State Auto Financial reports first quarter 2018 results

• Quarterly loss of $0.05 per share
• Quarterly earnings from operations¹ of $0.17 per share
• Quarterly GAAP combined ratio of 102.6
• Return on equity of (1.0)%
• Book value per share of $19.90

COLUMBUS, OHIO - May 8, 2018 - State Auto Financial Corporation (NASDAQ:STFC) today reported a first quarter 2018 net loss of $2.1 million, or $0.05 per diluted share, compared to net loss of $3.3 million, or $0.08 per diluted share, for the same 2017 period.  Net earnings from operations per diluted share for the first quarter 2018 was $0.17 versus net loss from operations per diluted share of $0.20 for the same 2017 period.

GAAP Operating Results

STFC's GAAP combined ratio for the first quarter 2018 was 102.6 compared to 108.7 for the same 2017 period. Catastrophe losses during the first quarter 2018 accounted for 3.1 points of the 67.4 total loss ratio points, or $9.8 million, versus 10.8 points of the total 73.7 loss ratio points, or $34.3 million, for the same period in 2017.  Non-­catastrophe losses and ALAE during the first quarter 2018 included 5.1 points of favorable development relating to prior years, or $16.0 million, versus 1.5 points of favorable development, or $4.8 million, for the same period in 2017.

Net written premium for the first quarter 2018 decreased 4.8% compared to the same period in 2017. By insurance segment, net written premium for the personal and commercial segments increased 22.4% and 7.4%, respectively, and the specialty segment decreased 80.9%. The increase in the personal segment was primarily due to rate actions taken to improve the profitability in personal auto and a higher level of new business policies for the first quarter 2018 compared to the first quarter 2017. The increase in the commercial segment was primarily driven by a higher level of new business production from middle market commercial package, workers' compensation, and farm & ranch during the first quarter 2018 compared to the first quarter 2017. The decline in the specialty insurance segment was primarily driven by our decision to exit specialty business.

SAP Personal and Commercial Operating Results

The SAP personal and commercial segments combined ratio² for the first quarter 2018 was 101.4% compared to 107.9% for the same 2017 period. Catastrophe losses during the first quarter 2018 accounted for 3.7 points of the total 66.5 loss ratio points, or $9.8 million, versus 12.5 points of the total 73.1 points or $32.1 million for the same period in 2017. Non-catastrophe loss and ALAE during the first quarter 2018 included 6.0 points of favorable development relating to prior years, or $16.3 million, versus 2.1 points or $5.3 million, for the same period in 2017.

Book Value and Return on Equity

STFC's book value was $19.90 per share as of March 31, 2018 as compared to $20.63³ on December 31, 2017. The decrease was driven by the market value of our investment portfolio. Return on stockholders' equity for the 12 months ended March 31, 2018, was (1.0)% compared to 1.7% for the 12 months ended March 31, 2017.

STFC's Chairman, President and CEO Mike LaRocco commented on the quarter as follows:

"Our journey continues and we're making terrific progress.  The personal and commercial segments combined ratio for the first quarter was 101.4%, an improvement of 6.5 points, largely driven by personal and commercial auto, homeowners, middle market, workers' compensation and farm & ranch. Our go forward products are once again growing, up over 15% from first quarter 2017.

"I could not be more proud of our agents and associates. Over the last three years we've taken them through a significant amount of change. They embraced the change, helped make us better, and now we're all reaping the benefits. We know a great deal of work remains ahead of us, but rather than just fixing problems, we have more capacity to focus on improvements that will get us to consistent profitability and growth. Our digital strategy allows us to implement changes quickly. We know what's left to be done; we have actions in place to make corrections where needed, and I'm confident we'll see continued improvement.

"We've completed the plan to exit our specialty segment and all of our lines will be in run-off by June 1. This is a positive step forward for State Auto, as we're now a simpler and more focused company. Our digital strategy and our commitment to agents is clear and aligned with our go forward products. We believe that our intermediated distribution and digital strategy make us unique in the market. As a result, we have significant opportunities ahead. The last few quarters, including first quarter 2018, demonstrate that our potential is being realized.

"State Auto is now a very different company: a digital company that's committed to the independent agency channel. Buying a policy from us is similar to any online purchase. In our industry, that's quite unique, and customers are responding by trusting us with their business. Our progress to date is motivating us to deliver even greater progress in the months ahead."

About State Auto Financial Corporation

State Auto Financial Corporation, headquartered in Columbus, Ohio, is a super regional property and casualty insurance holding company and is proud to be a Trusted Choice® company partner. STFC stock is traded on the NASDAQ Global Select Market, which represents the top fourth of all NASDAQ listed companies.

The insurance subsidiaries of State Auto Financial Corporation are part of the State Auto Group. The State Auto Group markets its insurance products throughout the United States, through independent insurance agencies, which include retail agencies and wholesale brokers. The State Auto Group is rated A- (Excellent) by the A.M. Best Company and includes State Automobile Mutual, State Auto Property & Casualty, State Auto Ohio, State Auto Wisconsin, Milbank, Meridian Security, Patrons Mutual, Rockhill Insurance, Plaza Insurance, American Compensation and Bloomington Compensation. Additional information on State Auto Financial Corporation and the State Auto Insurance Companies can be found online at http://www.StateAuto.com/STFC.

¹ Net earnings (loss) from operations, a non-GAAP financial measure which management believes is informative to Company management and investors, differs from GAAP net income (loss) only by the exclusion of net investment gain (loss), net of applicable taxes, on investment activity for the periods being reported. For STFC, this amounted to loss of $0.22 per diluted share for the first quarter 2018 versus income of $0.12 per diluted share for the first quarter 2017.

² Insurance industry regulators require STFC's insurance subsidiaries to report their financial condition and results of operations using Statutory Accounting Practices ("SAP"). The SAP personal and commercial segments combined ratio is a measure used by management to evaluate STFC's operating performance for its ongoing operations. Details behind the compilation of these results can be found on page 19 of this release.

³ The first quarter of 2017 results have been restated to correct an error discovered during the first quarter of 2018 relating to the calculation of deferred acquisition costs (DAC) along with making other adjustments not previously recorded relating to that same time period. Although the error was immaterial to STFC's previously issued financial statements, the cumulative correction would have a material effect on the 2018 financial statements. Accordingly, prior period amounts throughout this release have been adjusted to incorporate the revised amounts, where applicable. Please refer to our quarterly report on Form 10-Q for the quarterly period ending March 31, 2018 for further information.

STFC has scheduled a conference call with interested investors for Tuesday, May 8, at 11 a.m. ET to discuss the Company's first quarter 2018 performance. Live and archived broadcasts of the call can be accessed at http://www.StateAuto.com/STFC. A replay of the call can be heard beginning at 2 p.m., May 8, by calling 855-859-2056, conference ID 9788379. Supplemental schedules detailing the Company's first quarter 2018 financial, sales and underwriting results are made available on http://www.StateAuto.com/STFC prior to the conference call.

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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.

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