STFC announces third quarter results

• Quarterly income of $0.26 per share
• Quarterly net loss from operations1 of $0.10 per share
• Quarterly GAAP combined ratio of 106.0 
• Quarterly SAP personal and commercial segments' combined ratio2 of 102.2
• Return on equity of (3.8)% 
• Book value per share of $21.57 

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COLUMBUS, OHIO - November 5, 2020 - State Auto Financial Corporation (NASDAQ:STFC) today reported third quarter 2020 net income of $11.6 million, or $0.26 per diluted share, compared to $11.5 million, or $0.25 per diluted share, for the same 2019 period. Net loss from operations1 per diluted share for the third quarter of 2020 was $0.10 versus net income from operations1 per diluted share of $0.34 for the same 2019 period.

 

For the first nine months of 2020, STFC had a net loss of $68.7 million, or $1.57 per diluted share, compared to net income of $54.7 million, or $1.25 per diluted share, for the same 2019 period. Net loss from operations1 per diluted share for the first nine months of 2020 was $0.86 versus net income from operations1 per diluted share of $0.34 for the same 2019 period.

 

GAAP Operating Results

 

STFC’s GAAP combined ratio for the third quarter 2020 was 106.0 compared to 99.5 for the same 2019 period. Catastrophe losses and ALAE during the third quarter 2020 accounted for 16.6 points of the 71.2 total loss ratio points, or $58.7 million, versus 3.3 points of the 65.2 total loss ratio points, or $10.6 million, for the same period in 2019. The third quarter 2020 was impacted by severe wind and hail events that impacted the South and Midwest, with approximately 50% of the catastrophe losses affecting our homeowners line of business. Catastrophe losses and ALAE included 3.5 points of adverse development relating to prior years, or $12.3 million, from specialty run-off related to Hurricane Irma. Non-catastrophe losses and ALAE during the third quarter 2020 included 5.5 points of favorable development relating to prior years, or $19.3 million, versus 5.1 points of favorable development, or $16.1 million, for the same period in 2019.

 

STFC’s GAAP combined ratio for the first nine months of 2020 was 109.3 compared to 103.6 for the same 2019 period. Catastrophe losses and ALAE for the first nine months of 2020 accounted for 18.6 points of the 74.4 total loss ratio points, or $191.0 million, versus 8.1 points of the total 68.6 loss ratio points, or $75.7 million, for the same period in 2019. Catastrophe losses and ALAE included 1.2 points of adverse development relating to prior years, or $12.4 million, from specialty run-off related to Hurricane Irma. Non-catastrophe losses and ALAE for the first nine months of 2020 included 3.1 points of favorable development relating to prior years, or $31.8 million, versus 5.8 points of favorable development, or $54.1 million, for the same period in 2019. Non-catastrophe losses and ALAE for the first nine months of 2020 included 0.5 points of adverse development relating to prior years, or $5.2 million, versus 0.2 points of favorable development, or $2.4 million, for the same period in 2019 from specialty run-off.

 

SAP Personal and Commercial Operating Results

 

Net written premium for the third quarter 2020 increased 9.2% compared to the same period in 2019. By insurance segment, net written premium for the personal and commercial segments increased 9.7% and 8.3%, 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, and (ii) continued intense competition in this market. 

 

Net written premium for the first nine months of 2020 increased 11.3% compared to the same period in 2019. Net written premium for the personal and commercial segments increased 10.1% and 13.4%, respectively. The trends in the personal and commercial net written premiums are due to the same factors discussed above for the third 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 ratio² for the third quarter 2020 was 102.2 compared to 98.7 for the same 2019 period. Catastrophe losses during the third quarter 2020 accounted for 13.1 points of the 68.5 total loss ratio points, or $46.4 million, versus 3.2 points of the 65.4 total loss ratio points, or $10.3 million, for the same period in 2019. Non-catastrophe losses and ALAE during the third quarter 2020 included 5.2 points of favorable development relating to prior years, or $18.4 million, versus 4.8 points of favorable development, or $15.2 million, for the same period in 2019.

The SAP personal and commercial segments' combined ratio for the first nine months of 2020 was 106.9 compared to 102.7 for the same 2019 period. Catastrophe losses during the first nine months of 2020 accounted for 17.4 points of the total 72.9 loss ratio points, or $178.6 million, versus 7.8 of the total 68.5 loss ratio points, or $71.7 million, for the same period in 2019. Non-catastrophe losses and ALAE during the first nine months of 2020 included 3.6 points of favorable development relating to prior years, or $37.0 million, versus 5.6 points of favorable development, or $51.7 million, for the same period in 2019.

 

Book Value and Return on Equity

 

STFC’s book value increased to $21.57 per share as of September 30, 2020, compared to $21.26 on June 30, 2020. The increase in book value was driven by investment results.

 

Return on stockholders’ equity for the 12 months ended September 30, 2020, was (3.8)% compared to 3.4% for the 12 months ended September 30, 2019.

 

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

 

"While catastrophes had a significant impact on our third quarter 2020 results, we continue to feel very good about our continued progress toward consistent profitability and growth. Our digital transformation continued, with ongoing improvements to our State Auto Connect technology, including last month’s launch of our 15th and final product, workers’ compensation, on the platform. In five years we were able to transform all of our products onto an industry leading digital platform, a monumental achievement.

 

"I’m proud of the work of our Claims and Risk Engineering (CARE) professionals and customer service teams who continued to support our policyholders through some of the most difficult times in their lives. From the ongoing COVID-19 pandemic to civil unrest and severe weather, our CARE and Customer Service professionals once again delivered exceptional service.

 

"The SAP personal and commercial segments produced 9.2% net written premium growth during the third quarter, with a combined ratio of 102.2 that included 13.1 points of catastrophe losses. Personal lines produced 9.7% net written premium growth and a combined ratio of 111.5, including 15.8 points of catastrophe losses. Commercial lines’ 88.9 combined ratio included 9.3 points of catastrophe losses, and produced 8.3% net written premium growth.

 

"Due to catastrophic weather, our third quarter results fell short of expectations, but the passion and determination that fueled our turnaround still delivered an excellent quarter and will drive us toward growth and profitability in the quarters ahead."

 

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 $0.36 per diluted share for the third quarter of 2020 and a loss of $0.71 year to date 2020 versus loss of $0.09 per diluted share for the third quarter 2019 and income of $0.91 year to date 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 18 - 21 of this release.

 

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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.