State Auto Financial Reports Second Quarter 2008 Results

  
    
  
  
    
      State Auto Financial Corporation (NASDAQ: STFC) today reported a second 
      quarter 2008 net loss of $3.3 million, or $0.08 per diluted share, 
      versus net income of $23.4 million, or $0.56 per diluted share, for the 
      second quarter of 2007. Net loss from operations(a) per diluted share 
      for the second quarter 2008 was $0.12, versus net income from operations 
      of $0.51 for the same 2007 period.
    
    
      STFC’s second quarter 2008 revenue was $307.0 
      million versus $278.7 million for the same period in 2007. STFC’s 
      GAAP combined ratio for the quarter was 115.9 versus 96.7 for the second 
      quarter of 2007. Catastrophe losses accounted for 27.3 points of the 
      total 84.0 loss ratio points, or $76.8 million, during the second 
      quarter this year, compared to 8.2 points of the total 63.3 loss ratio 
      points, or $20.7 million, for the same period in 2007. The second 
      quarter 2008 also included an income tax benefit of $20.9 million, 
      reflecting taxes expected to be recoverable based upon year to date 
      results.
    
    
      Revenue for the first six months of 2008 was $608.0 million, versus 
      $554.2 million for the same 2007 period. For the first six months of 
      2008, net loss was $15.8 million, or $0.40 per diluted share, compared 
      to net income of $54.2 million or $1.30 per diluted share, for the same 
      2007 period. STFC’s GAAP combined ratio for 
      the first six months of 2008 was 113.6, as compared to 94.0 for the same 
      period in 2007. STFC’s book value per share 
      decreased to $21.44 per share as of June 30, 2008. Return on stockholders’ 
      equity for the twelve months ended June 30, 2008 was 5.7% compared to 
      15.7% for the twelve months ended June 30, 2007.
    
    
      “We experienced unprecedented losses from 
      catastrophic storm activity during the second quarter. The $76.8 million 
      total is not only a record high for a second quarter, but a record for 
      catastrophe losses for any quarter in our history. Losses in the first 
      six months of 2008 of $111.8 million already make it STFC’s 
      worst year for catastrophe losses. I can’t say 
      enough about the performance of our claims associates, and their efforts 
      in servicing our policyholders, during this difficult period,” 
      said STFC Chairman, President and CEO Bob Restrepo.
    
    
      “Excluding the catastrophe losses, our second 
      quarter core loss ratio improved from the first quarter, underscoring 
      the strength of State Auto’s underwriting 
      fundamentals. We also continue to see positive trends in our new 
      business policy counts and overall premium growth in a competitive 
      market. Total net written premium quarter over quarter was up 12.4%, of 
      which 3.4% was attributable to organic growth and 9.0% to previously 
      reported pooling changes. Organic growth was strong in standard private 
      passenger auto, our largest line of business, with net written premium 
      up 5.8% for the second quarter 2008 over the same quarter 2007. Our 
      advances in pricing technology, product development and agency 
      automation and business support have keyed the organic growth successes,” 
      added Restrepo.
    
    
      STFC repurchased 452,667 shares during the second quarter of 2008 and 
      2,028,116 shares to date under the previously announced share repurchase 
      program which authorized purchasing up to 4.0 million common shares 
      through December 31, 2009.
    
    
      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 company is one of NASDAQ’s 
      listed companies to be named a 2008 Mergent Dividend Achiever for having 
      increased its dividends for ten or more years in succession.
    
    
      The State Auto Insurance Companies are rated A+ (Superior) by the A.M. 
      Best Company and 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.
    
    
      (a) 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 (loss) 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 $0.04 per diluted share for the second quarter and $0.01 for 
      2008 year to date versus $0.05 and $0.07 for the same 2007 periods.
    
    
      STFC has scheduled a conference call with interested investors for 
      Thursday, July 24, 10:00 a.m. Eastern time to discuss the company’s 
      second quarter 2008 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, July 24, by calling 
      1-800-283-4984. Supplemental schedules detailing the company’s 
      second quarter 2008 financial, sales and underwriting results are made 
      available on www.StateAuto.com 
      prior to the conference call.
    
    
      This news release may contain forward-looking statements within 
      the meaning of the Private Securities Litigation Reform Act of 1995. 
      These forward-looking statements are based on the current assumptions, 
      expectations and projections of State Auto Financial Corporation’s 
      (the “Company”) 
      management about future events. Although we believe these statements are 
      based on reasonable assumptions, the Company can give no assurance that 
      they will prove to be correct. Numerous factors, including those related 
      to market conditions and those detailed in the Company’s 
      filings with the Securities and Exchange Commission, may cause actual 
      results of the Company to differ materially from those anticipated in 
      these forward-looking statements. Many of the factors that will 
      determine the Company’s future results are 
      beyond the control to predict. These forward-looking statements are 
      subject to these risks and uncertainties and, therefore, actual results 
      may differ materially. The Company undertakes no obligation to update or 
      revise any forward-looking statements, whether as a result of new 
      information, future events or otherwise.
    
    
      
        
          STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES
        
      
      
        
          CONSOLIDATED STATEMENTS OF INCOME
        
      
      
        
          (unaudited)
        
      
      
        
        
        
           
        
        
        
        
           
        
        
        
        
        
        
           
        
        
        
        
        
        
        
      
      
        
        
        
        
        
          Three Months Ended
        
        
        
        
          Six Months Ended
        
      
      
        
          (In millions, except per share amounts)
        
        
        
        
          June 30
        
        
        
        
          June 30
        
      
      
        
        
        
          2008
        
        
        
        
          2007
        
        
        
        
          2008
        
        
        
        
          2007
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net premiums written
        
        
        
        
          $
        
        
          300.7
        
        
           
        
        
        
        
          $
        
        
          267.6
        
        
        
        
        
        
          $
        
        
          625.9
        
        
           
        
        
          
            (B)
          
        
        
          $
        
        
          515.1
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Earned premiums
        
        
        
        
        
        
          281.1
        
        
        
        
        
        
        
        
          253.3
        
        
        
        
        
        
        
        
          560.3
        
        
        
        
        
        
        
        
          505.2
        
      
      
        
          Net investment income
        
        
        
        
        
        
          22.3
        
        
        
        
        
        
        
        
          20.6
        
        
        
        
        
        
        
        
          44.7
        
        
        
        
        
        
        
        
          41.9
        
      
      
        
          Net realized gain on investments
        
        
        
        
        
        
          2.4
        
        
        
        
        
        
        
        
          3.6
        
        
        
        
        
        
        
        
          0.6
        
        
        
        
        
        
        
        
          4.7
        
      
      
        
          Other income
        
        
        
        
           
        
        
          1.2
        
        
           
        
        
        
        
           
        
        
          1.2
        
        
        
        
        
        
           
        
        
          2.4
        
        
           
        
        
        
        
           
        
        
          2.4
        
      
      
        
          Total revenue
        
        
        
        
           
        
        
          307.0
        
        
           
        
        
        
        
           
        
        
          278.7
        
        
        
        
        
        
           
        
        
          608.0
        
        
           
        
        
        
        
           
        
        
          554.2
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          (Loss) income before federal income taxes
        
        
        
        
        
        
          (24.2
        
        
          )
        
        
        
        
        
        
          28.9
        
        
        
        
        
        
        
        
          (39.2
        
        
          )
        
        
        
        
        
        
          69.7
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Federal income tax (benefit) expense
        
        
        
        
           
        
        
          (20.9
        
        
          )
        
        
        
        
           
        
        
          5.5
        
        
        
        
        
        
           
        
        
          (23.4
        
        
          )
        
        
        
        
           
        
        
          15.5
        
      
      
        
          Net (loss) income
        
        
        
        
          $
        
        
          (3.3
        
        
          )
        
        
        
        
          $
        
        
          23.4
        
        
        
        
        
        
          $
        
        
          (15.8
        
        
          )
        
        
        
        
          $
        
        
          54.2
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          (Loss) earnings per share:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          - basic
        
        
        
        
          $
        
        
          (0.08
        
        
          )
        
        
        
        
          $
        
        
          0.57
        
        
        
        
        
        
          $
        
        
          (0.40
        
        
          )
        
        
        
        
          $
        
        
          1.32
        
      
      
        
          - diluted
        
        
        
        
          $
        
        
          (0.08
        
        
          )
        
        
        
        
          $
        
        
          0.56
        
        
        
        
        
        
          $
        
        
          (0.40
        
        
          )
        
        
        
        
          $
        
        
          1.30
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          (Loss) earnings per share from operations (A):
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          - basic
        
        
        
        
          $
        
        
          (0.12
        
        
          )
        
        
        
        
          $
        
        
          0.51
        
        
        
        
        
        
          $
        
        
          (0.41
        
        
          )
        
        
        
        
          $
        
        
          1.24
        
      
      
        
          - diluted
        
        
        
        
          $
        
        
          (0.12
        
        
          )
        
        
        
        
          $
        
        
          0.51
        
        
        
        
        
        
          $
        
        
          (0.41
        
        
          )
        
        
        
        
          $
        
        
          1.23
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Weighted average shares outstanding:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          - basic
        
        
        
        
        
        
          39.5
        
        
        
        
        
        
        
        
          41.1
        
        
        
        
        
        
        
        
          39.9
        
        
        
        
        
        
        
        
          41.1
        
      
      
        
          - diluted
        
        
        
        
        
        
          39.5
        
        
        
        
        
        
        
        
          41.8
        
        
        
        
        
        
        
        
          39.9
        
        
        
        
        
        
        
        
          41.8
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Book value per share
        
        
        
        
          $
        
        
          21.44
        
        
        
        
        
        
          $
        
        
          21.17
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Dividends paid per share
        
        
        
        
          $
        
        
          0.15
        
        
        
        
        
        
          $
        
        
          0.10
        
        
        
        
        
        
          $
        
        
          0.30
        
        
        
        
        
        
          $
        
        
          0.20
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Total shares outstanding
        
        
        
        
        
        
          39.4
        
        
        
        
        
        
        
        
          41.2
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          GAAP ratios:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Loss and LAE ratio
        
        
        
        
        
        
          84.0
        
        
        
        
        
        
        
        
          63.3
        
        
        
        
        
        
        
        
          80.4
        
        
        
        
        
        
        
        
          60.1
        
      
      
        
          Expense ratio
        
        
        
        
           
        
        
          31.9
        
        
           
        
        
        
        
           
        
        
          33.4
        
        
        
        
        
        
           
        
        
          33.2
        
        
           
        
        
        
        
           
        
        
          33.9
        
      
      
        
          Combined ratio
        
        
        
        
           
        
        
          115.9
        
        
           
        
        
        
        
           
        
        
          96.7
        
        
        
        
        
        
           
        
        
          113.6
        
        
           
        
        
        
        
           
        
        
          94.0
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          (A) Net (loss) income from operations:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Net (loss) income
        
        
        
        
          $
        
        
          (3.3
        
        
          )
        
        
        
        
          $
        
        
          23.4
        
        
        
        
        
        
          $
        
        
          (15.8
        
        
          )
        
        
        
        
          $
        
        
          54.2
        
      
      
        
          
            Less net realized gains on investments, less applicable federal 
            income taxes
          
          
             
          
        
        
        
        
           
        
        
          1.6
        
        
           
        
        
        
        
           
        
        
          2.3
        
        
        
        
        
        
           
        
        
          0.4
        
        
           
        
        
        
        
           
        
        
          3.1
        
      
      
        
          Net (loss) income from operations
        
        
        
        
          $
        
        
          (4.9
        
        
          )
        
        
        
        
          $
        
        
          21.1
        
        
        
        
        
        
          $
        
        
          (16.2
        
        
          )
        
        
        
        
          $
        
        
          51.1
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            (B) Net premiums written for the six 
            months ended June 30, 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.