COLUMBUS, Ohio -- July 26, 2001 -- State Auto Financial Corporation (Nasdaq:STFC) reported second quarter net earnings of $9,433,000, compared with $12,494,000 for the second quarter 2000.
Second quarter reported earnings per share were $0.24 ($0.24 diluted), compared with $0.33 ($0.32 diluted) for the second quarter 2000. Net operating earnings for the second quarter ending June 30, 2001 were $0.21 ($0.21 diluted) compared with $0.33 ($0.32 diluted) for the same period last year. The service fee paid by State Automobile Mutual Insurance Company (Mutual) to STFC in the second quarter amounted to $0.07 per share of these reported and operating earnings. On the afternoon of July 25, 2001, the Ohio Department of Insurance (ODI) delivered a letter to Mutual indicating that in the view of the ODI the service fee was not in compliance with applicable statutes and statutory accounting principles and that it expected Mutual to recharacterize (for statutory accounting purposes) the fee paid for the first quarter of 2001 from an expense to an asset. The letter also indicated ODI expected Mutual to refrain from paying the fee under the Management and Operations Agreement dated January 1, 2000 (the 2000 Agreement) for any period subsequent to March 31, 2001. STFC continues to believe that the 2000 Agreement is valid and enforceable. STFC is considering its options.
For the first six months of 2001, net reported earnings were $23,974,000 or $0.61 per share ($0.60 diluted), compared with $26,177,000 or $0.68 ($0.67 diluted) for the same 2000 period. Second quarter total revenue was $123,032,000, up 8.0% from $113,953,000. Total revenue for the first half was $241,033,000, compared with $230,414,000 for the first half of 2000, a 4.6% increase.
STFC's second quarter GAAP combined loss and expense ratio was 103.5, versus 95.5 for the second quarter 2000. STFC Chairman Robert H. Moone noted that "The last quarter was the second worst for industry catastrophe losses in the past 10 years. While we have worked hard to control our exposure to concentrated natural catastrophes, the widespread nature of these storms was the primary cause of our third underwriting loss over the past 19 quarters." STFC's catastrophe storm losses totaled $12.1 million, up from $4.4 million for the second quarter 2000. "We are in the risk business and there will be quarters like this. But, we are very pleased that those lines less subject to natural catastrophes -- particularly private passenger auto -- continued to perform quite well." Moone added that STFC's double-digit sales growth was another performance positive. "The emphasis we placed on adequate pricing and underwriting throughout the 'soft market' years continues to pay dividends. Our ability to provide a consistent market is resulting in substantial growth from our current agency force and is instrumental in what is shaping up to be a record-setting year for new appointments."
State Auto Financial Corporation is a regional property and casualty insurance holding company engaged primarily in writing personal and commercial automobile, homeowners, commercial multi-peril, workers' compensation and fire insurance. The company currently markets its products through more than 14,000 agents associated with approximately 2,200 agencies in 26 states. Products are marketed primarily in the Midwest and Eastern United States, excluding New York, New Jersey and the New England states.
STFC has scheduled a conference call with industry analysts for Thursday, July 26, 2001, 10 AM, to discuss the company's 2001 second quarter performance. A live Webcast of the conference call can be heard on StreetFusion (STREETFUSION.com). StreetFusion can be accessed directly or from links found on both STFC.com and STATEAUTO.com. A replay of the call can also be heard beginning at noon today by dialing 800-759-4964. The replay will be available through August 9, 2001.
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.