insurance was its only line of business. Lecklider advanced to the forefront of the organization, and Goodman oversaw the new company's finances as treasurer. Known as a "people person," Sloneker expanded the business through his positive relationships with agents, policyholders, employees, and investors.

The young company's premiums exceeded $400,000 within just a few years, but its success highlighted its risky emphasis on only one product in only one state. The company began to diversify in 1923, offering glass insurance for homeowners and businesses, and selling policies outside the state. Ohio Casualty established its first affiliate, the Inland Casualty Company, just two years later. Rapid growth necessitated the parent's third and final move to an office on Third Street in Hamilton in 1927. Although the buildings were remodeled and expanded over the years, that location remained Ohio Casualty's headquarters into the 1990s.

The insurer had added fidelity and surety lines, as well as burglary, forgery, and general liability insurance, to its product offerings by October 1929, when the stock market crash heralded the Great Depression. Surprisingly, Ohio Casualty managed to avoid laying off a single employee, and even achieved growth, throughout the Depression. The company established its first branch office, in Cleveland, in 1935; a second branch followed three years later in Detroit. The 1939 acquisition and subsequent merger of the Pennsylvania Indemnity Company expanded Ohio Casualty's reach eastward.

Sloneker and Marcum lead Ohio Casualty to ever-higher premium growth, exceeding $1 billion in gross premiums written in 1985.

1940–1993

Co-founder Howard Sloneker, Sr. advanced to Ohio Casualty's presidency when Ben Lecklider died in 1940. Sloneker would continue in a leadership capacity through World War II and into the postwar era. As the number of vehicles and drivers increased during this time, Ohio Casualty began to segment its clients according to age, driving record, and other quantitative categories. The company insured only the statistically best candidates, known in the industry as "standard risks." Ohio Casualty acquired the firm that would long rank as its largest subsidiary, California's West American Insurance Company, in 1945.

Howard Sloneker's oldest son, Howard Jr., was named president of the company in 1953, and he oversaw daily operations in that position for a decade. He then became chairperson, following his father's death in 1963, while his brother, John, advanced to the presidency. The Sloneker family legacy drove Ohio Casualty's dramatic growth through acquisition in the 1960s. The company established its Ocasco Budget subsidiary at the outset of the decade. This operation provided premium financing for its own and other companies' clients, thereby easing the financial burden of large semiannual premium payments. The following year witnessed the charter of The Ohio Life Insurance Company, which offered personal and business life insurance, as well as pension and profit sharing programs. Just one year later, Ohio Casualty acquired another Hamilton-based firm, Ohio Security Insurance Company, and closed out the decade with the acquisition of American Fire and Casualty Company of Orlando, Florida, a firm that held out great growth potential through its southeastern network of agents. An insurance holding company, Ohio Casualty Corporation, was formed in 1969 to coordinate the activities of the six related companies.

During the 1960s, increasing loss costs shifted the auto insurance industry's profit center from underwriting to investing. An underwriting profit was measured by the combined operating ratio, which compares claims and overhead to premiums collected. A combined operating ratio of 100 or less indicated that a company's expenses equaled or were less than premiums collected, while a ratio of 107 signified a seven percent underwriting loss, indicating that premiums collected fell seven percent short of claims and operating expenses. Since the automobile insurance business began consistently recording losses on underwriting activities in the 1960s, most companies, including Ohio Casualty, made money through profitable investments.

Problems compounded in the insurance market of the 1970s, as soft markets, cash flow underwriting, and continuously increasing loss costs exacerbated negative combined ratios and reduced profitability. The industry averaged a seven percent annual loss on underwriting from the 1970s through the early 1990s. Ohio Casualty's underwriting loss from 1984 to 1993 was slightly below that average, at 6.3 percent. John Sloneker advanced to Ohio Casualty's board chair and chief executive office when brother Howard retired in 1978. Joseph Marcum, an Ohio Casualty employee since 1947, became the company's first president outside the Sloneker family in almost four decades.

1985–1994

Sloneker and Marcum lead Ohio Casualty to ever-higher premium growth, exceeding $1 billion in gross premiums written in 1985. When Sloneker retired from active management in 1988, Marcum advanced to the positions of chairperson and CEO. He served in that capacity until 1994, when Lauren Patch, then acting as president, added the duties of the chief executive office to his responsibilities.

The insurance industry overall suffered consumer backlash that came to fruition in the form of rate legislation in the late 1980s. The most notorious law, California's Proposition 103, mandated 15 percent cuts in auto insurance premiums and refunds to many customers after its 1988 ratification. At that time, Ohio Casualty's West American Insurance Company in that state contributed over one-fifth of the holding company's annual revenues. Nevertheless, the parent elected to withdraw from California in 1992. Legislative assessments and loss of premium revenues combined with decreasing investment yields resulted in an 11.7 percent decline in net income from $98.5 million in 1992 to $87 million in 1993. Gross premiums dropped 12.4 percent during the same period, as Marcum and Patch shifted the corporation's focus to the states of Ohio, Kentucky, Indiana, Illinois, and Tennessee. The leaders set a long-term goal of capturing at least five percent of each of those competitive markets, and at least one percent of each of the other 33 states in which it operated. Achieving these two seemingly modest goals alone promised to double Ohio Casualty's premium writings, and would thereby salvage the revenues lost from exiting the California market.

Acknowledging that selling through independent agents had distanced the firm from its ultimate customers, the policyholders, Ohio Casualty attempted to remedy this situation through the creation of the its first formal marketing department and the implementation of a Total Quality Management program in the early 1990s. A new statement of purpose, issued in 1993, identified four key stakeholders: policyholders, shareholders, employees, and agents. More tangible changes included a corporate reorganization into four organizational areas: policyholder services, management support systems, human resources, and technology. Cost reduction strategies such as increased automation and consolidation of branch offices were implemented to curb historically high underwriting expenses.

The insurer also adopted several anti-takeover measures in the early 1990s, first reducing its cash position to virtually nothing in 1990, since cash-rich firms are often targeted for acquisition. At about the same time, the company created a shareholder protection rights plan that provided for the distribution of one common share purchase right for each outstanding common share in the event that a person or group acquired 20 percent or more of the insurer's common shares.

1993–1994

Marcum and Patch conceded that Ohio Casualty Corporation's financial performance was disappointing in 1993, but emphasized that, with its reputation for underwriting and claims servicing, the firm could expect better earnings in 1994 on the occasion of its 75th anniversary.