State Auto Financial Reports Fourth Quarter and Year End 2018 Results

  • Quarterly net loss of $0.57 per diluted share including $1.25 per
    diluted share, or $54.1 million, of after-tax net unrealized loss on
    investments
  • Quarterly net income from operations2 of $0.67 per diluted
    share
  • Quarterly GAAP combined ratio of 94.6%
  • Return on equity of 1.5%
  • Book value per share of $19.79

COLUMBUS, Ohio–(BUSINESS WIRE)–lt;a href=”https://twitter.com/search?q=%24STFC&src=ctag” target=”_blank”gt;$STFClt;/agt; lt;a href=”https://twitter.com/hashtag/STFC?src=hash” target=”_blank”gt;#STFClt;/agt;–State Auto Financial Corporation (NASDAQ:STFC) today reported a fourth
quarter 2018 net loss of $24.5 million, or $0.57 per diluted share,
which included $54.1 million, or $1.25 per diluted share, of after-tax
net unrealized loss on investments, versus a net loss of $6.7 million1,
or $0.161 per diluted share, for the fourth quarter of 2017.
Net income from operations2 per diluted share for the fourth
quarter 2018 was $0.67 versus net loss from operations2 per
diluted share of $0.491 for the same 2017 period. The fourth
quarter 2017 net loss and net loss from operations included a charge
of $36.4 million, or $0.86 per diluted share, related to the enactment
of the Tax Cuts and Jobs Act of 2017 (TCJA).

For the year ended 2018, STFC had net income of $12.8 million, or $0.29
per diluted share, which included $45.3 million, or $1.04 per diluted
share, of after-tax net unrealized loss on investments, compared to a
net loss of $10.7 million1, or $0.251 per diluted
share, for the same 2017 period. Net income from operations2
per diluted share for the year ended Dec. 31, 2018 was $1.20 versus a
net loss from operations2 per diluted share of $1.261
for the same 2017 period. The year ended 2017 net loss and net loss from
operations included the same charge of $36.4 million, or $0.86 per
diluted share, related to the enactment of the TCJA.

GAAP Operating Results

STFC’s GAAP combined ratio for the fourth quarter 2018 was 94.6 compared
to 100.71 for the same 2017 period. Catastrophe losses during
the fourth quarter 2018 accounted for 2.6 points of the 56.8 total loss
ratio points, or $8.1 million, versus 2.6 points of the total 62.71
loss ratio points, or $8.3 million, for the same period in 2017.
Non-catastrophe losses during the fourth quarter 2018 included 7.9
points of favorable development relating to prior years, or $24.4
million versus 4.1 points, or $12.9 million, for the same period in 2017.

Net written premium for the fourth quarter of 2018 decreased 1.1%
compared to the same period in 2017. By segment, net written premium for
personal and commercial increased 13.9% and 3.9%, respectively, while
the specialty segment reported negative written premium as a result of
our exit from this business. The increase in the personal segment was
primarily due to rate actions taken to improve the profitability in
personal auto, new business growth, and a higher level of policies in
force for the fourth quarter 2018 compared to the fourth quarter of
2017. The increase in the commercial segment was primarily driven by
rate increases and a higher level of new business production from
commercial auto and middle market commercial during the fourth quarter
2018 compared to the fourth quarter of 2017. Partially offsetting the
increase was a decline in small commercial package new business during
the fourth quarter 2018 compared to the fourth quarter 2017.

STFC’s GAAP combined ratio for the year ended 2018 was 100.6 compared to
107.71 for the same 2017 period. Catastrophe losses impacted
the loss ratio for the year ended 2018 by 5.8 points, or $71.7 million,
compared to 9.7 points, or $124.0 million for the year ended 2017.
Non-catastrophe losses for the year ended 2018 included 6.2 points of
favorable development relating to prior years, or $76.6 million, versus
3.2 points of favorable development, or $41.4 million, for the same
period in 2017.

Net written premium for the year ended 2018 decreased 4.7% compared to
the same 2017 period. By insurance segment, net written premium for the
personal and commercial segments increased 19.1% and 3.6%, respectively,
and the specialty segment decreased 93.2%, as a result of our exit from
this business. The increases in net written premium in the personal and
commercial segments were due to the same factors discussed above for the
fourth quarter.

SAP Personal and Commercial Operating Results

The SAP personal and commercial segments’, our ongoing insurance
segments, combined ratio3 for the fourth quarter 2018 was
92.8 compared to 97.1 for the same 2017 period. Catastrophe losses
during the fourth quarter 2018 accounted for 2.3 points of the 54.8
total loss ratio points, or $6.9 million, versus 0.4 points of the total
59.2 points or $1.0 million for the same period in 2017. Non-catastrophe
losses and ALAE during the fourth quarter 2018 included 7.8 points of
favorable development relating to prior years, or $23.3 million, versus
5.5 points or $14.5 million, for the same period in 2017.

The SAP personal and commercial segments’ combined ratio3 for
the year ended 2018 was 98.6 compared to 102.3 for the same 2017 period.
Catastrophe losses for the year ended 2018 accounted for 6.2 points of
the total 63.0 loss ratio points, or $70.3 million, versus 6.8 points of
the total 67.6 loss ratio points, or $70.1 million for the year ended
2017. Non-catastrophe losses and ALAE for the year ended 2018 included
7.0 points of favorable development relating to prior years, or $79.7
million, versus 4.4 points of favorable development, or $45.6 million,
for the same period in 2017.

Book Value and Return on Equity

STFC’s book value was $19.79 per share as of Dec. 31, 2018, a decrease
of $0.45 per share from STFC’s book value on Sept. 30, 2018. The
decrease was driven by the market value of our investment portfolio.
Return on stockholders’ equity for the twelve months ended Dec. 31,
2018, was 1.5% compared to (1.2)% for the twelve months ended Dec. 31,
2017.

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

“The fourth quarter and year 2018 results continued our positive
momentum and further validated the bold strategic and operational
decisions we’ve made since 2015. We’re now an emerging digital company,
focused on writing personal auto and home, small and middle market
commercial, farm and ranch, and workers’ compensation. Those lines
produced 12.5% net written premium growth and a combined ratio of 98.6%
for 2018, only the second year of profitable growth in 11 years.

“I couldn’t be more proud of our associates and distribution partners
for their hard work. Thanks to them, we’ve made remarkable progress in a
short period of time. We’re justifiably proud, but we know we must get
even better. There is still much room for improvement and we will remain
diligent as we move forward. However, our 2018 results demonstrate that
we now have a solid foundation upon which we can profitably grow and
outperform the industry.”

About State Auto Financial Corporation

State Auto Financial Corporation, headquartered in Columbus, Ohio, is a
super regional property and casualty insurance holding company and is
proud to be a Trusted Choice® company partner. 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, which include retail agencies and wholesale brokers. 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.

1As previously reported, the results for the fourth quarter
and year ended Dec. 31, 2017, have been restated to correct an error
discovered during the first quarter of 2018 relating to the calculation
of deferred acquisition costs (DAC) along with making other adjustments
not previously recorded relating to that same time period. Although the
error was immaterial to STFC’s previously issued financial statements,
the cumulative correction would have a material effect on the 2018
financial statements. Accordingly, the results for the fourth quarter
and year ended Dec. 31, 2017, throughout this release have been adjusted
to incorporate the revised amounts, where applicable. Please refer to
our quarterly report on Form 10-Q for the period ending March 31, 2018
for further information.

2 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 (loss) gain, net of applicable taxes, on investment
activity for the periods being reported. For STFC, this amounted to a
loss of $1.25 per diluted share and $0.91 per diluted share for the
fourth quarter and year ended Dec. 31, 2018, respectively, versus income
of $0.32 and per diluted share and $1.01 per diluted share for the
fourth quarter and year ended Dec. 31, 2017, respectively.

3 Insurance industry regulators require STFC’s insurance
subsidiaries to report their financial condition and results of
operations using Statutory Accounting Practices (“SAP”). The SAP
personal and commercial segments combined ratio is a measure used by
management to evaluate STFC’s operating performance for its ongoing
operations. Details behind the compilation of these results can be found
on page 19 of this release.

STFC has scheduled a conference call with interested investors for
Thursday, Feb. 14, at 11 a.m. ET to discuss the Company’s fourth quarter
2018 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., Feb. 14, by
calling 855-859-2056, conference ID 8998499. Supplemental schedules
detailing the Company’s fourth quarter 2018 financial, sales and
underwriting results are made available on http://www.StateAuto.com/STFC
prior to the conference call.

* * * * * *

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.

 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
Selected Consolidated Financial Data
       
Three months ended December 31 Year ended December 31
2018

2017 1

2018

2017 1

Net written premiums $ 297.6   $ 300.9   $ 1,210.3   $ 1,270.3  
 
Earned premiums 308.8 318.9 1,238.0 1,276.1
Net investment income 22.7 22.3 84.9 78.8
Net investment (loss) gain (67.9 ) 21.3 (49.7 ) 65.1
Other income from affiliates 0.8   0.6   2.6   2.3  
Total revenue 264.4   363.1   1,275.8   1,422.3  
 
(Loss) income before federal income taxes (32.5 ) 38.1 12.9 35.0
 
Federal income tax (benefit) expense (8.0 ) 44.8   0.1   45.7  
Net (loss) income $ (24.5 ) $ (6.7 ) $ 12.8   $ (10.7 )
 
(Loss) earnings per common share:
– basic $ (0.57 ) $ (0.16 ) $ 0.30 $ (0.25 )
– diluted $ (0.57 ) $ (0.16 ) $ 0.29 $ (0.25 )
Earnings (loss) per share from operations (A):
– basic $ 0.68 $ (0.49 ) $ 1.21 $ (1.26 )
– diluted $ 0.67 $ (0.49 ) $ 1.20 $ (1.26 )
Weighted average shares outstanding:
– basic 43.1 42.3 42.9 42.1
– diluted 43.1 42.3 43.4 42.1
Return on average equity (LTM) 1.5 % (1.2 )%
Book value per share $ 19.79 $ 20.63
Dividends paid per share $ 0.10 $ 0.10 $ 0.40 $ 0.40
Total shares outstanding 43.2 42.4
 
GAAP ratios:
Cat loss and ALAE ratio 2.6 2.6 5.8 9.7
Non-cat loss and ALAE ratio 54.2   60.1   58.5   62.3  
Loss and LAE ratio 56.8 62.7 64.3 72.0
Expense ratio 37.8   38.0   36.3   35.7  
Combined ratio 94.6   100.7   100.6   107.7  
 

(A)Reconciliation of non-GAAP financial measure:

Net income (loss) from operations
Net (loss) income $ (24.5 ) $ (6.7 ) $ 12.8 $ (10.7 )
Net investment (loss) gain, net of tax (53.6 ) 13.8   (39.3 ) 42.3  
Net income (loss) from operations $ 29.1   $ (20.5 ) $ 52.1   $ (53.0 )
                                 
 
   

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 

Condensed Consolidated Balance Sheets

($ and shares in millions, except per share amounts)
(unaudited) December 31 December 31
2018 2017 1
ASSETS
Fixed maturities, available-for-sale, at fair value (amortized cost
$2,188.2 and $2,173.1, respectively)
$ 2,159.5 $ 2,192.8
Equity securities 315.0 365.3
Other invested assets 48.8 56.0
Other invested assets, at cost 5.6 5.6
Notes receivable from affiliate 70.0   70.0  
Total investments 2,598.9 2,689.7
 
Cash and cash equivalents 59.8 91.5
Accrued investment income and other assets 32.4 36.5
Deferred policy acquisition costs 101.9 110.3
Reinsurance recoverable on losses and loss expenses payable 5.5 3.1
Prepaid reinsurance premiums 6.6 6.4
Current federal income taxes 5.9 4.8
Net deferred federal income taxes 67.7 58.8
Property and equipment, net 7.1   7.3  
Total assets $ 2,885.8   $ 3,008.4  
 
LIABILITIES
Losses and loss expenses payable $ 1,146.8 $ 1,255.6
Unearned premiums 584.2 611.8
Notes payable (affiliates $15.2 and $15.2, respectively) 122.0 122.1
Pension and postretirement benefits 54.0 64.5
Due to affiliate 3.1 2.7
Other liabilities 119.1   76.7  
Total liabilities 2,029.2   2,133.4  
 
STOCKHOLDERS’ EQUITY
Common stock, without par value. Authorized 100.0 shares; 50.0 and
49.2 shares issued, respectively, at stated value of $2.50 per share
125.0 123.0
Treasury stock, 6.8 and 6.8 shares, respectively, at cost (117.0 ) (116.8 )
Additional paid-in capital 194.2 171.8
Accumulated other comprehensive income (58.3 ) 36.7
Retained earnings 712.7   660.3  
Total stockholders’ equity 856.6   875.0  
Total liabilities and stockholders’ equity $ 2,885.8   $ 3,008.4  
                 
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
Condensed Consolidated Statements of Income
($ in millions, except per share amounts)        
(unaudited) Three months ended December 31 Year ended December 31
2018 2017 1 2018

2017 1

Earned premiums $ 308.8 $ 318.9 $ 1,238.0 $ 1,276.1
Net investment income 22.7 22.3 84.9 78.8
Net investment (loss) gain (67.9 ) 21.3 (49.7 ) 65.1
Other income from affiliates 0.8   0.6   2.6   2.3  
Total revenues 264.4   363.1   1,275.8   1,422.3  
 
Losses and loss expenses 175.3 200.1 796.4 918.3
Acquisition and operating expenses 116.8 121.3 449.8 455.2
Interest expense 1.2 1.5 5.7 5.9
Other expenses 3.6   2.1   11.0   7.9  
Total expenses 296.9   325.0   1,262.9   1,387.3  
 
(Loss) income before federal income taxes (32.5 ) 38.1 12.9 35.0
Federal income tax (benefit) expense:
Current 0.4 (1.1 ) 0.4
Deferred (8.0 ) 44.4   1.2   45.3  
Federal income tax (benefit) expense (8.0 ) 44.8   0.1   45.7  
Net (loss) income $ (24.5 ) $ (6.7 ) $ 12.8   $ (10.7 )
(Loss) earnings per common share:
Basic $ (0.57 ) $ (0.16 ) $ 0.30   $ (0.25 )
Diluted $ (0.57 ) $ (0.16 ) $ 0.29   $ (0.25 )
Dividends paid per common share $ 0.10   $ 0.10   $ 0.40   $ 0.40  
                                 
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
Consolidated Statements of Comprehensive Income
($ in millions)        
(unaudited) Three months ended December 31 Year ended December 31
2018 2017 1 2018 2017 1
Net (loss) income $ (24.5 ) $ (6.7 ) $ 12.8 $ (10.7 )
Other comprehensive income (loss), net of tax:
Net unrealized holding gain (loss) on available-for-sale investments:
Unrealized holding gain (loss) 15.2 3.4 (46.4 ) 69.0
Reclassification adjustments for gains realized in net income (0.3 ) (21.3 ) (2.0 ) (65.1 )
Income tax (expense) benefit (3.2 ) 6.9   10.1   (0.7 )

Total net unrealized holding gain (loss) on available- for-sale
investments

11.7   (11.0 ) (38.3 ) 3.2  
Net unrecognized benefit plan obligations:
Net actuarial loss arising during the period (2.8 ) (1.0 ) (2.8 ) (1.0 )
Reclassification adjustments for amortization to net (loss) income:
Prior service credit (1.4 ) (1.4 ) (5.5 ) (5.5 )
Net actuarial loss 2.1 1.9 8.5 8.0
Income tax expense (benefit) 0.4   0.3   (0.1 ) (0.5 )
Total net unrecognized benefit plan obligations (1.7 ) (0.2 ) 0.1   1.0  
Other comprehensive income (loss) 10.0   (11.2 ) (38.2 ) 4.2  
Comprehensive loss $ (14.5 ) $ (17.9 ) $ (25.4 ) $ (6.5 )
                                 
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
Condensed Consolidated Statement of Stockholders’ Equity
($ and shares in millions)    
(unaudited) Year Ended Year Ended
December 31 December 31
2018 2017 1
Common shares:
Balance at beginning of year 49.2 48.6
Issuance of shares 0.8   0.6  
Balance at end of year 50.0   49.2  
 
Treasury shares:
Balance at beginning of year and year ended (6.8 ) (6.8 )
 
Common stock:
Balance at beginning of year $ 123.0 $ 121.6
Issuance of shares 2.0   1.4  
Balance at end of year 125.0   123.0  
 
Treasury stock:
Balance at beginning of year $ (116.8 ) $ (116.5 )
Shares acquired on stock award exercises (0.2 ) (0.3 )
Balance at end of year (117.0 ) (116.8 )
 
Additional paid-in capital:
Balance at beginning of year $ 171.8 $ 159.9
Issuance of common stock 13.3 8.8
Stock awards granted 9.1   3.1  
Balance at end of year 194.2   171.8  
 
Accumulated other comprehensive (loss) income:
Balance at beginning of year $ 36.7 $ 32.5

Cumulative effect of change in accounting for equity securities
and other invested assets and reclassification of stranded tax
effects as of January 1, 2018

(56.8 )  
Adjusted beginning balance at January 1, 2018 (20.1 )
Change in unrealized (loss) gain on available-for-sale investments,
net of tax
(38.3 ) 3.2
Change in unrecognized benefit plan obligations, net of tax 0.1   1.0  
Balance at end of year (58.3 ) 36.7  
 
Retained earnings:
Balance at beginning of year $ 660.3 $ 687.9

Cumulative effect of change in accounting for equity securities
and other invested assets and reclassification of stranded tax
effects as of January 1, 2018

56.8    
Adjusted beginning balance at January 1, 2018 717.1
Net income (loss) 12.8 (10.7 )
Dividends declared (affiliates $10.4 and $10.4, respectively) (17.2 ) (16.9 )
Balance at end of year 712.7   660.3  
 
Total stockholders’ equity at end of year $ 856.6   $ 875.1  
                 
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
Condensed Consolidated Statements of Cash Flow
($ millions)    
(unaudited)
Year ended December 31
2018 2017 1
Cash flows from operating activities:
Net income (loss) $ 12.8 $ (10.7 )
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization, net 8.9 12.5
Share-based compensation 11.1 4.2
Net investment loss (gain) 49.7 (65.1 )
Changes in operating assets and liabilities:
Deferred policy acquisition costs 8.4 11.5
Accrued investment income and other assets 3.9 3.5
Postretirement and pension benefits (10.5 ) (9.0 )
Other liabilities and due to/from affiliate, net 41.1 6.2
Reinsurance recoverable on losses and loss expenses payable and
prepaid reinsurance premiums
(2.6 ) 0.2
Losses and loss expenses payable (108.8 ) 74.0
Unearned premiums (27.6 ) (6.0 )
Deferred tax expense on share-based awards 0.3
Federal income taxes (0.1 ) 46.6  
Net cash (used in) provided by operating activities (13.4 ) 67.9  
Cash flows from investing activities:
Purchases of fixed maturities available-for-sale (349.6 ) (505.4 )
Purchases of equity securities available-for-sale (91.4 ) (185.9 )
Purchases of other invested assets (1.8 ) (1.4 )
Maturities, calls and principal reductions of fixed maturities
available-for-sale
229.8 233.6
Sales of fixed maturities available-for-sale 98.0 184.8
Sales of equity securities available-for-sale 97.8 252.7
Sales of other invested assets available-for-sale 1.2   1.1  
Net cash used in investing activities (16.0 ) (20.5 )
Cash flows from financing activities:
Proceeds from issuance of common stock 15.4 10.2
Payments to acquire treasury shares (0.2 ) (0.3 )
Payment of dividends (17.1 ) (16.9 )
Payment of credit facility issue costs (0.4 )  
Net cash used in financing activities (2.3 ) (7.0 )
Net (decrease) increase in cash and cash equivalents (31.7 ) 40.4
Cash and cash equivalents at beginning of period 91.5   51.1  
Cash and cash equivalents at end of period $ 59.8   $ 91.5  

Supplemental disclosures:

Federal income tax refund $   $ (1.6 )
Interest paid (affiliates $1.0 and $0.8, respectively) $ 5.7   $ 5.7  
                 
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
Net Investment Income
($ in millions)          
unaudited 12/31/2017 3/31/2018 6/30/2018 9/30/2018 12/31/2018
Quarter to Date
Gross investment income:
Fixed maturities $ 14.5 $ 15.0 $ 14.9 $ 15.1 $ 15.0
TIPS 1.6   1.1   2.0   1.3   0.9
Total fixed maturities 16.1   16.1   16.9   16.4   15.9
Equity securities 4.8 2.5 3.1 3.0 4.8
Other 1.7   1.7   1.8   1.7   2.0
Total gross investment income 22.6 20.3 21.8 21.1 22.7
Less: Investment expenses 0.3   0.4   0.3   0.3  
Net investment income $ 22.3   $ 19.9   $ 21.5   $ 20.8   $ 22.7
 
Year to Date
Gross investment income:
Fixed maturities $ 58.1 $ 15.0 $ 29.9 $ 45.0 $ 60.0
TIPS 5.1   1.1   3.1   4.4   5.3
Total fixed maturities 63.2   16.1   33.0   49.4   65.3
Equity securities 10.5 2.5 5.6 8.6 13.4
Other 6.3   1.7   3.5   5.2   7.2
Total gross investment income 80.0 20.3 42.1 63.2 85.9
Less: Investment expenses 1.2   0.4   0.7   1.0   1.0
Net investment income $ 78.8   $ 19.9   $ 41.4   $ 62.2   $ 84.9
 
12/31/2017 3/31/2018 6/30/2018 9/30/2018 12/31/2018
TIPS, fair value $ 155.8 $ 147.4 $ 156.5 $ 143.8 $ 142.3
TIPS, book value $ 146.5 $ 140.7 $ 150.6 $ 140.8 $ 141.2
                                       
 
       

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
Net Investment (Loss) Gain
($ in millions)
unaudited Three months ended December 31 Year ended December 31
2018 2017 2018 2017
Realized gains:
Fixed maturities $ 0.3 $ 0.1 $ 2.0 $ 2.8
Equity securities 0.6 21.5 6.6 66.7
Other invested assets   0.1     0.2  
Total realized gains 0.9 21.7 8.6 69.7
Realized losses on the sales of securities:
Equity securities:
Sales of equity securities (0.3 ) (0.3 ) (0.9 ) (1.1 )
OTTI       (3.5 )
Total realized losses (0.3 ) (0.3 ) (0.9 ) (4.6 )
Net realized gains on investments $ 0.6   $ 21.4   $ 7.7   $ 65.1  
 
Net unrealized loss on investments(1):
Equity securities (62.5 ) (49.7 )
Other invested assets (6.0 )   (7.7 )  
Net unrealized loss on investments (68.5 )   (57.4 )  
Net investment (loss) gain $ (67.9 ) $ 21.4   $ (49.7 ) $ 65.1  
(1) Unrealized holding losses recognized during the
period on securities held at the reporting date
 
 
 

STATE AUTO FINANCIAL CORPORATION AND SUBSIDIARIES

 
Income Taxes
($ in millions)        
unaudited
 

The following table sets forth the tax effects of temporary
differences that give
rise to significant portions of
deferred tax assets and deferred tax liabilities:

 
December 31 December 31
2018 2017 1
Deferred tax assets:
Unearned premiums not currently deductible $ 24.3 $ 25.5
Losses and loss expenses payable discounting 19.9 22.0
Postretirement and pension benefits 11.3 13.6
Net unrealized holding losses on investments 6.1
Realized loss on other-than-temporary impairment 1.9 2.1
Other liabilities 14.8 9.2
Net operating loss carryforward 15.1 34.3
Tax credit carryforwards 2.7 3.7
Other 1.7   2.5  
Total deferred tax assets 97.8 112.9
Deferred tax liabilities:
Deferral of policy acquisition costs 21.4 23.1
Net unrealized holding gains on investments 20.3
Other 8.7   10.7  
Total deferred tax liabilities 30.1   54.1  
Net deferred federal income taxes $ 67.7   $ 58.8  
 
The following table sets forth the components of federal income
taxes:
 
Three months ended December 31 Year ended December 31
2018 2017 1 2018 2017 1
(Loss) income before federal income taxes $ (32.5 ) $ 38.1 $ 12.9 $ 35.0
Federal income tax (benefit) expense:
Current 0.4 (1.1 ) 0.4
Deferred (A) (8.0 ) 44.4   1.2   45.3  
Total federal income tax (benefit) expense (8.0 ) 44.8   0.1   45.7  
Net (loss) income $ (24.5 ) $ (6.7 ) $ 12.8   $ (10.7 )
 

(A) Deferred federal income taxes for the three months
and year ended December 31, 2017 include $36.4 million of deferred

tax expense as a result of the revaluation of our net deferred tax
asset to the new corporate tax rate of 21.0% under the

legislation commonly known as the Tax Cuts and Jobs Act of 2017.

 
 

Contacts

Media contact: Kyle Anderson, [email protected],
614-917-5497
Investor contact: Natalie Schoolcraft, [email protected],
614-917-4341

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