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State Auto Financial Reports Third Quarter 2021 Results

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·12-min read
In this article:
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  • Quarterly loss of $0.32 per share

  • Quarterly net loss from operations1 of $0.18 per share

  • Quarterly GAAP combined ratio of 105.3

  • Quarterly SAP combined ratio of 103.5

  • Return on equity of 7.5%

  • Book value per share of $21.49

COLUMBUS, Ohio, November 04, 2021--(BUSINESS WIRE)--State Auto Financial Corporation (NASDAQ:STFC) today reported a third quarter 2021 net loss of $14.3 million, or $0.32 per diluted share, compared to net income of $11.6 million, or $0.26 per diluted share, for the same 2020 period. Net loss from operations1 per diluted share for the third quarter of 2021 was $0.18 versus $0.10 for the same 2020 period. STFC’s GAAP combined ratio for the third quarter 2021 was 105.3 compared to 106.0 for the same 2020 period.

For the first nine months of 2021, STFC had a net loss of $10.1 million, or $0.23 per diluted share, compared to $68.7 million, or $1.57 per diluted share, for the same 2020 period. Net loss from operations1 per diluted share for the first nine months of 2021 was $1.25 versus $0.86 for the same 2020 period. STFC’s GAAP combined ratio for the first nine months of 2021 was 109.4 compared to 109.3 for the same 2020 period.

SAP Operating Results

STFC's SAP combined ratio for the third quarter 2021 was 103.5 compared to 105.1 for the same 2020 period. Catastrophe losses and ALAE during the third quarter 2021 accounted for 10.3 points of the 75.1 total loss ratio points, or $39.4 million, versus 16.6 points of the 71.3 total loss ratio points, or $58.7 million, for the same period in 2020. The third quarter 2021 was impacted by severe weather events in the Midwest and Texas. Approximately 60% of the third quarter 2021 catastrophe losses occurred within homeowners. The current accident year non-catastrophe loss and ALAE ratio accounted for 60.5 points of the total loss ratio points, or $231.1 million, versus 55.0 points of the total loss ratio points, or $194.3 million, for the same 2020 period. The third quarter 2021 was impacted by elevated claim frequency and severity in personal auto and commercial auto. Non-catastrophe losses and ALAE during the third quarter 2021 included 1.3 points of favorable development relating to prior years, or $5.0 million, versus 5.5 points of favorable development, or $19.3 million, for the same period in 2020. Underwriting expenses during the third quarter 2021 accounted for 28.4 points of the total combined ratio points, or $118.6 million, versus 33.8 points of the total combined ratio points, or $127.9 million for the same 2020 period. The third quarter 2021 was impacted by decreases in estimated variable agent compensation and IT development costs when compared to the same 2020 period.

STFC's SAP combined ratio for the first nine months of 2021 was 107.8 compared to 108.6 for the same 2020 period. Catastrophe losses and ALAE during the first nine months of 2021 accounted for 17.2 points of the 78.2 total loss ratio points, or $191.0 million, versus 18.6 points of the 74.5 total loss ratio points, or $191.0 million, for the same period in 2020. The first nine months of 2021 were impacted by winter storms Uri and Viola in Texas, which added 5.6 points to the loss and ALAE ratio. Approximately 70% of the year to date 2021 catastrophe losses occurred within homeowners. The current accident year non-catastrophe loss and ALAE ratio accounted for 59.3 points of the total loss ratio points, or $656.8 million, versus 53.0 points of the total loss ratio points, or $542.4 million, for the same 2020 period. In addition to the factors discussed above, the first nine months of 2021 were impacted by elevated frequency and severity of property losses in homeowners. Non-catastrophe losses and ALAE during the third quarter 2021 included 4.1 points of favorable development relating to prior years, or $45.5 million, versus 3.1 points of favorable development, or $31.8 million, for the same period in 2020. Underwriting expenses during the first nine months of 2021 accounted for 29.6 points of the total combined ratio points, or $352.4 million, versus 34.1 points of the total combined ratio points, or $377.1 million for the same 2020 period. In addition to the factors discussed above, the first nine months of 2021 were impacted by a decrease in associate benefit costs when compared to the same 2020 period.

Net written premium for the third quarter 2021 increased 10.2% compared to the same period in 2020. By insurance segment, net written premium for the commercial insurance segment increased 17.1% and the personal insurance segment increased 5.7%. The increase in the commercial segment was primarily driven by (i) new business growth and rate increases in commercial auto and farm & ranch, (ii) rate increases in middle market commercial, and (iii) new business growth in workers' compensation driven by its launch on State Auto Connect. The increase in the personal segment was primarily due to increased rates in homeowners and other personal and new business growth in other personal. The net written premium growth was partially offset by a decline in new business in personal auto.

Net written premium for the first nine months of 2021 increased 7.4% compared to the same period in 2020. By insurance segment, net written premium for the commercial insurance segment increased 16.1% and the personal insurance segment increased 1.5%. Net written premiums for the first nine months of 2021 were impacted by the same factors discussed above for the third quarter.

The third quarter and first nine months of 2021 were also impacted by the following expenses incurred as a result of the pending Liberty Mutual merger: (i) a $9.3 million increase in the valuation of the Director RSU awards as a result of the increase in our stock price; and (ii) $2.9 million of legal and investment banking fees and expenses. These expenses were included in "other expenses" on the condensed consolidated statements of income.

Book Value and Return on Equity

STFC’s book value decreased to $21.49 per share as of September 30, 2021, compared to $22.18 on June 30, 2021. The decrease in book value was primarily driven by a decrease in the fair market value of fixed income investments attributable to higher interest rates.

Return on stockholders’ equity for the 12 months ended September 30, 2021, was 7.5% compared to (3.8)% for the 12 months ended September 30, 2020.

STFC’s Chairman, President and CEO Mike LaRocco commented on the quarter as follows:

"The third quarter statutory combined ratio of 103.5 was impacted by higher claim frequency and severity in both personal and commercial auto and wind and hail events in the Midwest and Texas.

"Overall net written premium growth of 10.2% included a 17.1% increase in commercial lines with a 99.7% statutory combined ratio in the segment. In personal lines, net written premium increased 5.7% with a 106.6% statutory combined ratio. Expense ratio improvement continued, with a 28.4% result compared to 33.8% for third quarter 2020.

"We remain focused on continuing our progress toward consistent profitable growth. At the same time, efforts continue toward our planned acquisition by Liberty Mutual, which remains on track to close in 2022, pending appropriate member and regulatory approvals. This transaction furthers our commitment to independent agents and will contribute to the collective success of our agents, policyholders and associates."

About State Auto Financial Corporation

State Auto Financial Corporation, headquartered in Columbus, Ohio, is a super regional property and casualty insurance holding company. 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 a loss of $0.14 per diluted share and income of $1.02 per diluted share for the third quarter and year to date 2021, respectively, versus income of $0.36 per diluted share and a loss of $0.71 per diluted share for the third quarter and year to date 2020, respectively.

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.

Selected Consolidated Financial Data

($ in millions, except per share amounts)

(unaudited)

Three months ended September 30

Nine months ended September 30

2021

2020

2021

2020

Net premiums written

$

417.7

$

379.1

$

1,188.7

$

1,107.2

Earned premiums

381.8

353.2

1,107.6

1,024.4

Net investment income

17.0

17.9

52.3

54.5

Net investment (loss) gain

(8.1

)

20.0

56.8

(39.3

)

Other income

0.4

0.5

1.3

1.6

Total revenue

391.1

391.6

1,218.0

1,041.2

(Loss) income before federal income taxes

(25.7

)

14.8

(15.9

)

(87.6

)

Federal tax (benefit) expense

(11.4

)

3.2

(5.8

)

(18.9

)

Net (loss) income

$

(14.3

)

$

11.6

$

(10.1

)

$

(68.7

)

(Loss) earnings per common share:

- basic

$

(0.32

)

$

0.26

$

(0.23

)

$

(1.57

)

- diluted

$

(0.32

)

$

0.26

$

(0.23

)

$

(1.57

)

Loss per share from operations(A):

- basic

$

(0.18

)

$

(0.10

)

$

(1.25

)

$

(0.86

)

- diluted

$

(0.18

)

$

(0.10

)

$

(1.25

)

$

(0.86

)

Weighted average shares outstanding:

- basic

44.3

43.8

44.1

43.7

- diluted

44.3

44.3

44.1

43.7

Return on average equity (LTM)

7.5

%

(3.8

)%

Book value per share

$

21.49

$

21.57

Dividends paid per share

$

0.10

$

0.10

$

0.30

$

0.30

Total shares outstanding

44.4

43.8

GAAP ratios:

Cat loss and ALAE ratio

10.3

16.6

17.2

18.6

Non-cat loss and LAE ratio

64.9

54.6

61.2

55.8

Loss and LAE ratio

75.2

71.2

78.4

74.4

Expense ratio

30.1

34.8

31.0

34.9

Combined ratio

105.3

106.0

109.4

109.3

(A) Reconciliation of non-GAAP financial measure:

Net loss from operations:

Net (loss) income

$

(14.3

)

$

11.6

$

(10.1

)

$

(68.7

)

Net investment (loss) gain, net of tax

(6.4

)

15.8

44.9

(31.0

)

Net loss from operations

$

(7.9

)

$

(4.2

)

$

(55.0

)

$

(37.7

)

Condensed Consolidated Balance Sheets

($ and shares in millions, except per share amounts)

(unaudited)

September 30

December 31

2021

2020

ASSETS

Fixed maturities, available-for-sale, at fair value (amortized cost $2,159.6 and $2,117.0, respectively)

$

2,223.5

$

2,237.2

Equity securities

376.0

389.7

Other invested assets

79.3

71.1

Other invested assets, at cost

10.4

12.1

Notes receivable from affiliate

70.0

70.0

Total investments

2,759.2

2,780.1

Cash and cash equivalents

46.1

90.7

Accrued investment income and other assets

30.7

29.7

Premiums Receivable

14.1

14.0

Deferred policy acquisition costs

131.5

122.2

Reinsurance recoverable on losses and loss expenses payable

19.6

24.3

Prepaid reinsurance premiums

8.7

8.3

Due from affiliate

28.7

Current federal income taxes

1.8

1.7

Net deferred federal income taxes

43.1

27.3

Property and equipment, at cost

3.8

4.2

Total assets

$

3,087.3

$

3,102.5

LIABILITIES

Losses and loss expenses payable

$

1,059.7

$

1,050.4

Unearned premiums

805.0

723.4

Notes payable (affiliates $15.3 and $15.3, respectively)

122.1

122.1

Pension and postretirement benefits

45.0

66.2

Due to affiliate

11.2

Other liabilities

100.6

119.2

Total liabilities

2,132.4

2,092.5

STOCKHOLDERS' EQUITY

Common stock, without par value. Authorized 100.0 shares; 51.3 and 50.7 shares issued, respectively, at stated value of $2.50 per share

128.4

126.8

Treasury stock, 6.9 and 6.9 shares, respectively, at cost

(118.8

)

(118.4

)

Additional paid-in capital

218.1

213.3

Accumulated other comprehensive (loss) income

(23.8

)

13.9

Retained earnings

751.0

774.4

Total stockholders' equity

954.9

1,010.0

Total liabilities and stockholders' equity

$

3,087.3

$

3,102.5

Condensed Consolidated Statements of Income

($ in millions, except per share amounts)

(unaudited)

Three months ended September 30

Nine months ended September 30

2021

2020

2021

2020

Earned premiums

$

381.8

$

353.2

$

1,107.6

$

1,024.4

Net investment income

17.0

17.9

52.3

54.5

Net investment (loss) gain

(8.1

)

20.0

56.8

(39.3

)

Other income from affiliates

0.4

0.5

...

1.3

1.6

Total revenues

391.1

391.6

1,218.0

1,041.2

Losses and loss expenses

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