State Auto Financial Corporation (NASDAQ: STFC) today reported
fourth quarter 2010 net income of $37.6 million, or $0.94 per
diluted share, versus $14.4 million, or $0.36 per diluted share,
for the fourth quarter of 2009. Net income from operations* per
diluted share for the fourth quarter 2010 was $0.78, versus $0.36
for the same 2009 period.
STFC’s GAAP combined ratio for the fourth quarter 2010 was 97.6
versus 98.4 for the fourth quarter of 2009. Catastrophe losses
during the fourth quarter of 2010, including prior accident period
development, accounted for 2.3 points of the total 62.6 loss ratio
points, or $7.7 million, compared to a favorable impact of $1.2
million or 0.4 points of the total 63.2 loss ratio points for the
same period in 2009. Net written premiums for the fourth quarter
2010 increased 9.1% over the same period in 2009, with personal
insurance increasing 1.9% and business insurance increasing
22.9%.
For the year 2010, STFC had net income of $24.5 million, or
$0.62 per diluted share, compared to $10.2 million, or $0.25 per
diluted share, for 2009. The GAAP combined ratio for 2010 was 104.6
compared to 105.8 for 2009. Catastrophe losses increased the loss
ratio by 7.9 points, or $99.0 million, during 2010, compared to 7.7
points, or $90.3 million, during 2009. The 2010 and 2009
catastrophe losses both included favorable prior accident years’
development which reduced the loss ratio by 0.3 points, or $3.3
million for 2010, and 0.9 points, or $10.9 million for 2009.
Non-catastrophe favorable reserve development reduced the loss
ratio by 4.8 points, or $61.3 million for 2010, and 3.9 points, or
$45.3 million for 2009. Net written premiums for 2010 increased
9.5% over the same 2009 period, with personal insurance increasing
6.1% and business insurance increasing 15.5%. STFC’s book value per
share was $21.23 as of December 31, 2010, a decrease of $0.10 per
share from STFC’s book value on December 31, 2009. Return on
stockholders’ equity for the twelve months ended December 31, 2010
was 2.9% compared to 1.3% for the twelve months ended December 31,
2009.
STFC President, Chairman and CEO Bob Restrepo summarized the
quarter as follows:
“Improved personal insurance underwriting results and a lower
expense ratio helped produce an underwriting profit for the quarter
and positive net income for the year. These solid underwriting
results were achieved despite higher levels of catastrophe
experience, atypical large loss activity in the commercial lines,
and additional expenses associated with the build out of our
program and alternative risk business through our affiliate, Risk
Evaluation and Design, LLC (RED).
“The most noteworthy accomplishment in the quarter was a
significant improvement in our homeowners loss ratio. Excluding the
impact of catastrophes, we achieved the lowest loss ratio for this
line in several years. Even with above normal catastrophes,
homeowners experienced a solid underwriting profit for the quarter
and improved results for the year. We’re confident that the
underwriting initiatives we implemented for homeowners will
continue to drive improved underwriting performance for State
Auto.
“Another important contributor to State Auto’s improved
underwriting performance is our claims operation. The initiatives
we implemented over the past year have reduced our loss adjustment
expenses and are beginning to positively affect our indemnity
payout, particularly in the property lines of homeowners, fire and
commercial multi-peril. We’ve reduced our dependence on outside
appraisers by deploying over 70 property adjusters working from
their homes. In addition, virtually all large property claims and a
significant percentage of catastrophe claims are now being handled
by State Auto adjusters. These changes improve service, reduce
expenses, and allow us to better manage indemnity payout – all of
which improves loss ratio results.
“The changes underway in our property claims handling are also
being supplemented in the automobile and casualty lines. We have
new people and new processes to better manage automobile physical
damage claims, which will have a positive impact on both personal
and commercial automobile, together accounting for 50% of our
premium base. We also now have in place 11 staff counsel offices.
Along with better litigation management practices, these new
offices will allow us to handle liability, bodily injury and
workers compensation claims more cost effectively. Earlier this
year, we also announced plans to implement a new end-to-end claims
management system which will be installed over the next two years.
All in, we expect our claims operation to contribute significantly
to our improvement in underwriting results over the next several
years.
“Production has moderated. The aggressive actions we’re taking
in homeowners have reduced our new business flow in personal lines.
We expect our policy count to be relatively flat for the next year
or so, but premiums should grow as we continue to implement price
increases for both auto and homeowners and benefit from a
recovering economy.
“Our growth in business insurance is attributable to RED.
Excluding RED, business insurance production is slightly negative.
We are seeing new business increases in our new BOP Choice program,
which continues to perform well, but new business in all other
commercial programs is off. Retention is steady and exposures seem
to be stabilizing as the economy recovers. Strong price competition
has contributed to flat pricing per exposure.
“All in all, we’re pleased with the progress we see in personal
lines, optimistic that the commercial lines large loss activity
will return to normal levels, and very enthusiastic that the
pricing and claim actions we’ve taken will return State Auto to
underwriting profitability in the future, regardless of industry
competition.”
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, through independent insurance agencies and
brokers, in all 50 states and the District of Columbia. 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 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 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 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 amounts to income of $0.16 per diluted share for the
2010 fourth quarter and $0.26 for the year 2010, versus $0.00 and a
loss of $0.08, respectively, for the same 2009 periods.
* * * * *
*
STFC has scheduled a conference call with interested investors
for Thursday, February 17, 10:00 a.m. ET to discuss the company’s
fourth 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, February 17, by calling
800-679-9657. Supplemental schedules detailing the company’s fourth
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 Year Ended December 31 December 31 (In
millions, except per share amounts)
2010
2009 2010 2009 Net
premiums written $ 317.6 $ 291.0 $ 1,323.5
(B)
$ 1,210.4 Earned premiums 327.3 299.6 1,257.2 1,176.5
Net investment income 20.2 21.4 80.8 82.1 Net realized gain (loss)
on investments 8.6 - 14.9 (5.2 ) Other income 0.8
0.5 2.2 3.5 Total revenue
356.9 321.5 1,355.1 1,256.9
Income (loss) before federal income taxes 34.1 16.1
24.5 (12.8 ) Federal income tax (benefit) expense
(3.5 ) 1.7 - (23.0 ) Net income $ 37.6
$ 14.4 $ 24.5 $ 10.2 Earnings per
share: - basic $ 0.94 $ 0.36 $ 0.61 $ 0.26 - diluted $ 0.94 $ 0.36
$ 0.62 $ 0.25 Earnings per share from operations (A): -
basic $ 0.78 $ 0.36 $ 0.35 $ 0.33 - diluted $ 0.78 $ 0.36 $ 0.36 $
0.33 Weighted average shares outstanding: - basic 40.1 39.7
40.0 39.7 - diluted 40.2 39.9 40.1 39.8 Return on equity
(LTM) 2.9 % 1.3 % Book value per share $ 21.23 $ 21.33
Dividends paid per share $ 0.15 $ 0.15 $ 0.60 $ 0.60
Total shares outstanding 40.1 39.8 GAAP ratios: Loss and LAE
ratio 62.6 63.2 70.8 71.7 Expense ratio 35.0
35.2 33.8 34.1 Combined ratio
97.6 98.4 104.6 105.8
Reconciliation of non-GAAP financial measure: (A) Net income
from operations: Net income $ 37.6 $ 14.4 $ 24.5 $ 10.2 Less net
realized gain (loss) on investments, less applicable federal income
taxes 6.2 - 10.2 (2.9 )
Net income from operations $ 31.4 $ 14.4 $ 14.3 $
13.1 (B) Net premiums written for the year
ended December 31, 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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