State Auto Reports Drop in Income, Higher Combined Ratio in Q3

November 2, 2010

State Auto Financial Corp., headquartered in Columbus, Ohio, reported third quarter 2010 net income of $0.2 million, or $0.00 per diluted share, versus net income of $13.0 million, or $0.33 per diluted share, for the third quarter of 2009. Net loss from operations per diluted share for the third quarter 2010 was $0.04, versus net income of $0.27 for the same 2009 period.

State Auto’s combined ratio for the quarter was 105.9 versus 102.5 for the third quarter of 2009. Catastrophe losses during the third quarter this year, net of loss recoveries under the company’s aggregate catastrophe reinsurance treaty, accounted for 7.5 points of the total 73.1 loss ratio points, or $23.7 million, compared to $10.8 million or 3.6 points of the total 68.3 loss ratio points for the same period in 2009.

Net written premium for the quarter increased 11.8 percent over the same period in 2009, with personal insurance increasing 4.7 percent and business insurance 25.4 percent.

For the first nine months of 2010, STFC had a net loss of $13.1 million, or $0.33 per diluted share, compared to a loss of $4.2 million, or $0.11 per diluted share, for same 2009 period. STFC’s GAAP combined ratio for the first nine months of 2010 was 106.9 compared to 108.3 for the same 2009 period.

Catastrophe losses, net of loss recoveries under the company’s aggregate catastrophe treaty, increased the loss ratio for the first nine months of 2010 by 9.8 points, or $91.3 million, compared to 10.4 points, or $91.5 million for the first nine months of 2009.

Net written premiums year to date 2010 increased 9.6 percent compared to the same 2009 period, with personal insurance increasing 7.4 percent and business insurance 13.3 percent.

State Auto Chairman, President and CEO Bob Restrepo commented: “Although State Auto and the industry avoided any meaningful losses from hurricanes this year, above average frequency and severity of wind and hail storms in the Midwest increased our catastrophe loss ratio results relative to last year’s third quarter and our five year average trend.

“Higher levels of catastrophes and lower investment income hurt both third quarter underwriting performance and net income results.”

Restrepo said the company’s “ex-catastrophe combined ratio results improved relative to the third quarter of last year. Personal lines loss ratios are lower resulting from higher rate levels, enhanced claim performance, and a more diversified risk profile in our homeowners line. The overall expense ratio was also lower as we begin to see the benefits of our field restructuring and other expense reduction initiatives.”

Improvements in the personal lines segment were offset “by unusually high frequency of large losses in our business insurance segment, adding approximately 9 points to the commercial loss ratio compared to the same quarter last year. We define large losses as claims over $100,000,” he said.

The commercial auto line, which is generally profitable for the company had “an unusual run of bodily injury loss activity on both prior and current accident years,” Restrepo said.

The company also “experienced two large fire losses and revalued a number of claim reserves on prior accident year general liability losses affecting the fire and other and products liability lines, respectively. Large loss activity on our relatively small commercial lines portfolio can cause results volatility quarter to quarter. We don’t view this as a trend and continue to maintain high quality risk selection in the face of continued price competition,” Restropo said.

“Aggressive pricing and underwriting actions in the homeowners line produced lower quarterly growth in personal insurance. Retention remains strong, but new business is down particularly in the Midwest and Southeast,” Restropo said.

Growth in the company’s personal lines sector resulted from pricing and expansion states — Arizona, Colorado, Connecticut and Texas.

Source: State Auto Financial Corp.

Topics Catastrophe Auto Profit Loss

Was this article valuable?

Here are more articles you may enjoy.