State Auto Financial reports fourth quarter and year end 2020 results

• Quarterly earnings of $1.85 per share
• Quarterly net income from operations¹ of $0.66 per share
• Quarterly GAAP combined ratio of 93.8 
• Quarterly SAP personal and commercial segments' combined ratio² of 94.5
• Return on equity of 1.3% 
• Book value per share of $23.00 

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COLUMBUS, OHIO - February 18, 2021 - State Auto Financial Corporation (NASDAQ:STFC) today reported fourth quarter 2020 net income of $81.8 million, or $1.85 per diluted share, compared to net income of $33.2 million, or $0.73 per diluted share, for the same 2019 period. Net income from operations¹ per diluted share for the fourth quarter of 2020 was $0.66 versus $0.30 for the same 2019 period.

For the year ended 2020, STFC had net income of $13.1 million, or $0.30 per diluted share, compared to net income of $85.8 million, or $1.93 per diluted share, for the same 2019 period. Net loss from operations¹ per diluted share for the year ended 2020 was $0.19 versus net income from operations¹ per diluted share of $0.59 for the same 2019 period.

GAAP Operating Results

STFC’s GAAP combined ratio for the fourth quarter 2020 was 93.8 compared to 100.0 for the same 2019 period. Catastrophe losses during the fourth quarter 2020 accounted for 4.3 points of the 59.0 total loss ratio points, or $15.2 million, versus 7.7 points of the total 64.2 loss ratio points, or $24.8 million, for the same period in 2019. Non-catastrophe losses and ALAE during the fourth quarter 2020 included 5.5 points of favorable development relating to prior years, or $19.7 million, versus 5.7 points of favorable development, or $18.3 million, for the same period in 2019. 

STFC’s GAAP combined ratio for the year ended 2020 was 105.3 compared to 103.0 for the same 2019 period. Catastrophe losses for the year ended 2020 accounted for 14.9 points of the 70.4 total loss ratio points, or $206.2 million, versus 8.0 points, or $100.5 million for the same period in 2019. Non-catastrophe losses and ALAE for the year ended 2020 included 3.7 points of favorable development relating to prior years, or $51.5 million, versus 5.8 points of favorable development, or $72.4 million, for the same period in 2019.

SAP Personal and Commercial Operating Results

Net written premium for the fourth quarter 2020 increased 7.8% compared to the same period in 2019. By segment, net written premium for personal and commercial increased 6.0% and 10.6%, respectively. The increase in the personal segment was primarily due to new business growth and rate increases in homeowners and other personal. The improvement was partially offset by a decrease in net written premiums in personal auto due to a decline in new business. The increase in the commercial segment was primarily driven by (i) new business growth and rate increases in commercial auto and (ii) new business growth in farm & ranch. The improvement was partially offset by a decrease in net written premiums in workers’ compensation due to (i) a decline in new business as a result of COVID-19, (ii) a strategic decision to not renew and no longer write nursing home policies, and (iii) continued intense competition in this market.

Net written premium for the year ended 2020 increased 10.7% compared to the same period in 2019.  By insurance segment, net written premium for the personal and commercial segments increased 9.4% and 12.7%, respectively. The trends in the personal and commercial segments' net written premium were due to the same factors discussed above for the fourth quarter. In addition, the increase in the commercial segment was also driven by rate increases in middle market commercial.

The SAP personal and commercial segments' combined ratio for the fourth quarter 2020 was 94.5 compared to 97.1 for the same 2019 period. Catastrophe losses during the fourth quarter 2020 accounted for 4.2 points of the total 59.2 loss ratio points, or $15.0 million, versus 5.6 points of the total 62.1 loss ratio points, or $18.2 million, for the same period in 2019. Non-catastrophe losses and ALAE during the fourth quarter 2020 included 5.5 points of favorable development relating to prior years, or $19.7 million, versus 6.1 points of favorable development, or $19.6 million, for the same period in 2019.

The SAP personal and commercial segments' combined ratio for the year ended 2020 was 103.6 compared to 101.4 for the same 2019 period. Catastrophe losses for the year ended 2020 accounted for 14.0 points of the total 69.3 loss ratio points, or $193.6 million, versus 7.2 points of the total 66.9 loss ratio points, or $89.9 million for the same period in 2019. Non-catastrophe losses and ALAE for the year ended 2020 included 4.1 points of favorable development relating to prior years, or $56.7 million, versus 5.7 points of favorable development, or $71.3 million, for the same period in 2019. 

Book Value and Return on Equity

STFC’s book value increased to $23.00 per share as of Dec. 31, 2020, compared to $21.58 on Sept. 30, 2020. The increase was driven by the market value of our investment portfolio and net operating income.

Return on stockholders’ equity for the 12 months ended December 31, 2020, was 1.3% compared to 9.8% for the 12 months ended December 31, 2019.

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

"We ended an otherwise challenging year with a strong quarterly result. Our fourth quarter 2020 personal and commercial lines’ 94.5% SAP combined ratio and 7.8% net written premium growth demonstrated our ability to grow profitability and included notable improvement in key areas, including our non-catastrophe loss ratio and expense ratio.

"For the year, our personal and commercial lines’ 103.6% SAP combined ratio included a catastrophe loss ratio of 14 points, which is 6.4 points higher than our five-year average. Our personal lines business produced a 106.8% SAP combined ratio, including 14.5 points of catastrophe losses. While net written premium in our personal auto line declined 5.9%, our homeowners business grew 23.6%. Our commercial lines business was profitable with an SAP combined ratio of 99.2% and net written premium growth of 12.7%. We also completed the rollout of products on our digital-only platform, State Auto Connect, with the launch of farm and ranch, workers’ compensation and middle market commercial.

"While our financial results for the year can be seen as falling short of our expectations, 2020 was a successful year and one in which our associates can take great pride. With the exception of an unusually bad CAT year, our underlying loss ratio was terrific, as was our strong growth. More importantly, I’m proud of the extraordinary efforts of our team, from Claims and Risk Engineering (CARE) and Service who delivered exceptional service to customers affected by storms and other catastrophic events throughout the country, to our sales teams who strengthened relationships with independent agents in the midst of a pandemic. Throughout the year, we always put family and community first and stayed true to our culture, our bond became stronger and we are positioned for continued progress and success in 2021."

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 $1.19 per diluted share and $0.49 per diluted share for the fourth quarter and year ended Dec. 31, 2020, respectively, versus a income of $0.43 per diluted share and $1.34 per diluted share for the fourth quarter and year ended Dec. 31, 2019, 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. 18, at 11 a.m. ET to discuss the Company’s fourth quarter 2020 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. 18, by calling 855-859-2056, conference ID 5526278. Supplemental schedules detailing the Company’s fourth quarter 2020 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.