State Auto Financial reports second quarter 2018 results
2018-08-06
- Quarterly earnings of $0.14 per share
- Quarterly loss from operations1 of $0.08 per share
- Quarterly GAAP combined ratio of 107.0
- Return on equity of (1.9)%
- Book value per share of $19.75
COLUMBUS, OHIO - August 6, 2018 - State Auto Financial Corporation (NASDAQ:STFC) today reported second quarter 2018 net income of $6.0 million, or $0.14 per diluted share, compared to net income of $8.7 million, or $0.21 per diluted share, for the same 2017 period. Net loss from operations per diluted share for the second quarter 2018 was $0.08 versus net loss from operations per diluted share of $0.04 for the same 2017 period.
For the first six months of 2018, STFC had net income of $3.9 million, or $0.09 per diluted share, compared to net income of $5.4 million, or $0.13 per diluted share, for the same 2017 period. Net earnings from operations1 per diluted share for the first six months of 2018 was $0.08 versus net loss from operations1 per diluted share of $0.24 for the same 2017 period.
GAAP Operating Results
STFC’s GAAP combined ratio for the second quarter 2018 was 107.0 compared to 106.2 for the same 2017 period. Catastrophe losses during the second quarter 2018 accounted for 12.2 points of the 70.8 total loss ratio points, or $37.5 million, versus 7.9 points of the total 71.9 loss ratio points, or $25.2 million, for the same period in 2017. Non-catastrophe losses and ALAE during the second quarter 2018 included 5.9 points of favorable development relating to prior years, or $18.1 million, versus 4.6 points of favorable development, or $14.8 million, for the same period in 2017.
Net written premium for the second quarter 2018 decreased 9.7% compared to the same period in 2017. By insurance segment, net written premium for the personal and commercial segments increased 23.0% and 2.8%, respectively, and the specialty segment decreased 96.7%. The increase in the personal segment was primarily due to rate actions taken to improve the profitability in personal auto, new business growth and a higher level of policies in force for the second quarter 2018 compared to the second quarter 2017. The increase in the commercial segment was primarily driven by rate increases and a higher level of new business production from commercial auto, middle market commercial and farm & ranch during the second quarter 2018 compared to the second quarter 2017. The decline in the specialty insurance segment was a result of our decision to exit specialty business.
STFC’s GAAP combined ratio for the first six months of 2018 was 104.8 compared to 107.54 for the same 2017 period. Catastrophe losses for the first six months of 2018 accounted for 7.6 points of the 69.1 total loss ratio points, or $47.3 million, versus 9.3 points of the total 72.84 loss ratio points, or $59.5 million, for the same period in 2017. Non-catastrophe losses and ALAE for the first six months of 2018 included 5.5 points of favorable development relating to prior years, or $34.1 million, versus 3.1 points of favorable development, or $19.6 million, for the same period in 2017.
Net written premium for the first six months of 2018 decreased 7.4% compared to the same period in 2017. By insurance segment, net written premium for the personal and commercial segments increased 22.7% and 5.0%, respectively, and the specialty segment decreased 89.3%. The trends in the personal and commercial net written premiums are due to the same factors discussed above for the second quarter. The decline in the specialty insurance segment was a result of our decision to exit specialty business.
SAP Personal and Commercial Operating Results
The SAP personal and commercial segments, our ongoing lines of business, combined ratio2 for the second quarter 2018 was 104.7 compared to 105.3 for the same 2017 period. Catastrophe losses during the second quarter 2018 accounted for 13.4 points of the total 70.1 loss ratio points, or $37.7 million, versus 9.5 points of the total 72.5 loss ratio points, or $24.5 million, for the same period in 2017. Non-catastrophe losses and ALAE during the second quarter 2018 included 7.2 points of favorable development relating to prior years, or $20.2 million, versus 6.1 points of favorable development, or $15.7 million, for the same period in 2017.
The SAP personal and commercial segments, our ongoing lines of business, combined ratio for the first six months of 2018 was 103.0 compared to 106.5 for the same 2017 period. Catastrophe losses during the first six months of 2018 accounted for 8.6 points of the total 68.3 loss ratio points, or $47.5 million, versus 11.0 points of the total 72.8 loss ratio points, or $56.6 million, for the same period in 2017. Non-catastrophe losses and ALAE during the first six months of 2018 included 6.6 points of favorable development relating to prior years, or $36.5 million, versus 4.1 points of favorable development, or $21.0 million, for the same period in 2017.
Book Value and Return on Equity
STFC’s book value was $19.75 per share as of June 30, 2018, compared to $20.634 on Dec. 31, 2017. The decrease was driven by the market value of our investment portfolio. Return on stockholders’ equity for the 12 months ended June 30, 2018, was (1.9)% compared to 5.4% for the 12 months ended June 30, 2017.
STFC’s Chairman, President and CEO Mike LaRocco commented on the quarter as follows:
"Our journey to profitable growth continued this quarter with some significant milestones being achieved. Most notably our largest line, personal auto, was both profitable and growing. We've worked very hard over the last three years to get to this point and with the help of our agency partners, we were successful. In addition, there was also strong growth in our homeowners line. Perhaps most significantly, for our ongoing lines of business, personal and commercial, we achieved a non-catastrophe combined ratio of 91.33. This is a clear indication that our hard work in building our digital only technology, new products and improved claims handling is paying off.
"We will complete the digital rollout for commercial auto and small commercial package by the end of September and we expect to begin to see the benefit of the changes in these lines in the last half of this year, increasing over the coming years.
"There is much work left to be done, but in both the first quarter and more significantly in the second, our momentum is building and our outlook is bright."
About State Auto Financial Corporation
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 fourth 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. 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, 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 earnings (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 net investment gain (loss), net of applicable taxes, on investment activity for the periods being reported. For STFC, this amounted to income of $0.22 per diluted share for the second quarter of 2018 and income of $0.01 year-to-date 2018 versus income of $0.25 per diluted share for the second quarter 2017 and income of $0.37 year-to-date 2017.
2 Insurance industry regulators require STFC's insurance subsidiaries to report their financial condition and results of operations using Statutory Accounting Practices ("SAP"). The SAP personal and commercial segments combined ratio is a measure used by management to evaluate STFC’s operating performance for its ongoing operations. Details behind the compilation of these results can be found on page 21 of this release.
3 The SAP non-catastrophe combined ratio is a financial measure of the total combined ratio less the impact of catastrophe losses. The following table reconciles the as reported combined ratio to the pro forma non-catastrophe combined ratio for the second quarter 2018:
|
|
SAP Personal & Commercial Insurance Segments |
SAP Insurance Segment |
||||||||||||||||
|
|
As reported |
Cat loss and ALAE |
Pro forma |
As reported |
Cat loss and ALAE |
Pro forma |
||||||||||||
|
Net earned premiums |
$ |
280.5 |
|
$ |
— |
|
$ |
280.5 |
|
$ |
307.5 |
|
$ |
— |
|
$ |
307.5 |
|
|
Total Loss and LAE |
$ |
196.6 |
|
$ |
37.7 |
|
$ |
158.9 |
|
$ |
218.0 |
|
$ |
37.5 |
|
$ |
180.5 |
|
|
Underwriting expenses |
$ |
105.9 |
|
$ |
— |
|
$ |
105.9 |
|
$ |
110.5 |
|
$ |
— |
|
$ |
110.5 |
|
|
|
|
|
|
|
|
|
||||||||||||
|
Total Loss and LAE ratio |
70.1 |
% |
13.4 |
% |
56.7 |
% |
70.9 |
% |
12.2 |
% |
58.7 |
% |
||||||
|
Expense ratio |
34.6 |
% |
— |
% |
34.6 |
% |
35.8 |
% |
— |
% |
35.8 |
% |
||||||
|
Combined ratio |
104.7 |
% |
13.4 |
% |
91.3 |
% |
106.7 |
% |
12.2 |
% |
94.5 |
% |
||||||
4 As previously disclosed, the results for the first six months of 2017 have been restated to correct an error discovered during the first quarter of 2018 relating to the calculation of deferred acquisition costs (DAC) along with making other adjustments not previously recorded relating to that same time period. Although the error was immaterial to STFC’s previously issued financial statements, the cumulative correction would have a material effect on the 2018 financial statements. Accordingly, the results for the six months ended June 30, 2017, throughout this release have been adjusted to incorporate the revised amounts, where applicable. Please refer to our quarterly report on Form 10-Q for the quarterly period ending March 31, 2018, for further information.
STFC has scheduled a conference call with interested investors for Monday, August 6, at 11 a.m. ET to discuss the Company’s second quarter 2018 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 2 p.m., August 6, by calling 855-859-2056, conference ID 1699558. Supplemental schedules detailing the Company’s second quarter 2018 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
Media Contact:
Kyle Anderson, 614-917-5497
Kyle.Anderson@StateAuto.com
or
Investor contact:
Tara Shull, 614-917-4478
Tara.Shull@StateAuto.com
.