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State Auto Financial Corp., headquartered in Columbus, Ohio, reported fourth quarter 2011 net income of $100.6 million, or $2.49 per diluted share, versus $37.6 million, or $0.94 per diluted share, for the fourth quarter of 2010.
STFC’s GAAP combined ratio for the fourth quarter 2011 was 94.0 versus 97.6 for the fourth quarter of 2010. Catastrophe losses during the fourth quarter of 2011, including prior accident period development, favorably impacted the 59.7 loss ratio by 0.5 points, or $1.8 million. For the same 2010 period, catastrophe losses accounted for 2.3 points of the total 62.6 loss ratio points, or $7.7 million.
The State Auto Group implemented capital management actions at the end of 2011 to improve and better manage the capital position of STFC.
First, the intercompany reinsurance pooling agreement was amended to reduce the overall participation percentage of the STFC insurance subsidiaries from 80 percent to 65 percent including pooling other comprehensive income related to employee benefit plans.
Second, the State Auto Group entered into a three-year quota share reinsurance agreement with a syndicate of reinsurers covering its homeowners’ book of business.
Third, retiree healthcare benefits for most active employees and certain retirees were terminated.
STFC’s book value was $18.81 per share as of Dec. 31, 2011, an increase of $3.87 per share from STFC’s book value on Sept. 30, 2011, and a decrease of $2.42 per share from Dec. 31, 2010.
Net written premium for the fourth quarter of 2011 decreased 54.3 percent from the same period in 2010.
The homeowners’ quota share reinsurance arrangement and the year-end pooling change collectively contributed to the entire amount of this decline, as the ceded unearned premium reserve amounts transferred under these two arrangements are reflected as reductions to net written premium.
By segment, net written premium for fourth quarter of 2011 decreased 80.8 percent for personal insurance and 39.1 percent for business insurance and increased 50.3 percent for specialty insurance from the same period in 2010.
The specialty segment growth was principally driven by the addition of the Rockhill unit to the pooling arrangement on Jan. 1, 2011 and increased business written through Risk Evaluation and Design (RED), STFC’s affiliate for alternative risk and program business.
For the year 2011, STFC had a net loss of $146.8 million, or $3.65 per diluted share, compared to net income of $24.5 million, or $0.62 per diluted share, for 2010. Included in the results for 2011 was a charge related to the deferred tax asset valuation allowance in the amount of $91.2 million, or $2.27 diluted per share.
The GAAP combined ratio for 2011 was 116.3 compared to 104.6 for 2010.
Catastrophe losses increased the loss ratio by 16.2 points, or $231.1 million, during 2011, compared to 7.9 points, or $99.0 million, during 2010. The 2011 and 2010 catastrophe losses both included favorable prior accident years’ development which reduced the loss ratio by 0.3 points, or $4.3 million for 2011, and 0.3 points, or $3.3 million for 2010.
Non-catastrophe favorable reserve development reduced the loss ratio by 2.0 points, or $29.0 million for 2011, and 4.8 points, or $61.3 million for 2010.
Net written premium for 2011 decreased 2.9 percent from 2010.
The homeowners’ quota share reinsurance arrangement and the year-end pooling change contributed to the decrease, but were offset by the addition of the Rockhill unit to the intercompany pooling arrangement. By segment, net written premium for 2011 decreased 21.1 percent for personal insurance and 9.4 percent for business insurance and increased 135.3 percent for specialty insurance from the same period in 2010.
The specialty segment growth was principally driven by the addition of the Rockhill unit to the pooling arrangement and increased business written through RED.