State Auto Financial Corporation (Nasdaq:STFC) today reported a
second quarter 2012 net loss of $2.7 million, or $0.07 per diluted
share, versus a net loss of $214.1 million*, or $5.33 per diluted
share*, for the second quarter of 2011. Net loss from operations**
per diluted share for the second quarter 2012 was $0.18 versus net
loss from operations** of $5.43 for the same 2011 period*.
STFC’s GAAP combined ratio for the second quarter 2012 was 110.4
versus 147.4* for the second quarter of 2011. Catastrophe losses,
net of reinsurance recoveries, for the second quarter 2012
accounted for 13.2 points of the 78.1 total loss ratio points, or
$34.0 million, versus 44.3 points of the total 114.0 loss ratio
points, or $156.1 million, for the same period in 2011.
The State Auto Group’s homeowners quota share reinsurance
arrangement reduced STFC’s underwriting loss by $24.4 million or
6.8 points on the combined ratio. Pursuant to the arrangement, STFC
ceded $47.7 million of written premium, $41.8 million of earned
premium, $30.1 million of catastrophe losses and $24.0 million of
non-catastrophe losses, and recognized $12.1 million of ceded
commissions. This cession reduced STFC’s overall catastrophe loss
ratio 8.2 points, increased the overall non-catastrophe loss ratio
1.0 points and increased the overall expense ratio 0.4 points.
Net written premium for the second quarter of 2012 decreased
30.4% over the same period in 2011. The homeowners’ quota share
reinsurance arrangement and the year-end pooling change
collectively contributed the entire amount of this decline. By
segment, net written premium for the second quarter of 2012
decreased 42.7% for personal insurance, 11.8% for business
insurance and 20.8% for specialty insurance from the same period in
2011. Excluding the impact of the quota share reinsurance
arrangement and pooling change, net written premium for the second
quarter of 2012 increased 0.8%*** from the same period in 2011,
with the business insurance segment contributing primarily to the
overall growth. The business segment growth was principally driven
by higher average new business premium and increased renewal
pricing. Excluding the impact of the quota share and pooling
change, net written premium for the second quarter decreased
1.8%*** for the personal insurance segment, increased 8.5%*** for
the business insurance segment and decreased 2.4%*** for the
specialty insurance segment from the same period in 2011.
For the first six months of 2012, STFC had a net loss of $4.7
million, or $0.12 per diluted share, compared to a loss of $201.3
million*, or $5.01 per diluted share*, for same 2011 period. STFC’s
GAAP combined ratio for the first six months of 2012 was 109.9
compared to 125.3* for the same 2011 period. Catastrophe losses
increased the loss ratio for the first six months of 2012 by 10.5
points, or $54.0 million, compared to 24.5 points, or $172.1
million for the first six months of 2011.
For the first six months of 2012, the homeowners quota share
reinsurance arrangement reduced STFC’s underwriting loss by $31.6
million or 3.9 points on the combined ratio. Pursuant to the
arrangement, STFC ceded $83.9 million of written premium, $83.5
million of earned premium, $47.5 million of catastrophe losses and
$43.4 million of non-catastrophe losses, and recognized $24.2
million of ceded commissions. This cession reduced STFC’s overall
catastrophe loss ratio 6.5 points, increased the overall
non-catastrophe loss ratio 2.0 points and increased the overall
expense ratio 0.6 points.
Net written premiums year to date 2012 decreased 30.3% compared
to the same 2011 period. The homeowners’ quota share reinsurance
arrangement and the year-end pooling change contributed to the
decrease, but were offset by growth in the business and specialty
segments. For the first six months of 2012, net written premium for
the personal, business and specialty insurance segments declined
41.6%, 13.5%, and 22.9% respectively, compared to the same period
in 2011. Excluding the impact of the quota share reinsurance
arrangement and pooling change, net written premium for the first
six months of 2012 decreased 2.4%*** for the personal insurance
segment while business and specialty insurance increased 6.5%, and
19.5%, respectively from the same period in 2011.
STFC’s book value was $17.82 per share as of June 30, 2012, a
decrease of $0.34 per share from STFC’s book value on March 31,
2012. Book value per share as of June 30, 2012, included a
reduction of $2.60 for a deferred tax asset valuation allowance.
Return on stockholders’ equity for the twelve months ended June 30,
2012, was 5.3% compared to negative 22.8% for the twelve months
ended June 30, 2011.
STFC President and CEO Bob Restrepo commented on the quarter as
follows:
“Ex-catastrophe loss ratio performance
continues to improve as we maintain our underwriting discipline,
increase prices in all lines, and achieve higher levels of claim
performance. Personal insurance results improved relative to both
first quarter 2012 and second quarter 2011. We continue to see
significant price increases in the homeowners line and are
increasing prices in personal automobile in response to higher
bodily injury loss costs. Standard business insurance had another
strong quarter with excellent ex-catastrophe loss ratios and strong
production momentum. In addition, we’re now getting price increases
in all lines with steady increases month over month. Rockhill’s
surplus lines performance continued to improve with strong
underwriting profitability and excellent production momentum.
Workers compensation results improved in all segments including
RTW, our legacy State Auto business and in the middle market. We
experienced some deterioration in underwriting performance for RED,
but will improve over time as terminated programs run off.
“Second quarter catastrophe losses were
substantially less than the historic losses we experienced in the
second quarter of 2011, but were close to our average experience,
before applying the new homeowners quota share reinsurance treaty.
The treaty worked as expected, improving results in both the
quarter and year to date. We booked no recoveries from our
catastrophe reinsurance treaty in the quarter.
“The vast majority of catastrophe claims
occurred from two events: a wide-spread wind and hail storm which
hit St. Louis and Louisville in April, and wide-spread wind damage
from the derecho weather system which moved through the Midwest and
Mid-Atlantic in late June. These two events accounted for over 80%
of our catastrophe losses in the quarter. Our claim staff continues
to perform exceptionally well. Our service levels, responsiveness,
and compassion for those who’ve suffered losses continue to
distinguish us with our agents and policyholders.”
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 throughout the United States, through
independent insurance agencies, which include retail agencies and
wholesale brokers. 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/STFC.
* The Company adopted Accounting Standards Update 2010-26,
“Accounting for Costs Associated with Acquiring and Renewing
Insurance Contracts” effective Jan. 1, 2012, and has applied its
provisions retrospectively. All applicable prior period amounts
have been adjusted to conform to current period presentation.
** 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 $0.11 per diluted
share for the second quarter 2012 and income of $0.22 year to date
versus income of $0.10 per diluted share for the second quarter
2011 and income of $0.24 year to date.
*** Represents a non-GAAP financial measure as to net written
premium. A reconciliation of the difference between this non-GAAP
financial measure with the most directly comparable GAAP financial
measure is included in Schedule 1 that is part of this release.
STFC has scheduled a conference call with interested investors
for Thursday, Aug. 2 at 10 a.m. ET to discuss the company’s second
quarter 2012 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 noon, Aug. 2, by calling
888-566-0401. Supplemental schedules detailing the company’s second
quarter 2012 financial, sales and underwriting results are made
available on http://www.StateAuto.com/STFC 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) 2012 2011 2012 2011 As
Adjusted (C) As Adjusted (C) Net premiums written $ 269.4
$ 387.1 $ 532.7 $ 764.2 (B)
Earned premiums 258.4 352.4 513.3 702.6 Net investment income 20.5
25.2 38.0 46.2
Net realized gain on investments
6.7 6.5 13.8 14.7 Other income 1.1 0.3
1.9 1.1 Total revenue 286.7
384.4 567.0 764.6
Loss before federal income taxes (2.7 ) (139.3 ) (4.7 )
(123.7 ) Federal income tax expense -
74.8 - 77.6 Net loss $ (2.7 ) $
(214.1 ) $ (4.7 ) $ (201.3 ) Loss per common share: - basic
$ (0.07 ) $ (5.33 ) $ (0.12 ) $ (5.01 ) - diluted $ (0.07 ) $ (5.33
) $ (0.12 ) $ (5.01 ) Loss per share from operations (A): -
basic $ (0.18 ) $ (5.43 ) $ (0.34 ) $ (5.25 ) - diluted $ (0.18 ) $
(5.43 ) $ (0.34 ) $ (5.25 ) Weighted average shares
outstanding: - basic 40.3 40.2 40.3 40.2 - diluted 40.3 40.2 40.3
40.2 Return on equity (LTM) 5.3 % -22.8 % Book value
per share $ 17.82 $ 15.94 Dividends paid per share $ 0.15 $
0.15 $ 0.30 $ 0.30 Total shares outstanding 40.4 40.2
GAAP ratios: Cat loss and ALAE ratio 13.2 44.3 10.5 24.5 Non-cat
loss and LAE ratio 64.9 69.7
66.1 67.2 Loss and LAE ratio 78.1 114.0 76.6
91.7 Expense ratio 32.3 33.4
33.3 33.6 Combined ratio 110.4
147.4 109.9 125.3
Reconciliation of non-GAAP financial measure: (A) Net loss from
operations: Net loss $ (2.7 ) $ (214.1 ) $ (4.7 ) $ (201.3 )
Less net realized gain on investments,
less applicable federal income taxes
4.4 3.8 9.0 9.5
Net loss from operations $ (7.1 ) $ (217.9 ) $ (13.7 ) $
(210.8 ) (B) Net premiums written for the six months ended
June 30, 2011, included $34.1 million of unearned premiums
transferred to the Company from the Rockhill Insurers in connection
with the addition of the Rockhill Insurers to the State Auto Pool,
effective January 1, 2011.
(C) The Company adopted Accounting
Standards Update 2010-26, "Accounting for Costs Associated with
Acquiring and Renewing Insurance Contracts" effective Jan. 1, 2012,
and has applied its provisions retrospectively. All applicable
prior period amounts have been adjusted to conform to current
period presentation.
Schedule 1
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NET WRITTEN PREMIUM, AS REPORTED, TO NET
WRITTEN PREMIUM EXCLUDING POOLING CHANGES AND QUOTA SHARE
ARRANGEMENT (unaudited) For the three and six months
ended June 30, 2012, the following tables set forth the
reconciliation of net written premiums excluding the impact of the
quota share reinsurance agreement covering the Company's homeowners
book of business (the "HO QS Reinsurance Arrangement"). For the six
months ended June 30, 2011, the following table sets forth the
reconciliation of the one-time impact of net written premium of the
unearned premiums transferred by the Rockhill Insurers to the
Company on January 1, 2011, in conjunction with the January 1, 2011
pooling change (the "1.11.11 pool change") and for the three and
six months ended June 30, 2011, on a pro forma basis which assumes
that the December 31, 2011 pooling participation rate change from
80% to 65% (the "12.31.11 pool change") had been in effect as of
January 1, 2011. ($ in millions)
For the
three months ended June 30 Personal Segment Business Segment
Specialty Segment Total - All Segments 2012 2011 % Change 2012 2011
% Change 2012 2011 % Change 2012 2011 % Change As Reported $ 121.2
$ 211.7 -42.7 % $ 90.6 $ 102.7 -11.8 % $ 57.6 $ 72.7 -20.8 % $
269.4 $ 387.1 -30.4 % 2012 - Excluding HO QS Arrangement
47.7 - - - - -
- - - 47.7 -
- Subtotal 168.9 211.7 -20.2 % 90.6 102.7 -11.8 %
57.6 72.7 -20.8 % 317.1 387.1 -18.1 %
2011 - Pro forma 12.31.11 pool change
- (39.7 ) - - (19.2 ) - - (13.7 ) - - (72.6 ) -
Total Pro forma 2012 and 2011 change 168.9
172.0 -1.8 % 90.6 83.5 8.5 %
57.6 59.0 -2.4 % 317.1 314.5 0.8
% ($ in millions)
For the six months ended June 30
Personal Segment Business Segment Specialty Segment Total - All
Segments 2012 2011 % Change 2012 2011 % Change 2012 2011 % Change
2012 2011 % Change As Reported $ 234.2 $ 401.2 -41.6 % $ 170.6 $
197.2 -13.5 % $ 127.9 $ 165.8 -22.9 % $ 532.7 $ 764.2 -30.3 %
2012 - Excluding HO QS Arrangement 83.9 -
- - - - - -
- 83.9 - - Subtotal 318.1
401.2 -20.7 % 170.6 197.2 -13.5 % 127.9 165.8 -22.9 % 616.6 764.2
-19.3 %
2011 - Excluding 1.11.11 pool change
- (34.1 )
(34.1 ) Subtotal 318.1 401.2 -20.7 %
170.6 197.2 -13.5 % 127.9 131.7 -2.9 % 616.6 730.1 -15.5 %
2011 - Pro forma 12.31.11 pool change
- (75.2 ) - - (37.0 ) - - (24.7 ) - - (136.9 ) -
Total Pro forma 2012 and 2011 change 318.1
326.0 -2.4 % 170.6 160.2 6.5 %
127.9 107.0 19.5 % 616.6 593.2
3.9 %
Schedule 2
STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
RECONCILIATION OF HO QS ARRANGEMENT CESSION (unaudited)
The following table sets forth a reconciliation of the HO QS
Arrangement cession on the Company's overall results and key
performance indicators on a pro forma GAAP basis as if the HO QS
Arrangement had not been in effect for the three and six months
ended June 30, 2012. GAAP HO QS Arrangement Cession -
Overall Results Three Months
Ended Six Months Ended
June 30
June 30
($ millions) As Reported HO QS Cession
Pro-Formawithout HOQS Cession
As Reported HO QS Cession
Pro-Formawithout HOQS Cession
Earned Premiums $ 258.4 $ 41.8 $ 300.2 $ 513.3 $ 83.5 $
596.8 Losses and LAE Incurred: Cat loss and ALAE 34.0 30.1 64.1
54.0 47.5 101.5 Non-cat loss and LAE 167.7
24.0 191.7 339.0 43.4
382.4 Loss and LAE 201.7 54.1 255.8 393.0 90.9
483.9 Acquisition and operating expenses 83.6
12.1 95.7 171.2 24.2
195.4 Net underwriting loss (26.9 )
(24.4 ) (51.3 ) (50.9 ) (31.6 )
(82.5 ) Cat loss and ALAE ratio 13.2 % 72.0 % 21.4 % 10.5 %
56.9 % 17.0 % Non-cat loss and LAE ratio 64.9 % 57.4
% 63.9 % 66.1 % 52.0 % 64.1 % Loss and
LAE ratio 78.1 % 129.4 % 85.3 % 76.6 % 108.9 % 81.1 % Expense ratio
32.3 % 29.0 % 31.9 % 33.3 % 29.0
% 32.7 % Combined ratio 110.4 % 158.4 %
117.2 % 109.9 % 137.9 % 113.8 %
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