State Auto Financial reports first quarter 2019 results
- Quarterly earnings of $1.12 per share
- Quarterly net income from operations1 of $0.31 per share
- Quarterly GAAP combined ratio of 99.7
- Return on equity of 7.5%
- Book value per share of $20.67
PDF, including financial schedules
COLUMBUS, OHIO - May 2, 2019 - State Auto Financial Corporation (NASDAQ:STFC) today reported first quarter 2019 net income of $49.4 million, or $1.12 per diluted share, compared to a net loss of $2.1 million, or $0.05 per diluted share, for the same 2018 period. Net earnings from operations1 per diluted share for the first three months of 2019 was $0.31 versus $0.17 for the same 2018 period.
GAAP Operating Results
STFC's GAAP combined ratio for the first three months of 2019 was 99.7 compared to 102.6 for the same 2018 period. Catastrophe losses for the first three months of 2019 accounted for 5.9 points of the 64.2 total loss ratio points, or $17.7 million, versus 3.1 points of the total 67.4 loss ratio points, or $9.8 million, for the same period in 2018. Non-catastrophe losses and ALAE for the first three months of 2019 included 6.9 points of favorable development relating to prior years, or $20.9 million, versus 5.1 points of favorable development, or $16.0 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 it no longer is material to our results. Specialty results, labeled as "specialty run-off," are included in the SAP Insurance Segment Results table below to enable reconciliation to total underwriting results.
Net written premium for the first three months of 2019 increased 4.7% compared to the same period in 2018. Net written premium for the personal and commercial segments increased 11.6% and 5.9%, respectively. The increase in the personal segment was primarily due to (i) rate actions taken to improve the profitability in personal auto partially offset by lower retention, and (ii) new business growth and a higher level of homeowners policies in force. The increase in the commercial segment was led by new business growth in commercial auto and middle market commercial. The improvements were partially offset by a decrease in net written premiums in workers' compensation due to continued intense competition in this market.
The SAP personal and commercial segments' combined ratio2 for the first quarter 2019 was 99.7 compared to 101.4 for the same 2018 period. Catastrophe losses during the first quarter 2019 accounted for 5.8 points of the total 63.6 loss ratio points, or $17.2 million, versus 3.7 points of the total 66.5 loss ratio points, or $9.8 million, for the same period in 2018. Non-catastrophe losses and ALAE during the first quarter 2019 included 7.4 points of favorable development relating to prior years, or $22.2 million, versus 6.0 points of favorable development, or $16.3 million, for the same period in 2018.
Book Value and Return on Equity
STFC's book value increased to $20.67 per share as of March 31, 2019, compared to $18.91 on December 31, 2018. This was driven by increases in the market value of our investment portfolio and net income from operations.
Return on stockholders' equity for the 12 months ended March 31, 2019, was 7.5% compared to (1.1)% for the 12 months ended March 31, 2018.
STFC's Chairman, President and CEO Mike LaRocco commented on the quarter as follows:
"We once again delivered profitable growth during first quarter 2019, following our strong 2018 results. The personal and commercial segments' combined ratio for the first quarter was 99.7, a 1.7-point improvement over first quarter 2018, largely driven by personal auto, small commercial package and workers compensation. Our go forward lines delivered a 9.2% increase in net written premium. Our distribution partners clearly see the value in our products and platform and are responding.
"This was a solid start to 2019. The trends we're seeing in both growth and losses are positive, and our focused improvements in pricing and claim handling are producing results. We're delivering innovative approaches to every aspect of our business. Our smart home product is now live in nine states, and we made significant progress toward launching a pilot program to make the property inspection process easier for our customers, and more efficient. Our use of robotic process automation is getting attention and gathering steam, with more than 50 bots now in production.
"State Auto is a different company than it was just four years ago. Now a customer-focused organization that's an insurance technology leader - and growing profitably."
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. 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 $0.81 per diluted share for the first quarter of 2019 versus income of $0.22 per diluted share for the first quarter 2018.
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 16 of this release.
STFC has scheduled a conference call with interested investors for Thursday, May 2, at 11 a.m. ET to discuss the Company's first 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., May 2, by calling 855-859-2056, conference ID 4067169. Supplemental schedules detailing the Company's first 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.