State Auto Financial reports third quarter 2019 results

string(13) "news_articles" State Auto Financial reports third quarter 2019 results

State Auto Financial reports third quarter 2019 results

2019-10-31

  • Quarterly earnings of $0.25 per share
  • Quarterly net income from operations1 of $0.34 per share
  • Quarterly GAAP combined ratio of 99.5
  • Return on equity of 3.4%
  • Book value per share of $21.68

View as PDF

COLUMBUS, OHIO - October 31, 2019 - State Auto Financial Corporation (NASDAQ:STFC) today reported third quarter 2019 net income of $11.5 million, or $0.25 per diluted share, compared to net income of $33.4 million, or $0.76 per diluted share, for the same 2018 period. Net income from operations1 per diluted share for the third quarter of 2019 was $0.34 versus $0.44 for the same 2018 period.

For the first nine months of 2019, STFC had net income of $54.7 million, or $1.25 per diluted share, compared to net income of $37.3 million, or $0.86 per diluted share, for the same 2018 period. Net income from operations1 per diluted share for the first nine months of 2019 was $0.34 versus $0.53 for the same 2018 period.

GAAP Operating Results

STFC’s GAAP combined ratio for the third quarter 2019 was 99.5 compared to 98.4 for the same 2018 period. Catastrophe losses during the third quarter 2019 accounted for 3.3 points of the 65.2 total loss ratio points, or $10.6 million, versus 5.3 points of the total 62.3 loss ratio points, or $16.3 million, for the same period in 2018. Non-catastrophe losses and ALAE during the third quarter 2019 included 5.1 points of favorable development relating to prior years, or $16.1 million, versus 5.9 points of favorable development, or $18.1 million, for the same period in 2018.

STFC’s GAAP combined ratio for the first nine months of 2019 was 103.6 compared to 102.6 for the same 2018 period. Catastrophe losses for the first nine months of 2019 accounted for 8.1 points of the 68.6 total loss ratio points, or $75.7 million, versus 6.8 points of the total 66.8 loss ratio points, or $63.6 million, for the same period in 2018. Non-catastrophe losses and ALAE for the first nine months of 2019 included 5.6 points of favorable development relating to prior years, or $51.7 million, versus 5.6 points of favorable development, or $52.2 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 is no longer material to our results. 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 third quarter 2019 increased 11.0% compared to the same period in 2018. By insurance segment, net written premium for the personal and commercial segments increased 7.4% and 16.8%, 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 declines in new business and retention. The increase in the commercial segment was led by new business growth in commercial auto and middle market commercial. The improvement was partially offset by a decrease in net written premiums in workers’ compensation due to continued intense competition in this market.

Net written premium for the first nine months of 2019 increased 10.6% compared to the same period in 2018. Net written premium for the personal and commercial segments increased 9.8% and 11.9%, respectively. The improved trends in the personal and commercial segments' net written premium were due to the same factors discussed above for the third quarter.

The SAP personal and commercial segments' combined ratio2 for the third quarter 2019 was 98.7 compared to 96.4 for the same 2018 period. Catastrophe losses during the third quarter 2019 accounted for 3.2 points of the total 65.4 loss ratio points, or $10.3 million, versus 5.5 points of the total 61.4 loss ratio points, or $15.9 million, for the same period in 2018. Non-catastrophe losses and ALAE during the third quarter 2019 included 4.8 points of favorable development relating to prior years, or $15.2 million, versus 6.9 points of favorable development, or $19.9 million, for the same period in 2018.

The SAP personal and commercial segments' combined ratio for the first nine months of 2019 was 102.7 compared to 100.8 for the same 2018 period. Catastrophe losses during the third quarter 2019 accounted for 7.8 points of the total 68.5 loss ratio points, or $71.7 million, versus 7.6 points of the total 66.0 loss ratio points, or $63.4 million, for the same period in 2018. Non-catastrophe losses and ALAE during the third quarter 2019 included 5.8 points of favorable development relating to prior years, or $54.1 million, versus 6.7 points of favorable development, or $56.4 million, for the same period in 2018.

Book Value and Return on Equity

STFC’s book value increased to $21.68 per share as of September 30, 2019, compared to $21.07 on June 30, 2019. The increase in book value was driven by increases in the market value of our investment portfolio.

Return on stockholders’ equity for the 12 months ended September 30, 2019, was 3.4% compared to 3.7% for the 12 months ended September 30, 2018.

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

"We’re very pleased with our overall third quarter 2019 results. It was a quarter where the validation of our move to digital extended beyond personal insurance, to small commercial and commercial auto. Our results demonstrated our ability to deliver on our commitment to profitably grow commercial lines and our agents' willingness to accept our new platform for these lines.

"The SAP personal and commercial segments’ third quarter combined ratio of 98.7 included 3.2 points of catastrophe losses.

"Personal lines delivered a 100.6 combined ratio and 7.4% growth. Homeowners continued to perform well, with 19.5% growth and a 99.9 combined ratio, helped by lower catastrophe losses. In personal auto, we’ve been working to improve business processes, including improved service features on our new platform and ongoing adjustments to our pricing models. We’re confident these efforts will lead to improvement in growth and underwriting results in this important line.

"Commercial lines delivered a 95.9 combined ratio and 16.8% growth for the third quarter, even without the benefit of our new digital platform for our middle market commercial product, farm and ranch and workers compensation; those products will launch next year. Across commercial lines, we are seeing the results of a committed, passionate and focused team that has made us a valued market for small and mid-sized business risks.

"Becoming a more efficient organization remains key to our continued progress. Associates throughout the organization are working every day to identify operational improvements that reduce expenses and make us both more efficient and effective. I am very confident in our ability to deliver."

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.

STFC has scheduled a conference call with interested investors for Thursday, October 31, at 11 a.m. ET to discuss the Company’s third 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., October 31, by calling 855-859-2056, conference ID 6146097. Supplemental schedules detailing the Company’s third quarter 2019 financial, sales and underwriting results are made available on http://www.StateAuto.com/STFC prior to the conference call.

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 a loss of $0.09 per diluted share for the third quarter of 2019 and income of $0.91 year-to-date 2019 versus income of $0.32 per diluted share for the third quarter 2018 and income of $0.33 year-to-date 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 pages 18 - 21 of this release.

* * * * *

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.