COLUMBUS, Ohio -- April 2, 2001 -- State Auto Financial Corporation (NASDAQ:STFC) made the following announcement today concerning its Management Agreement with State Auto Mutual Insurance Company (Mutual).
Late Friday afternoon, March 30, 2001, Mutual concluded a series of discussions that took place over the past several weeks with the Ohio Department of Insurance (Department) regarding the Management and Operations Agreement dated January 1, 2000 (the Management Agreement), between State Auto Property and Casualty Insurance Company (State Auto P&C), STFC's wholly owned affiliate, and Mutual. As a result of these discussions, Mutual was requested by the Department to file an analysis on a quarterly basis of its justification for the apportionment of the service fee paid by Mutual to State Auto P&C. This analysis, which is to start with the quarter beginning January 1, 2001, must demonstrate that the accounting for the service fee paid by Mutual under the Management Agreement complies with the accounting guidance outlined in Statement of Statutory Accounting Principles No. 70 - Allocation of Expenses.
The Company believes that its accounting for such service fee is consistent with all statutory accounting principles. However, there can be no assurance that all or any part of the service fee paid by Mutual will be justified to the Department's satisfaction, which may affect the amount of such fee recognized as revenue by the Company. In 2000, the service fee paid by Mutual represented $0.24 on a basic and diluted earnings per share, after tax, basis.
"While we are disappointed the service fee has become an issue at this time, it is important to recognize our strong-performing insurance operations represent the primary source of earnings for STFC. With our much-improved top-line growth and continuing underwriting excellence we remain confident in our ability to sustain our momentum," said Robert H. Moone, Chairman and CEO of State Auto Financial.
State Auto Mutual is the parent of STFC, a regional property and casualty insurance holding company engaged primarily in writing personal and commercial automobile, homeowners, commercial multi-peril, workers' compensation and fire insurance. The companies currently market their products through more than 14,000 agents associated with approximately 2,200 agencies in 26 states. Products are marketed primarily in the Midwest and Eastern United States, excluding New York, New Jersey and the New England states.
STFC has scheduled a conference call with industry analysts for Monday afternoon, April 2, 2001, 2 PM to discuss this announcement. Live and archived broadcasts of the conference call can be heard on www.streetfusion.com.
Except for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these uncertainties are described in State Auto Financial's Form 10-K and Form 10-Q reports and exhibits to those reports, and include (but are not limited to) legislative changes at both the state and federal level, state and federal regulatory rule making promulgations and adjudications, class action litigation involving the insurance industry and judicial decisions affecting claims, policy coverages and the general costs of doing business, the impact of competition on products and pricing, inflation in the costs of the products and services insurance pays for, product development, geographic spread of risk, weather and weather-related events, and other types of catastrophic events. State Auto Financial undertakes no obligation to update or revise any forward-looking statements.
This release is neither an offer to sell nor a solicitation of an offer to buy the securities of either company, nor a solicitation of a proxy. Any such offer or solicitation will only be made in compliance with applicable securities law.