State Auto Financial reports revised financial information related to accounting for pension and postretirement benefits
COLUMBUS, OHIO - March 4, 2019 - State Auto Financial Corporation (NASDAQ:STFC) reported today that it is revising previously disclosed financial information related to accounting for its pension and postretirement benefits. STFC had been pooling the net liabilities and the unrecognized actuarial gains and losses along with prior service costs recorded in accumulated other comprehensive income for pension and postretirement benefits to affiliated companies pursuant to a quota share reinsurance agreement or pooling agreement. However, STFC and its auditors have determined that such pooling is not appropriate for these items. Amounts recognized as pension expense continue to be appropriately pooled in each period presented.
As a result, STFC's balance sheet has been revised to reverse the impact of pooling these items by increasing the reported pension and postretirement benefits liability and reducing reported stockholders' equity by recording additional unrecognized actuarial losses and prior service costs within accumulated other comprehensive income at each reported balance sheet date. For these adjustments, associated deferred tax benefits have been established at each reported balance sheet date. For the year ended December 31, 2017, additional deferred income tax expense of $7.1 million was recorded to reflect an adjustment to deferred taxes for the reduction of the corporate income tax rate in connection with the Tax Cut and Jobs Act of 2017 (TCJA). Related earnings and book value per share amounts have been revised accordingly. These adjustments are not material to STFC’s previously issued financial statements. STFC has included with this release a new disclosure for book value per share excluding accumulated other comprehensive income, net of tax, along with the appropriate non-GAAP measurement reconciliation.
As a result of the foregoing changes, STFC's fourth quarter 2017 net loss was $13.8 million1, or $0.331 per diluted share and net loss from operations2 per diluted share was $0.651. For the year ended 2017, STFC's net loss was $17.8 million1, or $0.421 per diluted share and net loss from operations2 per diluted share was $1.431. The fourth quarter and year ended 2017 net loss and net loss from operations included a charge of $43.5 million, or $1.03 per diluted share, related to the enactment of the TCJA.
Book Value and Return on Equity
As a result of the foregoing changes, STFC’s book value was $18.91 per share as of Dec. 31, 2018. Adjusted book value per share3 was $21.13 per share as of Dec. 31, 2018 compared to $19.59 per share as of Dec. 31, 2017.
Except as described above, the change in accounting for pension and postretirement benefits did not impact STFC’s 2018 financial results or return on stockholders’ equity.
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.
1As previously reported, the results for the fourth quarter and year ended Dec. 31, 2017, have been revised 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. Results have also been revised for the adjustments discussed in this release. Although these errors are immaterial to STFC’s previously issued financial statements, the cumulative corrections would have a material effect on the 2018 financial statements. Accordingly, the results for the fourth quarter and year ended Dec. 31, 2017, 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 period ending March 31, 2018 for further information.
2 Net earnings (loss) from operations, a non-GAAP financial measure that STFC believes is informative to its management and investors, differs from GAAP net income (loss) only by the exclusion of net investment (loss) gain, net of applicable taxes, on investment activity for the periods being reported. For STFC, this amounted to income of $0.32 per diluted share and $1.01 per diluted share for the fourth quarter and year ended Dec. 31, 2017, respectively.
3 Adjusted book value per share, a non-GAAP financial measure that STFC believes is informative to its management and investors, differs from GAAP book value per share only by the exclusion of accumulated other comprehensive (loss) income, net of applicable taxes, for the periods being reported. For STFC, this amounted to a decrease of $2.23 per share and an increase of $0.09 per share for the years ended Dec. 31, 2018 and 2017, respectively.
* * * * * *
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.
Media contact: Kyle Anderson, Kyle.Anderson@StateAuto.com, 614-917-5497
Investor contact: Natalie Schoolcraft, Natalie.Schoolcraft@StateAuto.com, 614-917-4341