State Auto Financial Corporation (NASDAQ:STFC) today reported a
second quarter 2011 net loss of $201.4 million, or $5.01 per
diluted share, versus a net loss of $26.2 million, or $0.66 per
diluted share, for the second quarter of 2010. Net loss from
operations* per diluted share for the second quarter 2011 was $5.11
versus a net loss from operations* of $0.66 for the same 2010
period. The previously announced charge to establish a deferred tax
asset valuation allowance in the amount of $115 million reduced
STFC’s per share results by $2.86 for the second quarter and the
first six months of 2011.
STFC’s GAAP combined ratio for the second quarter 2011 was 147.0
versus 115.2 for the second quarter of 2010. Catastrophe losses for
the second quarter 2011 accounted for 44.3 points of the 114.0
total loss ratio points, or $156.1 million, versus 18.6 points of
the total 81.5 loss ratio points, or $57.5 million, for the same
period in 2010.
Net written premium for the second quarter of 2011 increased
9.9% over the same period in 2010. The Rockhill unit, which is now
in the intercompany reinsurance pooling arrangement, contributed
7.1 points to this growth, while the State Auto legacy business
contributed 2.8 points. For the second quarter of 2011, net written
premium for the personal and business insurance segments declined
3.0% and 0.8%, respectively, compared to the same period in 2010,
while net written premium for the specialty insurance segment
increased $42.3 million compared to the same period in 2010. The
increase in net written premium for the specialty insurance
segment was principally driven by the addition of Rockhill to the
pooling arrangement and increased business written through Risk
Evaluation and Design (RED), STFC’s affiliate for alternative risk
and program business. STFC’s book value was $16.77 per share as of
June 30, 2011, a decrease of $4.77 per share from STFC’s book value
on March 31, 2011. The decrease in book value per share included
$2.86 attributable to the establishment of the deferred tax asset
valuation allowance. Return on stockholders’ equity for the twelve
months ended June 30, 2011 was negative 20.3% compared to 1.8% for
the twelve months ended June 30, 2010.
For the first six months of 2011, STFC had a
net loss of $188.7 million, or $4.70 per diluted share,
compared to a loss of $13.3 million, or $0.33 per diluted share,
for same 2010 period. STFC’s GAAP combined ratio for the first six
months of 2011 was 125.0 compared to 107.5 for the same 2010
period. Catastrophe losses increased the loss ratio for the first
six months of 2011 by 24.5 points, or $172.1 million, compared
to 11.0 points, or $67.6 million for the first six months of 2010.
Net written premiums year to date 2011 increased 11.3%
compared to the same 2010 period. The Rockhill unit contributed 7.5
points to this growth, while the State Auto legacy business
contributed 3.8 points. For the first six months of 2011, net
written premium for the personal and business insurance segments
declined 2.2% and 0.7%, respectively, compared to the same period
in 2010, while net written premium for the specialty insurance
segment increased $84.5 million compared to the same period in
2010. STFC’s book value per share was $16.77 as of June 30,
2011, a decrease of 21.0% from December 31, 2010.
STFC President and CEO Bob Restrepo commented on the quarter as
follows:
“STFC’s second quarter loss was both
unprecedented and unexpected. The widespread scope and severity of
the spring storms and the devastating impact it had on local
communities in over 20 of our operating states produced the highest
quarterly combined ratio since STFC went public in 1991. The second
quarter is seldom a good one and is generally characterized by
wind, hail and other spring weather related losses. Prior to this
year, our average five-year loss ratio for second quarter
catastrophes was 18%. This year, our second quarter loss ratio
included 44.3 points of catastrophe losses.
“Weather events during the quarter produced
vast devastation, from the loss of property to the loss of lives.
Our claim staff handled almost 32,000 claims resulting from second
quarter weather events. Approximately half were specifically
related to one of the 12 catastrophe events the industry incurred,
rivaling the 17,000 claims we received following Hurricane Ike. I’m
very proud of our claim associates for delivering unparalleled
customer service that is, in a small but significant way, helping
our policyholders endure these tragedies.
“Although masked by catastrophes and the
establishment of a valuation allowance for the deferred tax asset,
investment income improved, our expense ratio improved despite the
pressures of a poor economy and competitive commercial lines
pricing, and our specialty business is growing.
“The quarter is behind us and our outlook for
the future remains optimistic. We continue to work to implement
strategies to leverage our superior personal auto capabilities,
aggressively fix our homeowners business, invest in diversification
through our standard and specialty business insurance segments, and
reduce our exposure to weather related losses.
“We’re particularly pleased with the progress
we’re making in our specialty segment. We have several marketing
prototypes in place to offer excess and surplus products to State
Auto agents and expand our presence in the profitable small,
guaranteed cost workers compensation market. These kinds of
initiatives will diversify our sources of income, reduce the impact
of wind and hail events on our results, and broaden the product
portfolio we offer to our independent agency partners. Over time,
our investments in specialty, along with an improving commercial
lines pricing environment, will enable us to achieve a better
balanced, more profitable book of business and improved returns for
our shareholders.”
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 third 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, primarily through independent insurance
agencies, in all 50 states and the District of Columbia. 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, State Auto
Florida, Milbank, Farmers Casualty, Meridian Security, Meridian
Citizens Mutual, Beacon National, Beacon Lloyds, Patrons Mutual,
Litchfield Mutual Fire, 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.
*Net income (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 realized capital gains and (losses), net of applicable
taxes, on investment activity for the periods being reported. For
STFC, this amounted to income of $0.10 per diluted share for the
second quarter 2011 and income of $0.24 year to date versus $0.00
per diluted share for the second quarter 2010 and income of $0.06
year to date.
STFC has scheduled a conference call with interested investors
for Tuesday, Aug. 2, at 10 a.m. ET to discuss the Company’s second
quarter 2011 performance. Live and archived broadcasts of the call
can be accessed at http://www.StateAuto.com. A replay of the call
can be heard beginning at 12 p.m. ET, Aug. 2, by calling
888-562-6891. Supplemental schedules detailing STFC’s second
quarter 2011 financial, sales and underwriting results are made
available on the Investors tab of http://www.StateAuto.com prior to
the conference call.
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.
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended Six Months Ended June 30 June 30
(In millions, except per share amounts)
2011
2010 2011 2010 Net
premiums written $ 387.1 $ 352.1 $ 764.2 (B) $
654.6 (C) Earned premiums 352.4 309.3 702.6 611.6 Net
investment income 25.2 20.8 46.2 41.3 Net realized gain on
investments 6.5 0.3 14.7 3.5 Other income from affiliates
0.3 0.7 1.1 1.1
Total revenue 384.4 331.1 764.6
657.5 Loss before federal income taxes
(137.6 ) (30.0 ) (122.2 ) (9.4 ) Federal income tax expense
(benefit) 63.8 (3.8 ) 66.5
3.9 Net loss $ (201.4 ) $ (26.2 ) $ (188.7 ) $ (13.3
) Loss per share: - basic $ (5.01 ) $ (0.66 ) $ (4.70 ) $
(0.33 ) - diluted $ (5.01 ) $ (0.66 ) $ (4.70 ) $ (0.33 )
Loss per share from operations (A): - basic $ (5.11 ) $ (0.66 ) $
(4.94 ) $ (0.39 ) - diluted $ (5.11 ) $ (0.66 ) $ (4.94 ) $ (0.39 )
Weighted average shares outstanding: - basic 40.2 39.9 40.2
39.9 - diluted 40.2 39.9 40.2 39.9 Return on equity (LTM)
-20.3 % 1.8 % Book value per share $ 16.77 $ 20.37
Dividends paid per share $ 0.15 $ 0.15 $ 0.30 $ 0.30 Total
shares outstanding 40.2 40.0 GAAP ratios: Loss and LAE ratio
114.0 81.5 91.7 73.9 Expense ratio 33.0 33.7
33.3 33.6 Combined ratio
147.0 115.2 125.0 107.5
Reconciliation of non-GAAP financial measure: (A) Net
loss from operations: Net loss $ (201.4 ) $ (26.2 ) $ (188.7 ) $
(13.3 )
Less net realized gain on investments,
less applicable federal income taxes
3.8 0.3 9.5 2.3
Net loss from operations $ (205.2 ) $ (26.5 ) $ (198.2 ) $
(15.6 )
(B)
Net premiums written for the six months
ended June 30, 2011, includes $34.1 million of unearned premiums
transferred to STFC from the Rockhill Insurers in connection with
the addition of the Rockhill Insurers to the State Auto Pool,
effective January 1, 2011.
(C)
Net premiums written for the six months
ended June 30, 2010, includes $1.4 million of unearned premiums
transferred from STFC to State Auto Mutual in connection with the
addition of State Auto National to the State Auto Pool, effective
January 1, 2010.
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