State Auto Financial reports fourth quarter and year end 2019 results
- Quarterly earnings of $0.72 per share
- Quarterly net income from operations1 of $0.29 per share
- Quarterly GAAP combined ratio of 100.4
- Quarterly SAP personal and commercial segments' combined ratio2 of 97.1
- Return on equity of 9.8%
- Book value per share of $22.01
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COLUMBUS, OHIO - February 20, 2020 - State Auto Financial Corporation (NASDAQ:STFC) today reported fourth quarter 2019 net income of $32.7 million, or $0.72 per diluted share versus a net loss of $24.5 million, or $0.57 per diluted share, for the same 2018 period. Net income from operations1 per diluted share for the fourth quarter of 2019 was $0.29 versus $0.67 for the same 2018 period.
For the year ended 2019, STFC had net income of $87.4 million, or $1.96 per diluted share, compared to net income of $12.8 million, or $0.29 per diluted share, for the same 2018 period. Net income from operations1 per diluted share for the year ended 2019 was $0.63 versus $1.20 for the same 2018 period.
GAAP Operating Results
STFC’s GAAP combined ratio for the fourth quarter 2019 was 100.4 compared to 94.6 for the same 2018 period. Catastrophe losses during the fourth quarter 2019 accounted for 7.7 points of the 64.2 total loss ratio points, or $24.8 million, versus 2.6 points of the total 56.8 loss ratio points, or $8.1 million, for the same period in 2018. Fourth quarter catastrophe losses included $6.6 million, or 2.1 loss ratio points, of adverse development relating to prior years from Hurricanes Irma and Harvey from the specialty run-off business. Non-catastrophe losses and ALAE during the fourth quarter 2019 included 5.7 points of favorable development relating to prior years, or $18.3 million, versus 7.9 points of favorable development, or $24.4 million, for the same period in 2018.
STFC’s GAAP combined ratio for the year ended 2019 was 102.7 compared to 100.6 for the same 2018 period. Catastrophe losses for the year ended 2019 accounted for 8.0 points of the 67.4 total loss ratio points, or $100.5 million, versus 5.8 points, or $71.7 million for the same period in 2018. Non-catastrophe losses and ALAE for the year ended 2019 included 5.8 points of favorable development relating to prior years, or $72.4 million, versus 6.2 points of favorable development, or $76.6 million, for the same period in 2018.
SAP Personal and Commercial Operating Results
The exit from our specialty insurance business resulted in the elimination of specialty insurance as a reportable segment as we stopped writing this business on a net basis in 2018. Specialty results, labeled as "specialty run-off," are included in the SAP Insurance Segment Results tables below to enable reconciliation to total underwriting results.
Net written premium for the fourth quarter 2019 increased 9.0% compared to the same period in 2018. By segment, net written premium for personal and commercial increased 6.8% and 12.6%, respectively. The increase in the personal segment was primarily due to new business growth and rate increases in homeowners and other personal. Personal auto net written premium declined as a result of lower new business and retention. The increase in the commercial segment was led by new business growth in commercial auto, middle market commercial and small commercial package. Workers' compensation net written premium declined due to continued intense competition in this market.
Net written premium for the year ended 2019 increased 10.2% compared to the same period in 2018. By insurance segment, net written premium for the personal and commercial segments increased 9.1% and 12.0%, respectively. The trends in the personal and commercial segments' net written premium were due to the same factors discussed above for the fourth quarter.
The SAP personal and commercial segments' combined ratio for the fourth quarter 2019 was 97.1 compared to 92.8 for the same 2018 period. Catastrophe losses during the fourth quarter 2019 accounted for 5.6 points of the total 61.9 loss ratio points, or $18.2 million, versus 2.3 points of the total 54.8 loss ratio points, or $6.9 million, for the same period in 2018. Non-catastrophe losses and ALAE during the fourth quarter 2019 included 6.1 points of favorable development relating to prior years, or $19.6 million, versus 7.8 points of favorable development, or $23.3 million, for the same period in 2018.
The SAP personal and commercial segments' combined ratio for the year ended 2019 was 101.2 compared to 98.6 for the same 2018 period. Catastrophe losses for the year ended 2019 accounted for 7.2 points of the total 66.8 loss ratio points, or $89.9 million, versus 6.2 points of the total 63.0 loss ratio points, or $70.3 million for the same period in 2018. Non-catastrophe losses and ALAE for the year ended 2019 included 5.7 points of favorable development relating to prior years, or $71.3 million, versus 7.0 points of favorable development, or $79.7 million, for the same period in 2018.
Book Value and Return on Equity
STFC’s book value increased to $22.01 per share as of Dec. 31, 2019, compared to $21.68 on Sept. 30, 2019. The increase was driven by the market value of our investment portfolio.
Return on stockholders’ equity for the 12 months ended December 31, 2019, was 9.8% compared to 1.5% for the 12 months ended December 31, 2018.
STFC’s Chairman, President and CEO Mike LaRocco commented on the quarter and year as follows:
“Our fourth quarter and year ended 2019 results reflected the challenges we faced during the year in addition to the considerable progress we made toward more consistent profitable performance. While our personal and commercial lines’ 101.2% SAP combined ratio and 10.2% net written premium growth for 2019 didn’t meet our expectations, we made important, significant progress in several areas including surpassing $2.0 billion in net written premium for the State Auto Group which includes all Pooled Companies.
“The lack of an underwriting profit was driven primarily by our personal lines business, where we identified and have closed product and technology gaps, mainly in our auto line. Higher weather losses also significantly impacted our property results. Our homeowners business grew nearly 20% in 2019, a testament to the powerful combination of our digital technology and new product design.
“2019 was an outstanding year for our commercial lines business, which was profitable with a SAP combined ratio of 97.0 and produced 12.0% net written premium growth. This was a remarkable achievement, the result of two years of rebuilding our commercial lines teams and products. At the same time, work continued toward 2020 launches of farm and ranch and middle market commercial on our digital-only platform, State Auto Connect.
“The foundation we’ve built remains strong. We enter 2020 with the products, pricing, technology and agent partners that will drive our success, and the State Auto team has the creativity, passion and persistence needed to win.”
About State Auto Financial Corporation
State Auto Financial Corporation, headquartered in Columbus, Ohio, is a super regional property and casualty insurance holding company. 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 income of $0.43 per diluted share and $1.33 per diluted share for the fourth quarter and year ended Dec. 31, 2019, respectively, versus a loss of $1.25 per diluted share and $0.91 per diluted share for the fourth quarter and year ended Dec. 31, 2018, respectively.
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 pages 18 - 21 of this release.
STFC has scheduled a conference call with interested investors for Thursday, Feb. 20, at 11 a.m. ET to discuss the Company’s fourth quarter 2019 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., Feb. 20, by calling 855-859-2056, conference ID 9569194. Supplemental schedules detailing the Company’s fourth quarter 2019 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.