State Auto Financial reports first quarter 2020 results
- Quarterly loss of $2.62 per share
- Quarterly net loss from operations1 of $0.18 per share
- Quarterly GAAP combined ratio of 107.2
- Return on equity of (8.7)%
- Book value per share of $19.83
COLUMBUS, OHIO - May 6, 2020 - State Auto Financial Corporation (NASDAQ:STFC) today reported a first quarter 2020 net loss of $114.6 million, or $2.62 per diluted share, compared to net income of $49.4 million, or $1.12 per diluted share, for the same 2019 period. Net loss from operations1 per diluted share for the first quarter of 2020 was $0.18 versus net income from operations per diluted share of $0.31 for the same 2019 period.
GAAP Operating Results
STFC’s GAAP combined ratio for the first quarter 2020 was 107.2 compared to 99.7 for the same 2019 period. Catastrophe losses during the first quarter 2020 accounted for 12.7 points of the 72.4 total loss ratio points, or $41.9 million, versus 5.9 points of the 64.2 total loss ratio points, or $17.7 million, for the same period in 2019. First quarter 2020 was impacted by a severe wind and hail storm, including tornadoes, in Tennessee that contributed 8.3 points to the first quarter loss and ALAE ratio, of which 4.6 points were from three commercial losses in Nashville.
Non-catastrophe losses and ALAE during the first quarter 2020 included 3.2 points of favorable development relating to prior years, or $10.5 million, versus 6.9 points of favorable development, or $20.9 million, for the same period in 2019.
SAP Personal and Commercial Operating Results
Net written premium for the first quarter 2020 increased 13.4% compared to the same period in 2019. By insurance segment, net written premium for the personal and commercial segments increased 10.5% and 17.6%, 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 declines in new business and retention. The increase in the commercial segment was led by new business growth and rate increases 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.
The SAP personal and commercial segments' combined ratio2 for the first quarter 2020 was 107.3 compared to 99.7 for the same 2019 period. Catastrophe losses during the first quarter 2020 accounted for 12.7 points of the 72.5 total loss ratio points, or $41.8 million, versus 5.8 points of the 63.6 total loss ratio points, or $17.2 million, for the same period in 2019. Non-catastrophe losses and ALAE during the first quarter 2020 included 3.2 points of favorable development relating to prior years, or $10.4 million, versus 7.4 points of favorable development, or $22.2 million, for the same period in 2019.
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 table below to enable reconciliation to total underwriting results.
Book Value and Return on Equity
STFC’s book value decreased to $19.83 per share as of March 31, 2020, compared to $22.01 on Dec. 31, 2019. The decrease in book value was driven by the decline in the market value of our equity securities and other invested assets.
Return on stockholders’ equity for the 12 months ended March 31, 2020, was (8.7)% compared to 7.5% for the 12 months ended March 31, 2019.
STFC’s Chairman, President and CEO Mike LaRocco commented on the quarter as follows:
"The COVID-19 pandemic is a test unlike any we’ve faced, as a society and as an insurance industry. Our number one priority is the health and safety of our associates, customers, and agents. I’m enormously proud of the focus and dedication of the State Auto team, which seamlessly moved to almost entirely working from home in a matter of days. It’s a transition that wasn’t even noticed by our policyholders and agents thanks to a culture that made it possible, and investments in technology over the past five years that have made us a leading digital provider of insurance. Our independent agent partners continue to quote, sell and service their books of business uninterrupted through our State Auto Connect digital platform, and customers are served through our Customer Connect portal and the outstanding work of our customer service teams.
"Our 'In This Together' plan, which we announced in April and is pending regulatory approval, will provide a 5% discount on our personal auto policyholders’ premium at their next renewal. This plan properly recognizes both the reduction of miles driven and the likelihood that the impact of the pandemic will not be short-lived. In addition, we continue to encourage enrollment in our usage-based telematics program, and we have seen a marked increase.
"From the very early days of the pandemic, we’ve been working with customers in need of flexibility when it comes to payments and payment plans, and we’ll continue to support them, our agents, associates and communities through this challenge in the months ahead.
"While the pandemic has rightly had much of our attention, first quarter 2020 also demonstrated the exceptional value our Claims and Risk Engineering (CARE) professionals deliver to our customers when they need it most. We were in Nashville within hours of the tornado that tore through the area on March 3. Three large commercial losses totaling 4.6 points drove the higher than anticipated catastrophe loss ratio of 12.7%, versus our five-year average first quarter cat loss ratio of 5.2%.
"In personal lines, we continued progress in our largest line, personal auto, toward improved growth and profitability with the launch of new rates and an updated telematics program that makes it even easier for policyholders to save money through safer driving. Strong growth in our homeowners business continued, with a net written premium increase of 26.7%.
"In commercial lines, the three large Nashville losses drove the poor profit result. However, overall positive momentum in commercial continued in the first quarter. Every line other than workers’ compensation grew, with overall 17.6% net written premium growth for commercial lines. Connect CPP (middle market commercial) launched in March, drawing positive feedback from agents on the efficiency of the platform and overall flexibility of the product. Connect Farm & Ranch launched in February, including three new states and two existing states, fueling nearly 20% growth.
"While the challenges we faced in first quarter 2020 were significant, this was yet another quarter in which there’s clear evidence of our continued progress toward sustained profit and growth. Our investments in technology that began five years ago are paying off, and we’re seeing similar benefits from more recent investments. Areas that we knew needed attention and we focused on are showing signs of improvement. Our rebuilding of State Auto has yielded many benefits, including the ability to navigate the kind of adversity we all face today with confidence. This 99-year-old company has faced significant challenges before, and I am confident that State Auto will rise to this challenge."
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. 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 Wednesday, May 6, at 11 a.m. ET to discuss the Company’s first 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., May 6, by calling 855-859-2056, conference ID 3644248. Supplemental schedules detailing the Company’s first quarter 2020 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 $2.44 per diluted share for the first quarter of 2020 versus income of $0.81 per diluted share for the first quarter 2019.
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 15 - 16 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.