State Auto Financial Reports First Quarter 2021 Results

Rhea-AI Summary

State Auto Financial Corporation (NASDAQ:STFC) reported a first quarter 2021 net income of $3.6 million ($0.08/share), rebounding from a net loss of $114.6 million in Q1 2020. However, the net loss from operations per diluted share rose to $0.61 from $0.18 a year prior. The GAAP combined ratio worsened to 112.9 from 107.2, influenced by significant catastrophe losses of $71.6 million, primarily due to winter storms in Texas. Despite these challenges, net written premium grew by 3.5%, driven by a strong 13.0% increase in the commercial insurance segment.

Positive

• Net written premium increased by 3.5% year-over-year.
• Commercial insurance segment net written premium grew by 13.0%.
• Return on equity improved to 14.3% compared to (8.7)% a year ago.

Negative

• Net loss from operations per diluted share increased to $0.61 from $0.18 in Q1 2020.
• GAAP combined ratio increased to 112.9 from 107.2, indicating higher expenses.
• Catastrophe losses accounted for 20.1 points of the total loss ratio, significantly impacting financial results.

State Auto Financial Corporation (NASDAQ:STFC) today reported first quarter 2021 net income of $3.6 million, or $0.08 per diluted share, compared to a net loss of $114.6 million, or $2.62 per diluted share, for the same 2020 period. Net loss from operations¹ per diluted share for the first quarter of 2021 was $0.61 versus $0.18 for the same 2020 period. STFC’s GAAP combined ratio for the first quarter 2021 was 112.9 compared to 107.2 for the same 2020 period.

SAP Operating Results

STFC's SAP combined ratio for the first quarter 2021 was 112.3 compared to 107.4 for the same 2020 period. Catastrophe losses and ALAE during the first quarter 2021 accounted for 20.1 points of the 78.8 total loss ratio points, or $71.6 million, versus 12.7 points of the 72.5 total loss ratio points, or $41.9 million, for the same period in 2020. The first quarter 2021 was impacted by winter storms Uri and Viola in Texas, which added 17.0 points to the first quarter loss and ALAE ratio. Approximately 75% of the first quarter 2021 catastrophe losses occurred within homeowners. Non-catastrophe losses and ALAE during the first quarter 2021 included 6.9 points of favorable development relating to prior years, or $24.6 million, versus 3.2 points of favorable development, or $10.5 million, for the same period in 2020.

Net written premium for the first quarter 2021 increased 3.5% compared to the same period in 2020. By insurance segment, net written premium for the commercial insurance segment increased 13.0% and the personal insurance segment decreased 3.2%. The increase in the commercial segment was primarily driven by new business growth and rate increases in commercial auto and small commercial package and new business growth in farm & ranch. The net written premium growth was partially offset by a decrease in net written premiums in workers’ compensation due to our 2020 decision to not renew and no longer write nursing home business, and a decrease in net written premiums in middle market commercial due to a decline in new business. The decrease in the personal segment was primarily due to a decline in new business in personal auto, partially offset by new business growth and rate increases in other personal and rate increases in homeowners.

Book Value and Return on Equity

STFC’s book value decreased to $22.07 per share as of March 31, 2021, compared to $23.00 on December 31, 2020. The decrease in book value was primarily driven by a decline in the fair market value of fixed income investments attributable to higher interest rates.

Return on stockholders’ equity for the 12 months ended March 31, 2021, was 14.3% compared to (8.7)% for the 12 months ended March 31, 2020.

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

“Our first quarter was solid, with continued growth, expense ratio improvement and progress toward sustained profitability. Catastrophes, though, had a significant impact on our results.

“The winter weather in Texas was devastating for many of our customers. Our Claims and Risk Engineering (CARE) team, on the ground in Texas and remotely from locations throughout the country, delivered exceptional service to those affected. I couldn’t be more proud of their efforts.

“The Texas weather added 17.0 points to the first quarter 2021 SAP combined ratio of 112.3, primarily in the homeowners line. Commercial lines added another quarter of profitability while producing 13.0% net written premium growth. Personal lines net written premium decreased 3.2%, with a 125.9 combined ratio that included 30.1 points of catastrophe losses. Personal auto returned to profitability with a 98.9 combined ratio. The team worked hard over the last two years to return this line to profitability and we’re seeing the results of those actions.

“We are beginning to see improvement in our expense ratio having recently completed the five-year build phase of our State Auto Connect digital technology platform, which gives us the ability to efficiently add scale. Middle market commercial launched in its last state in April and workers’ compensation will continue its rollout through the end of 2021.

“During the first quarter, we delivered in the most important way: By taking care of our customers in their time of need. At the same time, we produced results that represented continued progress toward our goal of consistent, sustained profitable growth.”

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.

STFC has scheduled a conference call with interested investors for Thursday, May 6, at 11 a.m. ET to discuss the Company’s first quarter 2021 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., May 6, by calling 855-859-2056, conference ID 6944689. Supplemental schedules detailing the Company’s first quarter 2021 financial, sales and underwriting results are made available on http://www.StateAuto.com/STFC prior to the conference call.

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 $0.69 per diluted share for the first quarter of 2021 versus a loss of $2.44 per diluted share for the first quarter 2020.

* * * * *

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 March 31
		2021				2020
Net premiums written		$	358.7			$	346.5
Earned premiums		355.9				330.5
Net investment income		17.6				18.9
Net investment gain (loss)		38.2				(135.2		)
Other income		0.5				0.6
Total revenue		412.2				214.8
Income (loss) before federal income taxes		5.6				(144.0		)
Federal tax expense (benefit)		2.0				(29.4		)
Net income (loss)		$	3.6			$	(114.6	)
Earnings (loss) per common share:
- basic		$	0.08			$	(2.62	)
- diluted		$	0.08			$	(2.62	)
Loss per share from operations(A):
- basic		$	(0.61	)		$	(0.18	)
- diluted		$	(0.61	)		$	(0.18	)
Weighted average shares outstanding:
- basic		43.9				43.7
- diluted		44.6				43.7
Return on average equity (LTM)		14.3		%		(8.7		)%
Book value per share		$	22.07			$	19.83
Dividends paid per share		$	0.10			$	0.10
Total shares outstanding		44.0				43.7
GAAP ratios:
Cat loss and ALAE ratio		20.1				12.7
Non-cat loss and LAE ratio		58.8				59.7
Loss and LAE ratio		78.9				72.4
Expense ratio		34.0				34.8
Combined ratio		112.9				107.2
(A) Reconciliation of non-GAAP financial measure:
Net loss from operations:
Net income (loss)		$	3.6			$	(114.6	)
Net investment gain (loss), net of tax		30.2				(106.8		)
Net loss from operations		$	(26.6	)		$	(7.8	)

Condensed Consolidated Balance Sheets
($ and shares in millions, except per share amounts)
(unaudited)		March 31				December 31
		2021				2020
ASSETS
Fixed maturities, available-for-sale, at fair value (amortized cost $2,147.5 and $2,117.0, respectively)		$	2,209.0			$	2,237.2
Equity securities		399.6				389.7
Other invested assets		76.4				71.1
Other invested assets, at cost		11.8				12.1
Notes receivable from affiliate		70.0				70.0
Total investments		2,766.8				2,780.1
Cash and cash equivalents		59.1				90.7
Accrued investment income and other assets		31.0				29.7
Premiums Receivable		12.3				14.0
Deferred policy acquisition costs		121.2				122.2
Reinsurance recoverable on losses and loss expenses payable		23.6				24.3
Prepaid reinsurance premiums		8.5				8.3
Current federal income taxes		1.7				1.7
Net deferred federal income taxes		37.1				27.3
Property and equipment, at cost		4.2				4.2
Total assets		$	3,065.5			$	3,102.5
LIABILITIES
Losses and loss expenses payable		$	1,066.3			$	1,050.4
Unearned premiums		726.7				723.4
Notes payable (affiliates $15.3 and $15.3, respectively)		122.1				122.1
Pension and postretirement benefits		59.2				66.2
Due to affiliate		22.1				11.2
Other liabilities		97.1				119.2
Total liabilities		2,093.5				2,092.5
STOCKHOLDERS' EQUITY
Common stock, without par value. Authorized 100.0 shares; 50.9 and 50.7 shares issued, respectively, at stated value of $2.50 per share		127.4				126.8
Treasury stock, 6.9 and 6.9 shares, respectively, at cost		(118.9		)		(118.4		)
Additional paid-in capital		220.1				213.3
Accumulated other comprehensive (loss) income		(30.1		)		13.9
Retained earnings		773.5				774.4
Total stockholders' equity		972.0				1,010.0
Total liabilities and stockholders' equity		$	3,065.5			$	3,102.5

Condensed Consolidated Statements of Income
($ in millions, except per share amounts)
(unaudited)		Three months ended March 31
		2021			2020
Earned premiums		$	355.9		$	330.5
Net investment income		17.6			18.9
Net investment gain (loss)		38.2			(135.2		)
Other income from affiliates		0.5			0.6
Total revenues		412.2			214.8
Losses and loss expenses		280.8			239.4
Acquisition and operating expenses		121.0			114.9
Interest expense		1.1			1.2
Other expenses		3.7			3.3
Total expenses		406.6			358.8
Income (loss) before federal income taxes		5.6			(144.0		)
Federal income tax expense (benefit):
Deferred		2.0			(29.4		)
Federal income tax expense (benefit)		2.0			(29.4		)
Net income (loss)		$	3.6		$	(114.6	)
Earnings (loss) per common share:
Basic		$	0.08		$	(2.62	)
Diluted		$	0.08		$	(2.62	)
Dividends paid per common share		$	0.10		$	0.10

Consolidated Statements of Comprehensive Loss
($ in millions)
(unaudited)	Three months ended March 31
	2021				2020
Net income (loss)	$	3.6			$	(114.6	)
Other comprehensive (loss) income, net of tax:
Net unrealized holding (loss) gain on available-for-sale investments:
Unrealized holding (loss) gain	(57.2		)		31.0
Reclassification adjustments for gains realized in net income	(1.5		)		(2.4		)
Income tax benefit (expense)	12.4				(6.0		)
Total net unrealized holding (loss) gain on available- for-sale investments	(46.3		)		22.6
Net unrecognized benefit plan obligations:
Reclassification adjustments for amortization to statements of income:
Prior service credit	(1.6		)		(1.6		)
Net actuarial loss	4.5				3.7
Income tax expense	(0.6		)		(0.5		)
Total net unrecognized benefit plan obligations	2.3				1.6
Other comprehensive (loss) income	(44.0		)		24.2
Comprehensive loss	$	(40.4	)		$	(90.4	)

Condensed Consolidated Statement of Stockholders' Equity
($ and shares in millions)
(unaudited)		Three Months Ended				Year Ended
		March 31				December 31
		2021				2020
Common shares:
Balance at beginning of year		50.7				50.4
Issuance of shares		0.2				0.3
Balance at period ended		50.9				50.7
Treasury shares:
Balance at beginning of year		(6.9		)		(6.9		)
Balance at period ended		(6.9		)		(6.9		)
Common stock:
Balance at beginning of year		$	126.8			$	125.9
Issuance of shares		0.6				0.9
Balance at period ended		127.4				126.8
Treasury stock:
Balance at beginning of year		$	(118.4	)		$	(117.5	)
Shares acquired on stock award exercises and vested restricted shares		(0.5		)		(0.9		)
Balance at beginning of year and period ended		(118.9		)		(118.4		)
Additional paid-in capital:
Balance at beginning of year

FAQ

What were State Auto Financial's Q1 2021 earnings results for STFC?

State Auto Financial reported a net income of $3.6 million in Q1 2021, compared to a net loss of $114.6 million in Q1 2020.

How did the combined ratio change for STFC in Q1 2021?

The GAAP combined ratio for STFC increased to 112.9 in Q1 2021 from 107.2 in the same period last year.

What impact did catastrophe losses have on STFC in Q1 2021?

Catastrophe losses in Q1 2021 amounted to $71.6 million, contributing 20.1 points to the total loss ratio.

What was the net written premium growth for STFC in Q1 2021?

STFC experienced a net written premium growth of 3.5% year-over-year in Q1 2021.