State Auto Financial Corporation (NASDAQ: STFC) today reported
third quarter 2010 net income of $0.2 million, or $0.00 per diluted
share, versus net income of $13.0 million, or $0.33 per diluted
share, for the third quarter of 2009. Net loss from operations* per
diluted share for the third quarter 2010 was $0.04, versus net
income of $0.27 for the same 2009 period.
STFC’s GAAP combined ratio for the quarter was 105.9 versus
102.5 for the third quarter of 2009. Catastrophe losses during the
third quarter this year, net of loss recoveries under the company’s
aggregate catastrophe reinsurance treaty, accounted for 7.5 points
of the total 73.1 loss ratio points, or $23.7 million, compared to
$10.8 million or 3.6 points of the total 68.3 loss ratio points for
the same period in 2009.
Net written premium for the quarter increased 11.8% over the
same period in 2009, with personal insurance increasing 4.7% and
business insurance 25.4%. STFC’s book value was $21.18 per share as
of September 30, 2010, an increase of $0.81 per share from STFC’s
book value on June 30, 2010. Return on stockholders’ equity for the
twelve months ended September 30, 2010 was 0.2% compared to
negative 0.6% for the twelve months ended September 30, 2009.
For the first nine months of 2010, STFC had a
net loss of $13.1 million, or $0.33 per diluted share,
compared to a loss of $4.2 million, or $0.11 per diluted share, for
same 2009 period. STFC’s GAAP combined ratio for the first nine
months of 2010 was 106.9 compared to 108.3 for the same 2009
period. Catastrophe losses, net of loss recoveries under the
company’s aggregate catastrophe treaty, increased the loss ratio
for the first nine months of 2010 by 9.8 points, or $91.3
million, compared to 10.4 points, or $91.5 million for the first
nine months of 2009. Net written premiums year to date 2010
increased 9.6% compared to the same 2009 period, with personal
insurance increasing 7.4% and business insurance 13.3%. STFC’s book
value per share was $21.18 as of September 30, 2010,
a decrease of 0.7% from December 31, 2009.
STFC Chairman, President and CEO Bob Restrepo summarized the
quarter as follows:
“Higher levels of catastrophes and lower investment income hurt
both third quarter underwriting performance and net income results.
Although State Auto and the industry avoided any meaningful losses
from hurricanes this year, above average frequency and severity of
wind and hail storms in the Midwest increased our catastrophe loss
ratio results relative to last year’s third quarter and our five
year average trend.
“Book value per share increased almost 4%, principally due to
improved fixed income valuations. Third quarter investment income
was down compared to both last year and last quarter, principally
due to lower yields, particularly among our Treasury Inflation
Protected Securities (TIPS) bond portfolio, increases in call and
pre-payment activity, and lower rates of return on new money
investments. We continue to believe that our investments in TIPS
are sound and prudent. Results remain good on a total return basis
and we need to be mindful of the long term negative effect
inflation can have on both our investment valuations and
underwriting results.
“STFC’s ex-catastrophe combined ratio results improved relative
to the third quarter of last year. Personal lines loss ratios are
lower resulting from higher rate levels, enhanced claim
performance, and a more diversified risk profile in our homeowners
line. The overall expense ratio was also lower as we begin to see
the benefits of our field restructuring and other expense reduction
initiatives.
“These improvements were largely offset by unusually high
frequency of large losses in our business insurance segment, adding
approximately 9 points to the commercial loss ratio compared to the
same quarter last year. We define large losses as claims over
$100,000. Commercial auto, generally our most profitable commercial
line, had an unusual run of bodily injury loss activity on both
prior and current accident years. In addition, we experienced two
large fire losses and revalued a number of claim reserves on prior
accident year general liability losses affecting the fire and other
and products liability lines, respectively. Large loss activity on
our relatively small commercial lines portfolio can cause results
volatility quarter to quarter. We don’t view this as a trend and
continue to maintain high quality risk selection in the face of
continued price competition.
“Aggressive pricing and underwriting actions in the homeowners
line produced lower quarterly growth in personal insurance.
Retention remains strong, but new business is down particularly in
the Midwest and Southeast. All our personal lines growth is coming
from price and expansion states (Arizona, Colorado, Connecticut and
Texas).
“The build out of our alternative risk transfer business, Risk
Evaluation and Design, LLC (RED), added 29.0 and 16.5 points to our
business insurance segment quarter and year to date growth, while
our mainline business insurance production declined 3.6 and 3.2
points. Our mainline retention improved for the quarter, but new
business and the premium bases remain depressed by lower levels of
economic activity. We continue to see some lift in policy and
premium growth in the BOP line as we get market traction with our
new BOP Choice product along with several new technology
enhancements. BOP Choice should help stabilize commercial
production, but we will need a recovering economy and improved
pricing environment to responsibly grow this business in the
future.”
State Auto Financial Corporation, headquartered in Columbus,
Ohio, is a super regional property and casualty insurance holding
company. The company markets its personal and business insurance
products through independent insurance agencies in 34 states and
the District of Columbia 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 is rated A+
(Superior) by the A.M. Best Company and includes State Automobile
Mutual, State Auto Property & Casualty, State Auto National,
State Auto Ohio, State Auto Wisconsin, State Auto Florida, Milbank,
Farmers Casualty, Meridian Security, Meridian Citizens Mutual,
Beacon National, Beacon Lloyds, Patrons Mutual and Litchfield
Mutual Fire. Additional information on State Auto Financial
Corporation and the State Auto Insurance Companies can be found
online at 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 $0.04 per diluted share
for the 2010 third quarter and income of $0.10 year
to date versus income of $0.06 and a loss of $0.08,
respectively for the same 2009 periods.
STFC has scheduled a conference call with interested investors
for Tuesday, November 2, 10:00 a.m. Eastern time to discuss the
company’s third quarter 2010 performance. Live and archived
broadcasts of the call can be accessed on www.StateAuto.com. A
replay of the call can be heard beginning at noon, November 2, by
calling 1-800-873-2051. Supplemental schedules detailing the
company’s third quarter 2010 financial, sales and underwriting
results are made available on 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 Nine Months Ended September 30 September 30 (In
millions, except per share amounts)
2010
2009
2010
2009
Net premiums written $ 351.3 $ 314.3 $ 1,005.9
(B)
$ 919.4 Earned premiums 318.3 298.3 929.9 876.9 Net
investment income 19.3 21.6 60.6 60.7 Net realized gain (loss) on
investments 2.8 3.6 6.3 (5.2 ) Other income 0.3
1.0 1.4 3.0 Total revenue
340.7 324.5 998.2
935.4 (Loss) income before federal income taxes (0.2
) 13.7 (9.6 ) (28.9 ) Federal income tax (benefit) expense
(0.4 ) 0.7 3.5 (24.7 )
Net income (loss) $ 0.2 $ 13.0 $ (13.1 ) $ (4.2 )
Earnings (loss) per share: - basic $ 0.01 $ 0.33 $ (0.33 ) $
(0.11 ) - diluted $ - $ 0.33 $ (0.33 ) $ (0.11 ) (Loss)
earnings per share from operations (A): - basic $ (0.04 ) $ 0.27 $
(0.43 ) $ (0.03 ) - diluted $ (0.04 ) $ 0.27 $ (0.43 ) $ (0.03 )
Weighted average shares outstanding: - basic 40.0 39.7 39.9
39.7 - diluted 40.1 39.9 39.9 39.7 Return on equity (LTM)
0.2 % -0.6 % Book value per share $ 21.18 $ 21.00
Dividends paid per share $ 0.15 $ 0.15 $ 0.45 $ 0.45 Total
shares outstanding 40.0 39.7 GAAP ratios: Loss and LAE ratio
73.1 68.3 73.6 74.6 Expense ratio 32.8 34.2
33.3 33.7 Combined ratio
105.9 102.5 106.9 108.3
Reconciliation of non-GAAP financial measure: (A) Net
income (loss) from operations: Net income (loss) $ 0.2 $ 13.0 $
(13.1 ) $ (4.2 ) Less net realized gain (loss) on investments,
less applicable federal income taxes
1.8 2.2 4.1 (2.9 )
Net (loss) income from operations $ (1.6 ) $ 10.8 $ (17.2 )
$ (1.3 )
(B)
Net premiums written for the nine months
ended September 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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