State Auto Financial (STFC) Q3 Earnings Miss; Down Y/Y
State Auto Financial Corp. (STFC) reported operating earnings of 25 cents per share for the third quarter of 2014, missing the Zacks Consensus Estimate by 3.8%. Results also declined 24.2% year over year. The downside was owing to a revenue decline in the reported quarter.
State Auto Financial Corporation - Earnings Surprise | FindTheBest
Net income in the reported quarter also fell 37.8% to $11.9 million or 28 cents per share from the prior-year quarter.
Behind the Headlines
State Auto Financial’s top line dropped 0.5% to $291.3 million in the reported quarter. The year-over-year decrease resulted from a decline in net realized gain on investments.
Net written premiums came in at $277 million, up 6.6% year over year. The upsurge was driven by strong results at business insurance (up 2.9%) and specialty insurance (up 43.3%). Growth in business insurance was due to higher average new business premium, increased renewal pricing and a recovering economy. In specialty insurance, the increase came on the back of new business and new distribution partners, which included the recently acquired Partners General Insurance Agency.
The combined ratio deteriorated by 60 basis points (bps) to 102% year over year due to net impact of the homeowner quota share reinsurance treaty.
The combined ratio also included the impact of program business written through a wholly owned subsidiary of State Automobile Mutual Insurance Company, Risk Evaluation & Design LLC (RED.V), which was terminated in 2012 and is in run-off. In the third quarter, the company increased its RED reserves by $13.8million.
Excluding the impact of RED, combined ratio was 94.2%, which improved by 380 bps. The improvement was attributable to mild catastrophe experience and lack of hurricanes in the quarter.
The solid underwriting performance was due to turnaround in the personal insurance segment, particularly in the personal auto line. This segment produced a loss ratio of 58.3%, which improved by 740 bps from the year ago quarter. Meanwhile, for homeowners, the loss ratio improved 300 bps to 40.8%.
The specialty insurance segment also recorded a solid performance with its E&S casualty unit improving the loss ratio by 1040 bps to 47.5%.
Financial Update
State Auto Financial’s book value per share increased 12.9% to $20.41 as of Sep 30, 2014.
As of Sep 30, 2014, return on shareholders’ equity came in at 7.5% down from 8.9% in the year-ago quarter.
Zacks Rank
State Auto Financial now has a Zacks Rank #4 (Sell).
Performance of Other Property and Casualty Insurers
Everest Re Group Ltd. (RE) reported third-quarter 2014 operating earnings of $6.12 per share, way ahead of the Zacks Consensus Estimate of $4.97. Earnings were also up 45.7% year over year.
W.R. Berkley Corporation (WRB) posted third-quarter 2014 operating income of $1.06 per share, outperforming the Zacks Consensus Estimate by 16.5% and improving 37.7% year over year. The earnings beat came on the back of growth in premiums written, investment income and capital gains.
The Chubb Corporation’s (CB) third-quarter operating income of $2.17 per share surpassed the Zacks Consensus Estimate by 11.3% and improved 5% from the prior-year quarter.
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