- Quarterly income of $0.66 per
share
- Quarterly GAAP combined ratio of
99.2
- Return on equity of 8.6%
- Book value per share of $20.05
State Auto Financial Corporation (NASDAQ:STFC) today reported
first quarter 2014 net income of $27.1 million, or $0.66 per
diluted share, versus net income of $19.7 million, or $0.49 per
diluted share, for the first quarter of 2013. Net income from
operations1 per diluted share for the first quarter 2014 was $0.49
versus net income from operations1 per diluted share of $0.38 for
the same 2013 period.
STFC’s GAAP combined ratio for the first quarter 2014 was 99.2
versus 100.2 for the first quarter of 2013. Catastrophe losses
during the first quarter 2014 accounted for 2.4 points of the 65.5
total loss ratio points, or $6.3 million, versus 1.7 points of the
total 66.2 loss ratio points, or $4.6 million, for the same period
in 2013.
The State Auto Group’s homeowners quota share reinsurance
arrangement decreased STFC’s underwriting gain for the first
quarter of 2014 by $8.5 million or 2.7 points on the combined
ratio. Pursuant to this arrangement, STFC ceded $37.9 million of
written premium, $44.2 million of earned premium, $2.4 million of
catastrophe losses and $20.5 million of non-catastrophe losses, and
recognized $12.8 million of ceded commissions. This cession
decreased STFC’s overall catastrophe loss ratio 0.4 points,
increased the overall non-catastrophe loss ratio 2.4 points and
increased the overall expense ratio 0.7 points.
Net written premium for the first quarter of 2014 increased 0.6%
over the same period in 2013. By segment, net written premium for
the first quarter of 2014 decreased 4.3% for personal insurance and
increased 2.9% and 6.8% for business insurance and specialty
insurance, respectively, from the same period in 2013. The decline
in the personal insurance segment was driven by company actions to
improve profitability. Business insurance premium growth remains
positive, driven by higher average new business premium, increased
renewal pricing and a recovering economy. The growth in specialty
insurance was driven by all units other than E&S property.
STFC’s book value was $20.05 per share as of March 31, 2014, an
increase of $0.78 per share from STFC’s book value on Dec. 31,
2013. Book value per share as of March 31, 2014, included a
reduction of $1.84 for a deferred tax asset valuation allowance.
Return on stockholders’ equity for the twelve months ended March
31, 2014, was 8.6% compared to 4.3% for the twelve months ended
March 31, 2013.
STFC President and CEO Bob Restrepo commented on the quarter as
follows:
“State Auto Financial Corporation began 2014
with better earnings, a modest underwriting profit, improved
return-on-equity results and a solid increase in book value. We
achieved a 99.2% combined ratio and an 8.6% return on equity
despite elevated property losses as a result of the harsh winter
and an atypical rash of large fire losses. After adjusting for the
homeowner quota share treaty, the combined ratio was 96.5%2,
demonstrating the quality of our underlying profitability. Improved
underwriting results and higher investment income also helped
increase book value to $20.05. Without the deferred tax allowance
we’ve carried since the end of the second quarter of 2011, our book
value would have been $21.893.
“Important drivers of our improving
underwriting results are personal and commercial automobile
results. Because auto currently accounts for 43% of our premium
volume, improved results in these lines will have a
disproportionate positive impact on future earnings.
“We’re very pleased with our progress this
year in personal auto, driven by increased pricing, run-off from
agency management actions and our specialized claim capabilities.
We saw substantial improvement in the five unprofitable states we
targeted and improved results for personal injury protection (PIP).
Personal auto prices increased, with an earned premium impact of
6.6% for the quarter. We look forward to continued improvements as
the weather normalizes and we earn out increased prices.
“Our homeowners line is performing as
expected despite the impact of winter weather and higher severity
of fire losses. Personal lines production is down as lower levels
of new business offset overall price increases and flat retention
for these lines. We expect to achieve adequate pricing in both auto
and homeowners this year.
“In business insurance, catastrophe losses
were flat relative to first quarter 2013, but non-catastrophe loss
ratios increased due to harsh winter weather and a higher frequency
of large property fire losses. Premiums increased modestly
primarily due to a 5.4% increase in price per exposure. Retention
remains relatively flat, but new business has suffered as we
continue to pursue price increases. Despite this, we remain pleased
with our ability to attract new larger accounts with a more focused
marketing and underwriting strategy.
“The specialty insurance segment continues to
grow with solid production in all lines. The premium runoff from
terminated RED programs is now complete. Specialty represents
almost 25% of our total premium volume and will be a significant
contributor to our profit, growth and diversification strategies.
We experienced good growth in all lines other than E&S
property, which had an exceptionally strong first quarter 2013.
Loss ratios remain excellent for both E&S property and
casualty. The program line improved significantly as we gained
scale and experienced reduced RED impact versus prior year. Workers
compensation results remain strong.
“Notwithstanding the property results in the
first quarter, we’re now seeing the positive impact from our
strategies for diversification, price adequacy, claim excellence
and superior agency and policyholder relationships. We remain
confident that our efforts will continue to produce improving
results for all stakeholders and increasingly attractive returns
for 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 is a
segment of the NASDAQ Global Market with the highest initial
listing standards of any exchange in the world.
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, Milbank, Meridian Security, Meridian Citizens Mutual,
Patrons Mutual, 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.
1 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 $0.17 per diluted
share for the first quarter 2014 versus income of $0.11 per diluted
share for the same 2013 period.
2 Represents a non-GAAP financial measure as to the first
quarter 2014 combined ratio. 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.
3 Represents a non-GAAP financial measure as to the March 31,
2014, book value per share. Book value per share at March 31, 2014
was $20.05 which included a reduction of $1.84 for a deferred tax
asset valuation allowance.
STFC has scheduled a conference call with interested investors
for Wednesday, April 30, at 11 a.m. ET to discuss the company’s
first quarter 2013 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, April 30, by calling
800-585-2056, conference ID 27029816. Supplemental schedules
detailing the company’s first quarter 2014 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 March 31
(In millions, except per share
amounts)
2014 2013 Net premiums written $ 265.4 $ 263.7
Earned premiums 262.5 261.3 Net investment income 17.6 16.9
Net realized gain on investments 10.7 6.7 Other income 0.5
0.4 Total revenue 291.3
285.3 Income before federal income taxes 27.7 20.0
Federal income tax expense 0.6 0.3
Net income $ 27.1 $ 19.7 Earnings per
common share: - basic $ 0.67 $ 0.49 - diluted $ 0.66 $ 0.49
Earnings per share from operations
(A):
- basic $ 0.50 $ 0.38 - diluted $ 0.49 $ 0.38 Weighted
average shares outstanding: - basic 40.8 40.5 - diluted 41.1 40.7
Return on average equity (LTM) 8.6 % 4.3 % Book value
per share $ 20.05 $ 18.96 Dividends paid per share $ 0.10 $
0.10 Total shares outstanding 40.8 40.5 GAAP ratios:
Cat loss and ALAE ratio 2.4 1.7 Non-cat loss and LAE ratio
63.1 64.5 Loss and LAE ratio 65.5 66.2 Expense
ratio 33.7 34.0 Combined ratio
99.2 100.2
(A) Reconciliation of non-GAAP financial
measure:
Net income from operations: Net income $ 27.1 $ 19.7
Less net realized gain on investments,
less applicable federal income taxes 6.9 4.4
Net income from operations $ 20.2 $ 15.3
STATE AUTO FINANCIAL CORPORATION AND
SUBSIDIARIES
RECONCILIATION OF HO QS ARRANGEMENT
CESSION AND RED UNDERWRITING RESULTS
(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 months ended March 31, 2014. GAAP HO QS Arrangement
Cession - Overall Results Three Months Ended
March 31,
2014
($ millions)
Pro Forma without
As Reported
HO QS Cession
HO QS Cession
Earned Premiums $ 262.5 $ 44.2 $ 306.7
Losses and LAE Incurred:
Cat loss and ALAE 6.3 2.4 8.7 Non-cat loss and LAE 165.5
20.5 186.0 Loss and LAE 171.8
22.9 194.7 Acquisition and operating expenses 88.5
12.8 101.3 Net underwriting gain $ 2.2
$ 8.5 $ 10.7 Cat loss and ALAE ratio
2.4 % 5.4 % 2.8 % Non-cat loss and LAE ratio 63.1 %
46.3 % 60.7 % Loss and LAE ratio 65.5 % 51.7 % 63.5 %
Expense ratio 33.7 % 29.0 % 33.0 % Combined
ratio 99.2 % 80.7 % 96.5 % The
following table sets forth a reconciliation of the HO QS
Arrangement cession and the former RED unit's underwriting results
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 and the RED results had been excluded for the three months
ended March 31, 2013. Three Months Ended
March 31,
2013
($ millions)
Pro Forma without
Pro Forma without RED
As Reported
HO QS Cession
HO QS Cession
RED
and HO QS Cession
Earned Premiums $ 261.3 $ 45.3 $ 306.6 $ 11.1 $ 295.5 Losses
and LAE Incurred: Cat loss and ALAE 4.6 2.0 6.6 (0.2 ) 6.8 Non-cat
loss and LAE 168.4 17.3 185.7
13.2 172.5 Loss and LAE 173.0
19.3 192.3 13.0 179.3 Acquisition and operating expenses
88.8 13.1 101.9 3.6
98.3 Net underwriting (loss) gain $ (0.5 ) $
12.9 $ 12.4 $ (5.5 ) $ 17.9 Cat loss
and ALAE ratio 1.7 % 4.4 % 2.2 % -1.8 % 2.3 % Non-cat loss and LAE
ratio 64.5 % 38.2 % 60.6 % 118.9 %
58.4 % Loss and LAE ratio 66.2 % 42.6 % 62.8 % 117.1 % 60.7
% Expense ratio 34.0 % 29.0 % 33.2 %
32.4 % 33.3 % Combined ratio 100.2 % 71.6 %
96.0 % 149.5 % 94.0 %
State Auto Financial CorporationTara Shull, 614-917-4478, F
614-887-1793Investor Relations and Finance
DirectorTara.Shull@StateAuto.comorKyle Anderson, 614-917-5497, M
614-477-5301AVP/Director of Corporate
CommunicationKyle.Anderson@StateAuto.comorFor additional
information:StateAuto.com/STFCfacebook.com/StateAutotwitter.com/StateAuto
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