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State Auto Financial Reports Estimate Of Third Quarter Storm Activity Impact And Reserve Increase On Program Business

State Auto Financial Corporation (Nasdaq: STFC) today announced its preliminary estimate of the impact of catastrophe losses on its third quarter results. The company estimates third quarter 2012 results will include between $6.5 million and $7.5 million in pre-tax net catastrophe losses. During the quarter ended Sept. 30, 2012, six catastrophe events in the United States were identified by Property Claim Services (PCS).

STFC also announced that loss and loss expense reserves for prior periods will be increased between $19.0 million and $21.0 million on program business written by Risk Evaluation & Design LLC (RED), a wholly owned subsidiary of State Automobile Mutual Insurance Company. The reserve increases relate primarily to a large commercial auto trucking program that, as previously disclosed, was cancelled as of April 1, 2012.

STFC President and CEO Bob Restrepo commented as follows:

“We’re pleased that third quarter results will reflect significantly lower levels of property catastrophe losses compared both to last year and our average five-year, third quarter catastrophe loss ratio of 10.6%. At the same time, we’re very disappointed in the performance of the program business underwritten by RED. We began writing business with this unit in 2010 and acted as quickly as possible to address deteriorating results. In the past three months, claim development exceeded expectations requiring us to put aside reserves to address prior accident years and increase our loss estimates for 2012. Nearly all the business underwritten by RED has been terminated, the management team has been replaced, and the unit has been restructured and integrated into our profitable Rockhill organization.

“We expect substantially all the business written by RED over the past three years will be off our books by the end of 2013. I have confidence in Rockhill’s ability to succeed in the specialty insurance marketplace and in our efforts to further diversify our book of business and generate profitable returns to our shareholders.”

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