State Auto Financial Management Discusses Q3 2010 Results – Earnings Call Transcript
State Auto Financial Corp. (
)
Q3 2010 Earnings Call
November 2, 2010; 10:00 am ET
Executives
Bob Restrepo - Chairman, President & Chief Executive Officer
Steve English - Chief Financial Officer
Mark Blackburn - Chief Operating Officer
Jim Duemey - Chief Investment Officer
Matt Mrozek - Chief Actuary Officer
Cindy Powell - Chief Accounting Officer & Treasurer
Analysts
Paul Newsome – Sandler O'Neill & Partners
Caroline Steers - Macquarie
Larry Greenberg - Lange and McCleany
Sameer Kher – Capital Returns
Matt Rohrmann – KBW
Presentation
Operator
Compare to:
Previous Statements by STFC
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State Auto Financial Corporation Q2 2010 Earnings Call Transcript
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State Auto Financial Q1 2010 Earnings Call Transcript
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State Auto Financial Corporation Q4 2009 Earnings Call Transcript
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State Auto Financial Corp. Q3 2009 Earnings Call Transcript
Welcome to the State Auto Financial’s Third Quarter 2010 Earnings Conference Call. Initially, you will be in listen-only mode. Today’s call is being recorded. (Operator Instructions) At this point, I would like to turn the call over to Mr. Steve English, State Auto’s Chief Financial Officer.
Mr. English, you may proceed.
Steve English
Thank you, William [ph]. Good morning and welcome to our third quarter 2010 earnings conference call. Today I’m joined by several members of STFC’s senior management team. Our Chairman, President and CEO, Bob Restrepo, Chief Operating Officer, Mark Blackburn, Chief Investment Officer, Jim Duemey, Chief Actuary Officer, Matt Mrozek and our Chief Accounting Officer and Treasurer, Cindy Powell.
Today's call will include prepared remarks by our CEO Bob Restrepo and me, after which we will open the lines for questions. Please note our comments today may include forward-looking statements, which by their nature involve a number of risk factors and uncertainties, which may affect future financial performance. Such risk factors may cause actual results to differ materially from those contained in our projections are forward-looking statements.
These types of factors are discussed at the end of our press release as well as in our annual and quarterly filings with the Securities and Exchange Commission, to which I refer you. A financial packet containing reconciliations of certain non-GAAP measures along with supplemental financial information was distributed to registered participants prior to this call and made available to all interested parties on our website www.stateauto.com under the Investor Section as an attachment to the press release.
Now, I’ll turn the call over to STFC’s Chairman, President and CEO, Bob Restrepo.
Bob Restrepo
Thank you Steve, good morning. The third quarter State Auto Financial Corporation reported net income of $200,000 up $21.18 book value was up from the second quarter, but remains below year-end 2009.
GAAP combined ratio was higher than the third quarter this year relative to last year. In particular, our loss ratio was higher due to an increased level of catastrophe loses and an unusually high frequency of large liability losses particularly in the commercial auto line.
These negative trends were offset somewhat by improving personal insurance results and a better expense ratio. Net income in the quarter was also hurt by lower levels of investment income. The STFC GAAP combined ratios for the quarter was 105.9% compared to 102.5% last year. Virtually all the difference resulted from Linden Hill catastrophe losses.
Catastrophe experience was somewhat better in personal insurance, business insurance was hurt by large losses, which we define as losses in excess of $100,000 which added approximately 3 percentage points to our total combined ratio and almost 9 percentage points to our business insurance loss ratio when compared to the third quarter of last year.
The lines most affected were commercial auto, fire and general liability and I’ll provide a bit more color later on in my commentary. Year-to-date STFCs GAAP combined ratio improved to 106.9% relative to last years 108.3% with modest improvements in catastrophe experience, our non-cat loss ratio and the expense ratio.
From personal lines we are pleased with the continued improvement in our critical personal automobile line. Our third quarter loss ratio improved 3 point, 4 point and on a year-to-date basis 3 point, 5 points, as we earn out price increases implemented over the past year or so.
In addition, improvements to our claim processes improved results in our loss adjustment expenses. All then for personal lines, we’ve seen an improvement of over a 4-point, year-to-date to our personal lines loss ratio. Personal auto premium growth has moderated somewhat but mostly because of the significant pricing and underwriting actions that we’re taking in the homeowners line.
Growth in our standard auto line was up 5.2% for the quarter and 8.3% year-to-date. Most of the personal auto growth in the quarter came from price where the written premium impact was up 4.7%. The balance of the growth came from the expansion states of Arizona, Colorado, Connecticut and Texas. Policy account production and all the other things was flat.
Homeowner results were hurt by higher levels of catastrophes than we usually see in the third quarter when we exclude the impact from hurricanes. Wind and hail in the Green Bay Wisconsin and Minneapolis, Saint Paul areas, disproportionately hurt our third quarter results.
Excluding the impacts of catastrophes, the loss ratios in the homeowner lines are improving due to lower more normal levels of large fire losses and significantly higher levels of price increases. Net premiums in the homeowner line grew over 7.9% the quarter, but all of this was driven by price increase.
As the earned premium cash was up with these written premium trends, we expect to see accelerated improvements in our ex-catastrophe homeowner’s loss ratios. In addition of the price increases we’re getting at homeowners, we’re now well into our insurance-to-value program. Based on the current run rate, we expect to recognize another 3-percentage point price increase on top of the higher levels of rates that we are now charging.
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