State Auto Financial Corporation (NASDAQ: STFC) today reported
fourth quarter 2009 net income of $14.4 million, or $0.36 per
diluted share, versus a net loss of $0.6 million, or $0.02 per
diluted share, for the fourth quarter 2008. Net income from
operations* per diluted share for the fourth quarter 2009 was $0.36
versus $0.53 for the same 2008 period.
STFC’s GAAP combined ratio for the quarter was 98.4 versus 96.0
for the fourth quarter 2008. Catastrophe losses, including prior
accident period development, favorably impacted the loss ratio for
the quarter by 0.4 points, or $1.2 million, compared to a favorable
impact of 3.7 points, or $10.4 million, during the fourth quarter
2008. Net written premiums for the fourth quarter 2009 increased by
3.5% in comparison to the fourth quarter 2008.
For the year 2009, STFC had net income of $10.2 million, or
$0.25 per diluted share, compared to a loss of $31.1 million, or
$0.78 per diluted share, for 2008. The GAAP combined ratio for 2009
was 105.8 compared to 109.8 for 2008. Catastrophe losses increased
the loss ratio by 7.7 points, or $90.3 million, during 2009,
compared to 13.9 points, or $156.1 million, during 2008. The 2009
and 2008 catastrophe losses both included favorable prior accident
years’ development which reduced the loss ratio by 0.9 points, or
$10.9 million, for 2009 and 0.5 points, or $6.4 million, for 2008.
Non-catastrophe favorable reserve development reduced the loss
ratio by 3.9 points, or $45.3 million, for 2009 and 1.9 points, or
$20.9 million, for 2008. Net written premiums for 2009 increased
5.1% in comparison to 2008. STFC’s book value per share was $21.33
as of December 31, 2009, an increase of 10.9% from December 31,
2008. Return on stockholders’ equity for the twelve months ended
December 31, 2009 was 1.3%, compared to negative 3.7% for the
twelve months ended December 31, 2008.
“2009 was a year marked by two very different halves. After
experiencing almost $81 million in storm losses, and a stretch of
disappointingly large fire losses through June, STFC rebounded with
a solid third quarter that carried into a profitable fourth
quarter. The quarter included $0.24 per share of after-tax charges
for costs related to the ongoing restructuring of our field and
claim operations, settlement reserves related to a class action
claim and non-recurring charges related to our mandatory
participation in the North Carolina Beach Plan. Collectively, the
restructuring costs and class action claim settlement reserves
produced a 2.6 point drag on the quarter’s combined ratio and a 1.0
point drag on the year’s 105.8 combined ratio. A $6.5 million
pre-tax charge related to the North Carolina Beach Plan is the
outcome of recent legislation to reform the funding mechanism which
resulted in a write-off of our share of the equity interest in the
accumulated surplus of the Beach Plan. We had strong underwriting
performance for the quarter, after accounting for these charges,”
said STFC Chairman, President and CEO Bob Restrepo.
“The actions we took in 2008 and 2009 to benefit our homeowners
performance – a new aggregate reinsurance catastrophe treaty,
mandatory wind and hail deductibles, reduced commissions and higher
pricing – are producing the intended results. Also, new catastrophe
activity in the fourth quarter was negligible.
“State Auto’s overall premium growth should exceed industry
results for 2009. Sales in the personal insurance lines were
strong, growing at 11.8% in the fourth quarter and 12.2% for the
year. Fourth quarter auto and homeowner direct written premiums
were up 14.2% and 14.0%, respectively, with more than half coming
from our established states and the remainder from our expansion
states – Arizona, Colorado, Connecticut and Texas. Rate changes
accounted for about 3.5% of the auto premium growth and about 7% of
the homeowners premium growth. We expect growth in personal lines
to be tempered in 2010, however, based on our pricing actions. The
impact of higher rates was already apparent in a December slow down
on new business and premium growth.
“Business insurance sales, meanwhile, continued to trend
downward at minus 9.3% for the quarter and minus 5.5% for the year.
We will not force growth in business insurance at the expense of
profitability. Our main line business insurance pricing is
stabilizing after modest premium per exposure increases in the
fourth quarter. Until the market pricing firms and the economy
recovers, we will rely on new products, improving technology and a
strong field staff to stabilize the sales trend.
“Our focus for 2010 is to restore underwriting profitability
through better pricing, quality risk selection, and improved claim
handling. Our investment in the kind of technology that delivered
netXpressSM (personal lines processing), bizXpressSM (business
insurance processing), CustomFitSM and Quest (predictive modeling)
and homeowners by-peril pricing will continue.
“For the year, State Auto’s investment portfolio performed well
relative to market indices and contributed favorably to the $2.10
growth in book value. Continuing to address our enterprise
wide capital management, in 2010 our nonstandard business
written through State Auto National will be added to our
intercompany pooling arrangement, where STFC will retain 80% of all
nonstandard business written. We expect this change to have a
slight negative impact on STFC’s net written premiums. Also in
2010, STFC will be begin writing new commercial specialty
business that is associated with State Automobile Mutual
Insurance Company's 2009 acquisition of the Rockhill
Insurance Group. We expect this new business will add approximately
$30 million of net written premium to our business insurance
segment,” added Restrepo.
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 exclusively through independent insurance agencies in 33
states 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 Insurance
Companies are rated A+ (Superior) by the A.M. Best Company. The
State Auto Insurance Companies include 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 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 $0.00 per diluted share for the 2009 fourth quarter
and a loss of $0.08 for the year 2009, versus a loss
of $0.55 and a loss of $0.61, respectively for the same 2008
periods.
STFC has scheduled a conference call with interested investors
for Thursday, February 18, 10:00 a.m. Eastern time to discuss the
company’s fourth quarter 2009 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 18, by
calling 1-866-416-1187. Supplemental schedules detailing the
company’s fourth quarter 2009 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)
2009
2008
2009
2008
Net premiums written $ 291.0 $ 281.2 $ 1,210.4
$ 1,204.9
(B)
Earned premiums 299.6 285.0 1,176.5 1,126.0 Net investment
income 21.4 19.7 82.1 87.4 Net realized loss on investments - (32.7
) (5.2 ) (36.4 ) Other income 0.5 1.3
3.5 4.9 Total revenue 321.5
273.3 1,256.9 1,181.9
Income (loss) before federal income taxes 16.1 (5.7 )
(12.8 ) (75.1 ) Federal income tax expense (benefit)
1.7 (5.1 ) (23.0 ) (44.0 ) Net income
(loss) $ 14.4 $ (0.6 ) $ 10.2 $ (31.1 )
Earnings (loss) per share: - basic $ 0.36 $ (0.02 ) $ 0.26 $ (0.78
) - diluted $ 0.36 $ (0.02 ) $ 0.25 $ (0.78 ) Earnings
(loss) per share from operations (A): - basic $ 0.36 $ 0.53 $ 0.33
$ (0.17 ) - diluted $ 0.36 $ 0.53 $ 0.33 $ (0.17 ) Weighted
average shares outstanding: - basic 39.7 39.5 39.7 39.7 - diluted
39.9 39.5 39.8 39.7 Return on equity (LTM) 1.3 % -3.7 %
Book value per share $ 21.33 $ 19.23 Dividends paid
per share $ 0.15 $ 0.15 $ 0.60 $ 0.60 Total shares
outstanding 39.8 39.6 GAAP ratios: Loss and LAE ratio 63.2
57.8 71.7 75.2 Expense ratio 35.2 38.2
34.1 34.6 Combined ratio 98.4
96.0 105.8 109.8
Reconciliation of non-GAAP financial measure:
(A) Net income (loss) from
operations:
Net income (loss) $ 14.4 $ (0.6 ) $ 10.2 $ (31.1 ) Less net
realized loss on investments, less applicable federal income taxes
- (21.7 ) (2.9 ) (24.1 ) Net
income (loss) from operations $ 14.4 $ 21.1 $ 13.1
$ (7.0 )
(B) Net premiums written for the
year ended December 31, 2008, includes $53.6 million of unearned
premiums transferred to STFC in connection with the addition of The
Patrons Group, Beacon National and SAMMI to the State Auto Pool,
effective January 1, 2008.
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