State Auto Financial Reports $11.9M Net Income in Q3 2014

November 4, 2014

Columbus, Ohio-based State Auto Financial Corp. reported third quarter 2014 net income of $11.9 million, or $0.28 per diluted share, versus net income of $18.5 million, or $0.45 per diluted share, for the third quarter of 2013. Net income from operationsper diluted share for the third quarter 2014 was $0.25 versus net income from operationsof $0.33 for the same 2013 period.

STFC’s GAAP combined ratio for the third quarter 2014 was 102.0 versus 101.4 for the third quarter of 2013.

Catastrophe losses, net of reinsurance recoveries, for the third quarter 2014 accounted for 0.9 points of the 68.2 total loss ratio points, or $2.4 million, versus 2.4 points of the total 67.2 loss ratio points, or $6.4 million, for the same period of 2013.

For the third quarter of 2014, non-catastrophe losses included $13.8 million, or 5.1 loss ratio points, of loss and loss expense reserve strengthening for prior accident years on program business written through Risk Evaluation & Design LLC (RED), a wholly owned subsidiary of State Automobile Mutual Insurance Co., all of which was terminated in 2012 and is in runoff.

For the third quarter of 2014, the State Auto Group’s homeowners quota share reinsurance arrangement increased STFC’s underwriting loss by $10.0 million or 3.4 points on the combined ratio.

Pursuant to the arrangement, STFC ceded $47.1 million of written premium, $43.9 million of earned premium, $1.2 million of catastrophe losses and $17.0 million of non-catastrophe losses, and recognized $12.8 million of ceded commissions in addition to $2.9 million of profit commission during the third quarter of 2014.

This cession decreased STFC’s overall catastrophe loss ratio 0.2 points, increased the overall non-catastrophe loss ratio 3.9 points and decreased the overall expense ratio 0.3 points for the third quarter of 2014.

Net written premium for the third quarter of 2014 increased 6.6 percent compared to the same period of 2013.

By segment, net written premium for the third quarter of 2014 decreased 5.1 percent for personal insurance, increased 2.9 percent for business insurance and increased 43.3 percent for specialty insurance compared to the same period of 2013.

The decline in the personal insurance segment was driven by company actions to improve profitability.

Business insurance premium growth remained positive, driven by higher average new business premium, increased renewal pricing and a recovering economy. The growth in specialty insurance was driven by new business and new distribution partners, including Partners General Insurance Agency, which was recently acquired by our parent, State Automobile Mutual Insurance Co.

For the first nine months of 2014, STFC had a net income of $42.0 million, or $1.02 per diluted share, compared to $44.4 million, or $1.09 per diluted share, for the same 2013 period. STFC’s GAAP combined ratio for the first nine months of 2014 was 102.8 compared to 101.7 for the same 2013 period.

Catastrophe losses increased the loss ratio for the first nine months of 2014 by 3.7 points, or $29.9 million, compared to 4.1 points, or $32.2 million for the same 2013 period.

For the first nine months of 2014, the homeowners quota share reinsurance arrangement increased STFC’s underwriting loss by $15.9 million or 2.1 points on the combined ratio.

Pursuant to the arrangement, STFC ceded $133.6 million of written premium, $132.2 million of earned premium, $19.2 million of catastrophe losses and $55.8 million of non-catastrophe losses, and recognized $38.4 million of ceded commissions in addition to $2.9 million of profit commission during the first nine months of 2014.

This cession reduced STFC’s overall catastrophe loss ratio 1.6 points, increased the overall non-catastrophe loss ratio 3.2 points and increased the overall expense ratio 0.5 points for the first nine months of 2014.

Net written premiums year to date 2014 increased 3.6 percent compared to the same 2013 period.

By segment, net written premium for the first nine months of 2014 decreased 4.6 percent for personal insurance, while the business and specialty insurance segments increased 4.3 percent and 19.6 percent, respectively, compared to the same period of 2013.

The specialty insurance segment increase was due to growth in all specialty units.

STFC President and CEO Bob Restrepo commented: “We are pleased with the underlying quality of our underwriting results. Excluding the impact of RED and the homeowner quota share treaty, our third quarter and year to date combined ratio would have been 94.2 percent and 98.0 percent, respectively.”

Source: State Auto Financial Corp.

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